MEWAR SUGAR MILLS LTD vs. ASSISTANT COMMISSIONER INCOME

1 HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 451 / 2011 Mewar Sugar Mills Ltd., 1st Floor, Bhagat Bhawan M.I. Road Jaipur, Aged About 63 Years, Through Its Managing Director Shri ARun Dhandhania S/o Late Sh. Shiv Prasad Ji ----Appellant Versus The Assistant Commissioner , Income Tax Department, Circle-2, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay Jhanwar For Respondent(s) : Mr. Anuroop Singhi _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 30/08/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the tribunal whereby the tribunal has dismissed the appeal of the assessee confirming the order of A.O. and CIT(A). 2. This court while admitting the appeal on 10.04.2012 has framed following substantial questions of law:- “1. On the facts and circumstances of the case and in law whether the business expenditure of Rs.72,14,715/- claimed by the appellant under the head “profits and gains of business or profession” were not allowable merely because the factory and the company did not operate due

2 to lull in the business. 2. On the facts and circumstances of the case and in law whetehr the interest receipt of Rs.1,30,316/- on FDR not constitute “business income”? 3. Counsel for the appellant contended that it is the case where the company is in liquidation and in BIFR, the directors though produced the scheme but the authority has taken a contrary view. In the previous assessment year 2001-02, the same authority has granted the expenses admissible and the loss was allowed to be carried forward by order dated 18.03.2004. Even in subsequent Assessment year 2005-06 same deduction was allowed which reads as under:- “Subject to the above discussion, total income of the assess is computed below:-

Total loss declared

Rs. 51,33,990/- Add: Disallowance out of prior period exp. Rs. 1,08,911/- Total Loss

Rs. 50,25,079/- 4. Even for the assessment year 2006-07, the Assessing Officer has observed as under:- “After examination of details and discussion with the AR, returned loss at Rs.3574120/- is accepted.” 5. However, for the current year, because of the non- appearance of the assessee the following order was passed:- Thus, it is evident that the assessee has not earned any income computed under the head “Income from Business of Profession”. Therefore, the assessee is not eligible for deduction u/s 29 to 44D of the Act which it has claimed in the profit & loss a/c and has computed total income of Rs. (-) 72,14,715/-. The assessee has also not

3 incurred any expenditure in connection with the rent income of Rs.2,280/- and profit on sale of fixed assets of Rs.13,538/-. 5. Counsel for the appellant has submitted that both the authorities namely CIT(A) and Tribunal have seriously committed an error in not accepting the appeal of the assessee. 6. Counsel for the appellant has relied on the decision of Gujarat High Court in the case of Cedan Vinimay (P.) Ltd. Vs. Assistant Commissioner of Income Tax reported in (2015) 54 taxmann.com 415 (Gujarat) wherein it has been held as under:- “5. Against the order of the CIT (A), the assessee preferred appeal before the Income- tax Appellate Tribunal. It was pointed out that the company had been incorporated in the year 1984 with the main object of carrying on business of the dealers, traders of chemicals, etc. Since the company could not start the business as per the main objects, a special resolution was passed by the shareholders at the extraordinary meeting held on 28.11.1984 authorising the company to do business of financing and for that purpose advance deposit or lend money from time to time. Thereafter, the company had carried on the financing business and has also done trading of chemicals. In the year under appeal, the assessee derived income from commission also. It was, accordingly, pleaded that the finding of the Assessing Officer that the assessee had not carried on any business is contrary to facts on record. Therefore, it was urged that the finding of the revenue authorities may be reversed and the claim of the appellant that it carried on business of financing, trading etc. may be accepted. It was also contended that since the appellant carried on business during the year under appeal, the expenses incurred for business are allowable as deduction. It was therefore contended that the Assessing Officer was not justified in disallowing the entire expenses and treating the receipts of the appellant as income from other sources. 9. We have heard learned advocate Mr. Soparkar

4 for the assessee. The facts of the case are that since the profit which was shown by the appellant as income from business, the appellate Tribunal has committed error to shift it to income from other sources. It should have been assessed under the head `profits and gains of business or profession’ and not under the head `income from other sources’. In that view of the matter, we are of the opinion that the income should have been assessed under the head `profits and gains of business or profession’ and not under the head `income from other sources’. The issue is answered in favour of the appellant.” 7. Counsel for the appellant has relied on the decision of Supreme Court in the case of Commissioner of Income Tax, Lucknow vs. Vikram Cotton Mills Ltd. reported in (1988) 36 Taxman 0001 wherein the Supreme Court has held as under:- 8. This question was discussed in detail by this Court in Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Ltd. (supra) where this Court found that if a commercial asset was not capable of being used as such, then its being let out to others did not result in an income which was the income of the business but it could not be said that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset was the profit of the business irrespective of the manner in which that asset was exploited by the owner of the business. He was entitled to exploit it to the best advantage and he might do so either by using it himself personally or by letting it out to somebody else. The view that in order to constitute business income the commercial asset must at the time it was let out be in a condition to be used as commercial asset by the assessee himself was not correct. In that case the assessee company was a manufacturer of silk cloth and as a part of its business it installed a plant for dyeing silk yarn. During the chargeable accounting period, 1st January, 1943 to 31st December, 1943 owing to difficulty in obtaining silk yarn on account of the war it could not make use of this plant and it remained idle for some time. In August, 1943, it

5 was let out to a person on a monthly rent. The question was whether such sum representing the rent for five months realised by the assessee was chargeable to excess profits tax as profits of business or was income from other sources and was therefore not chargeable to excess profits tax. It was held by this Court that it was a part of the normal activities of the assessee's business to earn money by making use of its machinery by either employing in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it and that the dyeing plant had not ceased to be a commercial asset of the business and the sum representing the rent for five months received from the lessee by the assessee was therefore income from business and was chargeable to excess profits tax. As mentioned hereinbefore, the question arose in the context of Excess Profit Tax Act; the consequence will be the same in the case of Income-Tax Act. This Court observed again that the yield of income by a commercial asset irrespective of the manner in which the assets are exploited by the owner of the business would be income from business. It was emphasised that the assessee was entitled to exploit it to the best advantage and he might do so either by using it himself personally or by letting it out to somebody else. This Court gave an example. For instance, in a manufacturing concern use of its plant and machinery could advantageously be made owing to the paucity of raw materials only for six hours in a working day, and in order to get the best yield out of it, another person who has got the requisite raw materials is allowed to use it as a licensee on payment of certain consideration for three hours. The question was posed: could it be said in such a situation with any justification that the amount realised from the licensee was not a part of the business income of the licensor. The Court noted that in that case the company was incorporated purely as a manufacturing concern with the object of making profit. It had installed plant and machinery for the purpose of its business and it was part of it, if at any time it found that any part of its plant "for the time being" could not be advantageously employed for earning profit by the company itself, to earn profit by leasing it to somebody else. In such circumstances, it would be improper to refuse it to treat it as such being the advantage of business income. This Court noted the observations of the Court of Appeal in

6 Inland Revenue Commissioner v. Broadway Car Co Ltd. A.I.R[1946] 609. In that case the company had carried on the business of motor car agents and repairers on land held on lease from 1935 to 1956 at an annual rent of £ 750. By 1940 the company's business had dwindled under war conditions to such an extent that no more than one third of the land was required. In those circumstances the remainder was sublet for fourteen years at an annual rent of £ 1150. The General Commissioner of Income Tax decided that the difference of £ 400 between the outgoing of £750 for the land retained and the incoming of £ 1150 for the land disposed of was "income received from an investment", and business not being one within the special categories mentioned in the Finance Act 1939 that £400 was not taxable. Lord Scott, J. held that the word 'investment' must be construed in the ordinary popular sense of the word as used by business men and not as a term of art to say that the Commissioners had erred in law in coming to the conclusion that the transaction resulted in ah investment. Lord Scott, J. emphasised on the point that after the business of the company had dwindled, it partitioned part of the land from the, rest and sublet it by installing a heating apparatus for the sub lessee . It was found that war conditions had reduced the company's business to very small proportions and they cut their loss by going out of business in respect of the major part of their land and put it out of their power for fourteen years to resume business there. In such a situation, it could not be business any more. That was a peculiar circumstance when the assessee had a desire to part with that type of business. Therefore, whether a particular income is from business or from investment must be decided according to the general common-sense view of those who deal with those matters in the particular circumstances and conduct of the parties concerned. Has the assessee evidenced any intention to switch over from exploitation of assets by itself and used the asset as a rented one? 10. This Court had again occasion to examine this question in Narain Swadeshi Weaving Mills v. Commissioner

Excess

Profits

Tax MANU/SC/0074/1954 : [1954]26ITR765(SC) . That was a case under Excess Profits Tax Act, 1940. It was observed by this Court that before the Excess Profits Tax Officer could embark upon an enquiry as to whether a transaction was

7 effected for the avoidance or reduction of liability to excess profits tax within the meaning of Section 10A of the Excess Profits Tax Act, 1940 and to make such adjustments as he considered appropriate under that section there must be proof that the assessee was, during the chargeable accounting period, carrying on business of kind referred to in Section 5 of the Act. There the assessee firm was carrying on a manufacturing business consisting of three partners, N and his two sons R and G. In April 1940 a public limited company was incorporated with the object of taking over the business from the assessee firm. The Company was director- controlled and the directors were N, his three sons R, G and S and a brother-in-law of G. the company purchased only the buildings and leasehold rights from the assessee firm but took over from it on lease at an annual rent the plant and machinery. The assessee firm did not thereafter manufacture anything and it had accordingly no further trading or commercial activity. In July, 1940 the company executed a managing agency agreement in favour of U & Co. consisting of R and G as partners. In January, 1941, the company appointed as its selling agent R & Co, consisting of R, G and S as partners. In April, 1941, the shares of the partners in the assessee firm were adjusted so as to equalise, as far as possible, the share of N with the shares which his sons got in the several firms. All the three firms were registered under Section 26A of the Indian Income-Tax Act, 1922. The question was whether the Excess Profits Tax Authorities were justified in amalgamating the income of U & Co. and R & Co. with the income of the assessee firm under the provisions of Section 10A of the Excess Profits Tax Act, 1940. It was held that in the facts and circumstances of the case the letting out of the plant and machinery by the assessee firm to the company could not be held to fall within the body of the definition of "business" under Section 2(5) and as the assessee firm had, therefore, no business during the relevant period to which the Act applied, Section 10A could not be invoked by the Excess Profits Tax Authorities. It was further held that the application of Section 10A with a view to amalgamating the income of the firms of U & Co. and R & Co. with the income of the assessee firm was not valid in law.

8 11. Dealing with this question, this Court noted that "business" as defined under Section 2(5) of the Excess Profits Tax Act included amongst others, any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. The first part of this definition of a "business" in the Excess Profits Tax Act is the same as the definition of a business in Section 2(4) of the Indian Income-Tax Act, 1922. Whether a particular activity amounted to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer. The Judicial Committee noted in the case of Commissioner of Income-tax v. Shaw Wallace & Co., I.L.R. [1932] Cal. 1343 that the words used in the definition are no doubt wide but underlying each of them is the fundamental idea of the continuous exercise of an activity, (emphasis supplied). It was also emphasised by this Court that the word "business" indicated some real, substantial and systematic or organised course of activity or conduct with a set purpose. In that case, this Court pointed out the difference between Excess Profits Tax Act and the Indian Income-Tax Act, 1922. So far as the question before us is concerned, this difference is not material. 14. In each case the intention has to be gathered as to whether the commercial asset was intended to be exploited by the assessee or whether it was intended to be used by letting it out for a temporary period. It depends upon the facts and circumstances of each case. The circumstances of the instance case were as follows as appears from the Statement of the case: The assessee-company incurred losses in its business of manufacture of textiles from the year 1949. On account of heavy losses, its manufacturing activities were stopped from December, 1953. By 1956, colossal loss had accumulated. Its liabilities had amounted to Rs. 26 lakhs as against the capital of Rs. 11 lakhs. A winding-up petition was filed in the Allahabad High Court by the creditOrs. M/s. Jawala Prasad Radha Krishan in February 1954. The Industrial Finance Corporation was one of the creditors of the company and the company had a liability of Rs. 12.5 lakhs to that undertaking secured by the fixed assets in terms of a mortgage deed dated

9 19.12.1950. The Punjab National Bank had advanced a loan of Rs. 6.5 lakhs to the company by movable assets of the company such as cotton, cloth and yarn. The Industrial Finance Corporation had taken physical possession of the immovable properties of the company on 12th July, 1954, on the company's failure to pay off its debts to the I.F.C. The High Court thereafter approved a scheme, by an order dated 21.5.1956 whereby the assets and the entire business of the assessee-company were let out to M/s. General Fibres Dealers (Pvt.) Ltd., Calcutta, at a least rent of Rs. 2,50,000 per year. The management of the assessee company was transferred to a Board of Trustees appointed by the High Court pursuant to the scheme referred to above. According to the terms of the lease dated 7.7.1956 with the lessee, the General Fibres Dealers (Pvt.) Ltd., the assets of the company were let out for an initial period of ten years, with a right given to the lessee to exercise the option for a further period of ten years. The assesses- company had maintained a skeleton staff thereafter.” 8. Counsel for the appellant has further relied on the decision of this Court in the case of Ratnesh Enterprises Private Limited Vs. Commissioner of Income Tax (D.B. Income Tax Appeal No.22/2005) decided on 25.01.2017 wherein this court has observed as under:- 4. Counsel for the appellant has contended that in view of the decision of Supreme Court in Commissioner of Excess Profits Tax vs. Shri Lakshmi Silk Mills Ltd. Reported in (1951) 20 ITR 451 (SC) holding as under:- “The short question to decide in this case is whether on the facts found, it could be said reasonably that the dyeing plant had become redundant for its business as a silk manu- facturing concern, simply by the circumstance that for the time being it could not be used by it personally for the purpose of dyeing silk yarn owing to the non-availability of yarn. It is difficult to conceive that the company would not have immediately started dyeing yarn as soon as it became available. Instead of dyeing

10 yarn, another person was allowed to dye jute (we are told), the assessee company making income out of its use as a commercial asset. In this situation it is not possible to hold that the income thus earned was not a part of the income of the business and was not earned for the business by its commercial asset or that this commercial asset had become redundant to the company's business of manufacture of silk. The analogy of Broadway Car Co. Ltd. (1) therefore does not hold good for the decision of the present matter.” 4.1 In Commissioner of Income Tax vs. Vikram Cotton Mills Ltd. reported in (1988) 169 ITR 0597 wherein it has been held as under:- “In the context of these facts, it appears that it was a possible conclusion that the assessee intended that there should be a temporary suspension of the business for the purpose of reconstruction of the company and for that matter there must be stoppage of the user of the machinery by the assessee. It was temporary lease though for 10 or 19 years on renewal years and after the expiry of the period the property reverted back to the assessee. It is pre-dominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. All the relevant facts, it appears have been considered by the Tribunal from the correct standpoint, i.e. Ordinary prudent businessman or as in England it used to be "man on the top of the platform omnibus.", or "director's arm chair". If on that test a plausible conclusion has been drawn-no objection can be taken. On that basis applying the correct principle the Tribunal found that the intention was not to part with the machine but to lease it out for a temporary period as a part of exploitation. In such a circumstance, it cannot be said that no business was carried on and their income derived from the machine letting was only a rent income. There was a temporary suspension of business for a temporary period for an object to tide over the crisis condition. There was never any act indicating that the assessee never intended to carry on the business. In the aforesaid view of the matter, the High Court was right in the view it took and the appeals must accordingly fail and are dismissed with costs. 5. He contended that the resolution of Board of Directors dt. 3.6.1991 which has been specifically called upon by this court vide order dated 14.12.2016, reads as under:- “Ratnesh Enterprises Private Limited A meeting of

11 Directors held on 3rd day of June, 1991 at Sneh Bhawan. Rani Road. Udaipur. QUORUM 1. Sh. Arun Dhandhania 2. Smt. Neena Dhandhania 1- Shri Arun Dhandhania was unanimously elected the Chairman of the meeting. The minutes of last board meeting were read and confirmed. 2- Smt. Neena Dhandhania informed the board that the company is actively involved in negotiation with the person/parties for Real Estate Development of the landed property/ies located at various places in Rajasthan and Banglore/Karnataka. 3- Shri Arun Dhandhania Placed before the board the letter of agreement in respect of leasing of hire Car No-RPH-4320 to Mewar Sugar Mills Ltd. Bupalsagar @ 9000/- per month plus actual salary payable to driver plus maintenance charges etc. which are to be born by the said company with effect from 01.04.1991. The board noted the transaction and ratified the some with effect from 01.04.1991. 4- Shri Arun Dhandhania placed before the board the statement of account for the year ended 31st March, 1991 showing a net loss of Rs. 694617.60 after providing the depreciation Rs.36718.00 The same were approved for sending to the auditors for their report thereon. 5- The following matters were considered and ratified/confirmed:- (1) Travelling expenses incurred by the director Rs. 1966.20 (2) Preliminary expenses written off Rs. 1202.00 It was then:- “Resolved that the Balance Sheet as on 31st March, 1991 and the profit and loss account for the year ended on that date be and are hereby approved and same be signed by Shri Arun Dhandhania and Smt. Neena Dhandhania, the directors of the company and the said accounts be submitted to auditors of the company for report thereon. There being no other business the meeting terminated with a vote of thanks to the chair.” 6. In that view of the matter, the business has been shown pursuant to the resolution of the Board of Directors, and therefore, it was the income arising out of the

12 immovable property assets of the company assessee which was connected with the hotel and hotel business. 7. Counsel for the respondent has contended that resolution was passed on business clause and in view of the observations made by the Supreme Court in:Universal Plast Limited Etc. Vs. Commissioner of Income Tax, Calcutta reported in (1999) 237 ITR 454 (SC) wherein it has been held as under: “18. In the light of the above discussion, the propositions may be summarised as follow: (1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents licence fee) received by an assessee from leasing or letting out of assets would fall under the head 'Profits and Gains of business or profession'; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case including true interpretation of the agreement under which the assets are let out; (3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same. (4) if only or a few of the business assets are let out temporarily while the assessee is carrying out his other business activities then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets. 19. Now adverting to the facts of UPL case, the High Court referred to the findings of the Tribunal that the leasing out of the factory was not a sequel to the assessee's decision to go out of the business in respect of the subject factory and that it was just a make-shift transient alternative means of commercial exploitation of the commercial assets, so income from such

13 letting could not be treated as the fruits of ownership simplicitor of the asset. The High Court also referred to various clauses in the Agreement, particularly Clauses 1, 2, 4, 7, 19, 20, 21 and 22 and concluded that "licensee exercising its vested right of option to purchase the licenced premises, the assessee stands completely out in the cold". The High Court recorded the following findings : Therefore, it can very well be presumed that at the time the licence agreement was entered into, the intention of the ultimate outright sell out was already there. The assessee was already committed to the licensee for such a sell-out at licensee's pleasure and there is no means of the assessee falling back from that commitment. Therefore, it can very reasonably be inferred that the assessee in the case decided to go out of business as far as this particular factory was concerned.. The lease agreement is in fact a veiled agreement for lease-cum-sale....We are of the opinion that the licensing is not meant to be a temporary stop gap exploitation of commercial assets. It could not be in the contemplation of the assessee at the time it entered into the licence agreement, to retain the assets any more as a commercial asset. 21. From a plain reading of the clauses noted above, what is clear is that they deal with a situation arising out of the breach of the terms of the Agreement entitling the Licensor to terminate the Agreement on the expiry of the period of one month from the service of the notice to the Licensee. Clause 16 deals with a situation of the Licensee being wound up in which situation the Licensor reserved his right to determine the Agreement and retake the possession of the factory. These clauses do not whittle down the conclusion arrived at by the High Court with reference to the rights of the assessee-lessor coming to an end on the exercise of option by the lessee under Clause 19 of the Agreement. Applying the afore-mentioned tests, we are clear in our mind that the High Court has reached the correct conclusion which does not warrant interference. 23. On considering these findings, the High Court answered the question referred to it in favour of the Revenue, On the face of these findings, it cannot but be concluded that the assessee had dismantled its business never to return back to it. Applying the aforesaid principles, it has to be

14 held that the answer recorded by the High Court to the question referred to it is correct in law. 24. In the result, we hold that both the High Courts were right in answering the questions referred to them, in favour of the Revenue and against the assessee. These appeals are, therefore, dismissed with costs.” 9. Counsel for the appellant has further relied on the decision of Supreme Court in the case of Commissioner of Excess Profits Tax Vs. Shri Lakshmi Silk Mills Ltd. decided on 18.09.1951 wherein this court has observed as under:- “12. The short question to decide in this case is whether on the facts found, it could be said reasonably that the dyeing plant had become redundant for its business as a silk manu- facturing concern, simply by the circumstance that for the time being it could not be used by it personally for the purpose of dyeing silk yarn owing to the non-availability of yarn. It is difficult to conceive that the company would not have immediately started dyeing yarn as soon as it became available. Instead of dyeing yarn, another person was allowed to dye jute (we are told), the assessee company making income out of its use as a commercial asset. In this situation it is not possible to hold that the income thus earned was not a part of the income of the business and was not earned for the business by its commercial asset or that this commercial asset had become redundant to the company's business of manufacture of silk. The analogy of Broadway Car Co. Ltd. (1) therefore does not hold good for the decision of the present matter. 13. We are therefore of the opinion that it was a part of the normal activities of the assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it. The High Court therefore was in error in holding that the dyeing plant had ceased to be a commercial asset of the assessee and the

15 income earned by it and received from the lessee, Messrs Parakh & Co., was not chargeable to excess profits tax. The result therefore is that we hold that the answer returned by the High Court to the question referred to it by the Tribu- nal was wrong and that the correct answer to the question would be in the affirmative and not in the negative. 14. The appeal is allowed, but in the circumstances of the case we make no order as to costs. We have not thought it necessary to refer to all the cases cited at the Bar as none of them really is in point on the short question that we were called upon to decide and analogies drawn from them would not be helpful in arriving at our decision.” 10. Counsel for the appellant has further relied on the decision of High Court of Karnataka in the case of Commissioner of Income Tax & Anr. Vs. Blend Well Bottles (P) Ltd. decided on 17.02.2010 reported in (2010) 323 ITR 18 (Kar) wherein this court has observed as under:- “Having heard the counsel for the parties, we are view of the that the questions of law raised in this appeal are to be answered the Revenue for the following reasons:- It is not in dispute that the assessee was carrying on the business in manufacturing the Indian made foreign liquor and the activities of the assessee are continued even today. The business premises of the assessee is situated in Punjab. On account of the riots and other activities in the place, where the factory of the assessee is situated, the assessee was forced to close down the activity till the peace was restored in the locality. This fact is not disputed by the Revenue. If for the reasons which were beyond the control of the assessee, its business activities were closed, such closure cannot be treated as a closure with an interim to close the business once for all and such closure has to be treated as an act of God or vismajeour. The AO has failed to take note of the fact that the assessee did not close its business activities on its own. But, it was on account of unforeseen

16 circumstance. Such closure will not disentitle the assessee to claim the depreciation. The facts involved in Lahore n Electric Supply Co.Ltd. (supra) are entirely different. There are busi8ness was closed with an intention to close the business once for all and it had no intention to revive its business and the company itself was sold and the company was not a viable company. Therefore, we are of the view that the decision relied upon by the Revenue has no application to the facts of this case. In the circumstances, we are of the view that the Tribunal as well as the CIT were justified in granting relief to the assessee. Accordingly, we hold that no substantial question of law arises in this appeal against the revenue and in favour of the assessee.” 11. In view of the above, counsel for the appellant contended that the view taken by the tribunal is required to be reversed and both the issues are required to be answered in favour of the assessee. 12. Counsel for the respondent contended that in spite of the non-cooperation of the assessee, more particularly he has stated that in spite of the several notices, nothing is produced by the assessee. In that view of the matter, the Assessing Officer has no option but to pass ex parte order. 13. He has taken us to para 5 of the order of the Tribunal whereby the Tribunal while considering the matter has held as under:- “We have heard the rival contentions and perused the facts of the case. There is no dispute that the company has stopped operation since 1999-2000 and it is non-fictional since 2000-01. The assessee has not submitted any documentary evidence or any explanation or document before the AO or ld. CIT(A) or even before us specifically with regard to the Rehabilitation Scheme. It is for the assessee to prove that the assessee has not closed its business activity and all efforts are being carried out to run the business. No evidence has been brought on record in this

17 regard. In spite of many opportunities given before the AO, nothing has been submitted and the AO was compelled to pass ex parte order. Before the ld. CIT(A) as well, the ld Counsel for the assessee has made the arguments that a revised/modified rehabilitation scheme has been submitted but what is the scheme is not on record and how the assessee is making efforts to run the business is not brought on record. The ld counsel for the assessee submitted paper book containing the following documents. S.N. Particulars Page No. 1. Copy of submission before CIT(A) 1-5 2. Copy of return of Income 6 3. Copy of Computation of total income 7-9 4. Copy of P & L Account and Balance Sheet 10-11 5. Copy of Director’s report 12-15 The said documents in the paper book do not prove that the assessee has an intention to start business. In such circumstances and facts of the case, none of the cases relied upon by the ld. AR can be made applicable and cannot benefit the assessee. Therefore, we find no infirmity in the order of the ld. CIT(A) who has rightly disallowed the claim of set off of losses of Rs.72,74,715/-. Thus Ground No.1 of the assessee is dismissed.” 14. We have heard counsel for the parties. 15. Taking into consideration that for the previous year and the subsequent year, same amount has been allowed to same company, the company is not wound up or declared to be closed and it is carrying out the activity which was permissible under the Memorandum of Understanding. In that view of the matter, the view taken by the Tribunal is required to be reversed. The expenses of Rs.72,74,715/- claimed by the appellant under the head profits and gains of business or profession is required to be accepted. 16. On second issue, the amount which has been invested was as per the Memorandum of Understanding of the company. In that view of the matter, the income derived will be the business income

18 and it can’t be considered as the income from the other sources. 16. In that view of the matter, both the issues are required to be answered in favour of the assessee. 17. The appeal stands allowed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Pdaiya/Jyoti Item No.108