FARIYAS CONSTRUCTION CO. P. LTD, MUMBAI v. ITO 5(1)(4), MUMBAI

ITA 5338/MUM/2009 | 2005-2006
Pronouncement Date: 21-05-2010 | Result: Allowed

Appeal Details

RSA Number 533819914 RSA 2009
Assessee PAN AAACF0890Q
Bench Mumbai
Appeal Number ITA 5338/MUM/2009
Duration Of Justice 8 month(s) 3 day(s)
Appellant FARIYAS CONSTRUCTION CO. P. LTD, MUMBAI
Respondent ITO 5(1)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 21-05-2010
Assessment Year 2005-2006
Appeal Filed On 17-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI R V EASWAR SENIOR VICE PRESIDENT AND SHRI A L GEHLOT ACCOUNTANT MEMBER I T A NO: 5338/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S FARIYAS CONSTRUCTION CO. PVT. LTD. MUMBAI AP PELLANT (PAN: AAACF0890Q) VS INCOME TAX OFFICER 5(1)(4) MUMBAI RESPONDENT APPELLANT BY: SHRI M M GOLVALA / SHRI S B CHETIWAL RESPONDENT BY: SHRI MOHMD USMAN O R D E R R V EASWAR SENIOR VICE PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AND IT RELATES T O THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TRADING AND INVESTMENT IN SHARES AND SECURITIES. EARLIER IT WAS ENGAGED IN CONSTRUCTION ACTIVITY AS ITS NAME SUGGESTS BUT AFTER THE DEATH OF ITS MANAGING DIRECTOR THERE WAS NO BUSINESS IN CONSTRUCTION. 2. THERE ARE ONLY TWO CONTROVERSIES IN THIS APPEAL. THE FIRST CONTROVERSY COVERED BY GROUND NOS: 1 TO 4 RELATES TO THE ENHANCEMENT OF THE TOTAL INCOME MADE BY THE CIT(A). THE SECOND CONTROVERSY INDICATED BY GROUND NO: 5 IS WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE IS TO BE ASSESSED AS BUSINES S INCOME AS CLAIMED BY THE ASSESSEE OR ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AS ASSESSED BY THE ASSESSING OFFICER . 2 3. WE MAY TAKE UP THE GROUND NOS: 1 TO 4 FIRST FOR DISPOSAL. WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER MA DE ONLY TWO DISALLOWANCES (1) DISALLOWANCE UNDER SECTION 14A OF RS.75 000/- AND (2) DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS.6 63 084/-. AS AGAINST THE RETURNED LOSS OF RS.12 88 155/- THE AS SESSED LOSS FROM BUSINESS WAS COMPUTED AT RS.5 50 071/- AND AFTER AD JUSTING THE PROPERTY INCOME AND CAPITAL GAINS THE LOSS ULTIMAT ELY ASSESSED CAME TO RS.2 31 150/-. 4. THE ASSESSEE FILED AN APPEAL TO THE CIT(A) AND C ONTESTED THE DISALLOWANCE UNDER SECTION 14A AND THE DISALLOWANCE OF THE FOREIGN TRAVEL EXPENSES. IT APPEARS THAT THE ASSESSEE INIT IALLY WANTED TO WITHDRAW THE APPEAL BUT PERMISSION WAS REFUSED BY T HE CIT(A) SINCE HE WAS OF THE VIEW THAT THE INCOME SHOULD BE ENHANC ED. ACCORDINGLY HE WROTE A LETTER ON 28.04.2009 TO THE ASSESSEE PRO POSING TO ENHANCE THE DISALLOWANCE OF THE EXPENSES IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES AND CALLED UPON THE ASSESSEE TO FI LE ITS OBJECTIONS TO THE SAME. THE ASSESSEE FILED DETAILED OBJECTIONS B Y LETTER DATED 11.06.2009. THE CIT(A) WAS NOT CONVINCED BY THE AS SESSEES OBJECTIONS AND IN HIS LETTER DATED 22.06.2009 POINT ED OUT THAT THE ASSESSEES CLAIM THAT IT WAS CARRYING ON BUSINESS I N THE PURCHASE AND SALE OF SHARES WAS NOT ACCEPTABLE BECAUSE ALL THE T RANSACTIONS WERE CARRIED OUT THROUGH KOTAK SECURITIES LIMITED UNDER THE PORTFOLIO MANAGEMENT SYSTEM (PMS). HE ALSO POINTED OUT THAT THE INTEREST INCOME OF RS.18 47 579/- SHOWN IN THE ACCOUNTS WAS RECEIVED FROM RELATED COMPANIES AND CANNOT BE CONSIDERED AS BUSIN ESS INCOME AND 3 WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. THE C IT(A) ACCORDINGLY HELD THAT ONLY THE EXPENSES INCURRED F OR EARNING THE INTEREST INCOME CAN BE ALLOWED AS DEDUCTION. HAVIN G SAID SO HE OBSERVED FROM THE SCRUTINY OF THE DETAILS OF EXPENS ES DEBITED TO THE PROFIT AND LOSS ACCOUNT THAT THE EXPENSES CONSISTED ONLY OF DEPRECIATION AND ADMINISTRATIVE EXPENSES WHICH ARE NOT REQUIRED TO BE INCURRED TO EARN THE INTEREST INCOME. HE NOTED THA T THE TOTAL EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT CAME TO RS.4 0 43 568/-. HE REQUIRED THE ASSESSEE TO EXPLAIN WHY THE INCOME CAN NOT BE ENHANCED BY THE AFORESAID AMOUNT. HE ALSO PROPOSED TO ENHAN CE THE INCOME BY DISALLOWING SALARY OF RS.4 85 500/- REIMBURSED FOR THE SERVICES OF THE STAFF OF ANOTHER COMPANY BY NAME M/S BOMANJI JAMASJ I MISTRY PVT. LTD. THE ASSESSEE FILED A VERY DETAILED OBJECTION TO THE PROPOSAL OF THE CIT(A) TO ENHANCE THE INCOME BY LETTER DATED 15.07 .2009. AFTER CONSIDERING THE ASSESSEES OBJECTIONS AND THE OTHER MATERIAL THE CIT(A) TOOK THE VIEW THAT THE ASSESSEE CANNOT BE SA ID TO BE CARRYING ON ANY BUSINESS AND THAT THE INTEREST INCOME CANNOT ALSO BE CONSIDERED AS BUSINESS INCOME. HE THEREAFTER EXAMI NED THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT ITEM BY ITEM IN AN ATTEMPT TO FIND OUT WHETHER THEY ARE ALLOWABLE UNDER SECTION 5 7(III) OF THE ACT AND IF SO TO WHAT EXTENT? HE NOTICED THAT SINCE THE AS SESSING OFFICER HIMSELF HAS DISALLOWED EXPENSES TO THE EXTENT OF RS .8 62 084/- ONLY THE BALANCE EXPENSES HAVE TO BE EXAMINED. HE EXAMI NED THE EXPENSES ITEM BY ITEM AND ULTIMATELY CONCLUDED THAT THE FOLLOWING EXPENSES ARE NOT ALLOWABLE: - 4 (A) SALARY OF RS.7 36 165/- AND PROVIDENT FUND CONT RIBUTION OF RS.89 585/- (B) REMUNERATION OF RS.4 44 000/- TO DIRECTORS (C) LEGAL AND MANAGEMENT EXPENSES OF RS.2 92 913/- (D) POSTAGE AND TELEPHONE EXPENSES OF RS.2 48 513/- (E) MOTOR CAR EXPENSES OF RS.1 18 512/- (F) INSURANCE EXPENSES OF RS.316/- (G) MISCELLANEOUS EXPENSES OF RS.1 96 419/- THE CIT(A) HOWEVER CONSIDERED THAT THE MANAGEMENT FEES AND NSDL CHARGES OF RS.62 924/- WERE ALLOWABLE AS A DED UCTION. DEPRECIATION OF RS.1 96 649/- ON BUILDING AND OFFIC E EQUIPMENT WAS ALSO ALLOWED. IN ADDITION 10% OF THE INTEREST INC OME WAS ALLOWED ON ESTIMATE AS EXPENSES INCURRED TO EARN THE SAME. TH E TAXABLE INCOME WAS ACCORDINGLY COMPUTED AS FOLLOWS: - (IN RS.) GROSS PROFIT FROM THE PURCHASE AND SALE OF SHARES (-) 83 597 ADD: INTEREST INCOME 20 82 505 LESS: MANAGEMENT FEE AND NSDL CHARGES 62 924 LESS: OTHER EXPENSES ESTIMATED ABOVE 2 08 220 LESS: DEPRECIATION 1 96 649 INCOME FROM BUSINESS AND OTHER SOURCES 15 31 115 INCOME FROM HOUSE PROPERTY AS DECLARED 1 80 440 SHORT TERM CAPITAL GAIN AS DECLARED 1 38 484 TOTAL TAXABLE INCOME 18 50 039 THE RESULT WAS THAT AS AGAINST THE LOSS OF RS.2 31 137/- ASSESSED BY THE ASSESSING OFFICER THE TAXABLE INCOME WAS ASSES SED BY THE CIT(A) AT RS.18 50 039/- RESULTING IN ENHANCEMENT OF THE I NCOME BY RS.20 81 186/-. 5. IT IS AGAINST THE AFORESAID ENHANCEMENT THAT THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL. SO FAR AS GROU ND NO: 5 IS CONCERNED WHICH IS AGAINST THE ASSESSMENT OF THE I NTEREST INCOME AS INCOME FROM OTHER SOURCES THE CONTENTION OF THE AS SESSEE BEFORE US IS THAT THE INCOME WAS ALL ALONG ASSESSED AS BUSINESS INCOME AND THE 5 FACTS FOR THE YEAR UNDER APPEAL REMAINING THE SAME THE CIT(A) OUGHT TO HAVE ADOPTED A CONSISTENT APPROACH TO ASSESS THE INTEREST AS BUSINESS INCOME. RELIANCE IS PLACED ON THE JUDGMEN T OF THE SUPREME COURT IN CIT VS. J K CHARITABLE TRUST (2009) 308 IT R 161 (SC) WHERE THE IMPORTANCE OF THE RULE OF CONSISTENCY WAS STRES SED. AS REGARDS GROUND NOS: 1 TO 4 WHICH ARE DIRECTED AGAINST THE RESTRICTION OF THE ALLOWABLE EXPENSES TO RS.25 25 016/- AS AGAINST RS. 40 43 556/- CLAIMED BY THE ASSESSEE THE CONTENTION BEFORE US O N BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE WAS CARRYING ON BUSIN ESS IN SHARES AND THE FACT THAT IT WAS BEING CARRIED ON THROUGH KOTAK SECURITIES LIMITED UNDER THE PORTFOLIO MANAGEMENT SYSTEM DID NOT MEAN THAT THE ASSESSEE WAS NOT CARRYING ON THE BUSINESS BY ITSELF . IT IS POINTED OUT THAT THOUGH THE CONSTRUCTION ACTIVITY HAD BEEN STOP PED DUE TO THE DEATH OF THE MANAGING DIRECTOR WHO WAS ACTIVELY LOOKING A FTER THAT BUSINESS THE ASSESSEE WAS ENGAGED IN THE BUSINESS IN SHARES WHICH ALSO REQUIRE ESTABLISHMENT ADMINISTRATION AND OTHER EXP ENSES TO BE INCURRED AND THESE EXPENSES ARE ALLOWABLE WHILE COM PUTING THE BUSINESS INCOME. IT IS CONTENDED THAT A COMPANY CA N ACT ONLY THROUGH HUMAN AGENCY AND DECISIONS ARE REQUIRED TO BE TAKEN AT EVERY STAGE IN THE COURSE OF CARRYING ON THE BUSINESS AND SUCH DEC ISIONS CAN BE TAKEN BY HUMAN AGENCY WHICH JUSTIFIES THE CLAIM OF EXPENSES. IN SUPPORT OF THE SUBMISSION THAT EXPENSES WHICH ARE R EQUIRED TO BE COMPULSORILY INCURRED IN ORDER TO MAINTAIN THE CORP ORATE SHELL AND IDENTITY ARE ALLOWABLE AS A DEDUCTION WHILE COMPUTI NG THE INCOME OUR ATTENTION WAS DRAWN TO THE JUDGMENT OF THE ALLAHABA D HIGH COURT IN 6 CIT VS. RAMPUR TIMBER AND TURNERY CO. LTD. (1981) 1 29 ITR 58 (ALL) AND THE JUDGMENT OF THE CALCUTTA HIGH COURT IN CIT VS. NEW SAVAN SUGAR AND GUR REFINING CO. LTD. (1990) 185 ITR 564 (CAL). IT WAS THUS CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN ENHA NCING THE INCOME BY DISALLOWING THE EXPENSES. 6. ON THE OTHER HAND THE LEARNED SENIOR DEPARTMENT AL REPRESENTATIVE REFERRED TO THE BALANCE SHEET OF THE ASSESSEE AND POINTED OUT THAT THE MAJOR PART OF THE FUNDS OF THE COMPANY WERE USED ONLY FOR GIVING LOANS. HE POINTED OUT THAT OUT OF THE TOTAL FUNDS OF RS.14.76 CRORES ONLY RS.53.13 CRORES CONSTITUTING LESS THAN 4% OF THE TOTAL FUNDS WAS INVESTED IN STOCK-IN-TRADE. HE FUR THER POINTED OUT THAT HARDLY 2% OF THE INVESTMENT WAS INVESTED IN TRADING ACTIVITY AS SEEN FROM SCHEDULE 7. HE POINTED OUT THAT OUT OF THE TO TAL INVESTMENT AND OTHER INCOME OF RS.54.22 LAKHS EXEMPT INCOME AMOUN TED TO RS.25.91 LAKHS INCOME BY WAY OF INTEREST AMOUNTED TO RS.20. 81 LAKHS PROPERTY INCOME OF RS.3.00 LAKHS; WHICH LEFT ONLY A SMALL BA LANCE OF ABOUT 4.45 LAKHS AS INCOME FROM TRADING ACTIVITY AND THESE FIG URES POINT OUT THAT THE BUSINESS ACTIVITY OF THE ASSESSEE WAS NEGLIGIBL E COMPARED TO THE TOTAL FUNDS EMPLOYED. HE DREW OUR ATTENTION TO THE PROFIT AND LOSS ACCOUNT AT PAGE 5 OF THE PAPER BOOK AND POINTED OUT THAT THE GROSS INCOME FROM THE SALE OF STOCK-IN-TRADE CAME TO ONLY ABOUT RS.80 000/- IF THE COST OF THE SALE AMOUNTING TO RS.48.41 LAKHS IS DEDUCTED FROM THE SALE OF RS.49.25 LAKHS AND TO EARN ONLY RS.80 000/- FROM THE SHARE BUSINESS THE ASSESSEE HAS INCURRED A HUGE EXPENDITU RE OF ABOUT RS.30.00 LAKHS WHICH WAS ABSURD. THE LEARNED SENIO R DR THEREFORE 7 SUBMITTED THAT ONLY THAT MUCH OF EXPENDITURE WHICH IS ABSOLUTELY NECESSARY TO EARN THE BUSINESS INCOME OF RS.80 000/ - CAN AT BEST BE ALLOWED AND IN THESE CIRCUMSTANCES THE ENHANCEMENT MADE BY THE CIT(A) WAS FULLY JUSTIFIED. THE LEARNED SENIOR DR ALSO CONTENDED THAT THE INTEREST INCOME CANNOT BE CONSIDERED AS BUSINES S INCOME AND IT WAS RIGHTLY CONSIDERED AS INCOME FROM OTHER SOURCES AGAINST WHICH REASONABLE EXPENSES TO EARN THE INCOME WAS ALLOWED BY THE CIT(A) UNDER SECTION 57(III) OF THE ACT. HE CONTENDED THA T NO FURTHER RELIEF WAS DUE TO THE ASSESSEE. 7. IN HIS REPLY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IT IS WELL SETTLED THAT THE EXTENT O F INCOME OR THE INVESTMENT IN THE PARTICULAR ACTIVITY CAN NEVER BE THE CRITERION FOR ALLOWING THE EXPENDITURE AND IN THIS BEHALF DREW OU R ATTENTION TO THE OBSERVATIONS AT PAGE 896 AND 899 OF THE NINTH EDITI ON OF THE LAW AND PRACTICE OF INCOME TAX BY KANGA AND PALKHIVALA. HI S CONTENTION WAS ON THE BASIS OF THE AUTHORITIES CITED BY THE LEARNE D AUTHORS IN SUPPORT OF THE OBSERVATIONS THAT EXPENSES CANNOT BE ALLOWED O R DISALLOWED ON THE BASIS OF THE SUBJECTIVE STANDARD OF REASONABLEN ESS ADOPTED BY THE INCOME TAX AUTHORITIES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS PUT FORTH BEFORE US BY BOTH THE SIDES AS ALSO THE RELEVANT F ACTS AND THE CONTENTS OF THE PAPER BOOK FILED BY THE ASSESSEE. SO FAR AS THE INTEREST INCOME IS CONCERNED IT WAS NOT DISPUTED ON BEHALF OF THE DEPARTMENT BEFORE US THAT IT WAS ALL ALONG ASSESSED AS BUSINESS INCOM E. IN THE ABSENCE OF ANY NEW FACTS OR CHANGE IN THE LEGAL POSITION FO R THE YEAR UNDER 8 CONSIDERATION THE CIT(A) WAS NOT JUSTIFIED IN DISC ARDING THE RULE OF CONSISTENCY. IN THIS CONNECTION WE MAY ALSO NOTICE THAT THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY P ERMITS THE ASSESSEE TO ADVANCE AND LEND MONEY WITH OR WITHOUT SECURITY TO SUCH PERSONS AND ON SUCH TERMS AND CONDITIONS AS THE BOA RD OF DIRECTORS MAY THINK FIT. APPARENTLY IT IS ONLY PURSUANT TO T HIS CLAUSE IN THE MEMORANDUM OF THE ASSOCIATION THAT THE ASSESSEE HAD ADVANCED THE MONEY TO THE TWO COMPANIES FOR INTEREST. THE INCOM E TAX AUTHORITIES HAVING EARLIER TREATED THE INTEREST AS THE BUSINESS INCOME OF THE ASSESSEE THERE IS NO JUSTIFICATION FOR CHANGING TH E HEAD OF INCOME WITHOUT ANY CHANGE IN THE FACTS OR THE LEGAL POSITI ON. RESPECTFULLY APPLYING THE RULE OF CONSISTENCY ADUMBRATED IN THE JUDGMENT OF THE SUPREME COURT CITED ABOVE WE ACCEPT THE ASSESSEES SUBMISSION THAT THE INTEREST INCOME SHOULD BE ASSESSED UNDER THE HE AD BUSINESS. 9. AS REGARDS THE ALLOWANCE OF EXPENSES AND ENHANCE MENT OF THE TOTAL INCOME BY DISALLOWING A MAJOR PART OF THE EXP ENSES CLAIMED BY THE ASSESSEE THE BASIC QUESTION TO BE FIRST DECIDE D IS WHETHER THE ASSESSEE CAN BE SAID TO HAVE CARRIED ON BUSINESS IN SHARES. THE CIT(A) WAS NOT INCLINED TO ACCEPT THE CLAIM THAT TH E ASSESSEE WAS CARRYING ON SUCH A BUSINESS. THE PRINCIPAL REASON FOR HIS VIEW WAS THAT THE ENTIRE SHARE BUSINESS WAS CARRIED OUT BY K OTAK SECURITIES LIMITED UNDER THE PORTFOLIO MANAGEMENT SYSTEM FOR WHICH KOTAK SECURITIES LIMITED HAD CHARGED MANAGEMENT SERVICES OF RS.62 924/-. THERE ARE VARIOUS WAYS BY WHICH AN ASSESSEE CAN CAR RY ON BUSINESS. HE CAN CARRY ON BUSINESS ALL BY HIMSELF OR HE CAN E NTRUST THE BUSINESS 9 ACTIVITIES TO EMPLOYEES OR HE MAY EVEN ENGAGE SERVI CES OF PROFESSIONALS WHO ARE EXPERTS IN THE BUSINESS. A P ERSON WHO DEALS IN SHARES IN A LARGE SCALE MAY FOR REASONS OF LACK OF TIME OR EXPERTISE ENGAGE THE SERVICES OF A BROKER TO PUT THROUGH THE PURCHASES AND SALES AND ALSO LOOK TO HIM FOR ADVICE REGARDING THE MARKET CONDITIONS. HE MAY BE PAYING BROKERAGE TO THE BROKER WHO PUTS T HROUGH ALL THE TRANSACTIONS OF THE PERSON IN THE STOCK EXCHANGE AN D MERELY REMITS THE MONIES TO THAT PERSON. SUCH A PERSON CAN BE SA ID TO BE CARRYING ON BUSINESS IN SHARES AND MERELY BECAUSE HE HAS ENG AGED SERVICES OF A BROKER TO ASSIST HIM IT CANNOT BE SAID THAT HE I S NOT CARRYING ON THE BUSINESS IN SHARES BUT IT IS THE BROKER WHO IS DOIN G SO. THE BROKERS BUSINESS IS TO ACT AS BROKER FOR THE PURCHASE AND S ALE OF THE PERSON WHO HOLDS THE SHARES AND WHO HAS MADE THE FINANCIAL INVESTMENT IN THEM. BUSINESS INVOLVES NOT ONLY INVESTMENT OF CAP ITAL BUT ALSO TAKING OF RISKS. IN THE PRESENT CASE IT IS THE ASSESSEE C OMPANY WHICH HAS INVESTED CAPITAL IN THE PURCHASE AND SALE OF SHARES AND HAS UNDERTAKEN THE RISK OF DOING BUSINESS IN THEM. THE PROFIT OR LOSS ON THE SALE OF SHARES WOULD ENURE ONLY TO THE ASSESSEE AND NOT TO KOTAK SECURITIES LIMITED. THEY ARE ONLY PORTFOLIO MANAGE RS AND WOULD ASSIST THE ASSESSEE IN TAKING DECISIONS REGARDING THE SHAR E BUSINESS FOR WHICH SERVICE CHARGES WOULD BE PAYABLE TO THEM. TH E PROFIT OR LOSS IN THE SHARE TRANSACTIONS DO NOT ENURE TO KOTAK SECURI TIES LIMITED. NOR HAVE THEY INVESTED ANY CAPITAL IN THE ASSESSEES SH ARE BUSINESS. WE ARE THEREFORE UNABLE TO SUBSCRIBE TO THE VIEW ADOPT ED BY THE CIT(A) 10 THAT THE ASSESSEE MERELY BECAUSE IT HAS ENGAGED A PORTFOLIO MANAGER CANNOT BE SAID TO BE CARRYING ON BUSINESS IN SHARES. 10. THE QUESTION NOW IS WHETHER AS CONTENDED BY TH E LEARNED SENIOR DR THE FACT THAT NOT MUCH BUSINESS INCOME H AS BEEN GENERATED BY THE INVESTMENT MADE BY THE ASSESSEE WO ULD JUSTIFY DISALLOWANCE OF ANY PART OF THE EXPENDITURE. ONCE IT IS FOUND THAT THE ASSESSEE IS CARRYING ON A BUSINESS THE QUANTUM OR EXTENT OF INCOME IS NOT A CRITERION TO JUDGE AS TO HOW MUCH EXPENDITURE IS DEDUCTIBLE. INCOME MAY NOT RESULT AT ALL AND EVEN THEN EXPENDIT URE MAY HAVE TO BE INCURRED AND THE SAME WOULD BE ALLOWABLE. THERE AR E A STRING OF AUTHORITIES IN SUPPORT OF THIS PROPOSITION STARTING FROM THE DECISION OF THE HOUSE OF LORDS IN HUGHES (INSPECTOR OF TAXES) V S. BANK OF NEW ZEALAND (1938) 6 ITR 636 (HL) IN WHICH IT WAS HELD THAT EXPENDITURE IN COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER DEDUCTION IF WHOLLY AND EXCLUSIVELY MADE FOR THE P URPOSES OF THE TRADE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON TH E CREDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE . THIS VIEW WAS ADOPTED IN INDIA BY THE SUPREME COURT IN EASTERN INVESTMENTS LTD. VS. CIT ( 1951) 20 ITR 1 (SC) WHERE IT WAS HELD THAT IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR THAT IN FACT AN Y PROFIT WAS EARNED . THE LATEST IN THIS LINE OF CASES IS THAT OF THE SUP REME COURT IN CIT VS. RAJENDRA PRASAD MOODY (1978) 115 ITR 519 (SC). SO LONG AS THERE IS BUSINESS ACTIVITY IN THE RELEVANT ACCOUNTING YEAR THE FACT THAT THE BUSINESS DID NOT RESULT IN PROFITS OR THAT IT DID N OT RESULT IN THE EXPECTED PROFITS IS NOT REASON ENOUGH TO DISALLOW ANY PART O F THE EXPENDITURE SO 11 LONG AS THE EXPENDITURE IS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS. IN THE PRESENT CASE IT SHOUL D ALSO BE REMEMBERED THAT THE ASSESSEE WAS ENGAGED IN CONSTRU CTION ACTIVITY WHICH WAS LOOKED AFTER BY ITS MANAGING DIRECTOR WH ICH ACTIVITY WAS DISCONTINUED AFTER HE PASSED AWAY. THE ESTABLISHME NT AND THE STAFF WHO WERE EARLIER LOOKING AFTER THE CONSTRUCTION ACT IVITY ARE NOW LOOKING AFTER THE SHARE BUSINESS AND SO LONG AS THE DEPARTM ENT IS UNABLE TO SHOW THAT THE EXPENSES ARE UNREASONABLE OR EXCESSIV E WITHIN THE MEANING OF SECTION 40A(2) AND SO LONG AS THEY ARE UNABLE TO SHOW THAT THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF THE BUSINESS THE ONLY OPTION AVAILABLE IS TO DEDUCT THEM FROM THE PROFITS WHATEVER THEY MAY BE OF THE BUSI NESS. IT IS ALSO NOT THE CASE OF THE CIT(A) THAT THE EXPENDITURE INCURRE D BY THE ASSESSEE IS INFLATED FRAUDULENT OR BOGUS. IN SUCH CIRCUMSTANC ES THERE IS NO JUSTIFICATION FOR DISALLOWING ANY PART OF THE EXPEN DITURE CLAIMED BY THE ASSESSEE EXCEPT THE DISALLOWANCE OF RS.75 000/- MA DE UNDER SECTION 14A AND THE DISALLOWANCE OF THE FOREIGN TRAVEL EXPE NSES OF RS.6 63 084/- WHICH DISALLOWANCES WERE CONCEDED BEF ORE THE CIT(A) [VIDE PARA 6 OF THE ORDER OF THE CIT(A)]. 11. THE JUDGMENTS OF THE ALLAHABAD AND CALCUTTA HIG H COURT CITED BY THE ASSESSEE ARE JUDGMENTS RENDERED IN THE CONTE XT OF SECTION 57(III) OF THE ACT. THESE JUDGMENTS SUPPORT THE AS SESSEE IN ITS GENERAL PROPOSITION THAT ALL EXPENDITURE INCURRED BY A COMP ANY TO MAINTAIN ITS ESTABLISHMENT AND COMPLY WITH THE STATUTORY OBLIGAT IONS SHOULD BE CONSIDERED AS EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE 12 INCOME MENTIONED UNDER THE HEAD INCOME FROM OTHER SOURCES. THESE JUDGMENTS WOULD SUPPORT THE ASSESSEES CLAIM THAT THE EXPENSES SHOULD BE ALLOWED EVEN IF THE INCOME FROM INTEREST AND THE INCOME FROM THE SHARE BUSINESS ARE CONSIDERED NOT A S BUSINESS ACTIVITIES BUT UNDER THE HEAD INCOME FROM OTHER SO URCES. SO FAR AS THE QUESTION AS TO WHETHER SUCH EXPENSES ARE ALLOWA BLE IF THE ABOVE ACTIVITIES ARE CONSIDERED AS BUSINESS ACTIVITIES OF THE ASSESSEE AS WE HAVE HELD THEN THE AFORESAID JUDGMENTS COME TO THE AID OF THE ASSESSEE ON A STRONGER FOOTING BECAUSE THE PHRASEOL OGY OF SECTION 37 IS WIDER THAN THAT OF SECTION 57(III) AND THIS ASPE CT HAS BEEN RECOGNISED BY THE SUPREME COURT IN CIT VS. RAJENDRA PRASAD MOO DY (SUPRA). TO THAT EXTENT THESE JUDGMENTS DO SUPPORT THE ASSESSEE EVEN IN ITS CLAIM THAT THE EXPENDITURE SHOULD BE ALLOWED AGAINST THE BUSINESS IN SHARES AND THE INTEREST INCOME BOTH OF WHICH ARE ASSESSAB LE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. WE ACCORDINGLY AL LOW GROUND NOS: 1 TO 4 ALSO. 12. THE ASSESSEE HAS PAID FILING FEE OF RS.500/- ON LY ON THE GROUND THAT THE TOTAL INCOME COMPUTED BY THE AO IS A LOSS OF RS.2 31 150/-. THE OFFICE HAS RAISED AN OBJECTION TO THE EFFECT TH AT THE FEE PAYABLE IS SHORT. THE ASSESSEE HAS DRAWN THE ATTENTION OF THE OFFICE TO A RECENT DECISION OF THE HONBLE BOMBAY HIGH COURT IN GILBS COMPUTER LTD. VS. ITA ACIT AND UOI IN WRIT PETITION NO. 1021 OF 2009 DATED 29 TH JULY 2009. A COPY OF THE SAID JUDGMENT HAS BEEN FILED F ROM WHICH IT IS SEEN THAT THE HONBLE HIGH COURT HAS HELD THAT IN A CASE WHERE A LOSS HAS BEEN ASSESSED THE CORRECT FEE PAYABLE WOULD BE COV ERED UNDER 13 SECTION 253(6)(D) AND THE FEE PAYABLE WOULD ONLY BE RS.500/-. IN THE LIGHT OF THE JUDGMENT THE FEE OF RS.500/- PAID BY THE ASSESSEE IS IN ORDER. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MAY 2010. SD/- SD/- (A L GEHLOT) (R V EASWAR) ACCOUNTANT MEMBER SENIOR VICE PRESI DENT MUMBAI DATED 21 ST MAY 2010 SALDANHA COPY TO: 1. M/S FARIYAS CONSTRUCTION CO. PVT. LTD. C/O KALYANIWALLA & MISTRY ARMY & NAVY BUILDING 3 RD FLOOR 148 MAHATMA GANDHI ROAD FORT MUMBAI 400 001 2. ITO 5(1)(4) 3. CIT-V 4. CIT(A)-V 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI