ADVANCE TRANSFORMERS & EQUIPMENTS P. LTD, MUMBAI v. DCIT 3(1), MUMBAI

ITA 3435/MUM/2009 | 2003-2004
Pronouncement Date: 23-07-2010 | Result: Allowed

Appeal Details

RSA Number 343519914 RSA 2009
Bench Mumbai
Appeal Number ITA 3435/MUM/2009
Duration Of Justice 1 year(s) 1 month(s) 27 day(s)
Appellant ADVANCE TRANSFORMERS & EQUIPMENTS P. LTD, MUMBAI
Respondent DCIT 3(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 23-07-2010
Date Of Final Hearing 20-07-2010
Next Hearing Date 20-07-2010
Assessment Year 2003-2004
Appeal Filed On 26-05-2009
Judgment Text
ITA NO. 3435/MUM/09 ASSESSMENT YEAR 2003-04 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) AND SMT ASHA VIJAYRAGHAVAN ( JUDICIAL MEMBER) ITA NO. 3435/MUM/09 ASSESSMENT YEAR 2003-04 DATE OF HEARING : 20.7.2010 ADVANCE TRANSFORMERS & EQUIPMENTS .APPELLAN T VS. DEPUTY COMMISSIONER OF INCOME TAX RANGE 3 (1) MUMBAI . RESPONDENT APPELLANT BY : SHRI M SUBRAMANIAN RESPONDENT BY: SHRI O P KANT O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF RS 18 31 021 ON ACCOUNT OF SALARIES AND WAGES ON T HE GROUND THAT THERE WAS NO MANUFACTURING ACTIVITY DURING THE YEAR. THE ASSESSMENT YEAR INVOLVED IS 2003-04. 2. THERE IS NO DISPUTE ABOUT THE BASIC FACTS. ADMIT TEDLY THERE WAS NO MANUFACTURING ACTIVITY DURING THE YEAR BUT THE ASS ESSEE HAD TO PAY THE SALARIES AND WAGES. THERE IS NO DISPUTE ABOUT BONAF IDES OF PAYMENT BUT ITA NO. 3435/MUM/09 ASSESSMENT YEAR 2003-04 PAGE 2 OF 5 THE DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF THE BU SINESS NOT CONTINUING AND MANUFACTURING ACTIVITIES NOT TAKING PLACE. THE CIT(A) HAS ALSO TAKEN NOTE OF THE ARGUMENT THAT WORKERS CANNOT BE RETREN CHED WITHOUT RECOURSE OF LAW WHICH INVOLVES PERMISSION FROM APPR OPRIATE AUTHORITIES AND THUS IT WAS A NECESSARY BUSINESS EXPENDITURE A ND THAT THE COMPANY IS CONTINUING TO BE IN BUSINESS INTER ALIA IN THE SE NSE IT IS HOLDING ITS BOARD MEETINGS FILING ALL THE STATUTORY RETURNS TO ALL T HE AUTHORITIES AND DOING SOME TRADING ACTIVITIES. YET THE CIT(A) HAS REJECT ED THE GRIEVANCE OF THE ASSESSEE WITH RATHER VAGUE OBSERVATION THAT THE AP PELLANT HAS NOT BROUGHT ANY MATERIAL ON RECORD TO JUSTIFY ITS CLAIM EITHER BEFORE THE AO OR BEFORE ME. THE ASSESSEE IS AGGRIEVED AND IS IN APP EAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. IN OUR CONSIDERED VIEW MERELY BECAUSE MANUFACT URING ACTIVITIES ARE NOT CARRIED OUT SALARIES AND WAGES CANNOT BE D ECLINED DEDUCTION. THERE IS NO DISPUTE ABOUT BONAFIDES OF THE PAYMENT BUT THE OBJECTION IS TAKEN FOR THE PURPOSE OF THE PAYMENT WHICH ACCORD ING TO THE ASSESSING OFFICER IS NOT FOR THE PURPOSE OF BUSINESS AS NO B USINESS WAS IN EXISTENCE IN THE RELEVANT PERIOD. HOWEVER AS THE ASSESSEE RI GHTLY SUBMITS IT IS NOT AT THE SWEET WILL AND UNFETTERED PLEASURE OF THE AS SESSEE THAT THE WORKERS CAN BE RETRENCHED ANYTIME. AS LONG AS WORKERS CONTI NUED TO BE EMPLOYED THE ASSESSEE INDEED HAS TO PAY THEM THEIR LEGITIMAT E DUES. AS FOR CONTINUATION OF BUSINESS IN OUR CONSIDERED VIEW A FACTORY NOT WORKING DURING THE YEAR PER SE CANNOT EVEN LEAD TO THE CONCLUSION THAT THE BUSINESS OF MANUFACTURING WAS DISCONTINUED LEAVE A SIDE THE QUESTION OF CLOSURE OF ASSESSEES BUSINESS WHICH MAY ON THE GIVEN FACTS ENCOMPASS MORE THAN MANUFACTURING BUSINESS. IN THE CASE OF L. VE. VERAVAN CHETTIAR ITA NO. 3435/MUM/09 ASSESSMENT YEAR 2003-04 PAGE 3 OF 5 VS. CIT 72 ITR 114 THEIR LORDSHIPS OF HONBLE MADR AS HIGH COURT WERE IN SEISIN OF A SITUATION WHERE THE ASSESSEE HAD OBTAINED AN IMPORT LICENCE FOR DOING ARECANUT BUSINESS BUT DUE TO ADVERSE COND ITIONS IN MARKET HE TEMPORARILY SUSPENDED THE ARECANUT BUSINESS FOR THE ASSESSMENT YEAR IN QUESTION. NEVERTHELESS HE WAS MAINTAINING THE ESTA BLISHMENT AND WAS WAITING FOR IMPROVED MARKET CONDITIONS IN ARECANUTS . IT WAS THUS AN ADMITTED POSITION THAT NO ACTIVITIES WERE CARRIED O UT SO FAR AS THIS PART OF THE BUSINESS WAS CONCERNED. ON THESE FACTS THEIR L ORDSHIPS TOOK NOTE OF THE POSITION THAT 'THERE IS NOTHING ON RECORD TO SH OW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER. ON THE OT HER HAND HIS BOOKS OF ACCOUNT REVEALED THAT HE WAS MEETING THE ESTABLISHM ENT CHARGES AND INTEREST PAYMENTS AS DETAILED IN THE ACCOUNTS IN TH E YEAR OF ACCOUNTS.' IT WAS THEN OBSERVED THAT THE QUESTION WHETHER THE BUS INESS IS BEING CARRIED ON MUST DEPEND IN EACH CASE ON ITS OWN FACT S AND NOT ON ANY GENERAL THEORY OF LAW. THEIR LORDSHIPS THEN REFERRE D TO WITH APPROVAL LORD SUMMERS OBSERVATION IN IRC VS. SOUTH BEHAR RA ILWAY CO. LTD. (1925) 12 TAX CASES 657 THAT BUSINESS IS NOT CONFIN ED TO BEING BUSY; IN MANY BUSINESSES LONG INTERVALS OF INACTIVITY OCCUR THE CONCERN IS STILL A GOING CONCERN THOUGH A VERY QUITE ONE.' IN THE LI GHT OF THIS LEGAL POSITION IT WOULD FOLLOW THAT UNLESS THERE IS SOME MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS COMPLETELY ABANDONED THE MANUFACTURING ACTIVITY EVEN IF THAT CAN BE TREATED AS A DISTINCT BUSINESS BY ITSELF MERELY BECAUSE NO MANUFACTURING ACTIVITY HAS NOT BEEN CARR IED OUT IN THE RELEVANT PREVIOUS YEAR IT CANNOT BE CONCLUDED THA T EXPENSES INCURRED IN THAT BUSINESS ARE NOT TO BE ALLOWED AS DEDUCTION O R THE LOSSES SO INCURRED ARE NOT TO BE SET OFF AGAINST OTHER INCOME S. AS FOR THE OBSERVATIONS OF THE CIT(A) AS LEARNED COUNSEL OF T HE ASSESSEE RIGHTLY POINTS OUT THESE OBSERVATIONS ARE VAGUE AS IT IS N OT CLEAR WHAT WAS THE EVIDENCE THAT THE ASSESSEE OUGHT TO HAVE SUPPLIED B UT HAS NOT SUPPLIED. THE ISSUE BEFORE CIT(A) WAS A PURELY LEGAL ISSUE SE T OUT IN A NARROW ITA NO. 3435/MUM/09 ASSESSMENT YEAR 2003-04 PAGE 4 OF 5 COMPASS OF UNDISPUTED FACTS AND THE CIT(A) OUGHT T O HAVE ADJUDICATED ON THIS ISSUE IN ACCORDANCE WITH THE CORRECT LEGAL POS ITION. IT IS NOT THE CASE OF THE CIT(A) THAT HE REQUISITIONED ANY EVIDENCE WH ICH WAS NOT FURNISHED BY THE ASSESSEE OR HE HAD ANY ISSUES WITH THE FACT UAL AVERMENTS BY THE ASSESSEE. WE ARE THUS NOT PERSUADED BY THE OBSERVAT IONS OR EVEN THE APPROACH OF THE CIT(A). IN VIEW OF THESE DISCUSSIO NS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE WE DEEM IT FIT AND PROPE R TO VACATE THE IMPUGNED DISALLOWANCE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 5. IN THE RESULT THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON 23 RD DAY OF JULY 2010. SD/XX SD/XX (ASHA VIJAYRAGHAVAN) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 23 RD DAY OF JUNE 2010. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT MUMBAI 4. THE COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE - G BENCH MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI ITA NO. 3435/MUM/09 ASSESSMENT YEAR 2003-04 PAGE 5 OF 5 DATE INITIAL 1. DRAFT DICTATED ON 21.7.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 22.7.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 22.7.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 22.7.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 22.7.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 23.7.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 23.7.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER