.If a business closed or open but ceased with no intention to resume than assessee is responsible to proof his seriousness in reviving the business

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCHES “ G ”, MUMBAI

BEFORE SHIRI D. MANMOHAN, HON'BLE VICE PRESIDENT

AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER

ITA No. : 3180/Mum/2011

Assessment Year : 2007-08

JCIT (OSD)-1(1),

Room No.533 & 579,

Aayakar Bhavan,

Mumbai-400 020

(Appellant)

Vs.

M/s. Good Value Marketing Co.Ltd.

3rd floor Indl. Assurance Bldg.,

Churchgate, Mumbai-400 020

PAN NO: AAACG 4925 D

 (Respondent)

Appellant by: Shri A. K. Nayak

Respondent by: Shri S. S. Phadkar

Date of hearing: 09.04.2012

Date of Pronouncement: 17.04.2012

O R D E R

PER N.K. BILLAIYA, A.M:

This appeal by the Revenue is directed against the order of the Ld. CIT(A)-I, Mumbai dated 27.01.2010. The Revenue has shown its grievance against the deletion of the disallowance of the expenses of Rs.24,05,299/- by the Ld. CIT(A).

2. The facts emerging out of the assessment order are that the assessee is dealing in organic manure. For the year under consideration, the return of income declaring the total income of Rs.13,50,000/- was efiled on 30.10.2007. This case was selected for scrutiny assessment and accordingly notices u/s.143(2) and 142(1) of the Act were issued and served upon the assessee. During the course of the assessment proceedings, the A.O. found that the assessee has claimed the expenditure of Rs.24,05,299/- under the head “business income”. This expenditure comprises of wages and salaries of Rs.2,55,437/- and depreciation of Rs.16,20,147/-. The A.O. has observed that the assessee has closed down the business and no production was made during the year under consideration. The assessee has shown rental income from his business assets, which has been disclosed as “income from other sources”. Therefore, the A.O. concluded that since the assessee has not done any business during the year expenses claimed by the assessee to the tune of Rs.24,05,299/- are to be disallowed and accordingly he disallowed these expenses u/s.37 of the Act.

3. Aggrieved by this order, the assessee took the matter before the Ld. CIT(A).

4. Before the Ld. CIT(A) the assessee pointed out to the observation of the A.O. that the appellant is not carrying on any business activity, is not correct. The fact is that there is lull in the business activity and, therefore, the assessee cannot be denied the deduction of expenses as claimed. To substantiate this claim, the assessee relied upon the decision of Hon'ble High Court of Bombay in the case of Karsandas Ranchhoddas vs. CIT reported in 83 ITR 1. The assessee further relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Vikram Cotton Mills Ltd. reported in 169 ITR 597. The Ld. CIT(A) after considering the facts of the case and the submissions made by the assessee came to the conclusion that the assessee company has derived income from lease rent keeping the business assets on use. The Ld. CIT(A) relying upon the decisions cited here in above came to the finding that there was actually a lull in the business activity of the assessee company which does not amount to closure of business and concluded that the A.O. was not justified in making the disallowance and accordingly deleted the additions made by the A.O.

5. Aggrieved by this order, the Revenue is in appeal before us.

6. The learned DR submitted that in the profit and loss account for the year under consideration, the assessee shown sales of Rs.14,500/-, Miscellaneous Expenses of Rs.13,50,000/- and dividend income of Rs.10/-. The learned DR argued that the assessee has nowhere established that he has given his assets on lease rent. He also pointed out to the quantitative details furnished in the audited statement of accounts and submitted that the sales have been made out of the opening stock. There was no business activity carried out during the year. The learned DR concluded that the disallowance made by the A.O. is justified on the facts of the case and accordingly, the assessment order should be confirmed.

7. The learned Counsel appearing for the assessee reiterated its stand taken before the Ld. CIT(A) and argued that by no stretch of imagination a lull in the business can be considered as closure of the business. The learned AR also pointed out that howsoever small the sales may be for the year under consideration, it is an undisputed fact that there was some sales during the year under consideration which proves that the business has not been closed down. The learned AR once gain relied upon the cases cited here in above.

7. We have heard the rival submissions and perused the orders of the lower authorities. assessee has leased out its assets and has received rental income to the tune of Rs.13,50,000 The Hon'ble Supreme Court in the case of Vikram Cotton Mills Ltd. (supra) has held that

“In each case the intention has to be gathered from the facts and circumstances of the case as to whether the commercial asset was intended to be exploited by the assessee or whether it was intented to be used by letting it out for a temporary period. In the present case, it was a possible conclusion that the assessee intended that there should be a temporary suspension of the busiess for the purpose of reconstruction of the company and for that matter there must be stoppage of the user of the machinery by the assessee. It was a temporary lease though for 10 or 19 years on renewal and after the expiry of the period the property was to revert back to the assessee. It is predominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. On that basis, applying the correct principle, the Tribunal found that the intention was not to part with the machine but to lease it out for a temporary period as a part of exploitation. In such a circumstances, it could not be said that no business was carried on and the income derived from the machine letting was only a rent income. There was a temporary suspension of business for a temporary period for an object to tide over the crisis condition. There was never any act indicating that the assessee never intented to carry on the business. In the facts and circumstances of the case so found, it could not be said that such a finding of the Tribunal was either perverse or not sustainable. Accordingly, the view taken by the High Court that the lease rent was assessable as business income was to be upheld.”

7.1 Let us examine the facts of the case before us in the light of the decision of Hon’ble Supreme Court cited here in above . The submission of the assessee that there is a temporary lull in the business has not been substantiated by any cogent material brought on records , except that a proposal has been filed before the BIFR . Even before us , the Ld Counsel did not file copy of the said proposal to show seriousness in reviving the business . It is for the assessee to show his intention to revive the business .If only a few of the business assets are let out temporarily while the assessee is carrying out his other business activities then it is a case of exploiting the business assets other wise than employing them for his own use for making profit for that business ; but if the business never started or has started but ceased with no intention to be resumed , the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof , but not exploitation of business assets . Therefore it is incumbent upon the assessee to establish his intention and seriousness in reviving the business . We there fore restore this matter back to the files of the assessing officer with a direction to the assessee to bring cogent material evidences on records which may show its seriousness in reviving the business and at present there is a temporary lull in the business . The assessee is further directed to file the copy of the proposal to BIFR before the assessing officer and the assessing officer is directed to examine all that is brought on records by the assessee , after giving due opportunity of being heard to the assessee .

8. In the result, the appeal filed by the Revenue is allowed for statistical purposes .

Order pronounced on this 17th day of April, 2012.

                                                          Sd/-                                 Sd/-

                                            (D. MANMOHAN)           (N.K. BILLAIYA)

                                           VICE PRESIDENT    ACCOUNTANT MEMBER

MUMBAI, Dt: 17.04.2012

Copy forwarded to:

1. The Appellant,

2. The Respondent,

3. The C.I.T.

4. CIT (A)

5. The DR, - Bench, ITAT, Mumbai

//True Copy//

BY ORDER

ASSISTANT REGISTRAR

ITAT, Mumbai Benches, Mumbai

Roshani