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Before: SHRI H.S. SIDHUShri Ravi Jain, CIT(DR)
This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-XXV, New Delhi dated 12.11.2013 pertaining to assessment year 2008-09.
2. The grounds of appeal read as under:-
1. That without appreciating the facts of the case and in law the Ld. CIT(A) has erred in confirming the addition of Rs. 530,375/- out of business expenditure and disallowance of depreciation of Rs. 26,703/-.
That the addition is unwarranted and unjustified and be deleted.
That without prejudice to the above the AO be directed to set off brought forward unabsorbed business loses and depreciation against the income of the year.
The brief facts of the case are that a search operation was conducted on 10.2.2010 in Jacksons Group of Cases and the assessee belongs to that group of cases. The group is headed by Sh. SK Gupta and is in the area of assembly of DG sets since last 5 decades. The group has in the recent period ventured into real estate sector. Undisclosed income of Rs. 19.94 Crore was found during the search which was surrendered by Sh. SK Gupta. The assessment proceedings in the case were initiated by issuing notice u/s. 153A dated 2.6.2011 which was duly served on the assessee. In response to notice u/s. 153A return declaring NIL income was filed on 17.6.2011. Notice u/s. 143(2) and 142(1) dated 20.6.2011 along with detailed questionnaire were issued. In response to the same, assessee’s counsel filed the details. Thereafter, AO after going through the reply, completed the assessment proceedings on 09.12.2011 u/s. 143(3) r.w.s. 153A of the I.T. Act, 1961 and assessed the income at Rs. 6,83,849/-, after making the additions.
Aggrieved with the assessment order dated 09.12.2011, assessee appealed before the Ld. CIT(A), who vide impugned order dated 12.11.2013 has dismissed the appeal of the assessee.
Against the aforesaid order the Assessee is in appeal before the Tribunal.
Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 19 having the written submissions filed before the CIT(A); copy of computation of income and copy of balance sheet, Profit and Loss account etc. He further stated that complete details and supporting evidence was produced and filed during the 2 assessment proceedings. It was submitted before me by him that although no manufacturing activities were carried on, the assessee was carrying on business activities and complying with statutory obligations for which expenditure was incurred and assets were put to use. The expenditure had been laid out wholly and exclusively for the purposes of business and was revenue in nature. Hence, the AO has wrongly disallowed the expenditure of Rs. 5,30,376/- which needs to be deleted. As regards the depreciation claim of Rs. 26,703/-, he submitted that the assets like Air Conditioner, Electric Installation, Fan, Scooter, Fax Machine and Cycle have been used for the purposes of business in day to day activities and are not related to any manufacturing activity, depreciation thereon may also be allowed. In support of his contention, he relied upon the following decisions:-
- Allahabad High Court Decision in the case of Rampur Timber and Turnery Co. Ltd. 129 ITR 58.
- Calcutta High Court decision in the case of CIT vs. Ganga Properties Ltd. 199 ITR 94 at Page. 95
On the other hand, Ld. DR relied upon the orders of the authorities below.
I have heard both the parties and perused the records available with me, especially the orders of the revenue authorities and the citations relied upon the by the Ld. Counsel of the assessee. I find that Ld. CIT(A) has himself mentioned in his impugned order that the AO failed to bring on record the proofs of closure of business by obtaining confirmations regarding the status of the company from the Registrar of Company. Therefore, the judgments relied upon by the Ld. Counsel for the assessee in the following cases are squarely applicable in the present case and from these judgments it is established that the expenditure incurred by the assessee 3 are wholly and exclusively for the purposes of business which has to be allowed and addition made on this account needs to be deleted in the interest of justice.
- Allahabad High Court Decision in the case of Rampur Timber and Turnery Co. Ltd. 129 ITR 58. The Head Notes reads as under:- “Deduction – ‘Income from other sources’ – Company discontinuing business – Expenditure incurred for retaining the status of company, viz., miscellaneous expenses, salary, legal expenses, travelling expenses, etc. – Is expenditure incurred wholly and exclusively for earning such income – Is for keeping business alive and for profitable disposal of assets – Is allowable deduction – Income Tax Act, 1961 s. 57(iii).”
- Calcutta High Court decision in the case of CIT vs. Ganga Properties Ltd. 199 ITR 94 at Page. 95 "That a company, even if it derives income from "other sources" has to maintain its establishment for complying with statutory obligations so long it is in operation and its name is not struck off the register of companies or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes. So long as it is in operation, if has to maintain its status as a company and it has to discharge certain legal obligations and, for that purposes, it is necessary to appoint clerical staff and a secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income was a reasonable conclusion. The amount of Rs. 18,675 was, therefore, deductibles."
8.1 Keeping in view of the facts and circumstances of the case and the precedents relied upon, I am of the view that in terms of the above said judgments, the expenses incurred by the assessee are allowed and addition of Rs. 5,30,375/- is deleted. Since the addition of Rs. 5,30,375/- has been deleted by me and the same is allowed as business expenditure, the disallowance on account of depreciation of assets amounting to Rs. 26,703/- is also deleted and accordingly, the depreciation of Rs. 26,703/- stands allowed.
8.2 With regard to ground no. 2 regarding set off of brought forward unabsorbed business losses and depreciation against the income of the year is concerned, since depreciation allowance for the current year has been allowed as per para 8.1 above, brought forward and unabsorbed business losses and depreciation have been set off accordingly, as claimed by the assessee.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open court on 03/11/2015.