Income Tax Appellate Tribunal - Mumbai
Shipping Times (India) P.Ltd. , Mumbai vs Assessee on 17 September, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
"J" BENCH: MUMBAI
BEFORE SHRI D K AGARWAL, JUDICIAL MEMBER
AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No 4387/Mum/2008
(Assessment Year: 2005-06)
Shipping Times (India) P Ltd, Vs ITO 8(3)(1),
C/o. H N Motiwalla & Co, Mumbai
508 Sharda Chambers,
33, New Marine Lines,
Mumbai -400 020
PAN : AAACS 6738 G
Appellant Respondent
Appellant by: Shri H N Motiwalla
Respondent by: Shri S M Keshkamat
ORDER
PER B RAMAKOTAIAH, AM
This is the assessee's appeal against the order of the CIT (A) XXIX Mumbai dated 17.9.2008. The assessee has raised three grounds on the only issue of claim of expenditure disallowed by the Assessing Officer holding that there is no business activity during the previous year.
2. The assessee is a company and is in the business of printing and processing, shipping times over the years. The assessee is carried out the business in earlier years as well as later years, which is evident from the turnover and claims made before the Assessing Officer and CIT (A). The expenditures pertaining to that business activity was disallowed. It was the contention of the assessee that there was only a lull in the business during the year but the business continued and has not been closed. The Assessing Officer holding that there was no business activity carried out during the year and the deduction of expenses u/s 37(1) is allowable only if exclusively spent for the purpose of business disallowed the claim of expenditure.
2 ITA 4387/M/2008 Shipping Times (India) P Ltd He relied on the decision of the Hon'ble Supreme Court in the case of L M Chhabda and Sons vs CIT 65 ITR 638, S P B Bank Ltd vs ACIT 126 ITR 773 (Ker) and Perfect Bottle Co Ltd vs CIT 166 ITR 196 (MP). Accordingly, the Assessing Officer disallowed an amount of Rs 7,86,406/- claimed under the business head.
3. The assessee objected the same before the CIT (A) and submitted that there is no activity in respect of printing and processing during the year but there are receipts from the activity of Rs 3,99,289/- for AY 2004-05 and also in subsequent years to the extent of Rs 23,25,700/- in AY2006-07 and Rs 29,07,700/- in AY 2007-08. It was the submission that during the year processing business was not done but the business has not been closed. Further, it was also contended that the decision relied upon by the ITO was given in the context of the business that was discontinued and, therefore, they are not applicable to the facts of the case. The assessee relied on Karsondas Ranchhoddass vs CIT 83 ITR 1 (Bom) and Inderchand Hari Ram vs CIT 23 ITR 437 (All) and Mrs Sarojini Rajah vs CIT 71 ITR 504 (Mad).
4. The CIT (A), however, agreed with the Assessing Officer stating that the expenditure is allowable only if there is business which was carried on. While accepting that it is not necessary the income is earned, the CIT (A) was of the opinion that for claiming the expenditure the business should be in existence and since, the assessee was not having business during the year, the expenditure cannot be claimed.
5. We have heard the Learned Counsel and the Learned Departmental Representative in detail.
6. As seen from the facts of the case, the assessee has not discontinued the business at all and there is only a temporary stoppage during the year under consideration. The assessee has offered income from the property and interest 3 ITA 4387/M/2008 Shipping Times (India) P Ltd income, machine hire charges and also short term capital gain. This indicates that the company has continued its activities during the year and part of activity is business in nature like machine hire charges received. Only activity that was not done during the year is printing and processing of its shipping times, but, it cannot be considered as 'business not in existence'. Hon'ble Bombay High Court in the case Karsondas Ranchhoddass vs CIT 83 ITR 1 (Bom) has held that a clear distinction, however, should be kept in mind between the cessation of a business and temporary lull in the business activity. The loss incurred by an assessee on the sale of certain shares cannot be treated as a capital loss merely because, although the assessee was dealer in shares, there was a long period of inactivity attributable not to an intention to discontinue the business but only to a certain temporary stoppage. Similarly, the Hon'ble Allahabad High Court in the case of Inderchand Hari Ram vs CIT 23 ITR 437 considered similar facts and held that it is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still a going concern, though it may, for some time, be quite and dormant.
7. From the above decisions, it is very clear that temporary lull or inactivity cannot be considered as cessation of business or non-existence of business. The decisions relied upon by the AO and CIT(A) are in the context of closure of business which have no relevance to the facts of the case.
8. As seen from the nature of expenditure also, the expenditure is in the nature of salary and bonus, rent-rates and taxes, repairs & maintenance and are mainly associated with maintenance activity of the company as such. In view of this, we are of the opinion that Assessing Officer and CIT (A) has erred in not allowing the expenditure to the assessee. Since there is only a lull in the business activity and assessee's business as such has continued during the year in other spheres of activity and even the printing and processing business has continued in later years, 4 ITA 4387/M/2008 Shipping Times (India) P Ltd we direct the Assessing Officer to allow the expenditure as claimed. Accordingly, the grounds are considered allowed.
9. Appeal is allowed.
Pronounced in the Open Court today on the 14th day of May 2010.
Sd/- Sd/-
(D K AGARWAL) (B RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Date: 14th May 2010
Copy to:-
1) The Appellant.
2) The Respondent.
3) The CIT (A)-XXIX, Mumbai.
4) The CIT -8, Mumbai.
5) The D.R. "J" Bench, ITAT, Mumbai.
By order
/ / True Copy / /
Asstt. Registrar
Chavan* I.T.A.T., Mumbai
5 ITA 4387/M/2008
Shipping Times (India) P Ltd
Sr.N. Episode of an order Date Initials Concerned
1 Draft dictated on 10.5.2010 Sr.PS
2 Draft placed before author 11.5.2010 Sr.PS
3 Draft proposed & placed before the second Member JM/AM
4 Draft discussed/approved by Second Member JM/AM
5 Approved Draft comes to the Sr.PS Sr.PS
6 Kept for pronouncement on Sr.PS
7 File sent to the Bench Clerk Sr.PS
8 Date on which file goes to the Head Clerk
9 Date of dispatch of Order
.