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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri SHAMIM YAHYA
O R D E R Per Shamim Yahya (AM) :-
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-51, dated 25.04.2019 and pertains to assessment year 2011-12.
Grounds of appeal
read as under:-
1. On facts and in law, the ld.CIT-51, Mumbai[the CIT(A)] erred in confirming the disallowance of business expenses of Rs. 3,58,603/- made by the Deputy commissioner of Income Tax, Central circle-3(1), Mumbai(the ‘AO’) The appellant therefore prays that the order of the CIT(A) be set aside and the AQO be directed to delete the disallowance of Rs. 3,58,603.
Brief facts of the case are that the assessee is an entity of the Cineyug Group of concerns and is engaged in the business of film production. It was observed that the assessee had not filed its Return of Income for the relevant year although as ) per Form 26AS, it was in receipt of substantial amount of rental income. Therefore, the assessment in this case was reopened by issue of notice u/s. 148 after obtaining necessary approval of the Range-head. During the year under consideration, the assessee had claimed business expenses of Rs. 3,58,603/-. In course of the re- assessment proceedings, the AO observed that during the relevant year no business activity has been carried out. Therefore, the AO disallowed the entire business expenses claimed by the assessee of Rs. 3,58,603/- u/s. 37 of the Act. Finally, the AO completed the assessment vide order u/s. 143(3) rws 147 dated 30.11.2018 determining the total income at Rs. 15,99,600/-.
The AO on the impugned issue has observed as under:-
“Claim of Loss under the head "Profit and Gains of Business or Profession”:- The assessee firm has shown rental income in the assessment year under consideration. Against rental income, the assessee claimed deduction of Rs. 5,42,774/- against tax..paid to local authorities besides deduction @ 30% u/s 24(a) of the I. T. Act. Other income of Rs. 16000/- has been declared in respect of deposit of the cheque of the same amount in the bank account of the assessee with Standard Chartered Bank on 28.01.2011. No other details regarding nature of income has been filed. No receipt from business has been shown. However, the assessee has claimed loss of Rs. 3,42,603/- under the head "Profit and Gains of Business or Profession". From profit and loss account, it is noticed that the assessee has claimed the expenses under the following heads: - i. Bank Charges:- 11145/- ii. Car Expenses 13375 iii. Depreciation:- 170563/- iv. Electricity:- 15970/- v. Legal and Professional Charges:- 35000/- vi. Repairs:- 27825/- vii. Society Charges:- 72000/- viii. Sundry balances written off:- 2304/- ix. Tempo Traveler Expenses:- 4758/- Total 358603/-
The AO asked the assessee to provide justification for expenses. Assessee responded as under:-
Rs. 3,42,603./- a) Our clients are holding satellite rights of one motion picture " Raja Hindustani" jointly with another company. The receipts from sale of satellite rights from time to time have been offered under the head Income from Business. b) During the year under review there was no receipt from satellite rights. It has also leased out its two office premises and the income from rentals has been offered under the head Income from House Property. c) During the year, our clients had carried on the business. However as there was no business receipt since there was lull in the business. In this regard attention is drawn to the accounts of the year ended 31.03.2013 on Annexure 4. Particularly attention is drawn to Profit and Loss account for the year ended 31.03.2013. Here there is a receipt from Satellite rights. This amount was offered under the head Income from Business and the same has been accepted under section 143(2) of the act. Similarly attention is drawn to Annexure 5 in which Balance sheet as at 31.03.2017 is attached. Here also it can be seen that there is receipt from sale of satellite rights which has been offered under the head income from Business. d) From the above it is clear that our clients are carrying on regular business and only during the year there were no sales it could not be assumed that our clients are not carrying on any business.
However, the AO was not satisfied despite noting that income from satellite rights have been offered form AY 2013-14 and 2017-18. The AO held that justification for these expenses is not tenable. Further, in his opinion no business was carried out during the year, these expenses are not allowable.
Upon assessee’s appeal, ld.CIT(A) noted assessees submission that there was a temporary lull during the period and assessee had to incur basic expenditures to retain and carry the business infrastructure. However, he referred to his own order for earlier years and dismissed the appeal as under:-
“A similar issue was adjudicated by me in the case of assessee for A.Y. 2014-15 wherein the appeal of the assessee was dismissed. The relevant portion of my order for A.Y. 2014-15 in case of the assessee is reproduced as under:-
"The submissions and contentions of the assessee have been duly considered. It is observed that during the relevant year the assessee did not receive any business receipts. It is further observed that in the subsequent two years i.e. the years relevant to A.Ys. 2015-16 and 2016-17, also the assessee has not received any business receipts. If the relevant year was the only year in which the assessee had not earned any business receipts, the contention of the assessee that its business was operational though no receipts were received during the year would have been acceptable. However, since there are no business receipts even in the subsequent two years, the claim of the assessee that its business was operational cannot be accepted. Since no business was carried out during the relevant year, the assessee cannot claim any business expenditure. Therefore, no infirmity is found in the action of the AO in disallowing the business expenses claimed ~by the assessee of Rs. 3,57,041/-. Accordingly, this ground of appeal is dismissed". It is observed that the assessee had produced one movie 'Raja Hindustani' long back in the year 1996. After producing this movie, the assessee has neither produced any other movie nor has undertaken any business activity. However, on sale of the satellite rights of the said movie 'Raja Hindustani', the assessee intermittently has earned some nominal revenues in the years relevant to A.Ys. 2013-14 and 2017-18, but, that does not negate the fact that neither any movies have been produced since the year 1996 nor any other business activity has been undertaken by the assessee. In view of such a factual position, it is held that the business of the assessee has not suffered a temporary lull but has actually ceased. Therefore, no infirmity is found in the action of the AO in disallowing the entire business expenses of Rs. 3,58,603/- claimed by the assesse u/s. 37 of the Act.”
Against the above order, assessee is in appeal before ITAT.
I have heard both the parties and perused the records. It is amply clear from the facts on record, that there was a temporary lull during this period. In the earlier years, assessee has done business and in subsequent years also business receipts are there. In these circumstances, when there is a temporary lull, assessee cannot be denied the basic expenditure, which were required to carry on and retain the business infrastructure. By no stretch of imagination, it can be held that, if there is no business receipt during the year, assessee should wind up the infrastructure and start all over again when the business receipts start following. Ld.CIT(A) reliance upon his own earlier order do not change of facts and circumstances that there is temporary lull. It has not been disputed by revenue authorities that receipts from the business have started in 2017-18. Hence, assessees plea of temporary lull is justified. Hence, I set aside the orders of the authorities below and decide the issue in favour of the assessee.
In the result, appeal by the assessee stands allowed.
Pronounced in the open court on 11.04.2022.