SHANKARLAL C. MUNDHRA HUF, MUMBAI v. ITO 24(3)(3), MUMBAI

ITA 3894/MUM/2009 | 2000-2001
Pronouncement Date: 07-05-2010 | Result: Allowed

Appeal Details

RSA Number 389419914 RSA 2009
Assessee PAN AADHS2654B
Bench Mumbai
Appeal Number ITA 3894/MUM/2009
Duration Of Justice 10 month(s) 20 day(s)
Appellant SHANKARLAL C. MUNDHRA HUF, MUMBAI
Respondent ITO 24(3)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 07-05-2010
Assessment Year 2000-2001
Appeal Filed On 17-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BEFORE SHRI N.V. VASUDEVAN (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO.3894/MUM./2009 ASSESSMENT YEAR : 2000-01 DATE OF HEARING 30.4.2010 SHANKARLAL C. MUNDHRA (HUF) B-701 JAMUNOTRI SADAN LINK ROAD BANGUR NAGAR GOREGAON (W) MUMBAI 400 090 AADHS2654B .. APPELLANT VS INCOME TAX OFFICER 24(3(3) C10 PRATYAKSHA KAR BHAVAN BANDRA (E) MUMBAI 400 051 RESPONDENT APPELLANT BY : SHRI NIRANJAN ATAL RESPONDENT BY : SHRI L.K. AGRAWAL O R D E R PER PRAMOD KUMAR A.M. 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER DATED 26 TH MARCH 2009 PASSED BY THE LEARNED CIT(A) IN THE MA TTER OF ASSESSMENT U/S ITA NO.3804/MUM./2009 SHANKARLAL C. MUNDHRA [2 ] 143(3) R/W SECTION 147 OF THE INCOME TAX ACT 1961 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2000-01. 2. LET US FIRST TAKE A LOOK AT THE MATERIAL FACTS LEAD ING TO THIS LITIGATION BEFORE US. IN THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER NOTICED THAT WHILE THE ASSESSEE HAS AN INTEREST INC OME OF RS.6 06 761/- THE ASSESSEE HAS CLAIMED EXPENSES OF RS.2 00 639/- EVEN AS THERE WAS NO TRADING ACTIVITY IN THIS PARTICULAR YEAR. HE ALSO NOTICED T HAT THE EXPENSES INCURRED BY THE ASSESSEE WERE SUCH THAT THESE EXPENSES DID NOT HAVE ANY BEARING OR RELATION WITH THE INCOME EARNING ACTIVITY AND WERE NOT ALLOWABLE AS DEDUCTION. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BUT THE CIT(A ) REJECTED ASSESSEES GRIEVANCE BY OBSERVING THAT NO BUSINESS WAS CONDUCTED BY THE APPELLANT AND THE EXPENSES COULD NOT BE RELATED TO INTEREST INCOME. WHEN THE M ATTER REACHED BEFORE A CO- ORDINATE BENCH THE BENCH REMITTED THE MATTER TO TH E FILE OF THE ASSESSING OFFICER TO INTER-ALIA DECIDE WHETHER THE ASSESSEE WAS ENGAGED IN BUSINESS OR NOT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD INCOM E FROM COMMISSION IN A.Y. 1996-97 1997-98 AND 1998-99 THE ASSESSEE DID NOT HAVE ANY SUCH INCOME IN THE ASSESSMENT YEARS 1999-2000 2000-01 2001-02 AND 20 02-03. HOWEVER AGAIN FROM A.Y. 2003-04 ONWARDS THE ASSESSEE HAD COMMISSION I NCOME ALL ALONG. IT WAS THUS NOTED BY THE ASSESSING OFFICER THAT THERE WAS NO BU SINESS ACTIVITY SO FAR AS RELEVANT PREVIOUS YEAR WAS CONCERNED. IT WAS IN THIS BACKDRO P THAT THE ASSESSING OFFICER ONCE AGAIN DISALLOWED BUSINESS EXPENSES. AGGRIEVED ONCE AGAIN THE ASSESSEE WENT IN APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US YET AGAIN. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MA TERIAL ON RECORD AND DULY CONSIDERED THE APPLICABLE LEGAL POSITION AS AL SO THE FACTUAL MATRIX OF THE CASE. 4. WE FIND THAT THE VERY BASIS OF DISALLOWANCE OF BUSI NESS EXPENSES WAS THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR. THI S FINDING ABOUT AN ACTIVITY OF ITA NO.3804/MUM./2009 SHANKARLAL C. MUNDHRA [3 ] BUSINESS NOT BEING FUNCTIONAL IN THE RELEVANT PREVI OUS YEAR CANNOT BE EQUATED WITH CESSATION OF BUSINESS WHICH COULD HAVE BEEN A REASO N GOOD ENOUGH FOR IMPUGNED DISALLOWANCE. NOT CARRYING OUT BUSINESS ACTIVITY IS ONE THING AND CESSATION OF BUSINESS IS QUITE ANOTHER. YET UNLESS THE BUSINESS ITSELF CEASES THERE CANNOT BE ANY GOOD REASON TO DISALLOW BONAFIDE BUSINESS EXPENSES JUST BECAUSE THERE IS NO BUSINESS ACTIVITY. IN THE CASE OF L. VERAVAN CHETTI AR VS CIT 72 ITR 114 HONBLE MADRAS HIGH COURT HAD AN OCCASION TO DEAL WITH A SI TUATION IN WHICH ASSESSEE HAD OBTAINED AN IMPORT LICENSE FOR DOING ARECANUT BUSIN ESS BUT DUE TO ADVERSE MARKET CONDITIONS ASSESSEE TEMPORARILY SUSPENDED ARECANUT BUSINESS FOR ASSESSMENT YEAR IN QUESTION. NEVERTHELESS THE ASSESSEE WAS MAINTAI NING AN ESTABLISHMENT AND WAS WAITING FOR BETTER TIMES IN ARECANUT BUSINESS. ON T HESE FACTS THEIR LORDSHIPS OF HONBLE MADRAS HIGH COURT TOOK NOTE OF THE POSITION THAT THERE IS NOTING ON RECORD TO SHOW THE ASSESSEE HAS COMPLETELY ABANDONED OR C LOSED THE BUSINESS FOREVER AND THAT ON THE OTHER HAND HIS BOOKS OF ACCOUNT REVEALED T HAT HE WAS MEETING ESTABLISHMENT CHARGES AND INTEREST PAYMENTS AS DETA ILED IN THE ACCOUNTS. IT WAS THEN OBSERVED THAT WHETHER BUSINESS WAS BEING CARRIED ON OR NOT MUST DEPEND IN EACH CASE ON ITS OWN FACTS AND NOT ON ANY GENERAL THEOR Y OF LAW. THEIR LORDSHIPS THEN REFERRED TO WITH APPROVAL LORD SUMMERS OBSERVATI ON IN IRC VS SOUTH BEHAR RAILWAY CO. (1925) 12 TAX CASE 657 THAT BUSINESS IS NOT CONFINED TO BEING BUSY IN MANY BUSINESS LONG INTERVALS OF INACTIVITY OCCUR. IT IS THUS FREE FROM ANY DOUBT THAT MERELY BECAUSE THERE IS NO ACTIVITY IN BUSINESS IT CANNOT BE INFERRED THAT BUSINESS ITSELF HAS COME TO AN END. THERE HAS TO BE SOMETHIN G TO SHOW OR AT LEAST INDICATE THAT BUSINESS IS ABANDONED OR CLOSED FOREVER. 5. VIEWED IN THE ABOVE PERSPECTIVE THERE IS NO GOOD R EASON TO COME TO THE CONCLUSION THAT THE ASSESSEE HAD DISCONTINUED BUSIN ESS. IT WAS A PERIOD OF INACTIVITY THOUGH A PRETTY LONG PERIOD OF INACTIVI TY PRECEDED AND FOLLOWED BY BUSINESS AS USUAL. UNDER THESE CIRCUMSTANCES THE A UTHORITIES BELOW WERE CLEARLY IN ERROR IN NOT ALLOWING THE NORMAL ESTABLISHMENT EXPE NSES WHICH THE ASSESSEE WAS REQUIRED TO INCUR EVEN IN THIS STAGE OF HIBERNATION . WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CES. ITA NO.3804/MUM./2009 SHANKARLAL C. MUNDHRA [4 ] 6. AS WE HAVE ALLOWED THE EXPENSES BEING ALLOWED AS DE DUCTION IN COMPUTING THE BUSINESS INCOME THE ALTERNATIVE GRIEVANCE RAIS ED BY THE ASSESSEE SEEKING DEDUCTION OF THESE EXPENSES FROM INTEREST INCOME I S RENDERED ACADEMIC AND INFRUCTUOUS. IT DOES NOT CALL FOR ANY ADJUDICATION AT THIS STAGE. 7. IN THE RESULT APPEAL IS ALLOWED IN THE TERMS INDIC ATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 7 TH DAY OF MAY 2010. SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 7 TH DAY OF MAY 2010 COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT MUMBAI (4) CIT(A) MUMBAI (5) DR J BENCH (6) GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY ITA NO.3804/MUM./2009 SHANKARLAL C. MUNDHRA [5 ] DATE INITIAL 1. DRAFT DICTATED ON 3.5.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 4.5.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4.5.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 4.5.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 4.5.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 7.5.2010 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