SHREE GURUDATTA MEDICAL STORES & COTTON GINNERS PVT. LTD.,,JALGAON vs. INCOME-TAX OFFICER,, JALGAON

The assessee has raised the following grounds of appeal:-

The first issue raised in the present appeal is against the disallowance of Rs.1,21,615/-.

Briefly, in the facts of the case, the assessee was a private limited company and was engaged in the business of Retail Medical Stores during the relevant year. The assessee had discontinued its ginning/pressing business w.e.f. 01.07.2012. The assessee for the year under consideration had declared the income at Rs. Nil. The assessee had debited sum of Rs.2,43,230/- on account of electricity charges. The Assessing Officer was of the view that since the assessee had closed its Ginning division in July, 2012, the electricity expenses claimed by it were not tenable.

The Commissioner of Income Tax (Appeals) has upheld the addition to the extent of 50% of the expenses.

The assessee is in appeal against the order of CIT(A).

The learned Authorized Representative for the assessee pointed out that the electricity expenses of the ginning factory were claimed till the date of sale of factory. He further pointed out that the same is to be allowed as business expenditure in view of the ratio laid down by the Hon’ble Supreme Court in the case of Veecumsees Vs. Commissioner of Income Tax reported in 220 ITR 185 (SC).

The learned Departmental Representative for the Revenue on the other hand placed reliance on the order of Commissioner of Income Tax (Appeals).

On perusal of record, it is noted that the first issue raised in the present appeal is in respect of electricity expenses. The assessee initially was carrying on two lines of business i.e. cotton ginning business and also running medical stores. The ld. AR for the assessee pointed out that since major partner had expired, the legal heirs had carried on only one business i.e. retail medical stores and the cotton ginning unit was closed down. He further pointed out that the said unit was also sold during the year under consideration. However, the electricity expenses till the date of sale of the factory unit were debited and claimed as expenditure. The case of the Revenue on the other hand was that no income has been generated from ginning factory and hence no question of allowance of electricity expenses. The income which is recognized in the hands of the assessee can be either positive or negative. In other words even if the assessee carrying on business incurs loss, expenditure incurred by it is to be allowed while computing the income from business. In the facts of the present case, the expenditure on electricity was claimed by assessee till the date of sale of unit by the assessee; the said expenditure is duly allowable in the hands of the assessee. Even otherwise the assessee is carrying on the second line of business of retail medical stores and losses if any from ginning business need to be adjusted against the income from running the medical stores. Thus, the claim of the assessee is directed to be allowed and the addition of Rs.1,21,615/- is thus deleted.

Now, coming to the issue raised by the assessee in ground of appeal No. 2 which is against the write off of stock of packing material. The assessee explained that once the ginning business was stopped and then the stock of

The third issue raised by the assessee is against the set off of loss deemed to be short term under section 50 of the Act against business income. The ld. AR for the assessee pointed out that the transaction was in respect of sale of business asset and hence the same needs to be adjusted against the business loss.

The ld. DR for the Revenue on the other hand placed reliance on the ratio laid down of the Special Bench of the Bangalore Tribunal in the case of Nandi Steels Ltd. Vs. Assistant Commissioner of Income Tax reported in 13 ITR 494 and the provisions of section 71(3) of the Act. He also pointed out that the similar issue had arisen in the Pune Bench of Tribunal in ITA No. 79/PN/2012 judgment dated 28.08.2014.

On perusal of record and after hearing both the learned Authorized Representatives, the last issue raised in the present appeal by way of ground of appeal No. 3 is against the set off of income from Short Term Capital Loss against business income of the assessee. The said capital loss had arisen because of sale of ginning factory i.e. the sale of immovable property. In view of the provisions of section 71(3) of the Act, the loss claimed by the assessee under the head Short Term Capital Loss cannot be set off against the income

Similar proposition has been laid down by the Special Bench of the Bangalore Tribunal in the case of Nandi Steels Ltd. Vs. Assistant Commissioner of Income Tax (supra) and following the same parity of reasoning, it is held that the income from Business has to be assessed in the hands of the assessee independent from Short Term Loss incurred by the assessee. Accordingly, the ground of appeal No. 3 raised by the assessee is thus dismissed.

In the result, appeal of assessee is partly allowed.