ORDER
Brajesh Kumar Singh, Accountant Member.- This appeal filed by the assessee is directed against the Final Assessment Order dated 27.01.2025 (FAO) passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) pursuant to the directions of the Hon’ble Dispute Resolution Panel (DRP) vide order dated 17.12.2024 u/s 144C(5) of the Act for Assessment Year (AY.) 2022-23.
2. Brief facts of the case: The assessee M/s A.T. Kearney Limited is a company incorporated in United Kingdom (U.K.) and during the year was engaged in the business of providing management consultancy services to its clients worldwide. The assessee e-filed its return of income for the Assessment Year 2022-23 on 29.11.2022 declaring total income of Rs.1,27,76,240/- and claimed refund of Rs.3,30,40,420/- against total taxes paid 3,84,61,635/- on account of TDS. The case was selected for Scrutiny under CASS and a notice u/s 143(2) of the Income Tax Act, 1961 (‘the Act’) was issued to the assessee on 31.05.2023.
2.1 During the year, the AO noted that A.T. Kearney Limited (‘Head Office’) had entered into a ‘business transfer agreement’ with A.T. Kearney Consulting (India) Private Limited (‘ATK Consulting’), a wholly owned subsidiary of the Head Office for transferring the entire business of its India Branch Office on a going concern basis w.e.f. 1 April, 2021. The AO further noted the details of carrying value of assets and liabilities as on 31 March 2021 that were transferred as under:
| Assets |
Anionnt(in lacs) |
| Property, plant and equipment |
221.44 |
| Loans and advances (except advance tax recoverable and advance with statutory authorities) |
419.50 |
| Trade receivables |
7,090.72 |
| Cash and bank balances |
1,296.78 |
| Other current assets |
2,213.53 |
|
11,241.97 |
| Liabilities |
|
| Provisions |
2,573.58 |
| Trade payables |
672.99 |
| Other current liabilities |
5,964.44 |
|
9,211.01 |
| Net Assets |
2,030.96 |
|
|
| Consideration discharged through; |
|
| 1. Statutory deposit with income tax authorities |
11.09 |
| 2. Issuance of shares |
2,019.87 |
2.2 Further, the AO noted that during the year the assessee had earned interest income of Rs.3,99,79,892/- from income tax refunds and had claimed expenses of Rs.2,72,03,648/- against the said income resulting in reduction of total income to Rs.1,27,76,244/-. The details of the ‘Legal and Professional Expenses’ amounting to Rs. 2,59,56,996/- out of the above expenses of Rs. 2,72,03,648/-expenses are mentioned on page no 649 of the paper book with sample invoices on page no. 650 to 657 of the paper book. The said details as stated on page no 649 of the paper book are reproduced as under:
| A.T. Kearney Limited – India Branch Office |
| Assessment Year 2022-23 |
|
| Legal and Professional expenses |
| S. No |
Particulars |
Amount |
| 1. |
Income Tax Services |
23,456,654 |
| 2. |
Other Tax Services |
2,265,762 |
| 3. |
Outsource Pavroll Services |
66,640 |
| 4. |
Company Settlement |
167,940 |
| Total |
25,956,996 |
2.3 Further the balance details of expenses include ’employee benefits’ – Rs. 64.43 lakhs and ‘finance costs’ Rs. 0.97 lakhs (pg no. 106 of the paper book) and Rs. 3.50 lakhs towards ‘payment to auditors’ (pg no. 120 of the paper book).
2.4 In this regard, the AO issued a show cause notice regarding the claim of the above expenses as under:
“4. It is observed from the computation of income filed, that you have claimed the various business expenses against the interest income. Since, no business was undertaken / conducted in this year, you are hereby show-caused as to why the interest income should not be taxed on gross basis of 40% (plus applicable surcharge and cess) as per the provisions of the Income Tax Act, 1961”.
2.5 The assessee vide letter dated 13.03.2024 responded as under:
“At the outset, it is submitted that the A. T. Kearney Limited is a non-resident company and is carrying on business through its branch office in India, i.e. ATKBO. For income tax, purposes, ATKBO constitutes a permanent establishment (‘PE’) of A.T Kearney Limited as per the provisions of DTAA between India and UK. It is settled principle that income of a company effectively connected to its PE shall be allowed to be set-off against the expenses connected with such PE.
In this regard, the company submits that the business expenses referred by your goodself in the above question are the expenses incurred to maintain the existence of branch office in India, such expenses are effectively connected with the PE of A.T. Kearney Limited. The interest on income tax refund earned by the assessee is on the refund of excess tax deducted. Such tax is deducted upon receipt of income earned by ATKBO, therefore it is evident that such income tax refund it is connected with the PE. Accordingly, interest earned ofsuch refund shall be considered as connected with the PE.
In view of the above, the company shall be allowed the set-off the business expenses against the income of income-tax refund.
Further, it is humbly submitted that the assessee is set up as a branch office of a foreign company in India and has to incur expenditure to keep itself afloat and maintain its existence. Upon perusal of the financial statements of the Company for FY 2021-22 (enclosed as Annexure-6), your goodself may appreciate that the expenses debited to the Profit and Loss Account are related to business running expenditure such as professional and legal fees, these are unavoidable expenses that are required to be incurred to maintain the corporate legal identity of the assessee, hence the same shall not be disallowed. Further, there is no requirement in law that expenses incurred by an assessee shall give an immediate benefit to it or there shall be an earning of income in order to allow the expenditure”.
The assessee submits that it is a settled proposition of law that merely because there is no business activity, the expenses incurred by a corporate assessee to continue its existence cannot be disallowed. Reliance in this regard can be placed on the following judgments:
| • |
|
Delhi ITAT in the case of GiriBuildwell Pvt. Ltd. v. DCIT (ITA No. 2676/Del/2018) |
| • |
|
Delhi ITAT in the case of ITO v. Mokul Finance (P) Ltd. (2007) 110 TTJ 0445 (Del) |
| • |
|
Calcutta High Court in CIT v. Ganga Properties Ltd., (1993) 199 ITR 94 (Cal) |
| • |
|
Punjab & Haryana High Court in Nakodar Bus Service (P) Ltd. v. CIT, (1989) 179 ITR 0506 (P&H) |
| • |
|
Allahabad High Court in case of CIT v. Rampur Timber & Turnery Co. Ltd. (1981) 129 ITR 58 (All) |
Without prejudice to the above, if your goodself contends that the interest income shall be taxed on gross basis of 40% without allowing the claim of business expenses, the assessee submits that is a tax resident of UK, it is entitled to be governed by the provisions of the India-UK DTAA to the extent these are more beneficial vis-a-vis the Act, pursuant to Section 90(2) of the Act. Accordingly, it is humbly submitted that the interest income on Income Tax refund shall be entitled to beneficial tax rate of 15% under Article 12 of India-UK treaty as per Section 90(2) of the Act. Copy of Tax residency certificates ofA.T. Kearney Limited, UK for tax year 2021 and 2022 are enclosed as Annexure-10.
In addition to the above, the Company would like to bring to your goodself’s attention to the order u/s 144C/143(3) r.w.s 92CD of the Act dated 20 November 2023 for AY 14-15 issued by your goodself in Assessee’s own case wherein your goodself has himself deducted tax @ 15% on the interest on refund, allowing the beneficial rate under Article 12 ofIndia-UK treaty. The assessee’s request in the current case is in line with your goodself’s view of taxing the interest on refund at a rate of 15% as per India-UK DTAA “
(Emphasis supplied by us)
2.6 The AO did not accept of above explanation of the assessee and held that from a reading of section 28(i) of the Act, it was clear that business expenses can be allowed only when the business was carried on by the assessee, at any time during the previous year. The AO further, held that from the facts of the case post the ‘business transfer agreement’, it was clear that the present case could not be termed as ‘Temporary Lull in business’ / ‘Temporary Slump’ / ‘Slowdown’ and it was a clear case of ‘Cessation of business’. The AO further noted that judicial precedents also make this distinction clear which have held that the expenses incurred during the temporary lull period have been allowed but the expenses incurred after the cessation of business could not be allowed as an expense. The AO further noted that in the present set of facts, the assessee had transferred its entire business on a going concern basis, which clearly meant that its business had ceased to exist, w.e.f. from 01st April, 2021 and therefore, in terms of section 28(i) the expenses was not allowable and held so in the draft assessment order dated 21.03.2024 and proposed an addition of Rs. 2,72,03,648/- towards ‘expenses disallowed due to cessation of branch office’ against the interest income of Rs. 3,99,79,892/- received by the assessee from income tax refunds in the draft assessment order. The relevant extracts of the draft assessment order are reproduced as under:
“6.4 The response of the assessee has been considered but not found tenable due to reasons in the following paras.
6.5 Reference is drawn on note 2(a) read with note 31 of the financial statements, as per which the assessee has transferred its business to its group company after seeking approval from Reserve Bank of India (RBI). Also reference is drawn to the Form 3CB, clause 5(a) and the ICDS note in Form 3CD, which states that the all assets stands transferred w.e.f. 01.04.2021.
6.6 Section 28 of the Act states that,
“Profits and gains of business or , profession.
28. The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—
(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year ;
6.7 From a reading of section 28(i) of the Act, it is clear that business expenses can be allowed only when the business was carried on by the assessee, at any time during the previous year. Section 29 provides that income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43.
6.8 In the present case, since, the business has been fully transferred by executing a Business Transfer Agreement (BTA) on a Going concern basis, what is left behind is nothing, which is duly reflected by the detailed disclosures made by the auditors in the financial statements, tax audit report etc. that the accounts have been drawn on liquidation basis. Since, the assessee was running business through a ‘Branch office’ in India, that is an admitted Permanent Establishment (PE) under Article 5 of the India-UK DTAA. Now, that PE had ceased to exist and only the ITR of the assessee (through its Head office) has been filed on account of the interest income earned by it. It is a settledprinciple that the assessee cannot claim its expenses when the taxation is done on ‘Gross Income’ basis. Here the assessee has claimed expenses pertaining to its Branch office from the interest income earned by its Head Office, which is not justified. Even, going forward the assessee shall only offer to tax any income in a case where it as a PE in India.
6.9 From the above fact finding, it is clear that the present case cannot be termed as ‘Temporary Lull in business’ / ‘Temporary Slump’ / ‘Slowdown’ as it is a clear case of ‘Cessation of business’. The judicial precedents also make this distinction clear and the expenses incurred during the temporary lull period have been allowed, however, expenses after the cessation of business cannot be allowed as an expense.
6.13 As in the present set of facts, the assessee has transferred its business on a going concern basis, which clearly means that its business had ceased to exist, w.e.f. from 01st April, 2021 only. Therefore, in terms of section 28(i) the expenses claimed by it are hereby disallowed for the reasons cited in detail, as above.
6.14 Regarding the assessee’s alternative argument it being a non-resident which is subject to 15% tax rate under the India UK DTAA. I have considered the argument, however, such a modification to the existing returned tax rate of 40%, is not permissible, as per ruling of Goetze (India) Ltd. v. CIT (2006) 284ITR 323 (SC), the Supreme Court held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. Hence, this alternate argument is hereby rejected. “
(emphasis supplied by the AO)
2.7 The AO also relied upon the following case laws in support of his findings that expenses of Rs. 2,72,03,648/- claimed by the assessee against the interest income of Rs. 3,99,79,892/- received by the assessee from income tax refunds was not an allowable expenditure as per the provisions of sections 28 (i) and 29 of the Act.
| (i) |
|
Dy. CIT, Central v. MDLR Airlines (P.) Ltd. [IT Appeal No. 7824 (Delhi) of 2018, dated 19.10.2023] |
| (ii) |
|
Hindustan Chemical Works Ltd. v. CIT [1980] 124 ITR 561 (Bombay) |
| (iii) |
|
CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 (SC), Hon’ble Supreme Court |
3. Aggrieved with the said order the assessee filed its objections before the ld. DRP. The Ld. DRP agreed with the findings of the AO. In arriving at the above conclusion, the Ld. DRP relied upon the order of the Co-ordinate Bench, Bengaluru in the case of Shanmugam Ravi v. Dy. CIT (Bangalore – Trib.) and the Ld. DRP highlighted the findings of the Tribunal in the said case in its order as under:
“On understanding this basic rule, the simplest interference to arrive at is that in the case of discontinued business, there is no question of loss or expenditure incurred in the course of business wholly and exclusively for the purpose of business as the business no longer is in existence. Being so, the revenue authorities have taken a correct view of the facts of the case and disallowed the same. We do not find any infirmity in the finding of the lower authorities and the same is confirmed. This ground of appeal of the assessee is dismissed”.
4. Upon receipt of the above order, the AO passed the final assessment order u/s 143(3) r.w.s 144C(13) of the Act on 27.01.2025 making an addition of Rs. 2,72,03,648/- towards ‘expenses disallowed due to cessation of branch office’.
5. Aggrieved with the said order the assessee has filed the present appeal on the following grounds of appeal:
“On the facts, and in the circumstances of the case, and in law, the Appellant craves to prefer an appeal against order dated 27 January 2025 passed by the Deputy Commissioner of Income Tax, Circle 1(1)(1), International Tax, New Delhi (hereinafter referred to as the ‘Ld. Ao’), under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (‘the Act’), on the grounds as set out herein:
The following grounds are independent of, and without prejudice to one another:
“1. Grounds pertaining to disallowance of expenses amounting to INR 2,72,03,648/- relates to operational and administrative expenses incurred for maintaining the existence of branch office in India, thus shall be allowed as business expenditure under the provisions of the Act
1.1 On the facts and circumstances of the case and in law, the Ld. AO has erred in unjustifiably making disallowance of business expenses of INR 2,72,03,648/- due to cessation of business of the Appellant.
1.2 The Ld. AO has erred in holding that in absence of business or profession carried on at any time during the previous year, income cannot be chargeable to tax under the ‘profit and gains on business or profession’, accordingly business expenses cannot be allowed in terms of Section 28(i) of the Act.
1.3 The Ld. AO has erred in holding that expenses incurred for maintaining the existence of branch office in India after transfer of business to a group company, cannot be allowed as business expenditure under the provisions of the Act.
1.4 The Ld. AO has erred in not appreciating the contention of the Appellant that the expenditure incurred by the Appellant during the year to maintain the corporate existence are largely on account of legal and professional services.
1.5 The Ld. AO is unjustified in not allowing the expenses incurred as claimed rightly under the head ‘Profits and Gains on business or professions’
The Appellant craves leave to alter, amend, or withdraw all or any of the grounds of appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”
6. During the course of hearing before us the ld. AR of the assessee filed a written submission and relied upon the same. In this regard, the relevant extracts of the written submission filed by the ld. AR are reproduced as under:
“1 . The Assessee is the Indian Branch Office of A.T. Kearney Limited a company incorporated under the laws of United Kingdom, and is engaged in the business of rendering management consultancy services to its clients in India and outside India. The company had established a branch office in India in 1997 pursuant to the approval granted by Reserve Bank of India. In the present appeals the Branch Office of the Company is the Assessee.
2. The India Branch Office constituted a Permanent Establishment (“PE”) of the Appellant in India for the purposes of taxation.
3. During the relevant previous year, the Appellant transferred the business undertaking of its India Branch Office to its group company A.T. Kearney Consulting (India) Private Limited by way of a Business Transfer Agreement (“BTA”) on a going concern basis with effect from 1 April 2021. However, the Appellant continued to retain certain statutory assets and the Branch Office being a PE was not shut down. Thus, while the Appellant had no undertaking the Appellant did exist as a taxable entity on which it was due to earn income being interest on income tax refunds amongst other collectible statutory dues.
XXXXXXX
Legal Submissions:
7. In the present appeals the ground of challenge that arises is that the Assessee cannot be disallowed expenses to maintain its branch office in India despite there being no current business activity. In this regard the following submissions are made:
a. It is a settled proposition of law that expenditure incurred for maintaining the corporate existence of an assessee and preserving its establishment is allowable, even where no active business operations are carried out during the relevant year.
b. Courts have consistently held that expenses incurred for maintaining the legal and regulatory existence of an entity cannot be disallowed merely because business activity was not carried on during the year.
c. In this regard the following decisions are relied upon:
i. ACIT, Circle 25 (2) v. Tulip Star Hotel Ltd, ITA No. 4387/Del/2017-In the present this Hon’ble Tribunal allowed expenses incurred for maintaining the legal status and held as under:
“6. We have gone through the record in the light of the submissions made on either side. It remains an undisputed fact that the assessee was incorporated on 10.09.2087, made investments in V. Hotels Ltd, which bad acquired Centaur Hotel in Mumbai from the Government intending to revive the business of such hotels, but in view of legal dispute with regarding to Centaur Hotel and also on account of economic slowdown, the assessee could not start running of hotel, but, however, to keep the status of the company, the assessee had to in ur expenses in the shape of salary of few key personnel, payments made towards statutory funds, communications, professional fees etc.
7. In these circumstance, Id. CIT(A) while following the decision of Hon’ble jurisdictional High Court in the case of Integrated Technology Ltd. (supra) and also order of coordinate Bench of this Tribunal in Mokul Finance Pvt. Ltd. (supra), granted relief on the ground that the expenses incurred for retaining the status of the compare are allowable deduction, even though the assessee did not carry out any business activity during the assessment year. We do not find any illegality or irregularity in the reasoning given or conclusions reached by the Id. CIT(A) and as a matter of fact, the challenge of the Revenue also is non-specific. We, accordingly, uphold the order of the Id. CIT(A) and dismiss the grounds of appeal of the Revenue”
ii. Pride Foramer S.A. v. Commissioner of Income-tax (SC) In the present case the Hon’ble Supreme Court of India recognized the fact that expenses of a foreign company not having any current business cannot be denied. The court here held as under:
15. The word ‘business’ has a wide import and connotes some real, substantial and systemic or organised course of activity or activity with a set purpose. Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax [1954] 26 ITR 765(SC)/(1954) 2 SCC 546. In CIT v. Malayalam Plantations Ltd. [1964]53 ITR140 (SC) this Court further underlined that the expression ‘for the purpose of business’ is wider in scope than the expression ‘for the purpose of earning profits’ and would encompass in its fold “many other acts incidental to the carrying on of a business”. The Bench observed as follows:
“The expression ‘for the purpose of business’ is wider in scope than the expression ‘for the purpose of earning profits’. Its range is wide: it may take in not only the dayto-day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for preservation of business and for protection of its assets and property from expropriation, coercive processor assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on a business; it may comprehend many other acts incidental to the carrying on of a business.”
(emphasis supplied)
16. Continuous correspondences between the appellant and ONGC with regard to supply of manpower for oil drilling purposes and its unsuccessful bid in 1996 demonstrates various acts aimed at carrying on business in India which unfortunately did not fructify in procuring a contract.
17. In this factual backdrop, the High Court erred in holding that the appellant was not carrying on business as it had no subsisting contract with ONGC during the relevant period.
18. The other issue on which the High Court misdirected itself was to infer as the appellant did not have a permanent establishment and corresponded with ONGC from its foreign office, it cannot be said to carry on business in India. This view is wholly fallacious and contrary to the very scheme of the Act which does not require a non-resident company to have a permanent office within the country to be chargeable to tax on any income accruing in India.
(emphasis supplied)”
d. In the present facts as well the Appellant in slump sale has only sold the business but still retained statutory assets on which it earns income and continues to maintain the Branch Office for commercial purposes. In such a scenario the case of the AO that there is complete cessation of activity is bad in fact and fallacious. Merely because there was a slump sale does not mean that the Appellant/Assessee has no business. The fact that the Appellant has a PE in India in the form of a Branch Office clearly indicates that the Appellant has a business presence in India and cannot be disallowed expenses for maintaining that status. Furthermore, the AO cannot sit in the shoes of an Assessee to decide that the Assessee will not need to maintain PE status and therefore not need to incur business expenses.
e. Reliance is further placed on the decision of the following decisions:
i. Giri Buildwell Pvt. Ltd. v. DCIT, Circle- 10(1), New Delhi (paras 5 and 6),
ii. CIT v. Ganga Properties Ltd. , (1993) 199 ITR 0094 (Cal) (Paras 6 and 7)
iii. Nakodar Bus Service (P) Ltd. v. CIT, (1989) 179 ITR 0506 (P&H)) (para 5)
iv. CIT v. Rampur Timber Turnery Co. Ltd. , (1981) 129 ITR 0058 (All)
v. DCIT, Circle-18(1), New Delhi v. NCR Business Park Pvt. Ltd, ITA No. 6646/Del/2018 (paras 13 and 14)
f. It’s submitted that the reliance placed on the decision in the case of Shanmugam Ravi v. Deputy Commissioner of Income-tax, (Bangalore – Trib.) is incorrect, as the said case has inconsistently followed binding precedents of the High Courts cited above. The said case is contrary to the spirit of Section 37 (1) of the Act and is not applicable in the present case as its distinguishable.
8. In light of the above it is submitted that the Assessment Order be set aside and based on the decisions of the Hon’ble High Court and the Supreme Court cited above the appeal of the Assessee be allowed.”
7. On the other hand, the Ld. CIT DR supported order of the AO/Ld. DRP.
8. We have heard both the parties and perused the material on record. As noted above, the AO added a sum of Rs. 2,72,03,648/- towards ‘expenses disallowed due to cessation of branch office’ against the interest income of Rs. 3,99,79,892/-received by the assessee from income tax refunds. The AO in view of the fact that during the year, A.T. Kearney Limited (‘Head Office’) had entered into a business transfer agreement with A.T. Kearney Consulting (India) Private Limited (‘ATK Consulting’), a wholly owned subsidiary of the Head Office for transferring the entire business of its India Branch Office on a going concern basis w.e.f 1 April, 2021 held that the business of the assessee could not be termed as ‘Temporary Lull in business’ / ‘Temporary Slump’ / ‘Slowdown’ as it was a clear case of ‘Cessation of business’ and thus said expenses was not allowable. Further, the AO relied upon various case laws in support of his findings as referred above. On the other hand, the Ld. AR submitted that the fact that the assessee had a PE in India in the form of a Branch Office which clearly indicated that the assessee had a business presence in India and the expenses claimed could not be disallowed for maintaining that status. Furthermore, the assessee submitted that the AO could not sit in the shoes of an assessee to decide that the assessee will not need to maintain PE status and therefore not need to incur business expenses. Further, the assessee has also relied upon various case laws in support of its submission as referred above.
8.1 The issue in this appeal is regarding the allowance of the expenses of Rs. 2,72,03,648/- incurred by the branch office of the assessee against the interest income of Rs. 3,99,79,892/- received by the assessee from income tax refunds. The key to decide this issue in this appeal is to have the complete details of the of the expenses of Rs. 2,72,03,648/- incurred by the branch office to decide the applicability of the case laws relied upon by the respective sides for the allowability of the above expenses claimed as business expenses by the assessee as per the provisions of section 28(i) and 29 of the Act. It is true that in this case the business of the India Branch Office of the assessee was transferred by the assessee company to A.T. Kearney Consulting (India) Private Limited (‘ATK Consulting’), a wholly owned subsidiary of the Head Office on a going concern basis w.e.f. 1 April, 2021. However, certain assets of the Indian Branch Office were retained and its purpose of retention is not on record. Further, it is pertinent to note here that the value of the assets retained was Rs.34.64 crores which was more than the value of assets transferred amounting to Rs 20.30 crores. The details of the asset not transferred as per ‘business transfer agreement’ as mentioned in the ‘Revised Schedule’ of the said agreement as stated on page no. 562 of the paper book is reproduced as under”
Part 2
| s. No |
Assets not to be transferred |
Amount (In INR) |
| 1 |
Accrued export incentive |
17,617,373 |
| 2 |
Loans and advances
– Advance tax recoverable (net)
– Advance with statutory authorities |
270,609,177
1,359,540 |
| Total |
346,483,048 |
8.2 Further, it is not clear as whether the ‘professional fees and legal expenses’ amounting to Rs. 2,95,56,996/- which constituted the substantial expenditure of the total expenditure amounting to Rs. 2,72,03,648/- disallowed by the AO was incurred for the continuation of business in respect of the pending litigation related to the Branch Office or otherwise. In this regard, the Hon’ble Supreme Court of India in the case of Pride Foramer S.A. v. CIT (SC) underlined that the expression ‘for the purpose of business’ is wider in scope than the expression ‘for the purpose of earning profits’ and would also encompass in its fold “many other acts incidental to the carrying on of a business”, which is very wide in its scope. In this regard, the relevant observations of the Hon’ble Apex court in the said case are reproduced as under:
“15.
The word ‘business’ has a wide import and connotes some real, substantial and systemic or organised course of activity or activity with a set purpose. Narain Swadeshi Weaving Mills v.
Commissioner of Excess Profits Tax [1954] 26 ITR 765(SC)/(1954) 2 SCC 546.
In CIT v.
Malayalam Plantations Ltd. [1964]53 ITR140 (SC) this Court further underlined that the expression ‘for the purpose of business’ is wider in scope than the expression ‘for the purpose of earning profits’ and would encompass in its fold “many other acts incidental to the carrying on of a business”. The Bench observed as follows:
“The expression ‘for the purpose of business’ is wider in scope than the expression ‘for the purpose of earning profits’. Its range is wide: it may take in not only the dayto-day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for preservation of business and for protection of its assets and property from expropriation, coercive processor assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on a business; it may comprehend many other acts incidental to the carrying on of a business. ”
(emphasis supplied by us)
8.3 Thus to adjudicate as to whether the expenses of Rs. 2,72,03,648/- incurred by the branch office of the assessee would qualify as to be an allowable expenditure as per the above decision of the Hon’ble Apex Court, the complete details of the said expenses are required which are presently not on record. Further on perusal of the order of the AO as well as the directions of the ld. DRP, it appears that the same has neither been examined by the AO nor by the Ld. DRP. Moreover, the complete details of the said expenses have also not been filed by the assessee before us. In absence of the same, this issue cannot be adjudicated. We therefore, set aside the order of the AO/ Ld. DRP and remit the matter to the file of the AO for de novo assessment in accordance with law keeping in view our above observations. Grounds nos. 1 to 1.5 of the appeal are allowed for statistical purposes.
9. In the result, the appeal of the assessee is allowed for statistical purposes.
