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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 07.10.2016 and pertains to the assessment year 2012- 13.
The grounds of appeal read as under: 1.1 The Learned Commissioner of Income - tax (Appeals) - 18, Mumbai, ["Ld. CIT (A)"] erred in confirming the action of the A.O. of making disallowance of business loss of Rs.15,01,303/-, on the ground of (A.Y. 2012-13) Sea King Club P. Ltd. vs. ITO discontinuation of business activity before commencement of previous year under consideration. 1.2 It is submitted that, in the facts and the circumstances of the case, and in law, no such disallowance was called for. 1.3 Without prejudice to the above, in the alternative, assuming - but not admitting - that some disallowance was called for, the computation of the same is not in accordance with the law, is arbitrary and excessive.
Brief facts of the case are that the assessee company is stated to be engaged in the business of running the Hotels. However, during the year under consideration, there was no business activity. During the assessment proceedings, the Assessing Officer noticed that assessee company has debited various expenses of Rs.29,45,917/- such as power and fuel, Investment written off, rates and taxes, communication, legal and professional, payment to auditors, Miscellaneous expenses, security, watch & ward expenses, bank charges loss on fixed assets sold, depreciation etc. to P & L account and after disallowing certain expenses, the declared loss of Rs.15,01,303/-.
During the assessment proceeding, the assessee was asked to furnish the details of expenses debited to P & L account and also to justify the allowability of these expenses as there is no business activity during the year under consideration. In respect of allowability of above expenses, the assessee company vide letter dated 18/08/2014 stated that the expenses are allowable to the assessee in view of the decision of Mumbai ITAT in the case of M/s. Bechtel International Ink. vs. The Assistant Director of Income-tax (ITA No. 4120/Mum/2007 and wherein it was held that temporary withholding of Business cannot be the reason for disallowance of expenses. Hence, the Assessing Officer observed
(A.Y. 2012-13) Sea King Club P. Ltd. vs. ITO that the submission of the assessee has been considered and found to be not acceptable for the reason enumerated as under:- a. As per assessee's own submission that the business has been discontinued for further expansion since February, 2010, the date from which the present share holder has taken over the company and till date there is no business activity is commenced. b. The facts in the case relied by the assessee are entirely different and are distinguishable. c. Further, in order to avail deduction/claim u/s 30 to 37 of the Act, it is necessary that the business in respect of which expenses are incurred should be carried out by the assessee during the previous year. If the business has been closed or discontinued before the commencement of the previous year no deduction in respect of such discontinued business is permissible while computing the taxable income of the previous year. This fact is confirmed by the Apex Court in the case of L.M. Chhabda& Sons V CIT[1967] 65 ITR 638. In view of the above, it is crystal clear that the business of the company is discontinued since February, 2010 i.e. before the commencement of previous year for further expansion and even as on today the company is still waiting for approvals related to construction activity and the assessee company has not given any cogent reason in respect of the allowability of claim of the expenses, thus, the entire loss claimed by the assessee are hereby disallowed.
Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals).
The ld. Commissioner of Income Tax (Appeals) upheld the Assessing Officer’s action by holding as under:
5. I have carefully considered the submissions of the assessee viz-a-viz, the A.O. The only issue under appeal is disallowance of loss of Rs, 15,01,303/- on account of discontinue of business, 5.1 The A.R. has contended that the said disallowances are unjustified because the said discontinuity is temporary. I have perused the records and find that the claim of the assessee is not acceptable for the following reasons; i) The assessee has not carried out any activity during the year as can be seen from the audited accounts.
(A.Y. 2012-13) Sea King Club P. Ltd. vs. ITO ii) Similarly, even A.Y. 2011-12, the revenue of the assessee company was nil. It is therefore, not proved by the assessee as to how alleged discontinuity is only temporary. iii) The case laws relied upon by the assessee are distinguishable on facts as they are mainly related to lack of activity for limited period. iv) The assessee has failed to discharge the onus to prove that there was revival of the business activity even till date. 5.2 In view of the above, I am inclined to agree with the contention of the A.O. that assessee has discontinued the business and therefore, the expenses reflected in the form of loss are rightly disallowed consequently by the A.O. This ground of appeal is, therefore, dismissed.
Against the above order, the assessee is in appeal before the ITAT.
I have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that there is only a temporary lull in the business of the assessee.
She claimed that assessee is actively engaged in reviving the business. For this purpose she referred to the correspondences done with different government authorities is for the proposal for development of hotel property in Juhu. These documents reflect that assessee is actively engaged in the revival of the business.
Learned counsel of the assessee further referred to the Hon’ble Supreme Court decision in the case of CIT (Appeals) v. Vikram Cotton Mills Ltd .([1988] 169 ITR 597) for the proposition that when there was no intention to permanently discontinue business, the assessee cannot be held to have stopped the business.
Per Contra the learned departmental representative relied upon the order's of authorities below.
Upon careful consideration I find considerable cogency in the submission of the learned counsel of the assessee. The facts of the case and the documents submitted
(A.Y. 2012-13) Sea King Club P. Ltd. vs. ITO by the learned counsel of the assessee indicate that there is no intention of the assessee to permanently discontinue the business. The assessee is engaged in actively reviving the business. Hence, certain expenditure is required to be incurred in this regard and also to safeguard the corporate structure and going concern status of the assessee company. The case law referred by the learned counsel of the assessee duly supported this proposition. Accordingly, I set aside the order's of the authorities below and hold that the expenses claimed needs to be allowed.