Income Tax Appellate Tribunal - Mumbai
Chunilal & Co. (Tm) (P) Ltd. vs Ito, Ward 8(1)(2), Mumbai on 29 April, 2005
Equivalent citations: [2005]4SOT309(MUM)
ORDER
Pramod Kumar, A.M. This is an appeal filed by the assessee and is directed against the order dated 19-7-2005 passed by the Commissioner (Appeals) for the assessment year 2001-02.
2. The main grievance raised in this appeal is that the Commissioner (Appeals) erred in holding that there was a cessation of business of the assessee. The assessee contends that, for that reason, the Commissioner (Appeals) further erred in not allowing deduction in respect of expenses debited to the profit and loss account, the terminal benefits paid to the employees and the amount paid to the workers under settlement. The assessee is also aggrieved that the Commissioner (Appeals) erred in not considering the claim of set off of brought forward loss of Rs. 25,18,705 from the assessment year 2000-01 claimed in the computation of total income in the return of income filed on 31-10-2001.
3. The main controversy, however, hinges on whether or not it was a case of cessation of business.
4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
5. On a careful perusal of the orders of the authorities below, we are unable to finding any material to suggest, leave aside establish, cessation of business. There is no doubt a finding that no activities were carried out but then such a finding by itself does not mean or imply that it is a case of cessation of business. We find that the whole cause of action of disallowance of loss carried forward arose in the background of assessing officer's noting that "the assessee-company had not carried out any business activity during this year" which at best was assessing officer's finding about an activity of business not being functional in the relevant previous year and, in our opinion, takes an unsustainbly narrow view of the scope of cessation of a business. The assessing officer has declined the set off of losses only on the basis that the manufacturing activity in assessee's plant was not carried out in the relevant previous year. In our considered view, a plant not working during the year per se cannot even lead to the conclusion that the business of cement manufacturing was discontinued, leave aside the question of closure of assessee's business. In the case of L. Ve. Vairavan Chettiar v. CIT (1969) 72 ITR 114 (Mad). Their Lordships of Hon'ble Madras High Court were in seisin of a situation where the assessee had obtained an import licence for doing arecanut business but due to adverse conditions in the market he temporarily suspended the arecanut business for the assessment year in question. Nevertheless, he was maintaining the establishment and was waiting for improved market conditions in arecanut. It was thus admitted position that no activities were carried out so far as this part of the business was concerned. On these facts, Their Lordships took note of the position that "there is nothing on record to show that he completely abandoned or closed the business forever. On the other hand, his books of account revealed that he was meeting the establishment charges and interest payments as detailed in the accounts in the year of account." It was then observed that the question whether the business is being carried on must depend in each case on its own facts and not on any general theory of law. Their Lordships then referred to, with approval, Lord Summer's observation in IRC v. South Behar Railway Co. Ltd. (1925) 12 Tax Cas. 657 that "Business is not confined to being busy; in many businesses long intervals of inactivity occur............. The concern is still a going concern though a very quite one." After elaborate survey of judicial precedents on the issue. Their Lordships concluded, in the light of, as noted above the factual position that "There is nothing on record to show that he completely abandoned or closed the business forever. On the other hand, his books of account revealed that he was meeting the establishment charges and interest payments as detailed in the accounts in the year of account, that the loss in arecanut business, in which admittedly no activity was carried out during the relevant previous year, was to be set off against assessee's business income in the year. As the ratio of the aforesaid judgment is summed up in the ITR heard notes at page 115 of the report, "As the assessee was maintaining the establishment and waiting for the improved market conditions in arecanuts and there was nothing to show that he completely abandoned or closed the business forever, the business must be deemed to be continuing." In the light of this legal position it would follow that unless there is some material on record to show that the assessee has completely abandoned the business, merely because no core business activities were carried out in the relevant previous year cannot be reason enough to come to the conclusion that the losses incurred by the assessee in that business in the earlier years are not entitled. On the basis of material on record, it could not thus be said, as was the case before the Hon'ble Madras High Court, that the assessee had "completely abandoned or closed the business forever". In our considered view, there is no material to suggest that the cement manufacturing operations of the assessee-company were in a stage more than that of suspension. Applying the test laid down by Hon'ble Madras High Court in L. Ve Vairavan Chettiar case (supra), and in the light of the above factual position, the claim for deduction of expenses could not have been declined on the ground that the business of the assessee was not continuing in the relevant previous year. As evident from the nature of expenses debited in the profit and loss account, a copy of which was placed before us at page 4 of the compilation of papers, unambiguously shows that even the business activities were carried out in the relevant previous year. Keeping all these factors in mind, as also entirety of the case, we are of the considered opinion that the Commissioner (Appeals) was indeed not justified in holding that there was a cessation of business.
6. The assessee's above grievance is, therefore, quite justified, and we uphold the same.
7. As regards the claim for admissibility of certain deductions and the set off, we find that none of the authorities below have dealt with these issues by way of speaking order. There is no discussion about deduction in respect of expenses debited to the profit and loss account, the terminal benefits paid to the employees and the amount paid to the workers under settlement. The claim of set off of brought forward loss of Rs. 25,18,705 from the assessment year 2000-01 has also not been considered.
8. Having heard the rival contentions on the same, and having perused the material on record, we are of the considered view that these issues are required to be restored to the file of the assessing officer. We order accordingly.
9. The assessing officer shall adjudicate upon the question of deductibility of these deductions and admissibility of set off of brought forward loss of Rs. 25,18,705 from the assessment year 2000-01, in accordance with the law, by way of a speaking order, and after giving due and fair opportunity of hearing to the assessee. While doing so, the assessing officer shall also bear in mind our observations regarding the lack of material to come to the conclusion that there was a cessation of business.
10. The matter thus stands restored to the file of the assessing officer, with our directions as above.
11. The appeal is allowed for statistical purposes.