Fusion Fittings (I) Ltd.,, v. DCIT, Circle-11(1),,

ITA 479/DEL/2006 | 2002-2003
Pronouncement Date: 30-07-2010 | Result: Allowed

Appeal Details

RSA Number 47920114 RSA 2006
Assessee PAN IFRIN2000A
Bench Delhi
Appeal Number ITA 479/DEL/2006
Duration Of Justice 4 year(s) 5 month(s) 16 day(s)
Appellant Fusion Fittings (I) Ltd.,,
Respondent DCIT, Circle-11(1),,
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 30-07-2010
Date Of Final Hearing 22-07-2010
Next Hearing Date 22-07-2010
Assessment Year 2002-2003
Appeal Filed On 13-02-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 479(DEL)/2006 ASSESSMENT YEAR: 2002-03 M/S FUSION FITTINGS (I) LTD. DEPUTY COMMISSIONER OF 27/49 VISWAS NAGAR VS. INCOME-TAX SHAHDARA DELHI-110032. CIRCLE 11(1) NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI GAGAN CHAWLA C.A. ASEEM CHAWLA C.A. RESPONDENT BY: SHRI N.K. CHAND SR. DR ORDER PER K.G. BANSAL : AM IN THIS CASE THE TRIBUNAL HAD PASSED THE ORDER ON 22.06.2009 IN WHICH THE APPEAL OF THE ASSESSEE WAS DISMISSED I N LIMINE FOR NON- PROSECUTION. THIS ORDER WAS RECALLED ON 18.12. 2009 IN M.A. NO. 569(DEL)/2009. THEREFORE THE APPEAL CAME UP FO R HEARING BEFORE US. THE ASSESSEE HAD TAKEN SEVEN GROUNDS IN THE APP EAL. GROUND NO. 1 CONSISTS OF FOUR SUB-PARTS. IN THE COURSE OF HE ARING BEFORE US THE LD. COUNSEL FOR THE ASSESSEE PRESSED GROUND NOS. 1(B) AND 1(C) ONLY WHICH ARE IN CONNECTION WITH DISALLOWANCE OF -(I) ADMIN ISTRATIVE EXPENSES AMOUNTING TO RS. 3 21 206/- AND (II) DEPRECIATION AMOUNTING TO RS. ITA NO.479(DEL)/2006 2 24 68 162/-. OTHER GROUNDS WERE NOT PRESSED BY THE LD. COUNSEL AND THEREFORE THOSE GROUNDS ARE DISMISSED. 1.1 ON PERUSAL OF RECORD IT IS FOUND THAT THE R ETURN OF INCOME WAS FILED ON 30.10.2002 DECLARING LOSS OF RS. 80 20 844/-. THE ASSESSMENT WAS COMPLETED ON 7.03.2005 U/S 143(3) OF THE INCOM E-TAX ACT 1961 AT LOSS OF RS. 52 17 969/-. WHILE FRAMING THIS ASSESSM ENT DISALLOWANCE WAS MADE INTER-ALIA OF THE CLAIM OF ADMINISTRATIVE EXPENSES AND DEPRECIATION ON THE GROUND THAT THE BUSINESS OF THE ASSESSEE HAS BEEN CLOSED DOWN. SOME OTHER EXPENSES WERE ALSO DISALLOWED AND A S MENTIONED EARLIER THE ASSESSEE HAS NOT PRESSED GROUNDS IN REGARD THERET O. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE MOVED AN APPEAL BEFORE THE CIT(APPEALS)-XIV NEW DELHI WHO DISPOSED IT OFF ON 21.12.2005 IN APPEAL NO. 115/05-06. HE CONFIRMED THE FINDINGS O F THE AO REGARDING CLOSURE OF THE BUSINESS BY MAKING FOLLOWING OBSE RVATIONS IN PARAGRAPH 2.3.1:- 2.3.1 IN THE COPY OF THE REFERENCE FILED BY THE APPELLANT COMPANY U/S 15 OF SICA DATED 03.02.2005 AT SL. NO. 9 IT IS CLEARLY MENTIONED THAT THE UNIT HAS BEEN ATTACHED U/S 29 BY PICUP ON 13.08.1999 AND SINCE THEN IT IS CLOS ED. FROM THIS APPLICATION ITSELF IT IS CLEAR THAT THE BUSINESS OF THE APPELLANT COMPANY IS CLOSED FROM 13.08.1999 ONWARDS AND N O BUSINESS HAS BEEN CONDUCTED BY THE APPELLANT COMPANY SINCE THEN. IT IS ALSO A FACT AS SUBMITTED BY THE APPELLANT CO MPANY THAT THE ITA NO.479(DEL)/2006 3 APPLICATION FILED BY THE APPELLANT COMPANY WITH BI FR IN 2000 ALREADY STANDS REJECTED BY THE BIFR AND THE REJ ECTION CONFIRMED BY THE APPELLATE AUTHORITY ALSO. A F RESH REFERENCE HAS BEEN REGISTERED AS A CASE BY THE BIFR B UT THE ORDER OF THE BIFR IS PENDING. AS PER THE PAPERS FILED BY THE APPELLANT COUNSEL IT IS FOUND TO BE CORRECT THAT THE POS SESSION OF THE FACTORY HAS BEEN HANDED OVER BY PICUP TO THE APP ELLANT ON 27.09.2005 AFTER PAYMENT OF POST DATED CHEQUES. HOWEVER IT IS NOTED THAT AS PER COPY OF LETTER DATED 05.0 9.2005 OF THE APPELLANT ADDRESSED TO PICUP IT IS CLEARLY MEN TIONED THAT PICUP SHOULD GIVE PERMISSION TO THE APPELLANT FOR SALE OF LAND AND BUILDING PLANT AND MACHINERY AND OTHER ASSETS AFTER MAKING PAYMENT OF 10% AMOUNT AS PER CLAUSE 2. THIS CLEARLY SHOWS THE INTENTION OF THE APPELLANT T HAT IT DOES NOT AGAIN WANT TO RESTART THE BUSINESS BUT WANT TO SELL THE ASSETS OF THE COMPANY AS PER THE SETTLEMENT WITH PICUP. FROM THE FACTS IN THE CASE OF THE APPELLANT COM PANY IT IS CLEAR THAT THE BUSINESS OF THE APPELLANT COMPANY HAD ALREADY CLOSED. AS THE BUSINESS OF THE APPELLANT COMPAN Y HAS CLOSED FROM AUGUST 1999 ONWARDS THE EXPENDITURE CLAIME D BY THE APPELLANT COMPANY IN RESPECT OF ADMINISTRATIVE E XPENSES DEPRECIATION AND PRIOR PERIOD CANNOT BE ALLOWED AS THE BUSINESS OF THE APPELLANT COMPANY STAND CLOSED FR OM AUGUST 1999. AS PER THE RATIO LAID DOWN BY THE VARIOUS COURTS INCLUDING THE HONBLE SUPREME COURT RELIED UPON BY THE AO NO EXPENDITURE CAN BE ALLOWED IN THE CASE OF TH E CLOSED COMPANIES. IN VIEW OF THE ABOVE FACTS THE ACTI ON OF THE AO FOR DISALLOWANCE OF THE EXPENDITURE IS CONFIRMED. 1.2 AGGRIEVED BY THIS ORDER THE ASSESSEE IS IN APP EAL BEFORE US. 2. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO T HE SYNOPSIS DATED 02.04.2009. IT IS SUBMITTED THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND WAS ORIGINALLY REGISTERED ON 18.12.1984 UN DER THE NAME OF GAUTAM ITA NO.479(DEL)/2006 4 REPRO INDUSTRIES (P) LTD. THIS NAME WAS CHANGED TO FUSION FITTING (INDIA) PVT. LTD. ON 7.6.1994. THE COMPANY WAS C ONVERTED INTO PUBLIC LIMITED COMPANY ON 17.2.1995. THE ASSESSEE HAS BEEN CARRYING ON THE BUSINESS OF MANUFACTURING SANITARY FITTINGS FROM 19.9.1996. HOWEVER DUE TO LOSSES SUFFERED IN THE BUSINESS LEADING TO NO N-PAYMENT OF DEBT ITS MANUFACTURING UNIT WAS ATTACHED BY PICUP ON 13 .08.1999. SINCE THE LOSS LED TO FINANCIAL CRISES AN APPLICATION WAS MADE BEFORE THE BOARD FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION (BIFR FO R SHORT). HOWEVER THIS APPLICATION WAS REJECTED BY THE BIFR. CONSEQUE NTLY THE ASSESSEE MOVED AN APPEAL BEFORE THE APPELLATE AUTHORITY WHICH WAS ALSO DISMISSED WITH LIBERTY TO FILE A FRESH APPLICATION BEFORE THE BIFR. SUCH FRESH APPLICATION WAS MADE ON 03.02.2005 WHICH HAS BE EN LISTED AS CASE NO. 77 OF 2005. 2.1 IT IS FURTHER SUBMITTED THAT THE AO DISAL LOWED VARIOUS EXPENSES AND DEPRECIATION ON THE GROUND THAT THE BUSINESS HAS BEEN CLOSED DOWN. WHILE DOING SO HE RELIED ON SOME DECIDED CASE S WHICH ARE NOT APPLICABLE TO THE FACTS OF THIS CASE. THE LD. CIT(A) UPHELD THE FINDING OF THE AO. WE HAVE ALREADY REPRODUCED THE RELEVANT PORTION OF THE IMPUGNED ORDER IN THIS MATTER. IT IS SUBMITTED THAT THE ASSESSEE IS A PUBLIC ITA NO.479(DEL)/2006 5 LIMITED COMPANY WHICH HAS TO NECESSARILY INCUR SOME EXPENSES FOR ITS VERY EXISTENCE. IT HAD TO STOP MANUFACTURING ACTIVITIES TEMPORARILY DUE TO FINANCIAL DIFFICULTIES. HOWEVER THERE WAS NO CLOSURE OF THE BUSINESS AND THE ASSESSEE CONTINUED TO REPRESENT MATTERS BEFORE THE PICUP AND THE BIFR FOR REVIVAL OF ITS ACTIVITIES. ON 27.0 9.2005 THE PICUP HANDED OVER THE POSSESSION OF THE MANUFACTURING UNIT ON ONE-TIME SETTLEMENT BASIS FOR THE REASONS THAT THE ASSESSEE ARRANGE D SOME FUNDS AND ISSUED POST-DATED CHEQUES TO THE PICUP. THUS THE CASE IS ONE OF THE LULL PERIOD IN THE BUSINESS CYCLE AND NOT OF CLOSURE OF THE BU SINESS. ACCORDINGLY IT HAS BEEN ARGUED THAT THE ADMINISTRATIVE EXPENSES AND THE DEPRECIATION MAY BE ALLOWED TO BE DEDUCTED IN COMPUTING THE INCOME. 3. IN REPLY THE LD. DR REFERRED TO THE FINDINGS OF THE LD. CIT(APPEALS) MENTIONED IN PARAGRAPH 2.3.1 OF THE IMPUGNED OR DER. IT IS HIS CASE THAT THE ASSETS HAVE NOT BEEN USED FOR THE BUSINESS A T ANY TIME AFTER THEIR ATTACHMENT BY THE PICUP AND THE BUSINESS OF MANUF ACTURING HAS ALSO NOT BEEN REVIVED AT ANY TIME THEREAFTER. THEREFORE IT IS A CLEAR CASE OF THE CLOSURE OF THE BUSINESS. ACCORDINGLY IT HAS BEEN ARGUED THAT THE LOWER AUTHORITIES WERE RIGHT IN DISALLOWING THE EXPE NSES AND THE DEPRECIATION. ITA NO.479(DEL)/2006 6 4. BEFORE PROCEEDING TO DETERMINE THE CONTROVERSY AT HAND WE MAY REFER TO RELEVANT PAPERS FILED IN THE PAPER BOOK B Y THE ASSESSEE ON 23.09.2008. PAGE NO. 38 IS THE PROFIT AND LOSS ACCOUNT FOR THIS YEAR. THIS ACCOUNT SHOWS THAT NO SALE WAS MADE IN THIS YEAR AND THE ASSESSEE EARNED ONLY OTHER INCOME OF RS. 78 550/-. SCHEDULE 14 OF THE ACCOUNTS REGARDING MANUFACTURING SELLING AND ADMINISTRATIVE EXPEN SES SHOWS THAT NO EXPENDITURE WAS INCURRED ON WAGES SALARIES AND B ONUS. VARIOUS EXPENSES WERE IN RESPECT OF ADMINISTRATIVE AND GENERAL E XPENSES. THE MAJOR EXPENSES ARE IN RELATION TO THE PROVISION MADE FOR BAD DEBTS AMOUNTING TO ABOUT RS. 3.06 LAKH PROVISION FOR REDUCTION IN V ALUE OF STOCK OF ABOUT RS. 1.25 LAKH AND MISCELLANEOUS EXPENSES WRITTEN O FF OF ABOUT RS. 10.17 LAKH. NOTE NO. 9 APPENDED TO THE ACCOUNTS BY THE AUDITORS MENTIONS THAT EVEN THOUGH THE MANUFACTURING OPERATION CONTINUED TO STAND SUSPENDED AND ACCUMULATED LOSSES EXCEEDED THE NET WORTH THE ACCOUNTS OF THE COMPANY HAVE BEEN PREPARED ON THE BASIS THAT TH E COMPANY IS A GOING CONCERN. HOWEVER CONSIDERING THE ACCOUNTING STAN DARD-1 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA THIS CO NCEPT OF GOING CONCERN SEEMS TO BE OF DOUBTFUL VALIDITY. PAGE NO. 70 IS THE POSSESSION MEMO DATED 27.9.2005 UNDER WHICH THE NOIDA UNIT OF THE ASSESSEE-COMPANY WAS HANDED OVER TO IT BY THE PICUP ON AS IS WHER E IS BASIS. CLAUSE (VII) ITA NO.479(DEL)/2006 7 OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE P ICUP MENTIONS THAT THE COMPANY MAY SELL THE ASSETS OF THE UNIT WITH TH E CONSENT OF OTHER CHARGE- HOLDERS/BIFR ETC. THE COMPANY IS ALSO PERMITTED TO TAKE OVER POSSESSION OF ASSETS OF THE UNIT IMMEDIATELY. PERMISSION I S ALSO GRANTED FOR SALE OF THE UNIT AFTER THE COMPANY MAKES PAYMENT OF RS. 1 0.70 LAKH AS STIPULATED ABOVE. FROM THESE DOCUMENTS IN THE PAPER BOOK I T BECOMES CLEAR THAT THE AUDITORS HAVE CONSIDERED THE CONCEPT OF GOING CONCERN IN THE CASE OF THE ASSESSEE TO BE OF DOUBTFUL VALIDITY UNDER A CCOUNTING STANDARD-1. IT IS ALSO CLEAR THAT THE AGREEMENT WITH THE PICUP M ADE ON 14.10.2005 LEADS TO AN INFERENCE THAT THE ASSESSEE HELD OUT TO THE PICUP THAT THE UNIT OR ITS ASSETS MAY BE SOLD FOR DISCHARGING THE DEBT . HOWEVER SUCH A REPRESENTATION WOULD HAVE BEEN MADE ON 05.09.2005 AFTER WHICH THE POSSESSION OF THE ATTACHED UNIT OF THE ASSESSEE WAS HANDED OVER TO IT ON 27.09.2005 BY THE PICUP. ON THE BASIS OF FACTS N ARRATED ABOVE THE QUESTION BEFORE US IS WHETHER- THE BUSINESS OF THE ASSESSEE HAS BEEN CLOSED DOWN OR THERE WAS SUSPENSION OF BUSINES S FOR SOME TIME (THE LULL PERIOD) DUE TO FINANCIAL DIFFICULTIES? 4.1 THE ASSESSEE HAS RELIED ON A NUMBER OF CA SES INCLUDING THAT OF HONBLE DELHI HIGH COURT BEING THE JURISDICTIONAL HIGH COURT IN THE CASE ITA NO.479(DEL)/2006 8 OF CIT VS. REFRIGERATION & ALLIED INDUSTRIES LTD. (2001) 247 ITR 12. THE HONBLE COURT MENTIONED THAT THE WORDS USED FOR THE PURPOSE OF BUSINESS CAN BE OF A LARGER AND NARROWER INTE RPRETATION. IN THE NARROWER INTERPRETATION THE EXPRESSION CONNOTES ACTIVE E MPLOYMENT OF ASSETS IN THE BUSINESS. HOWEVER IN THE WIDER CONNOTATION IT MEANS NOT ONLY ACTIVE EMPLOYMENT OF THE ASSETS BUT ALSO PASSIVE U SER OF THE SAME AS AN ASSET CAN BE SAID TO BE IN USE WHEN IT IS KEPT READY FOR USE. 4.2 ON THE OTHER HAND THE REVENUE RELIED ON TH E DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF M/S GRAIN C HAMBER LTD. VS. CIT LUCKNOW (1962) 46 ITR 217. IN THIS CASE THE QUESTION BEFORE THE COURT WAS- WHETHER THE LITIGATION EXPENSES INCURRED BY THE ASSESSEE IN DEFENDING THE CIVIL SUIT FILED BY ITS MEMBERS AFTER THE B USINESS OF THE ASSESSEE- COMPANY IN SPECULATIVE TRANSACTION IN GUR WAS S TOPPED ON ACCOUNT OF THE BAN IMPOSED BY THE GOVERNMENT BY NOTIFICATION DAT ED FEBRUARY 15 1950 PUBLISHED IN THE GOVERNMENT GAZETTE IS PERMISSIBL E DEDUCTION WITHIN THE MEANING OF CLAUSE (XV) OF SUB-SECTION (2) OF SECT ION 10 OF THE INCOME-TAX ACT? THE HONBLE COURT MENTIONED THAT THERE WAS A CLEAR FINDING THAT NO BUSINESS AT ALL WAS CARRIED ON BY THE COMPA NY SUBSEQUENT TO FEBRUARY 14 1950 AND THAT THE COMPANY HAD NO INTENTION OF CARRYING ON ANY ITA NO.479(DEL)/2006 9 BUSINESS. THEREFORE THERE IS NO QUESTION OF THE COMPANY REMAINING IN A DORMANT STATE OR A STATE OF SUSPENDED ANIMATIO N. SINCE THE EXPENDITURE WAS INCURRED AFTER THE CLOSURE OF THE BUSINESS IT WAS HELD THAT THE SAME IS NOT DEDUCTIBLE IN COMPUTING THE INCOME. IT WIL L BE SEEN FROM THE QUESTION ITSELF THAT THE EXPENDITURE WAS INCURR ED AFTER CLOSURE OF THE BUSINESS AND THUS THERE WAS NO QUESTION OF GIVING ANY FINDING REGARDING LULL IN THE BUSINESS. OBVIOUSLY TH E BUSINESS HAD TO BE CLOSED DOWN BECAUSE OF GOVERNMENT REGULATION. THUS TH IS CASE DOES NOT THROW ANY LIGHT REGARDING THE PRINCIPLES TO BE APPLI ED FOR FINDING OUT WHETHER THE BUSINESS HAS BEEN DISCONTINUED OR IT IS IN A STATE OF SUSPENDED ANIMATION. 4.3 FURTHER RELIANCE WAS PLACED ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF L.M. CHHABDA & SONS VS. CIT GUJARAT (1957) 65 ITR 638. THE QUESTION BEFORE THE COURT WAS- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE AMOUNT OF RS. 9 2 240/- WAS ALLOWABLE AS DEDUCTION IN DETERMINING THE BUSINESS INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 1955-56? THE HONBLE COURT MENT IONED THAT THE ASSESSEE WAS CARRYING ON CINEMA THEATRE BUSINE SS IN AHMEDABAD AND BOMBAY AND THE RESULT OF ACCOUNTS OF DIFFERENT VENTURES WAS ENTERED IN ITA NO.479(DEL)/2006 10 THE ACCOUNTS MAINTAINED AT HEADQUARTER BUT FR OM THAT CIRCUMSTANCE NO INFERENCE NECESSARILY ARISES THAT THE EXHIBI TION OF FILMS IN DIFFERENT THEATRES CONSTITUTED THE SAME BUSINESS. IT I S FURTHER MENTIONED THAT IT WAS FOR THE ASSESSEE TO ESTABLISH THAT DIF FERENT VENTURES CONSTITUTE PARTS OF THE SAME BUSINESS. THERE IS NO EVIDENCE ABOUT UNITY OF CONTROL AND MANAGEMENT OR INTER-RELATION OF THE BUSINESS OR EMPLOYMENT OF SAME STAFF TO RUN THE BUSINESS OR THE POSSIBILITY OF ONE THEATRE BEING CLOSED DOWN WITHOUT AFFECTING THE REST OF THE BUSINES S. THEREFORE IT IS DIFFICULT TO HOLD THAT THE VENTURE OF PRAKASH TALKIES WAS A PART OF GENERAL BUSINESS OF EXHIBITION OF FILMS IN THEATRES CAR RIED ON BY THE ASSESSEE. THIS CASE DEALS WITH THE ISSUE AS TO WHETHER EXHIBITION OF FILMS IN DIFFERENT THEATRES IN AHMEDABAD AND BOMBAY CONSTI TUTED ONE BUSINESS OR DIFFERENT BUSINESSES. THE COURT CAME TO THE CON CLUSION THAT THERE IS NO EVIDENCE TO SHOW THAT THERE WAS AN UMBRELLA BUS INESS UNDER WHICH VARIOUS THEATRES WERE EXHIBITING FILMS. THEREFORE ON CLOSURE OF THE BUSINESS OF PRAKASH TALKIES EXPENDITURE INCUR RED THEREON WAS NOT DEDUCTIBLE IN COMPUTING THE INCOME OF OTHER BUS INESSES. IN THIS CASE ALSO THE FACTS WERE SUBSTANTIALLY DIFFERENT. IT WAS THE ADMITTED POSITION THAT THE BUSINESS OF PRAKASH TALKIES HAD BEEN CLO SED DOWN AND THUS THE QUESTION WAS REGARDING ALLOWANCE OF EXPENDITURE INCURRED IN THIS BUSINESS ITA NO.479(DEL)/2006 11 AFTER ITS CLOSURE AGAINST INCOMES OF OTHER BUSIN ESS. THE QUESTION BEFORE US IS SUBSTANTIALLY DIFFERENT AS TO WHETHER THE BU SINESS OF THE ASSESSEE HAS BEEN CLOSED DOWN OR IT IS IN A STATE OF SUSP ENDED ANIMATION. 4.4 RELIANCE WAS ALSO PLACED ON THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF CIT KERALA VS. GEMINI CASH EW SALES CORPORATION (1967) 65 ITR 643. THE FACTS OF THE CASE ARE THAT TWO PERSONS WALTER AND RAMASUBRAMONY CARRIED ON THE BUSINESS IN CAS HEW NUTS AS PARTNERS IN THE NAME AND STYLE OF M/S GEMINI CASHEW SALES COR PORATION. THE PARTNERSHIP WAS DISSOLVED ON 24.8.1957 ON ACCOUN T OF DEATH OF SUBRAMONY AND THE BUSINESS WAS TAKEN OVER BY WALTER. THE SERVICES OF EMPLOYEES WERE NOT INTERRUPTED AND THERE WAS NO ALTERATION IN TERMS OF THEIR EMPLOYMENT OF THE ESTABLISHMENT. THE ASSE SSEE CLAIMED DEDUCTION OF A SUM OF RS. 1 41 506/- AS GRATUITY PAYABLE T O THE WORKERS OF THE BUSINESS IN SETTLING THE ACCOUNTS ON 24.8.195 7. THE HONBLE COURT MENTIONED THAT THE LIABILITY TO PAY RETRENCHMENT COMPENSATION AROSE FOR THE FIRST TIME AFTER CLOSURE OF THE BUSINESS ON ACCOUNT OF DEATH OF ONE OF THE PARTNERS AND NOT BEFORE IT. THUS THE LIABILI TY AROSE NOT IN CARRYING ON THE BUSINESS BUT ON ACCOUNT OF TRANSFER OF THE BUSINESS. THIS LIABILITY WAS NOT OF A REVENUE NATURE. CONSEQUENTLY IT WAS HELD THAT THE AMOUNT ITA NO.479(DEL)/2006 12 IS NOT DEDUCTIBLE U/S 10(1) OR SECTION 10(2)(XV) OF THE INCOME-TAX ACT 1922. IN THIS CASE ALSO THE BUSINESS HAD TO BE TRANSFERRED BY OPERATION OF LAW AS PARTNERSHIP CAME TO AN END ON THE DEA TH OF ONE PARTNER. ALTHOUGH THE BUSINESS WAS CONTINUED BY THE SURVIV ING PARTNER IT WAS HELD THAT THE LIABILITY AROSE ON ACCOUNT OF TRANSFER OF THE BUSINESS. WE ARE NOT DEALING WITH A CASE OF TRANSFER OF BUSINESS AND THEREFORE THE RATIO OF THIS CASE IS NOT APPLICABLE. 4.5 THE QUESTION WHETHER A BUSINESS IS IN SUS PENDED ANIMATION OR IT HAS BEEN DISCONTINUED DEPENDS ON THE FACTS OF E ACH CASE. IT IS NOT ESSENTIALLY A QUESTION OF LAW BUT A QUESTION OF FACT. IF THERE IS A TEMPORARY SUSPENSION IN THE BUSINESS FOR VALID REASONS IT WILL BE A CASE OF LULL PERIOD IN THE BUSINESS PROVIDED THERE IS A MANIFEST INTENTION TO RESUME THE BUSINESS. IT IS IN THIS CONTEXT T HAT WE NARRATED CERTAIN FACTS FROM THE PAPER BOOK FILED BY THE ASSESSEE ON 23 .09.2008. ON A PRIMA FACIE PERUSAL ONE MAY TEND TO COME TO THE CONCLU SION THAT THE BUSINESS HAS BEEN CLOSED DOWN. THE FACTORS IN SUPPORT OF THIS PROPOSITION ARE THAT THERE IS NO SALE IN THIS YEAR NO MANUFACTURING ACTIVITY HAS BEEN UNDERTAKEN THERE IS NO PAYMENT BY WAY OF WAGES SALARY AND BONUS AND EVEN THE AUDITORS OF THE ASSESSEE MENTIONED IN N OTE NO. 9 THAT THE CONCEPT ITA NO.479(DEL)/2006 13 OF GOING CONCERN IS OF DOUBTFUL VALIDITY IF CO NSIDERED IN THE LIGHT OF ACCOUNTING STANDARD-1. THE EXPENSES ARE PRIMARI LY IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS PROVISION FOR RE DUCTION IN VALUE OF STOCK AND MISCELLANEOUS EXPENSES WRITTEN OFF. HOWEVER THE VIEW EXPRESSED BY THE AUDITOR IS ONLY AN ACCOUNTANTS VIEW WHICH MAY NOT BE THE LEGAL VIEW IN THE MATTER. WHAT WE HAVE TO SEE IS WHET HER THERE WAS INTENTION TO REVIVE THE BUSINESS AFTER THE MANUFACTURI NG UNIT WAS ATTACHED BY THE PICUP. WE FIND THAT THE ASSESSEE TOOK A NUMB ER OF STEPS TO REVIVE THE BUSINESS. IN THE FIRST PLACE IT MADE A PROPOSA L FOR THE FINANCIAL REVIVAL OF THE MANUFACTURING UNIT BEFORE THE BIFR. THE PRO POSAL HAS BEEN PENDING BEFORE THE BIFR TILL THE CLOSE OF THIS YEAR. IT ALSO CONTINUED NEGOTIATION WITH PICUP FOR LIFTING ATTACHMENT AND WITH TH IS VIEW IN MIND EVEN ARRANGED SOME FINANCE. IT ISSUED POST-DATED CHEQ UES TO DISCHARGE A PART OF ITS LIABILITY SO THAT THE UNIT COULD BE RESTO RED TO IT . THE RESULT OF THESE PERSUASIONS HAS BEEN THAT THE MANUFACTURING UNI T HAS BEEN HANDED OVER TO THE ASSESSEE ON 27.9.2005 ON AS IS WHERE IS BASIS. THIS IS MUCH AFTER THE CLOSE OF THE PREVIOUS YEAR. THE AGREEMENT W AS ALSO MADE WITH PICUP REGARDING DISCHARGE OF THE LIABILITY. IT DOES APPEAR TO US THAT IN THE COURSE OF NEGOTIATIONS IT WAS HELD OUT THA T THE ASSESSEE COMPANY MAY BE ALLOWED TO SELL THE ASSETS OR EVEN THE UNI T TO DISCHARGE THE LIABILITY ITA NO.479(DEL)/2006 14 WITH THE CONSENT OF OTHER CHARGE-HOLDERS BIFR ETC. HOWEVER SUCH A REPRESENTATION WAS MADE IN SEPTEMBER 2005 MUCH AFTER THE CLOSE OF THE PREVIOUS YEAR. IN SO FAR AS THE DEVELOPMENTS IN THIS YEAR ARE CONCERNED THE THRUST WAS TOWARDS REVIVING THE UNIT AND N OT TOWARDS CLOSING DOWN THE UNIT. THUS IT IS A CASE OF TEMPORARY SUSPENSION OF THE BUSINESS AND NOT CLOSURE OF BUSINESS IN SO FAR AS FA CTS OF THIS YEAR ARE CONCERNED. IT IS MADE ABUNDANTLY CLEAR THAT O UR FINDING IN THIS BEHALF IS CONFINED TO THIS YEAR ONLY. 4.6 IN SO FAR AS ADMINISTRATIVE EXPENSES ARE CONCERNED THE DETAILS THEREOF ARE MENTIONED ON PAGE 2 OF THE ASSESSM ENT ORDER WHICH ARE AS UNDER:- SL. NO. EXPENSES AMOUNT (RS.) (I) AUDITORS REMUNERATION 17 684/- (II) BANK CHARGES 3 678/- (III) GENERAL CHARGES 1 562/- (IV) TELEPHONE & POSTAGE 30 910 (V) FILING FEE 3 000/- (VI) LEASE RENT 70 869/- (VII) PROFESSIONAL CHARGES 56 150/- (VIII) LISTING FEE 55 500/- (IX) OFFICE EXPENSES 1 055/- (X) PRINTING & STATIONERY 10 532/- (XI) RENT RATES & TAXES 42 000/- (XII) ACCOUNTING CHARGES 9 000/- (XIII) TRAVELING & LOCAL CONVEYANCE 19 266/- TOTAL: 3 21 206/- ITA NO.479(DEL)/2006 15 4.7 THE ASSESSEE IS AN ARTIFICIAL PERSON AND IT H AS TO NECESSARILY INCUR SOME EXPENDITURE FOR ITS CONTINUATION. IN THE CASE OF ITO VS. MOKUL FINANCE (P) LTD. (2007) 110 TTJ (DEL) 445 I BENCH OF THE TRIBUNAL HELD THAT UNLESS THERE IS SOME MATERIAL ON REC ORD TO SHOW THAT THE ASSESSEE HAS COMPLETELY ABANDONED THE SHARE-DEA LING BUSINESS MERELY BECAUSE THERE IS NO BUSINESS TRANSACTION IN THE RELEVANT PREVIOUS YEAR CANNOT BE REASON ENOUGH TO COME TO THE CONCLUSI ON THAT THE BUSINESS HAS COME TO AN END. IN SUCH CIRCUMSTANCES THE EXPENS ES INCURRED BY THE ASSESSEE WILL HAVE TO BE ALLOWED. 4.8 ON THE BASIS OF AFORESAID DISCUSSION IT IS HELD THAT THE ASSESSEE HAS NOT CLOSED DOWN THE BUSINESS IN THIS YEAR. THERE FORE IT IS A CASE OF LULL PERIOD IN THE BUSINESS. ACCORDINGLY THE ASSESS EE IS ENTITLED TO DEDUCT ADMINISTRATIVE EXPENSES AS CLAIMED AND DEPRECI ATION AS PER RULES. 5. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3 0TH JULY 2010. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 30TH JULY 2010. SP SATIA ITA NO.479(DEL)/2006 16 COPY OF THE ORDER FORWARDED TO:- M/S FUSION FITTING (I) LTD. NEW DELHI. DY. CIT CIRCLE 11(1) NEW DELHI. CIT(A) CIT THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.