M/S K.V. NARAYAN BUILDERS PVT. LTD.,BANGALORE vs. ITO, BANGALORE

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ITA 1005/BANG/2015Status: DisposedITAT Bangalore18 December 2015AY 2012-134 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the absence of revenue in one year, when the assessee had significant business income in prior and subsequent years, did not constitute a cessation of business. The expenditures claimed were necessary to maintain the corporate identity.

What were the facts?

The assessee, a property developer, claimed a business loss of Rs. 2,76,362/-. The AO disallowed this claim, opining that there was a cessation of business due to no revenue in the impugned assessment year.

What were the issues?

Whether a temporary lull in business activity, evidenced by no revenue in a specific year, amounts to a cessation of business justifying disallowance of genuine business expenditure.

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE

Before: SHRI ABRAHAM P GEORGE

For Appellant: Shri Ravi Shankar, Advocate
Hearing: 16/12/2015Pronounced: 18/12/2015

O R D E R In this appeal by the assessee, its grievance is that business loss of Rs.2,76,362- claimed was not allowed.

2.

Facts apropos are that assessee, a property developer and builder, had filed its return of income for impugned assessment year declaring loss of Rs.16,020/-. During the course of assessment proceedings, assessee produced books of account and other documents called for by AO. Assessee had claimed loss of Rs.2,76,362/- on account of various expenditure incurred by it. As per AO, there was no business activity carried on by assessee during financial year relevant to the impugned

M/s.K.V.Narayan Builders Pvt. Ltd. Page 2 of 4 assessment year. AO was of opinion that there was a cessation of business. He disallowed the claim of Rs.2,76,362/- and completed the assessment.

3.

Assessee’s appeal before CIT(A) did not meet with success. According to CIT(A), assessee could not show that it had re- started its business. Relying on decision of the Mumbai bench of the Tribunal in case of Hemraj Canji vs. ITO (2005) 2 SOT 689, Delhi bench of Tribunal in Adasoft (India) P. Ltd. vs. DCIT (2006) 9 SOT 31 and Hon’ble Delhi High Court decision in Marvel Polymers (P) Ltd. vs. CIT (2007) (165 Taxman 618), CIT(A) upheld the disallowance.

4.

Now before us, learned AR strongly assailing orders of authorities below submitted that assessee was filing its returns of income since assessment year 2009-10. According to him, assessee had returned income of Rs.8,24,74,970/- from business at for assessment year 2009-10. Learned AR submitted that even for subsequent assessment years 2013-14 and 2014-15 assessee had disclosed business income from property development. Thus, according to learned AR there was only a lull in business. Just because there was no revenue in one particular year, as per learned AR, claim of genuine business expenditure could not be disallowed. Per contra, learned DR strongly supported order of the CIT(A).

M/s.K.V.Narayan Builders Pvt. Ltd. Page 3 of 4 5. I have perused orders and heard rival contentions. It is not disputed that assessee had filed return of income for assessment year 2009-10 which recorded income of Rs.8,24,74,970/- from its business. Revenue has not disputed that assessee was having only one business viz., as a property developer and builder. Even for subsequent previous years ending 31/3/2013 and 31/3/2014, assessee had shown business operations and business income. Expenditure claimed was on account of electricity charges, communication expenditure, travelling and conveyance expenditure, miscellaneous expenditure, rent, rates and taxes, staff salary and audit fee. All these expenditure, in my opinion, was necessary for assessee to maintain its corporate identity. Since assessee was having revenue from its field of activity in earlier years as well as subsequent year, absence of revenue in impugned assessment year could not be considered as a cessation of business. It would, at best, be a lull in the business. I am of the opinion that claim of expenditure of Rs.2,76,362/- was unjustly disallowed. Disallowance stands deleted.

6.

In the result, appeal of assessee allowed.

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