By TIOL News Service

MUMBAI, JUNE 14, 2016: THE issue is - Whether when assessee and its parent company had no agreement nor any any professional services were rendered to the parent, any expenditure claimed on this count is not allowable. YES is the answer.

Facts of the case 

The assessee, a company engaged in the business as a shipping agent, filed its return of income for A.Y. 2009-10 on 30.09.2009 declaring income of Rs. 2,78,29,820/-. The assessee filed a revised return of income on 29.03.2011 declaring income of Rs. 50,45,970/- for the stated reason that the original return was revised because its shipping businesses was demerged from it and merged with Forbs & Co. Ltd. as per order dated 06.11.2009 of the Hon'ble Bombay High Court w.e.f. 01.04.2008. In this factual matrix, the AO proceeded to take up the case for scrutiny as per the revised computation of income filed with the revised return of income. The assessment was concluded under section 143(3) vide order dated 09.12.2011 wherein the income was assessed at Rs. 76,69,068/- wherein the income from house property and income from other sources were accepted as returned. However, the loss from business as claimed by the assessee at Rs. 26,18,100/- was disallowed which included Rs. 19,11,600/- expenses claimed against business income. Aggrieved by the order of assessment dated 09.12.2011 for A.Y. 2009-10, the assessee preferred an appeal before the CIT(A)-6, Mumbai who disposed off the appeal vide the impugned order dated 11.03.2013 allowing the assessee partial relief.

Having heard the matter, the Tribunal held that,

Treatment of business income

++ the assessee declared business receipts of Rs. 26,45,091/- on account of alleged professional services rendered by its employees to its parent company. In our considered view the examination of the assessee's claims by the authorities below revealed that the assessee did not actually provide any professional services at all, but six persons (General Manager, Manager, Executive, Manager, Asst. Manager, Asst. Manager and a Peon) who were employees of the assessee on paper but actually work for the parent company, Forbs & Company Ltd., who pays their salary in the form of reimbursement thereof through the assessee. There is admittedly no agreement between the assessee and its parent company, Forbs & Company Ltd. for the provision of professional services and the remuneration/charges payable thereof. We concur with the observation of CIT(A) that the assessee's submission that it recovers professional fees 'on the basis of estimate done at the beginning of the year' establishes that the entire arrangement between them was made to claim expenses which were otherwise not allowable under the head income from house property and interest income. The submissions that there has been no disallowance of such business loss in the earlier and subsequent years by the Department holds no water, since in the earlier years, the assessee was carrying on business as shipping agent, which business has since been merged with its parent company. In subsequent years, A.R. admitted that there were agreements between the assessee and its parent company for carrying on business on which we decline to comment as those years are not before us for adjudication. In our view, the assessee has failed to controvert the adverse findings of the facts rendered by the authorities below. In the factual matrix of the case, as discussed above, we are of the considered view that CIT(A) was right to hold that the assessee did not carry on any business activity in the nature of rendering professional services to its parent company as claimed and that the entire arrangement between them was with a view to claim expenses which are not otherwise allowable under the head income from house property and interest income. We, therefore, uphold the impugned order of the CIT(A) disallowing the assessee's claim of business loss. Consequently, ground 1 of the assessee's appeal are dismissed;

Disallowance of Expenses

++ we have upheld the factual findings of the CIT(A) that the assessee did not carry out any business activity in the year under consideration and therefore disallowed the assessee's claim of business loss. In this view of the matter, the assessee had income from only two activities/sources, i.e. earns 'income from house property' given on rent and 'interest income'. The authorities below have also observed that the assessee had already availed deduction of Rs. 26,96,445/- which covered all those expenses the assessee required for day to day maintenance of the assessee company, like statutory obligations of filing fees, audit, etc. The assessee has, in our view, failed to controvert the above factual findings by the authorities below. We find that the expenses which are allowable under its two income heads 'income from house property' and 'income from other sources', have already been allowed and we therefore, uphold the decision of the CIT(A) that no further expenses are to be allowed. Consequently, the ground No. 2 (4 & 5) raised by the assessee are dismissed. In the result, the assessee's appeal for A.Y. 2009-10 is treated as partly allowed for statistical purposes.

(See 2016-TIOL-1019-ITAT-MUM)