MULTI ACT TRADE & INVESTMENTS P.LTD,MUMBAI vs. ITO WD 2(2)(3), MUMBAI

This appeal has been filed by the assessee against the order dated 13.12.2012 passed by the Ld. Commissioner of Income Tax (Appeals)-5, Mumbai, for the assessment year 2009-10, whereby the Ld. CIT (A) has dismissed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee company engaged in investment and financing business, filed its return of income for the assessment year under consideration declaring total income of Rs. 24,65,224/- Since the case was selected for scrutiny, AO issued notices u/s 143(2) and 142(1) of the Act. In response thereof, the authorized representative appeared before the AO and submitted the details called for. The assessee had claimed business expenses amounting to Rs. 25,47,313/- and salary expenses of Rs. 2 Assessment Year: 2009-10 35,75,950/-. The AO disallowed the claims of the assessee holding that the assessee did not carry out any business activities during the year relevant to the assessment year under consideration and it has only received dividend income on investments made in Mutual Funds and Shares. Accordingly, AO giving benefit of suo motu disallowance of Rs. 26,43,655/- made u/s 14 A of the Act, added the balance amount of Rs. 34,79,608/- to the income of the assessee and determined the total income of the assessee at Rs. 59,44,830/-. The assessee challenged the assessment order before the CIT(A). The Ld. CIT(A) after hearing the assessee dismissed the appeal of the assessee and confirmed the additions made by the AO. The assessee is in appeal before the Tribunal against the said findings of the Ld. CIT(A). 3. The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following effective grounds:- 1. ”On facts and circumstances, the Learned Commissioner of Income Tax (Appeals)-5, Mumbai, has erred in holding that the Appellant has not been carrying on any business or has not carried on any activity to revive the business and thereby erred in confirming the order of the Assessing Officer. 2. On facts and circumstances, the Learned Commissioner of Income Tax (Appeals)-5, Mumbai, has erred in holding that the business is closed whereas the business of the Appellant is to do equity research and to maximize and/or guard against the risk of fluctuations in equity market and thereby erred in not allowing expenditure incurred in payment of salaries, rent, telephones, conveyance etc. which is incurred for carrying on business as Investors and /or traders in shares, securities, mutual funds etc. and has erred in confirming the order of the Assessing Officer. 3. On facts and circumstances, the Learned Commissioner of Income Tax (Appeals)-5, Mumbai has erred in holding that the Investments of the funds in fixed deposit for a short term, pending decision to invest in shares, securities etc.

At the outset, the Ld. counsel for the assessee submitted before us that the ITAT has dealt with the identical issues in assessee’s own appeal for the assessment year 2010-11 and the Tribunal has remitted the appeal to the AO for deciding the same afresh in the light of the submissions made by the counsel. The Ld. counsel further pointed out that the assessee had shown substantial income in the assessment years 2007-08 and 2008-09 and no such disallowance was made in those years. The business of the assessee improved substantially in the financial year 2015-16 and 2017-18. The Ld. counsel invited our attention to the copies of balance sheet and cash flow statement of the company as on 31st March 2018 in order to substantiate his contention. The Ld. counsel further relying on the decision of the Hon’ble Bombay High Court in the case of Karsondas Ranchhoddas vs. CIT 83 ITR 1, submitted that when there is a temporary lull in the business, expenditure incurred in the intervening period cannot be disallowed. The Ld. counsel further submitted that since there is no material change in the facts of the present case, the present appeal may be sent back to the AO for deciding the same afresh.

On the other hand, the Ld. Departmental Representative (DR) fairly admitted the fact that the Tribunal has sent the identical issues raised by the assessee in its appeal for the AY 2010-11, to the AO for deciding the same afresh. However, the Ld. DR supported the order passed by the Ld. CIT (A). 6. We have heard the rival submissions and also gone through the entire material on record including the order passed by the coordinate Bench in the 4 Assessment Year: 2009-10 assessee’s own case for the AY 2010-11. The coordinate Bench has remitted the identical issues to the file of AO for deciding the same afresh after affording a reasonable opportunity of being heard to the assessee. The operative part of the order passed by the coordinate Bench reads as under:- “6. Upon careful consideration we find that it is the submission of the Ld. Counsel of the assessee that assessee has shown substantial income in assessment year 2007-08 and 2008-09. It is also the submission of the Ld. Counsel of the assessee that there was a temporary full in the business activity. However, he has claimed that subsequently the business has picked up and in financial year 2015-16 and financial year 2016-17 assessee has shown substantial business income. We note that the balance sheet for the financial year 2015-16 was not before the authorities below. Furthermore the submission that there was a temporary full and the business has subsequently picked up, was also not before the authorities below. However the proposition that when there is a temporary full in the business, it cannot be said that there is a cessation of business by the assessee, is supported by the decision of Hon’ble High Court decision as cited above. When there is no cessation of business, assessee is engaged in doing business and the business expenditure as appropriate deserves to be allowed.

However, since we notice that the additional evidence and the new submissions were not before the authorities below, hence in the interest of justice we remit this issue the file of the A.O. The A.O shall examine the issue afresh in light of the additional submissions of the ld. Counsel of the assessee. Needless to add assessee should be granted adequate opportunity of being heard. Both the counsel fairly agreed with his proposition.”