THE COMMISSIONER OF INCOME TAX F.BAD vs. M/S PRECISION GALVANISING WORKS F.BAD

ITA/361/2004HC Punjab & HaryanaPHHC01051517200409 February 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL10 pages
AI SummaryRemanded

What were the facts?

The Revenue (Commissioner of Income Tax, Faridabad) appealed against an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment year 1995-96. The assessee, M/s Precision Galvanising Works, had filed a return showing a net loss, including brought forward losses. The Assessing Officer (AO) disallowed expenses and brought forward losses, contending that the assessee was not carrying on business, citing a disconnected electricity supply, closed premises, lack of business transactions, and no employed workers. The CIT(A) reversed the AO's decision, finding that the assessee had operated bank accounts, its books were audited, and thus the business was continuing. The ITAT affirmed this finding.

What did the High Court hold?

The High Court found merit in the revenue's contention that the ITAT and CIT(A) erred in holding that the assessee was still carrying on business. It was undisputed that the electricity supply was cut off and business had stopped. The claimed expenses did not include wages or electricity charges. The Court emphasized that while the volume of business might not be conclusive if business is being run, numerous circumstances indicating closure, coupled with insignificant turnover, should be considered to determine if the activity was a mere device to avoid tax. The CIT(A) should have examined whether the claim of carrying on business was a tax avoidance strategy to claim carry forward of losses and business expenses. The findings of the CIT(A) and ITAT were not sustainable. The matter was remitted back to the CIT(A) for a fresh decision in accordance with law. The Court answered the substantial questions of law in favour of the revenue.

What were the issues?

1. Whether the Hon'ble ITAT erred in law by holding that the business of the assessee continued, particularly when the electricity connection had been cut off and no regular business activities were conducted, with business premises lying closed? (Section 260-A of the Income Tax Act, 1961) 2. Whether the Hon'ble ITAT erred in law by deleting the addition of Rs.9,01,232/- made by the AO on account of expenditure relating to the closed business? (Section 260-A of the Income Tax Act, 1961) 3. Whether the Hon'ble ITAT erred in law by deleting the disallowance of Rs.2,79,306/- made by the AO by holding that the business of the assessee continued during the year? (Section 260-A of the Income Tax Act, 1961) Assessee's contentions (as per CIT(A) and Tribunal findings): The business is wide and includes quiescent activities. A single transaction can constitute business. Income from interest on deposits is incidental to business. Reliance was placed on CIT v. Calcutta National Bank Limited, Narain Swadesh Weaving Mills v. CEPT, CIT v. Khariagarh Timber Traders, CIT v. Bharat Insurance Co.Limited, and a Madras High Court decision reported in 876 Taxman -2. Revenue's contentions: The finding of the Tribunal was perverse as there were no business transactions, the factory was closed, and electricity was cut off. Reliance was placed on CIT v. Gemini Cashew Sales Corporation and Ram Chandra Munna Lal v. CIT, and Binani Printers Pvt. Limited v. CIT.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No. 361 of 2004 Date of decision: 9.2.2011 The Commissioner of Income Tax, Faridabad -----Appellant Vs. M/s Precision Galvanising Works, Faridabad. ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Ms. Urvashi Dhugga, Sr.Standing Counsel for the revenue. None for the respondent. Adarsh Kumar Goel,J.

1.

This order will dispose of ITA Nos.361. 371 of 2004, 568 and 688 of 2005. All the four appeals have been filed by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, ‘the Act’) and are said to involve same questions.

2.

ITA No.361 of 2004 arises from order dated 4.6.2004 of the Income Tax Appellate Tribunal, Bench SMC-I, New Delhi in ITA No.1926/Del/2000 for the assessment year 1995-96 and raises following substantial questions of law:- “1.Whether the Hon’ble ITAT has erred in law in holding that the business of the assessee continued particularly when electricity connection had been cut off and no regular business activities were done as all the business premises were lying closed?

2.

Whether the

The order continues below.

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