DCIT, CIRCLE-5(1), KOLKATA, KOLKATA vs. PRESIDENCY EXPORTS AND INDUSTRIES LTD, KOLKATA

आयकर अपील�य अ�धकरण, कोलकाता पीठ “डी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH: KOLKATA �ी राजेश कुमार, लेखा सट�य एवं �ी �द�प कुमार चौबे, �या�यक सद�यके सम� [Before Shri Rajesh Kumar, Accountant Member&Shri Pradip Kumar Choubey, Judicial Member] I.T.A. No. 326/Kol/2026 Assessment Year: 2018-19 DCIT, Circle-5(1), Kolkata Vs. Presidency Exports and Industries Ltd.

(PAN: AABCP 9182 E) ( अपीलाथ� ) Respondent / ��यथ� Appellant / Date of Hearing / सुनवाई 15.06.2026 क� �त�थ Date of Pronouncement/ 10 .07.2026 आदेश उ�घोषणा क� �त�थ For the Appellant/ Shri Giridhar Dhelia, Advocate �नधा�रती क� ओर से For the Respondent/ Shri Dheeraj, JCIT, Sr. DR राज�व क� ओर से

ORDER / आदेश Per Rajesh Kumar, AM:

This is the appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] dated 13.11.2025 for the AY 2018-19.

2 I.T.A. No.326/Kol/2026 Assessment Years: 2018-19 Presidency Exports and Industries Ltd. 2. The only issue raised by the revenue is against the order of Ld. CIT(A) deleting the disallowance by holding that non-activity or sales and production in a particular year does not amount to cessation of business as made by the AO on account of business expenditure of Rs. 3,50,04,017/- and also deleting addition of Rs. 1,10,07,745/- not appreciating the fact that the assessee declared sales at Rs. Nil for AY 2018-19 and in subsequent years i.e. from AY 2019-20 to AY 2025-26 and the assessee company itself declared rental income under the head income from house property.

3 I.T.A. No.326/Kol/2026 Assessment Years: 2018-19 Presidency Exports and Industries Ltd. 4. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after taking into account the submission and contentions of the assessee by observing and holding as under:

4 I.T.A. No.326/Kol/2026 Assessment Years: 2018-19 Presidency Exports and Industries Ltd. 6.2 The appellant, in support of its claim that the business had not ceased and that the expenditure incurred was allowable, has relied upon a series of judicial pronouncements affirming that temporary suspension of business activity does not amount to cessation of business. In Lakshmi Narayan Board Mills (P) Ltd. v. CIT [(1994) 205 ITR 88 (Cal.)], the Hon’ble Calcutta High Court held that even if there is no production or sale during a particular year, the business cannot be said to have been discontinued so long as the establishment and commercial apparatus are maintained with the intention of carrying on the business. Similarly, in Sreedharan & Co. v. CIT [(1993) 202 ITR 796 (Ker.)], it was held that where the assessee’s business is temporarily closed due to unfavorable market conditions, the expenditure incurred for maintaining its establishment and assets is allowable as a business expenditure. 6.3 Further, in CIT v. Ganga Properties Ltd. [(1993) 199 ITR 94 (Cal.)], the Calcutta High Court reiterated that the mere absence of business receipts does not establish discontinuation of business if the infrastructure of the business continues to exist and the assessee has not abandoned the business altogether. Likewise, in K.V. Narayan Builders Pvt. Ltd. v. ITAT, Bangalore [ITA No. 1005/BAN/2015], the Tribunal held that expenses incurred for maintaining business operations and meeting statutory obligations during a period of no business turnover are allowable deductions. The appellant has also placed reliance on the decision of the Hon’ble Delhi High Court in CIT v. Integrated Technologies Ltd. [(2011) 204 Taxman 82 (Del.)], wherein it was held that the absence of business income in a particular year does not necessarily indicate that business has ceased, and expenditure incurred to keep the establishment functional is deductible. 6.4 These authorities collectively support the appellant’s contention that thebusiness of the company continued to exist despite the temporary lull in activity, and therefore, the rental income earned from commercial assets and the related business expenditure must be assessed under the head “Profits and Gains from Business or Profession.” 7.0 Allowability of expenditure: The appellant explained that the administrative, financial, and other business expenses were incurred for preserving and maintaining the establishment, statutory compliance, interest obligations, and asset maintenance, which are necessary for the sustenance of the business. It was further contended that the company was under a continuing obligation to pay interest on borrowings taken for business purposes in earlier years, and therefore, the finance cost of 2,87,18,000/- was fully allowable. 7.1 Negative capital and loans: With respect to the AO’s observation that the capital and reserves were negative, the appellant clarified that such negative balance was a result of accumulated losses brought forward from earlier years. The company had not diverted borrowed funds for non-business purposes. The advances referred to by the AO were in the nature of trade advances or inter-corporate loans arising out of earlier commercial transactions. No fresh diversion of interest-bearing funds was made during the year. 7.2 I have examined the material on record and the written submissions of the appellant. The AO’s disallowance rests primarily on the reasoning that since there were no sales during the relevant year, the assessee’s business had ceased to exist. However, the audited financial statements, details of fixed assets, statutory filings, and continued maintenance of business infrastructure clearly establish that the appellant’s business was not discontinued but had only experienced a temporary lull. The appellant has demonstrated continuity of business intent and existence of commercial assets. 7.3 It is settled law that non-activity of sale or production in a particular year does not amount to cessation of business if the business structure and intention to resume operations

5 I.T.A. No.326/Kol/2026 Assessment Years: 2018-19 Presidency Exports and Industries Ltd. continue to exist. The Hon’ble Supreme Court in Vikram Cotton Mills Ltd. (169 ITR 597) held that even if a business remains temporarily suspended, expenditure incurred in connection with maintaining the establishment and assets is allowable. 7.4 Regarding the nature of rental income, it is noted that the leased property was part of the commercial assets of the business. As held in Universal Plast Ltd. (237 ITR 454, SC), income earned from leasing business assets on a temporary basis continues to be “Business Income” so long as the intention to exploit the assetcommercially persists. In the present case, the appellant has leased out its business assets only temporarily to earn income during the idle period, and therefore the same should be assessed under the head “Profits and Gains from Business or Profession.” 7.5 The AO’s observation regarding the diversion of borrowed funds is also not supported by any conclusive evidence. The appellant has demonstrated that the borrowings were utilized for business purposes and that the advances reflected in the balance sheet are old trade advances. Accordingly, the disallowance of finance cost merely on presumption cannot be sustained. Hence, all the grounds of the appeal are ALLOWED. 8.0 In effect, the appeal stands ALLOWED. 5. We have heard the rival contentions and perused the material on record. We find that temporary lull in the business would not give that the assessee has discontinued the business activity. We note that the assessee was carrying on the business of export and during the year did not file return of income. Consequently the same was shown at nil. The AO disallowed all the expenses and rental income of the assessee to the tune of Rs. 3,50,04,017/- and set off was not allowed on account of lease rental. We also note that the assessee has received lease rental income of Rs. 1,57,25,350/- . The AO treated the same as income from house property after allowing the deduction of 30% towards rental income and assessing the total income at Rs. 1,10,07,745/-. We have perused the order of Ld. CIT(A) and found that the Ld. CIT(A) passed a very reasoned and speaking order after discussion various case laws and holding that there was no closure of business as apparent from the audited financial statement which contained the details of fixed assets, statutory filing fee and other expenses as discussed above. We note that the assessee continued to maintain its business infrastructure and business license with the intention to revive the same . So far as the rental income is concerned, the Ld. CIT(A) held that the rental income was part of the commercial asset and related to the business and therefore rental expenses must be assessed under the head profit and gains from business. In our opinion, the order passed by the Ld. CIT(A) is a very reasoned and speaking order and does not

6 I.T.A. No.326/Kol/2026 Assessment Years: 2018-19 Presidency Exports and Industries Ltd. require any interference from our end. Accordingly, we uphold the order of Ld. CIT(A) by dismissing the appeal of the revenue.

Order is pronounced in the open court on 10th July, 2026

Sd/- Sd/- (Pradip Kumar Choubey /�द�प कुमार चौबे) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 10th July, 2026 SM, Sr. PS

Copy of the order forwarded to: 1. Appellant- DCIT, Circle-5(1), Kolkata 2. Respondent – Presidency Exports & Industries Ltd. , 1st Floor, Mcleod House, 3, Netaji Subhas Road, Dalhousie,Kolkata-700001. 3. Ld. CIT(A)-NFAC, Delhi 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata