IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D , KOLKATA (Before Shri N.V.Vasudevan, J.M. &Dr.A.L.Saini, A.M.) ITA No. 610 /Kol/2016 : A.Y : 2008-09 M/s. Chatterjee Management Vs Deputy Commissioner of Services Pvt. Ltd Tax, Circle-8, Kolkata PAN: ABCC4005D 9B, Wood Street, 3rd Floor, Kolkata-700 016 (APPELLANT) (RESPONDENT) Assessee by : Shri: A.K. Tibrewal, FCA, ld.AR Department by: Shri Rajat Kumar Kureel, JCIT, ld.DR Date of Hearing : 20-09-2016 Date of Pronouncement :- 19.10. 2016 ORDER Per Dr. A.L.Saini, A.M.: above cited captioned appeal filed by assessee pertaining to assessment year 2008-09, is directed against order passed by Commissioner of Income-tax (Appeals)-16, Kolkata in Appeal No. 288/CIT(A)-16/Kol/2014-15/C- 8(1), dated 03-02-2016, which in turn arises out of order passed by Assessing Officer u/s. 143(3) of Income-Tax Act, 1961 (in short, Act),dated 31-12- 2010. 2. facts of case are stated in brief. assessee company filed its e- return of income belated on 31-03-2009 showing total loss of Rs.1,85,90,613/-.The 1 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd case was selected for scrutiny under CASS by issuing of statutory notices. Later on, AO made assessment at Rs.20,57,710/- by observing as under:- Again, on examination of activity of assessee company it is seen from Profit & Loss A/c that assessee company received following incomes during year under consideration: A. Consultancy Income of Rs.16,85,400/- out of which sum of Rs. 15,11,804/- was not received but shown as debtor, from Group company Celcious Technologies Pvt Ltd, 9B, Wood street, Kolkata- 16. No other income was received by company except dividend of Rs.5,OO,OOO/- and Income Tax Refund of Rs.3,72,307/- which are Income from Other Sources. B. Against aforesaid activity, assessee claimed Operating & Administrative Expense of Rs.1,87,99,058/-, Interest Payment Rs.1,57,070/- fully related to Investment activity, Bad Debts W/off of Rs.6,66,667/-. No detail of same were filed nor explanation was furnished on nature of debt. C. On examination of break up of details of Salary, it is seen that Salary of Rs.29,38,623/- was paid to person specified U/s.40A{2b) out of total salary payment claimed at Rs.66,47,086/-. It is seen that this person is employed to look after activities of other group companies and projects carried out by different group associates as it is evident from nature of activity of accommodation carried out by assessee whereby assessee company made advance for Project of Rs.1,73,34,782/- to Group companies. No interest was charged by assessee company nor does project belong to assessee. So entire expense reimbursed and claimed by assessee company on account of Salary, Staff Welfare, Office Maintenance, Rent Communication, Electricity, Traveling reimbursed is related to group companies and no such expenses were actually incurred by assessee in course of its own business activity. Therefore, expenses claimed by assessee company incurred on behalf of related party's business are not allowable claim and hence, is disallowed and not considered. 2 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd D. On examination of detail of Consultancy charges paid, it seen that sum of Rs. 7,50,000/- was paid to K. Bhattacharya. On 31.03.2008 said consultancy payment was transferred in name of Group companies viz: BIP Developers, TCG Software Park for expenses amounting to Rs.6,71,OOO/-. Furthermore, it is observed that Total Consultancy payment claimed by assessee amounting to Rs. 24,18,707/- has not been incurred in connection with earning of income, but to merely accommodate its group associates. From details filed it is observed that: (i) consultancy paid to Kaushik Chakraborty for Public Relationship, (2) K. Bhattacharya Rs.79,OOO/- for Real Estate Consultant, (3) Anudeep Rs.5,71,500/- for Advisory, (4) Rajneesh Agarwal Rs.7,50,842/- for Tax Consultancy, (5) K: Sekhar RS.4,22,500/- for Company Law, (6) For Data Entry Rs.1,75,OOO/-. From aforementioned details of payments made it is clearly evident that various group companies have taken services of these professionals in their part but consultancy fee was claimed in assessee company. aforesaid consultancy payment is not related to assessee business and is hence, disallowed and not considered. E. assessee claimed Rent payment of Rs.34,15,618/- for Kolkata, Mumbai & Delhi Office out of which sum of Rs.2,16,OOO/- only was reimbursed from one Group company. No other payment was reimbursed but aforementioned office premises were enjoyed by various Group companies. Hence, in absence of any agreement etc. produced, same is disallowed and not considered. 5. In view of aforesaid facts it is very clear that assessee company is merely accommodating company for its group companies and does not, carry out any real business activity. Consultancy Charges received from group Companies amounting to Rs.16,85,400/- is Income from Other Sources and accordingly assessed. Interest on IT Refund of Rs.3, 72,307/- is also Income from Other Sources and accordingly assessed. Business expenditure and other claims in Profit & loss A/c are merely accommodation expenses on behalf of assessee's group associates and not related to assessee's earning of income. Hence, it is disallowed. 3 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd 3. Aggrieved from order of Assessing Officer, assessee filed appeal before Commissioner of Income-tax (Appeals)-16, Kolkata, who also confirmed action of Assessing Officer by observing following:- 5. AO has made addition on ground that as per para 5, consultancy income of Rs.16,85,000/- which is being shown by assessee. Rs.15,11,804/- is not received by assessee, but shown as debts from group company of assessee. No other income except dividend and Income Tax Refund. are received. In para 5(0) of assessment order, AO has tried to give break- up and nature of various expenses by assessee. As per break-up, it is clear that all payments have been made to group companies only. Hence, it is evident as per order of AO that consultancy income is received from group concerns and all expenses are also made to group concerns only. 6. Before me, written submission has been filed. .case has been made out expenses have been incurred, and they may be allowed u/s 37(1) of IT Act. 7. I have gone through contention of AR. I find no force in contention that these expenses are to be allowed u/s 37(1) of IT Act. AO has clearly made out case that no business activity is done during year. Consultancy income is received from group concern. It is also shown as debtor. Payments are made to group concerns only. Only artificial loss is created in this year. 8. Contention of A.R that income has increased in subsequent years is not acceptable here as Income Tax proceeding of every year is different proceeding. Time and again, it has been held by various courts that resjudicata is not to be applicable in Income Tax proceedings. 9. Hence, A.O. has clearly made out case that artificial loss has been created by assessee. 10. Hence, addition of A.O. is sustained and appeal of assessee is dismissed. 4 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd 4. Not being satisfied with order of Commissioner of Income-tax (Appeals) assessee is in further appeal before us and has taken following grounds of appeal:- 1) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in dismissing appeal of Appellant Company by way of passing order dated 3rd February, 2016 on arbitrary conclusions based on irrelevant considerations, suspicion, surmises and conjectures and therefore same is illegal, invalid, bad in law. 2) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in dismissing appeal without properly considering written submissions and various evidences furnished before him in support of various issues raised in Grounds of Appeal. 3) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in confirming disallowance made by Assessing Officer of entire business expenditure claimed in profit & loss a/c on alleged ground that same were mere accommodation expenses not related to earning of assesee's income. 4) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in confirming disallowance of Rs.6,66,667 made by Assessing Officer, on account of bad debts claimed by Assessee Company, in complete disregard of binding judgment of Hon'ble Apex Court rendered in T.R.F. Ltd. Vs. CIT [2010] 323 ITR 397 (SC). 5) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in upholding disallowance made by Assessing Officer on account of Depreciation of Rs.10,97,669 which was admissible as per provisions of Income Tax Act, 1961 read with Income Tax Rules, 1962. 6) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in upholding disallowance made by Assessing Officer of deduction of Rs.4,90,000 claimed by Appellant Assessee company under section 80G of Income Tax Act, 1961. 5 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd 7) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in confirming assessment of income of rs.16,85,400 under head of Income from other sources against head business income as claimed by Appellant Assessee Company. 8) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata had erred in refusing to allow benefit of carry forward of business losses of Rs.1,85,90,613 on arbitrary grounds being total contrary to facts and evidences on record. 9) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata had erred in refusing to allow set of brought forward unabsorbed depreciation against income assessable to tax for Assessment Year 2008-09. 10) That Learned Commissioner of Income Tax (Appeals)-16, Kolkata had erred in refusing to allow credit of tax deducted at source of Rs.1,69,950 and Advance Tax of Rs.2,00,000 being prepaid taxes claimed by Appellant Assessee company. 5. First three grounds of appeal relate to disallowance made by AO on account of accommodation entries and observation of AO that assessee does not have any business activity. Briefly stated, that assessee is private limited company engaged in investment activities. said first three grounds of appeal raised by assessee are likely to be technical in nature therefore we are going to deal with them first. main grievance of assessee is that observation of Assessing Officer that assessee company engages in accommodation entries and does not have any business activities is wrong and without any base. Assessing Officer made additions and disallowed assessee s expenses based on findings that assessee company does false entries in its books ( accommodation entries) and does not have business activities. 6 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd 6. ld.AR for assessee has submitted that AO was wrong in treating assessee company being engaged in transaction of accommodation entries. AO has considered that assessee company was not doing any business activity during previous years. It was engaged in accommodation entry/transaction during year, which was treated by AO as bogus transaction. stand of AO was that assessee company was not doing any business activity and motive to earn profit is absent, these allegations made by AO are without any basis. In fact, assessee company has been doing its business since last several years and filed its return regularly. ld.AR for assessee further submitted that filing of returns of income proved that assessee company in question was existence and it is not new company. In support of contentions, ld.AR of assessee has relied on following judgments:- . ITA No.2940/Mum/2011 AY 2007-08, order dated 27-07-2016 in case of Pinebridge Investments Capital (I) P.Ltd (formerly known as AIG Capital (I) P.Ltd Vs. ITO, Range 6(1)(4), Mumbai, wherein on identical issue, disallowance being consultancy charges paid to legal advisor was partly allowed by ITAT. 7. ld.DR for revenue primarily has reiterated stand as taken by Commissioner of Income-tax (Appeals), which we have already noted in our earlier para of this order, and is not being repeated for sake of brevity. 8. Having heard rival submissions and perused material available on record, we are of view that there is merit in submissions of assessee. As propositions canvassed by ld.AR for assessee are supported by Judgment of ITAT (supra) and facts narrated above, Ld.AR has adduced proof by showing I.T return for previous year that so-called assessee 7 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd company was in existence. assessee also produced before us object clause of memorandum of Association, date of incorporation, comparative chart of revenue earned by company and lease agreement where registered office of company is situated. All these evidences show that company was in existence. Therefore, we allow ground No. 1, 2 and 3 raised by assessee. 9. In result, ground Nos. 1,2 and 3 are allowed. 10. ld. CIT(A) has disallowed/confirmed following expenses of assessee based on presumption that assessee engaged in accommodation entries and no any business activities are carried on by him. details of disallowances confirmed by ld.CIT(A) are as under:- a. disallowance of Rs.6,66,667/- made on a/c of bad debts b. disallowance of Rs.10,97,669/- made on account of depreciation c. disallowance of Rs.4,90,000/- made u/s. 80G of Act d. AO assessed income of Rs. 16,85,400/- under head income from other sources against head of business income , as claimed by assessee e. disallowance of Rs.1,85,90,613/- being carry forward of business loss, and f. disallowances of Rs.1,69,950/- and Rs.2,00,000/- made on a/c of TDS and Advance Tax ld.AO has disallowed/made above cited expenses,which are narrated bythe assessee in form of Grounds of Appeal. As we explained in earlier para that AO has disallowed these expenses observing that no business activity was carried on by assessee during year under consideration. ld. CIT(A) has confirmed this action of AO. 8 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd 11. ld.AR for assessee has submitted that assessee has been carrying on its business during previous and subsequent years. ld.AR of assessee has shown before us by filing Income & Expenditure by way of P & L account. He has also shown to us main object of assessee company by filing copy of Memorandum of Association, which shows that assessee company was engaged in activity of business as per its object. ld.AR for assessee explained entries made in P & L account, where it is noticed that assessee company in question received consultancy fees during previous year ending on 31-03-2007 of Rs.47,91,526/-. assessee has received consultancy fees of Rs.16,85,400/- as on 31-03-2008. consultancy fees are subject to deduction of tax at source. assessee company has incorporated on 11-11-1994. assessee has shown comparative chart of income being consultancy charges receipt during previous years ending in 2008, 2013, 2014 and 2015. ld.AR also demonstrated before us lease agreement of building where assessee company is situated/registered office of company is situated. He has also explained that assessee company has been doing its business continuously since its inception/incorporation. It is not necessary for businessman that he should earn always profit. During year under consideration, assessee has shown loss by way of heavy incurred expenditure. Looking to facts and nature of heavy expenditure which occurred heavy loss, AO presumed that assessee company has not been doing any business activity. It engaged in providing accommodation entires. AO in his order finally mentioned that assessee company in question was engaged in business of providing of accommodation entry. In this regard, ld.AR of assessee has submitted that AO did not bring any cogent material/evidence on record to show that assessee company was engaged in business of providing accommodation entry and did not do any business. AO 9 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd without examining details of income and expenditure as filed before him came to conclusion that assessee company was not doing any business during previous year. Therefore, AO was of view that entire expenditure on various heads as claimed by assessee before him was bogus and ingenuine. 12. ld.DR for revenue has stated that no doubt assessee company has its own memorandum of association. object and function of assessee company was mentioned in said memorandum of association. But assessee company was not doing any business during previous years and year under consideration. Merely because object mentioned in memorandum of association about business activity it is not mean that assessee company has done its business activity during previous years. assessee has not discharged its primary onus being business carried on by it. AO has not noticed any business activity of assessee company. 13. Having heard rival submissions and perused material available on record, we are of view that there is merit in submissions of assessee. As propositions canvassed by ld.AR for assessee are supported by facts narrated above, he adduced proof by showing I.T return for previous year that so-called assessee company was in existence. We do not find any force in submissions of ld.DR. We find that memorandum of association of company is mandate. We find that AO made said disallowances on his presumption only on ground that assessee company was not engaged in any activity. assessee has shown before us object of company by way of its memorandum of association. assessee has also demonstrated before us previous years figures of income and expenditure by way of its P & L account. 10 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd assessee company since its inception/incorporation i.e on 11-11-1994 has been doing its business. Before us assessee has also filed comparative chart of revenue receipts during previous and subsequent years. ld.AR of assessee has also shown before us copy of lease agreement of building, where company s registered office is situated. On verification of documents/evidences as submitted by assessee before us, we are of view that there is business activity. We find that matter in hand requires further examination by AO. Therefore, it is appropriate to remit matter/case to his file to examine details of expenditure and receipts afresh as submitted by assessee before us. Therefore, we set aside case to file of AO to make assessment afresh after considering details of bills, vouchers, evidences, agreements etc. as submitted by assessee. We have confirmed that assessee has been doing business activities during assessment year under consideration and AO again need not to examine it. We direct AO to make assessment afresh based on evidences/documents as available/ filed/submitted by assessee. 14. In result, appeal filed by assessee for AY 2008-09 is allowed for statistical purposes. Order Pronounced in Open Court on 19.10-2016 Sd/- Sd/- (N.V.Vasudevan) (Dr. A.L.Saini) Judicial Member Accountant Member Dated: 19/10/2016 *PRADIP (Sr.PS) 11 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd Copy of order forwarded to: 1. Revenue 2 Assessee 3. CIT-I, 4. CIT(A)-I, 5. DR, Kolkata Benches, Kolkata True Copy, By order, Asst. Registrar, ITAT, Kolkata Benches 12 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd M/s. Chatterjee Management Services Pvt. Ltd v. Deputy Commissioner of Tax, Circle-8, Kolkata