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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM: The captioned appeal filed at the instance of the Revenue is against the order of the Commissioner of Income Tax(Appeals)-VIII, Ahmedabad [CIT(A) in short] dated 25/08/2014 in the matter of assessment order under s.143(3) of the Income Tax Act, 1961
ITA No.2848/Ahd/2014 DCIT vs. Megha Futures Pvt.Ltd. Asst.Year – 2010-11 - 2 - (hereinafter referred to as "the Act") dated 05/03/2013 for the Assessment Year Assessment Year (AY) 2010-11.
The ground of appeal raised by the Revenue reads as under:- The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.43,00,696/- pertaining to business expenditure for A.Y. 2010-11 where the assessee had not carried out any business activity.
Briefly stated, the assessee is engaged in the business of trading in Metal, Scrap and Rental income. The return of income filed by the assessee for the Assessment Year Assessment Year (AY) 2010-11 was subjected to scrutiny assessment. In the course of the assessment proceedings, the Assessing Officer (AO) noticed that the assessee has claimed certain deductions towards stamp duty (Rs.4,07,620/-), brokerage expenses (Rs.1,44,000/-) and business expenses (Rs.43,00,969/-) attributable to self occupied house property. He accordingly held that the claim of deduction towards aforesaid expenditure in the return of income is not permissible in law. The AO while giving to aforesaid conclusion inter alia observed that the assessee has not done any business activity during the year and no sale or purchase of goods have been recorded during the year by it. The AO noted that the assessee has earned rental income from house property only. The AO thus noted that expenditure claimed towards stamp duty and brokerage are not eligible for deduction under s.24 of the Act.
ITA No.2848/Ahd/2014 DCIT vs. Megha Futures Pvt.Ltd. Asst.Year – 2010-11 - 3 - Similarly, administrative and other expenses, finance charges etc. are not allowable expenditure in the absence of any business activities.
Aggrieved by the aggregate disallowance of business expenses of Rs.43,00,696/- inter alia claimed by the assessee, the assessee preferred appeal before the CIT(A). The CIT(A) inter alia noticed that although there were no purchase or sales during the year, there was no closure or stoppage of the business carried out by the assessee on a permanent basis. The CIT(A) accordingly admitted the claim of business expenditure of the assessee. The relevant operative para of the order of the CIT(A) reads as under: “I have carefully considered the submission given by the appellant and the facts related to this issue. I am complete agreement with the findings given by the AO that the stamp duty and brokerage expenses While earning the house property income are not deductible under the provision of section 24(b) of the Act as the same were not provided therein. The submission of the appellant that these were incurred for earning the income from house property is not material as the computation of income from house property is clearly laid out in the Provisions of section 24 and these expenses are not deductible. Accordingly, the claim of the appellant is dismissed and the disallowance on this account made by the AO is upheld. The related ground of appeal is accordingly dismissed.
4.3.2 The other grounds of appeal are. regarding. the disallowance of expenditure of Rs. 4300696/- which was claimed by the appellant as business expenditure. The AO disallowed the claim on the ground that the appellant did not make any sale and purchases and in absence of any activity the expenses were not admissible under section 37 of the Act. The appellant on the other hand has submitted that there was no
ITA No.2848/Ahd/2014 DCIT vs. Megha Futures Pvt.Ltd. Asst.Year – 2010-11 - 4 - closure or stoppage of the business carried out by the appellant on a permanent basis but it was a case of lull period where sale purchases were not made, it has relied in the case of Hindustan Chemicals Works Pvt. Ltd. 120 ITR 561 Mumbai. The appellant has submitted that there were sales in the preceding and subsequent assessment years which prove that the appellant had not discontinued the business in the year under consideration.
On a careful consideration of the entire facts of the case, it is noted that there is force in the argument of the appellant company that it was not a case of closure of business but it was a full period where no business was carried out. The appellant has conducted business in the immediately preceding and subsequent assessment, years. Therefore, the claim of the appellant that the business was not closed Is acceptable. Once the business is not closed and it was the intention of the appellant to continue the business in subsequent years the expenses in keeping the business of running are to be allowed.
A perusal of the income computation the statement filed with the return of income show that the-appellant has separately shown income from house property and profits and gains of business and profession. While working out the profits and gains of business or profession the appellant has disallowed several expenses such as repairs to building Municipal Tax, Stamp Duty expenses which are directly related to income from house property. After disallowing and making adjustments on account of depreciation a net loss from business has been shown at Rs.4157768/-. The appellant has accordingly shown a total income of Rs.1,23,13,247/- after reducing the loss from business from income from house property. Since this is an inter-head adjustment for the current year income, the same is permissible as per the Provisions of Income tax Act. As discussed in the preceding para, the appellant has not closed down its business but there was a temporary lull in the current assessment year. Accordingly, the losses of business will have to be adjusted from the income from house property for the current year. The action of the AO was accordingly not justified. The related ground of appeal is accordingly allowed.”
ITA No.2848/Ahd/2014 DCIT vs. Megha Futures Pvt.Ltd. Asst.Year – 2010-11 - 5 - 5. Aggrieved, the Revenue preferred appeal before the Tribunal.
The Ld.DR for the Revenue relied upon the order of the AO and submitted that in the absence of any business activity, the claim of business expenditure cannot be said to be incurred for the purpose of business. It was thus submitted that the business expenditure claimed by the assessee has been rightly disallowed by the AO and wrongly accepted by the CIT(A). 7. The Ld.AR for the Assessee, on the other hand, pointed out that notwithstanding the absence of any purchase or sale during the year, the business was not shut-down. The Ld.AR submitted that the CIT(A) has rightly appreciated the facts in perspective and has come to a rightful conclusion in accordance with law.
We have carefully considered the rival submissions. The eligibility of claim of business expenditure in the absence of business activities is in controversy. It is an admitted position that no business activity has been carried out during the year. However, the AO has not brought anything on record to show that business has been permanently closed. Mere inactivation of business temporarily owning to various internal or external factors will not disentitle the assessee from claiming expenditure actually incurred per se so long as expenditure have been incurred for the purpose of business wholly and exclusively. Therefore, we do not find any fault in the reasons adopted by the CIT(A) in
ITA No.2848/Ahd/2014 DCIT vs. Megha Futures Pvt.Ltd. Asst.Year – 2010-11 - 6 -
admitting the claim of the assessee. Consequently, we decline to interfere.
In the result, appeal of the Revenue is dismissed. 9. This Order pronounced in Open Court on 31/ 10 /2017
Sd/- Sd/- (महावीर �साद) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 31/ 10 /2017
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-VIII, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 31.10.17(dictation-pad 10- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …31.10.17 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….31.10.17 7. Date on which the file goes to the Bench Clerk…………………31.10.17 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………