Income Tax Appellate Tribunal - Delhi
C.L. Mehra vs Income-Tax Officer on 31 May, 1996
Equivalent citations: [1996]59ITD99(DELHI)
ORDER
B.S. Saluja, J.M.
1. The assessee is in appeal against separate orders of CIT(A) II, New Delhi on various grounds.
2. Ground Nos. 1 & 2 urged by the assessee in relating to assessment year 1985-86 relate to disallowance of loss of Rs. 38,556 claimed by the assessee in respect of the proprietary business of M/s. Venus Jewellers. The other limb of the ground relates to treatment of the proprietary business of gold jewellery under the name and style of M/s. Venus Bros. and M/s. Mehrasons Jewellers as a single business and consequent allowance of the said loss.
2.1 Similar grounds have been raised by the assessee in relating to assessment years 1986-87 and 1987-88.
2.2 The brief facts relating to these issues are that the Assessing Officer noted from the trading account and profit and loss account of M/s. Venus Jewellers that the assessee had shown a loss of Rs. 38,556 in assessment year 1985-86. The Assessing Officer observed that the assessee did not carry on any trading activity during he said year in the concern and the loss claimed by the assessee was on account of expenses debited in the profit and loss account. He asked the assessee as to why the loss so claimed be not disallowed. The assessee stated in reply that the licence of M/s. Venus Jewellers, which was a proprietary concern of the assessee was transferred to M/s. Mehrasons Jewellers, Connaught Place, New Delhi which was also a proprietary concern of the assessee. It was further stated that the business as such was done in M/s. Venus Jewellers was seized by the department which prevented the assessee from doing any trading in M/s. Venus Jewellers. The assessee also stated that as the income and expenditure from the said concern was considered under the head "Business" and both the concerns were proprietary concerns, the business was carried out by the assessee in M/s. Mehrasons Jewellers and, therefore, no disallowance could be made with reference to the loss so claimed. The Assessing Officer considered the assessee's explanation and observed that the plea of the assessee that business could not be conducted because of the seizure of stock by the Income-tax Department was not satisfactory as in the last year in spite of the said fact the assessee has shown some trading activity. He further observed that M/s. Venus Jewellers and M/s. Mehrasons Jewellers, Connaught Place, New Delhi were separate entities for which separate books of account were being maintained by the assessee. He also observed that simply because the proprietor of the two concerns was the same person, it could not be said that it was one single business concern. He also mentioned that he places of business of both the concerns were different. The Assessing Officer, therefore, declined to accept the loss claimed by the Assessing Officer, therefore, declined to accept the loss claimed by the assessee and disallowed the same. The claim of the assessee for loss was similarly disallowed in subsequent two years by following the order for assessment year 1985-86.
2.3 On appeal before the learned CIT(A), the AR for the assessee objected to the disallowance on the ground that there was a search in the premises and the entire stock of jewellery was seized from the premises of business named, M/s. Venus Jewellers. He, therefore, urged that there were no purchases and sales during the year 1985-86. He also submitted that however the assessee continued to maintain the business premises for which a rent of Rs. 30,000 was paid. He further submitted that the expenditure claimed was only in respect of the rent, bank commission and depreciation on furniture and fixtures, etc. He, therefore, urged that the assessee was carrying on the business in the name of Mehrasons Jewellers in Connaught Place. The AR also filed copies of the orders of the Gold Control Authorities to show that the assessee had obtained the licence to carry on gold business. He further submitted that the assessee had gone in appeal against the rejection of his application for renewal of the licence and that the Gold Control Tribunal allowed the appeal of the assessee. In view of the foregoing he argued that the assessee was carrying on the business of jewellery and the loss claimed ought to be allowed as deduction. The learned CIT(A) considered the submissions and referring to the trading and profit and loss account as on 30-4-1985 relevant to the assessment year 1985-86, he observed that the stock of jewellery amounted to more than Rs. 4 lakhs which was seized in November 1980, and was released in December 1984. He further observed that there were no purchases or sales during the period ending on 30-4-1984. Except the amount debited to rent and depreciation claimed, there was no other expenditure on any other account. He further observed that a small amount of Rs. 177 was claimed as bank commission. He, therefore, concluded that there was no business conducted from the premises of M/s. Venus Jewellers at South Extension. He also observed that the orders of the Gold Control Authority related to earlier years, which showed that the assessee had obtained a licence in November 1979 and his application for renewal of licence had been rejected on the ground that he had not conducted any business. He also observed that against the said order, the appeal of the assessee was allowed vide order dated 10-8-1983. He further observed that the same, however, did not show that the assessee had been carrying on the business of gold jewellery during the year ending on 30-4-1984. In the process he held that merely because the assessee had been carrying on the business of jewellery from Connaught Place, in the name of M/s. Mehrasons Jewellers, it did not mean that he was also carrying on the business of jewellery from the premises at South Extension. He concluded that the assessee did not conduct any business from the premises at South Extn. even in the subsequent years. He, therefore, upheld the orders of the Assessing Officer whereby the loss was disallowed.
2.4 The learned counsel for the assessee Shri C.S. Aggarwal submitted before us that in this case there was a search and the entire stock of jewellery was seized from the premises of M/s. Venus Jewellers at South Extension and that in view thereof the assessee could not make any further purchases or sales of jewellery during the years under consideration. He further submitted that the assessee was, however, maintaining the said business premises and that the loss was claimed only with reference to the minimum of expenditure on rent (Rs. 30,000), depreciation on furniture and fixtures and neon signboard (Rs. 8,379) and bank commission (Rs. 177.60) totalling to Rs. 38,556 during the assessment year 1985-86. He further submitted that the said expenditure was not of capital nature and that the same ought to have been allowed by the tax authorities. He also submitted that the assessee was an individual and the sole proprietor of the two concerns, namely, M/s. Venus Jewellers and Mehrasons Jewellers and that he was carrying on the business of sale and purchase of gold jewellery, whose profits were being taxed in the hands of the assessee in the status of an individual. He also argued that the assessee was having common management and common control over the said business of gold jewellery being carried on from the said two said business of gold jewellery being carried on from the said two concerns. In this connection the learned counsel invited our attention to the decision of the Hon'ble Supreme Court in the case of B.R. Ltd. v. V.P. Gupta, CIT [1978] 113 ITR 647, wherein it was held that in view of the common management and common control of the two businesses, the assessee was entitled to carry forward the loss in the import business in the assessment year 1953-54 and set if off against the profits of export business for the assessment years 1954-55 to 1956-57. In the said case the assessee was carrying on the business of import and sale of woollen fabrics, leather beltings, hardware, toilet goods, chemicals, cotton fabrics, etc., during the accounting period relevant to assessment year 1953-54. In that year the assessee suffered an accumulated business loss of Rs. 56,488. From the assessment year 1954-55, i.e., commencement of the calendar year 1953, the assessee started exports of cotton textiles instead of importing woollen fabrics which business was closed by the assessee by the end of the calendar year 1952. The assessee claimed that the said loss of Rs. 56,488 incurred with reference to import and sale of woollen fabrics, etc., should be set off against the profits made by the assessee during the assessment years 1954-55 to 1956-57. In view of the said decision the learned counsel urged that though the said case related to a limited company, the ratio of the said case with reference to unity of control and common management should be applied in the case of the present assessee in relation to the business of gold jewellery being carried on from the aforesaid two concerns and the loss claimed by the assessee from M/s. Venus Jewellery should be allowed.
2.5 The learned DR, Shri B.P. Misra relied heavily on the orders of the tax authorities. He further submitted that the assessee had no licence under the Gold Control Act for carrying on the business from M/s. Venus Jewellers. He further submitted that the assessee had only the opening stock of jewellery and that no further sales or purchases in jewellery have taken place. He reiterated that as no business activity was carried on during the years under consideration no loss should be allowed.
2.6 In his reply the learned counsel mentioned that it was not correct to say that the assessee was not carrying on any business activity from the premises of M/s. Venus Jewellers. In this connection he invited our attention to the balance-sheet and trading and profit and loss account for the earlier years placed at pages 1 to 3, 9 to 11 and 17 to 19 of the paper book as also the assessment orders for the assessment years 1982-83, 1983-84 and 1984-85. He mentioned that the closing stock as on 30-4-1983 amounting to Rs. 5,73,781 was duly supported by the assessment order for assessment year 1984-85 and that the same was reflected as opening stock in the trading and profit and loss account as on 30-4-1984 placed at page 25 of the paper book. He further invited our attention to page 29 of the paper book where trading and profit and loss account in the case of M/s. Venus Jewellers as on 30-4-1985 is placed and opening stock of Rs. 5,73,781.56 has been shown. It is further shown that stock of 340 cts. of diamonds valued at Rs. 4,94,353.63 was transferred to M/s. Mehrasons Jewellers, Connaught Place and the remaining stock was of Rs. 79,427.96. A loss of Rs. 38,271 has also been claimed and the same has been shown as transferred to proprietors capital account. In view of the foregoing, the learned counsel urged that the business of gold jewellery being carried on by the assessee from the said two concerns should be treated as a single business and the loss so claimed be allowed.
2.7 We have carefully considered the rival submissions and have also perused the orders of the tax authorities and other relevant record to which our attention was invited during the course of hearing. We have also carefully seen the decision of the Hon'ble Supreme Court in the case of B.R. Ltd. (supra), relied upon by the learned counsel with reference to the discontinuance of carrying on of business activity from the premises of M/s. Venus Jewellers was that the entire stock of jewellery was seized by the department and the assessee was, therefore, constrained from making any further sales and purchase of jewellery from the said premises. The learned counsel further tried to argue that the assessee was maintaining the said business premises and that the loss claimed was on account of minimum expenditure incurred by the assessee on rent of the shop premises, apart from depreciation on furniture and fixtures and some bank commission. He also laid emphasis on the fact that the assessee was carrying on the same business, i.e., business of sale and purchase of gold jewellery from the said two concerns and that in view of the aforesaid decision of the Hon'ble Supreme Court the test of unity of control and common management should be applied in the case of the assessee and the loss form M/s. Venus Jewellers should be allowed on that basis. It is observed from para 4 of the order of the learned CIT(A) for the assessment year 1985-86 that the stock of jewellery amounting to more than Rs. 4 lakhs which was seized in November 1980 was released in December, 1984. The fact relating to release of seized jewellery in December 1984 has not been controverted by the learned counsel. It is further observed that the accounting period of the assessee is 31-3-1985 in relation to assessment year 1985-86. Thus there was a period of 3 months available to the assessee to carry on some business activity from the premises of M/s. Venus Jewellers as the same were being maintained by the assessee as claimed. It is also observed from the assessment order for assessment year 1985-86 that the assessee had stated in his reply dated 28-3-1988 that the licence of M/s. Venus Jewellers was transferred to M/s. Mehrasons Jewellers, Connaught Place, New Delhi and that the business as such was done in M/s. Mehrasons Jewellers. This also shows that the assessee did not intend to do any business from the premises of M/s. Venus Jewellers during the assessment year 1985-86 and the same position continued in the subsequent two years. It has also not been shown before us as to whether any business activity had commenced after the assessment year 1987-88 which is before us. In the circumstances we cannot help but agree with the tax authorities that no business activity has been carried on by the assessee from the business premises of M/s. Venus Jewellers during the 3 assessment years under consideration. It is also observed that the assessee is maintaining separate books of account including separate balance-sheet and trading and profit and loss account in relation to M/s. Venus Jewellers and Mehrasons Jewellers, which are located at different places. In the circumstances the said two concerns have to be treated as separate entities. The next question before us is as to whether the aforesaid decision of the Hon'ble Supreme Court in the case of B.R. Ltd. aforesaid decision of the Hon'ble Supreme Court in the case of B.R. Ltd. (supra) can be applied in the present cases and the test of unity of control and common management can be adopted to treat separate businesses from the said two concerns as one business, though the nature of business, namely, sale and purchase of gold jewellery, is the same. We feel that the aforesaid decision of the Hon'ble Supreme Court, which was given in the context of carry forward of losses from the business of import of certain articles as against the profits of business of export arising to the assessee in subsequent years having regard to the fact that the business of import had been discontinued, is distinguishable on facts and that the ratio laid down therein on the basis of the facts in that case cannot be applied to the present case, as in this case the assessee was carrying on business from two separate concerns located at different places and having separate accounts. Accordingly, we do not see any reason to interfere with the orders of the learned CIT(A) in confirming the disallowance of loss claimed by the assessee from M/s. Venus Jewellers.