SRI DEVEN CHAND JAIN HUF,JAMSHEDPUR vs. ASSISTANT COMMISSIONER INCOME TAX, CIRCLE-3, RANCHI, RANCHI

The present appeal has been preferred by the assessee against the order dated 02.11.2018 of the Commissioner of Income Tax(Appeals), Ranchi [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).

The assessee in this appeal has contested the addition made by the Assessing Officer of Rs.33,36,158/- on account of disallowance of business expenditure claimed by the assessee.

At the outset, the ld. Counsel for the assessee has submitted that the assessee HUF is a partner in the firm which is involved in the business of mining in which the capital invested is more than 20 crores. That though due to certain reasons, the mining was Assessment Year: 2015-16 Sri Deven Chand Jain HUF discontinued, however, the business was not stopped. The Assessing Officer has disallowed the expenses on the ground that the assessee has not done mining activity during the year. The ld. AR contended that the expenses incurred by the assessee were for maintenance of establishment of partnership firm and to protect the interest of the assessee firm and to comply with the legal statutory provisions of the various acts applicable to the partnership firm, therefore, the same cannot be disallowed.

The ld. DR, on the other hand, has relied upon the findings of the lower authorities.

The ld. Counsel for the assessee has submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in the earlier assessment year i.e. A.Y 2014-15, wherein the Tribunal on the same facts has allowed the business expenditure of the assessee, observing as under:

In the case of Integrated Technologies Ltd (supra), in para 9, the Hon’ble Delhi High court has held thus : 2 Assessment Year: 2015-16 Sri Deven Chand Jain HUF “9. The Tribunal has referred to the judgments in Capital Bus Service (supra), CIT Vs. Refrigeration and Allied Industries Ltd. (supra) & CIT Vs. Panacea Biotech Ltd. (supra) and has applied the ratio laid down therein to the facts of the present case. The ratio in brief is that it is not necessary that the plant and machinery owned by the assessee should be actually put to use in the relevant accounting year to justify the claim of depreciation and that even if the plant and machinery or other asset is kept ready for use in the assessee's business, the assessee would be entitled to depreciation. The only condition is that the business should not have been closed down once for all and that the assessee should demonstrate that the hopes of the business being revived are alive and real. It is however not a matter that can turn entirely on the assessee's hopes alone. There should be evidence or material to show that the assessee took efforts to keep the business alive in the hope of reviving the same. Maintaining the office and establishment, complying with the statutory formalities, not disposing of the plant and machinery, incurring expenses on the repair of plant and machinery etc., are some of the indications of nurturing the hopes of reviving the business. The above are only illustrative instances and are by no means exhaustive and the question as to whether the assets were kept ready for use in the business is largely to be decided on the facts and circumstances of each case. In our opinion, the Tribunal has not committed any error in applying the ratio laid down in the judgments of this Court to the facts of the present case in order to uphold the assessee's claim for depreciation.”

In view of the above, I am inclined to hold that when the quantum of expenditure and incurring of same for the purpose of business of assessee has not been disputed by the revenue authorities, then merely because the assessee has not shown any business or profession income during the relevant financial period, the business expenses for maintenance of establishment and other requirements cannot be disallowed. Therefore, respectfully following the decision rendered by the Hon’ble Delhi High Court in the case of Integrated Technologies Ltd.(supra), we hold that the AO was not correct in making disallowance and the ld. CIT(A) was also not justified in confirming the disallowance and also enhancing the same. Therefore, the enhancement of disallowance made by the CIT(A) is dismissed and the AO is directed to allow the claim of the assessee for business and establishment expenses. Accordingly, ground Nos.1 & 2 are allowed.”

Respectfully following the decision of the Coordinate Bench of the Tribunal and for the sake of consistency, the disallowance made

In the result, the appeal of the assessee stands allowed.