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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI M. BALAGANESH, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-2, Thane [hereinafter in short “Ld.CIT(A)”] dated 24.03.2017 for the A.Y. 2011-12.
Assessee in its grounds of appeal challenged the order of the Ld.CIT(A) in confirming the action of Assessing Officer in disallowing a sum of ₹.10,23,339/- being sundry balances written off. Assessee also (A.Y: 2011-12) M/s. Deekay Iron & Steel Pvt. Ltd., raised a ground in confirming the action of the Assessing Officer in disallowing sum of ₹.4,980/- as expenses claimed towards Demat charges and audit fees for compliance.
3. Briefly stated the facts are that, in the course of the assessment proceedings the Assessing Officer noticed that assessee has shown income of ₹.8,93,101/- against which administrative and other expenses of ₹.10,58,922/- were claimed and declared net loss of ₹.1,70,105/-. On a perusal of the Profit & Loss Account and Balance Sheet, the Assessing Officer noticed that assessee has written off sundry balances to the extent of ₹.10,23,339/- and various other expenses like Annual Maintenance Charges, Demat Charges, Audit Fees etc., Assessee was required to explain as to why the expenses claimed is an allowable expenditure against income from other sources. However, the assessee could not furnish any explanation and since the assessment is time baring the Assessing Officer disallowed the expenses of ₹.10,58,922/- claimed by the assessee.
4. On appeal the Ld.CIT(A) sustained the disallowance to the extent of ₹.10,28,319/- being sundry balances written off of ₹.10,23,339/- and Demat Charges and Audit fees of ₹.4,980/-. Before the Ld.CIT(A) the assessee contended that the sundry balances written off were actually
(A.Y: 2011-12) M/s. Deekay Iron & Steel Pvt. Ltd., offered as income in earlier years and since they were written off, in this year as bad debts they have to be allowed as deduction. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of T.R.F Ltd. v. CIT [323 ITR 397]. However, the Ld.CIT(A) sustained the disallowance to the extent of ₹.10,28,319/- observing that the assessee has shut down its regular business activities and had earned only interest income. Assessee in earlier years was carrying on its regular business activities with crores of turnover but during this year the business activity of the assessee was shut down. Therefore, he concluded that since the assessee company had not carried on any business activities and had earned only interest income on investments and FDRs, assessee is not entitled for various expenses claimed by it. It was also the observation of the Ld.CIT(A) that assessee could not produce evidences to show that sundry balances written off were considered as income in earlier years. He was of the view that written off of amounts can be made only against running business and not against closed business.
Before us, the Ld. Counsel for the assessee submits that the business of the assessee is not closed down and it was merely a temporary lull in the business activities. Ld. Counsel for the assessee submits that the observation of the Ld.CIT(A) that the assessee closed down its business and therefore expenses cannot be allowable is (A.Y: 2011-12) M/s. Deekay Iron & Steel Pvt. Ltd., incorrect. Ld. Counsel for the assessee submits that assessee carried out its business substantially in past years which is also evident from the observations of the Ld.CIT(A). Referring to the chart which was filed in the course of the proceedings before us, the Ld. Counsel for the assessee submits that there was only temporary lull in the business for a span of four to five years and the assessee could revive its business activities once again in the subsequent assessment years with substantial turnover.
The Ld. Counsel for the assessee submits that while there were no purchases or sales during the year, assessee continued to show the debtors and advances and even part of the advances have also been recovered in the subsequent years. Ld. Counsel for the assessee submits that assessee continued to hold investments for earning dividend income and capital appreciation thereon. It was submitted that there were business advances which earned interest income for the assessee and the said interest income is also offered as business income during the year under appeal. Therefore, it was submitted that assessee had not been closed down its business activities and it was merely a case of lack of business transactions. It was submitted that had the assessee closed down its business all the assets would have been liquidated and all liabilities would have been paid off. However, the assessee made efforts
(A.Y: 2011-12) M/s. Deekay Iron & Steel Pvt. Ltd., to recover the advances and in fact revived its business in subsequent years.
Reliance was placed on the following decisions in support of assessee contentions that expenses cannot be disallowed when there is only a temporary lull in the business: - (i). Kumar Wire Cloth Manufacturing Co. Ltd. v. ITO in ITA.No. 6284/Mum/2012 dated 05.10.2018. (ii). ACIT v. New Era Mercantile Pvt. Ltd., in ITA.No. 3033/Mum/2017 and CO.No. 40/Mum/2019 dated 26.02.2019 (iii). CIT v. Prayashvin B. Patel [240 ITR 931 (Guj)]
Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below. The Assessing Officer while completing the assessment disallowed the sundry balances written off by the assessee for the reason that the assessee has not furnished any explanation as to why these expenses should be allowed as deduction. Before the Ld.CIT(A) the assessee submitted that these sundry balances written off offered to tax in earlier years and they were written off during the year as bad debts and therefore should be allowed as deduction. However, the Ld.CIT(A) denied the claim for deduction on the ground that assessee has shut down its business activities and therefore the expenses cannot be allowed as deduction. Before us, the Ld. Counsel for the assessee contended that it was only temporary lull in the business the assessee
(A.Y: 2011-12) M/s. Deekay Iron & Steel Pvt. Ltd., revived its business subsequently by showing substantial turnover and only during this assessment year and three to four subsequent assessment years the assessee could not do any business transactions and therefore since it is only temporary lull in the business the expenses cannot be denied on the ground that the assessee has shut down its business. Ld. Counsel for the assessee filed a chart showing details of business activities carried out in various assessment years according to which the assessee carried out business activities from A.Ys. 2008-09 to 2018-19 which are as under: -
Sr. Other A.Y. Sales Purchases Debtors Creditors Advances No. Income 1. 2008-09 40,61,68,980 40,55,81,378 2,87,150 5,70,43,946 18,35,52,847 12,35,73,052 2. 2009-10 88,97,87,223 89,31,58,597 48,36,831 15,04,64,209 30,21,70,243 15,96,39,696 3. 2010-11 38,90,23,168 39,79,19,582 85,19,132 36,15,479 11,87,53,812 12,10,11,880 4. 2011-12 - - 8,93,101 23,28,480 32,65,103 28,10,790 5. 2012-13 - - - 23,28,480 33,65,103 16,63,824 6. 2013-14 - - - 23,28,480 33,65,103 16,63,824 7. 2014-15 - - - 23,28,480 33,65,103 16,63,824 8. 2015-16 - - - 23,28,480 33,65,103 16,63,824 9. 2016-17 45,45,68,594 45,37,40,772 1,60,995 23,67,15,984 27,73,94,775 4,17,97,819 10. 2017-18 45,21,92,142 45,18,41,016 72,24,929 25,67,04,243 43,34,71,949 14,85,72,953 11. 2018-19 17,35,53,375 17,88,03,601 1,18,54,992 1,11,13,000 17,68,05,339 15,12,56,146
As could be seen from the above chart, assessee made purchases and sales during the A.Ys. 2008-09 to 2010-11 and later on during the A.Ys. 2016-17 to 2018-19. However, during the A.Ys. 2011-12 to 2016-17 there were no purchases and sales by the assessee. According to the assessee there was a temporary lull in the business during these assessment years and it was revived in the A.Y. 2016-17. These facts
(A.Y: 2011-12) M/s. Deekay Iron & Steel Pvt. Ltd., have to be verified with reference to the records and returns filed by the assessee. In principle, we accept with the contention of the assessee that the expenses cannot be disallowed when there is only a temporary lull in the business. As the assessee could not furnish any explanation nor evidences before the Assessing Officer, we are of the view that the entire matter has to be restored to the file of the Assessing Officer for denovo adjudication in accordance with law. Assessee shall produce all the necessary records before the Assessing Officer in support of its contentions and the Assessing Officer shall decide the issue in accordance with law. Thus, we restore both the issues in the appeal to the file Assessing Officer for denovo adjudication, after providing adequate opportunity of being heard to the assessee.
In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on the 08th August, 2019