ITO 1(2)(2), MUMBAI vs. LAXMI ASBESTOS PRODUCTS LTD, MUMBAI

The solitary issue urged in these appeals is whether the Ld CIT(A) was justified in deleting the disallowance of expenses claimed by the assessee.

The assessee company is stated to be carrying on the business of property development. During the years under consideration, the assessee did not disclose any business receipts, but claimed various types of expenses. The AO noticed that the assessee has been showing the property development activities as “Work in Progress” in the earlier years, but the same was transferred to “Investment” account during the year relevant to AY 2008-09. It was submitted that the assessee was in possession of land admeasuring 150012.32 Sq. Mts and the same was took over by the Government under Urban Land Ceiling Act. Subsequently the above said Act was repealed by the Government and hence the assessee has been in the process of reacquiring the title over the land. Due to the legal process involved therein, the assessee could not carry on its business activities. Accordingly it was contended that the assessee has stopped the business activities on temporary basis due to the problem faced by it in connection with the land. Accordingly it was submitted that the regular business expenses incurred by it should be allowed as deduction.

The AO was not convinced with the said expenses, since the assessee has transferred the land/property to its “Investment” account. Accordingly the AO disallowed various expenses claimed by the assessee in all the three years under consideration. The Ld CIT(A) took the view that the assessee has not closed down its business, but it was at stand still for temporary period. Accordingly he allowed the expenses claimed by the assessee in all the three years under consideration. The revenue is aggrieved by the decision rendered by Ld CIT(A).

The Ld D.R submitted that the Ld CIT(A) has not given any finding with regard to the observation of the AO that the assessee has transferred the land and related expenses to “Investment Account”. The Ld D.R submitted that the said action of the assessee would show that the assessee has permanently

On the contrary, the Ld A.R submitted that the assessee was constrained to transfer the land and related expenses to “Investment Account” as per the requirement of Accounting Standard-13 issued by the Institute of Chartered Accountants of India. He submitted that the Ld CIT(A) has rightly appreciated that the assessee could not carry on business due to various circumstances beyond the control of the assessee. Accordingly he submitted that the expenses were rightly allowed by Ld CIT(A).

We heard the parties and perused the record. We notice that the AO has taken note of the fact that the assessee has transferred the land and Work in Progress amount to “Investment Account” and accordingly the AO has taken the view that the expenses incurred against Investment cannot be allowed as deduction. We notice that the Ld CIT(A) has not addressed this point of the AO and instead proceeded to decide the issue on the basis that there was temporary stoppage of business,. while the case of the AO is that the assessee has totally stopped the business. Before us, the Ld A.R submitted that the assessee was constrained to transfer the land and WIP amount to “Investment Account” as per AS-13. This submission appears to be a new one, i.e., the same has not been submitted before the tax authorities. We also notice that the Ld CIT(A) has passed a cryptic order without duly addressing the case of the AO. Under these set of facts, we are of the view that this issue requires fresh examination at the end of Ld CIT(A) in all the three years under consideration.

Accordingly we set aside the orders passed by Ld CIT(A) on this issue in all the three years under consideration and restore the same to his file with the 4 Laxmi Asbestose Products Ltd.

In the result, all the three appeals of the revenue are treated as allowed for statistical purposes. Order has been pronounced in the Court on 26.10.2016