M/S MINESTONE,MUMBAI vs. ACIT-16(2), MUMBAI

The facts in briefs are that assessee is a partnership form which was carrying on the business of “Manufacture and Export of Diamonds” from last several years. During the year Assessee had filed return of income issuing total loss of Rs. 53,81,543/-. The Assessing Officer from the perusal of the audited financial statements noted that assessee has debited an expenditure of Rs.

In response to the show cause notice as to why expenses and depreciation is claimed should not be disallowed as no business was conducted by the Assessee and there is no business income. In response the assessee submitted that there was a huge recession and global melt down in the business of diamond which has affected assessee very badly and assessee has incurred huge losses. Apart from that, in the absence of LC, export realization substantially got delayed and in many cases it has not even received at all. It was further submitted that there was a temporary suspension of the business and not permanent discontinuance of business. These expenses were purely administrative expenses and therefore are allowable. The Ld. Assessing Officer held that since there is no business activity and there are no expenses incurred for M/S .MINESTONE the business purposes, therefore, the expenses on account of administrative expenses cannot be allowed, because there are no direct nexus expenses with the income own by the assessee. Accordingly, the disallowed the entire expenditure claims as well as the depreciation.

The Ld. CIT (A) too after noting down various judgments has confirmed the order of the Assessing Officer which are not been discussed here, because it is more on preposition of law and his interpretation of certain judgments.

Before the Ld. CIT(A), Assesses also filed various documents in form of additional evidence rule 46A in support of the expenses incurred during the year, which has been rejected by him. After detail discussion he held that expenditure cannot be allowed. Another finding given by him was that certain expenses, are disallowable u/s 40(a)(ia) on account of non deduction of TDS.

We have heard both the parties, perused the relevant finding given impugned orders. The main issue involved is disallowance of various expenses debited in the profit and loss account and also the depreciation on the block of assets. The nature of expenditure

In so far as, depreciation is concerned, the same was claimed on the assets that were purchased, owned and used for business and appearing in the scheduled of fixed assets forming part of the block of assets. Admittedly, no new assets have been purchased during the year under appeal. Further, on the perusal of the records as brought on the records before us the Ld. Counsel, the Assessee was carrying on the business of manufacture and trading of diamonds and jewellery and it was mostly engaged in the export of such diamonds and jewelry. During the year there was no activity of purchase and sale of manufacturing which is evident from the financial statements. From the bare perusal of the nature of expenses, it can be seen that, these are general and administrative expenses which are incurred during the normal course of business. Merely because assessee did not have any business income during the year, that does not lead to any inference, that business has M/S .MINESTONE been completely shut down during the year, i.e., in the year under consideration. There is nothing on record that assessee had closed down the business completely and has wounded up during this year. There is a distinction between temporary suspension of the business or lull in the business and complete closer of the business.

The Ld. CIT (A) has noted that even after this year, Assessee has not corrected in commercial activity. During the course of hearing were asked the Ld. Counsel for the Assessee as to whether assessee has claimed any such expenses in the subsequent years, when no such business activity was carried out to which he has categorically stated and also brought on record that in subsequent years no such expenses have claimed in the computation of income. And not even the depreciation after Assessment Year 2013-14. Thus, it was only this year assessee is claimed because assessee intended to bring back its business which was there till last year. Under these facts and circumstances we did not find any reasons as to why when there is no closer of business during the year accept for there was no business income why the general and M/S .MINESTONE administrative expenses can be disallowed. Temporary suspension of business does not mean it is dissolved on the business is completely shut down its Akin to Lull business which as stated by the assessee was various genuine reasons.

Accordingly, in principle such expenses cannot be disallowed. In so far as, legal professional fees of Rs. 22,25,000/- is concerned, we has raised specific query to the Ld. Counsel as to what was the nature of legal expenses paid, to which Ld. Counsel submitted that Assessee had submitted the bill raised by a Advocate and solicitors, Bhrube Liladhar and Company. These payments were made for filling of several civil suits, before the Hon’ble Bombay High Court for recovery of amount from the creditors. He has also filed the copy of the suit and matters pending before the Hon’ble Bombay High Court to show that all the litigation expenses were on account of recovery of money. From perusal of these documents it is seen that the payments have been made by the assessee for the filling of various suit for recovery of money from the debtors like Fancy Impacts, Marble Gems, Asugems Sugey Gems which is still pending, and the suits were filed in 2012. Thus, this legal expenses

However, before us the Ld. DR submitted that Ld. CIT(A) has observed no TDS have been deducted on such payment of professional fees and therefore same should be disallowed u/s 40(a)(ia).

Before us, the Ld. Counsel cannot clarify that, whether any TDS have been deducted, therefore this matter is restored back to the file of the Assessing Officer to see whether any TDS has been deducted on the payment of professional legal fee to the legal firm and whether provisions of 40(a)(ia) are applicable. Thus, issue of claim of expenses as treated as partly allowed for statistical purposes.

In so far as, disallowance of depreciation is concerned, once assets of forming part of the block of assets, and same where used for the purpose of business in the earlier years, then, depreciation cannot be disallowed. Accordingly, appeal of the assessee is partly allowed for statistical purposes.