DCIT, New Delhi V. M/s. Micro Abrasives India Ltd., New Delhi

ITA 1462/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7104 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 15-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K S V S MANIAN
• Keywords: Depreciation; Business expenditure; Initiation of penalty proceedings; Commercial expediency

Judgement Text

ITA NO. 1462/DEL/2010 A.Y. 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1462/DEL/2010 A.Y. : 2006-07 DCIT, CIR.6(1), ROOM NO. 413, C.R. BLDG., NEW DELHI VS. M/S MICRO ABRASIVES INDIA LTD. 511, MERCANTILE HOUSE, 15, KASTURBA GANDHI MARG, NEW DELHI 110 001 (PAN: AACM0341H) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. K.S.V.S. MANIAN, CA AND SH. K.V.S.R. KRISHNA, CA DEPARTMENT BY : SH. N.K. CHAND, D.R. PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 18.1.2 010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE OF ` 5,83,129/- AS AGAINST ` 55,48,424/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON-BUSINESS EXPENSES CLAIMED BY THE ASSESSEE. 3. IN THIS CASE THE ASSESSING OFFICER OBSERVED THA T ASSESSEE HAS SHOWN INCOME FROM SALES OF SHARES AMOUNTING TO ` 3,29 ,05,376/-. ITA NO. 1462/DEL/2010 A.Y. 2006-07 2 THERE ARE OTHER RECEIPTS TO THE EXTENT OF ` 3,14,57 ,362/-. THE OTHER RECEIPTS INCLUDE INTEREST, DIVIDEND, PROFIT ON SALE S FIXED ASSET. ASSESSING OFFICER FURTHER NOTED THAT THE INVENTORY BEING PART OF CURRENT ASSET WHICH PERTAINED TO DHAMPUR WORKS HAS A MINOR CH ANGE. ASSESSING OFFICER FURTHER OBSERVED THAT OLD ASSESS MENT RECORDS SHOWED THAT FOR THE LAST TWO YEARS THERE HAS BEEN N O CHANGE IN THE INVENTORY. ASSESSING OFFICER OBSERVED THAT BUSIN ESS OF DHAMPUR WORKS SEEMS TO HAVE BEEN CLOSED. REFERRING TO BA LANCESHEET IN MARCH, 2003 AND MARCH, 2006 ASSESSING OFFICER OBSER VED THAT ASSESSEE SEEMS TO HAVE PERMANENTLY CLOSED DOWN BUSINE SS OF DHAMPUR WORKS WHICH WAS A MANUFACTURING ACTIVITY OF T HE ASSESSEE COMPANY. ASSESSING OFFICER OBSERVED THAT A LOOK A T THE EXPENSES CLAIMED BY THE ASSESSEE IN PROFIT AND LOSS ACCOUNT R EVEALED THE FOLLOWING EXPENSES:- EXPENDITURE EXPENDITURE EXPENDITURE EXPENDITURE SCHEDULE SCHEDULE SCHEDULE SCHEDULE AM AMAM AMOUNT OUNT OUNT OUNT SALARY WAGES AND BENEFITS TO EMPLOYEES 9 21,08,770 REPAIRS AND MAINTENANCE 10 12,34,283 OTHER EXPENSES 11 36,35,850 3.1 ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAI N REGARDING ALLOWABILITY OF THE EXPENSES IN VIEW OF THE FACT TH AT BUSINESS WAS ITA NO. 1462/DEL/2010 A.Y. 2006-07 3 CLOSED DOWN AND THE MAJOR EXPENSES CLAIMED ARE RELATE D TO CLOSED BUSINESS. ASSESSEE SUBMITTED THAT EXPENSES RELATE D TO DAY TO DAY RUNNING OF THE BUSINESS. ASSESSING OFFICER DISCUSS ED THIS ISSUE AND CONCLUDED AS UNDER:- 5.4 IN TOTALITY OF CIRCUMSTANCES AND THE LEGAL POS ITION IN THIS REGARD, THE EXPENSE OF SCHEDULE 9, 10, AND 11 ARE THEREFORE, BEING ATTRIBUTED TO VARIOUS BUSINESS AS UNDER:- A) SALARY WAGES AND BENEFITS TO EMPLOYEES, THESE EXPENS ES ARE IN THE NATURE OF SALARY WAGES OF EMPLOYEES AT DHAMP UR WORKS AND HAS NOTHING TO DO IT BUSINESS OF DEALING IN SHARES OF BODY CORPORATE. THE ASSESSEE HAS ALSO FAILED TO FU RNISH ANY SUCH DETAILS, THEREFORE, TOTAL AMOUNT OF ` 21,08,770 /- IS HELD TO BE PERTAINING TO CLOSED BUSINESS. HOWEVER IN THE C OMPUTATION OF INCOME THE ASSESSEE ITSELF OUT OF THIS SCHEDULE DISALLOWED, CONTRIBUTION PENSION AND PROVISION FOR GRATUITY TO TAL AMOUNTING TO ` 4,36,628/-. A FURTHER A SUM OF ` 310 651/- HAS BEEN ALLOWED AS PER PARA 5.2 ABOVE AND THUS THE BAL ANCE AMOUNT OF THIS SCHEDULE CLAIMED AS EXPENSE COMES TO ` 13,61,491 (2108770 747279) AND THEREFORE THIS AMOU NT IS DISALLOWED. I AM FURTHER SATISFIED THAT THE ASSESSEE COMPANYS ITA NO. 1462/DEL/2010 A.Y. 2006-07 4 CASE IS A FIT CASE FOR INITIATION OF PENALTY PROCEE DINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. B) REPAIRS AND MAINTENANCE, IN SCHEDULE 10 AMOUNTING T O ` 12,34,283/- ALSO PERTAIN TO CLOSED DOWN BUSINESS AN D NOTHING CAN BE ATTRIBUTED TO THE BUSINESS OF DEALING IN SHA RES OF BODY CORPORATE, THEREFORE, DISALLOWED. I AM FURTHER SATIS FIED THAT THE ASSESSEE COMPANYS CASE IS A FIT CASE FOR INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 196 1. C) OTHER EXPENSES, IN SCHEDULE 11 AMOUNTING TO ` 36,35, 850/- CONTAIN EXPENSES OF THE NATURE A PART OF WHICH CAN ALSO BE ATTRIBUTED TO INCOME FROM BUSINESS OF DEALING IN SHAR ES OF BODY CORPORATE. IN THIS SCHEDULE TOTAL EXPENSES CL AIMED ARE ` 36,35,850/- OUT OF WHICH IN COMPUTATION THE ASSES SEE HAS EXCLUDED (133905 + 151135 + 08371 61717 = 3,55,128) AND BALANCE HAS BEEN CLAIMED AS BUSINESS EXPENSE AT ` 32,80,722/-. IN ABSENCE OF ANY BUSINESS WISE DETAI LS GIVEN BY THE ASSESSEE AN ESTIMATED 10% OF THESE EXPENSES (`3, 28,072) ARE SAID TO BE PERTAINING TO ALLOWABLE BUSINESS AND THE BALANCE 29,52,650 ARE DISALLOWED. I AM FURTHER SATISFIED TH AT THE ASSESSEE COMPANYS CASE IS A FIT CASE FOR INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 196 1. ITA NO. 1462/DEL/2010 A.Y. 2006-07 5 D) THE ASSESSEE HAS CLAIMED DEPRECATION OF ` 7,05,942/- IN THE ACCOUNTS AND AS PER INCOME TAX ACT, DEPRECIATION CL AIMED IS ` 6,98,303/-. THE DEPRECIATION IS IN RESPECT OF ASSE TS OF CLOSED DOWN BUSINESS, THEREFORE, FOR THE REASONS ABOVE TH E SAME IS DISALLOWED. I AM FURTHER SATISFIED THAT THE ASSESSE E COMPANYS CASE IS A FIT FOR INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. 4. UPON ASSESSEES APPEAL, LD. COMMISSIONER OF INCOM E TAX (APPEALS) IN THIS REGARD NOTED THAT UPTO THE ASSESS MENT YEAR 2003-04, ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING AND S ALE (MAINLY EXPORT) OF ABRASIVE POWDER AT THIS DHAMPUR UNIT AND DEALING IN PURCHASE AND SALE OF SHARES, MUTUAL FUNDS WHICH WA S DONE FROM ITS HEAD OFFICE AT DELHI. HOWEVER, OWNING TO STIFF COM PLETION ASSESSEE COULD NOT SUSTAIN ITS BUSINESS. ASSESSEE COMPANY D ECIDE TO CLOSE THE ABRASIVE UNIT AT DHAMPUR ON 5.2.2003, BUT CONTINUED THE BUSINESS OF DEALING IN PURCHASE AND SALE OF SHARES AND MUTUAL FU NDS. ASSESSEE CLAIMED BEFORE THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) THAT BOTH THE ACTIVITIES OF THE COMPANY NAMELY MANUFACTURIN G AND SALE OF ABRASIVE POWER AS WELL AS SALE AND PURCHASE OF SHAR ES ARE ONE BUSINESS AS IN THE PAST YEARS. IT WAS SUBMITTED THA T ASSESSEE COMPANY HAS ONE INDIVISIBLE BUSINESS AND BASED ON COMMON MANA GEMENT IS ITA NO. 1462/DEL/2010 A.Y. 2006-07 6 HAVING A MANAGING DIRECTOR COMMON, BOARD OF DIRECTORS COMMON, COMMON FUNDS, COMMON STOCKS, BOTH ACTIVITIES ARE INEX TRICABLY LINKED WITH EACH OTHER AND ALSO THE PROFIT AND LOSS ACCOU NT AND BALANCE SHEET HAVE BEEN PREPARED FOR THE SAME AS IN THE PAST AS WELL AS IN THE CURRENT YEAR. LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REG ARD NOTED THAT FOR ASSESSMENT YEAR 2003-04 THE ISSUE OF ALLOW ABILITY OF WORKMEN CLOSURE COMPENSATION PAID TO EMPLOYEES OF ABRASIVE UN ITS AT DHAMPUR WAS EXAMINED BY THE ITAT, DELHI AND THE ITAT IN ITA N O. 1409/DEL/09 VIDE ORDER DATED 29.5.2009 HELD THAT ASSESSEE HAD T WO INDEPENDENT BUSINESS, ONE OF MANUFACTURING ABRASIVES AND THE OT HER OF SHARE TRADING. BOTH THE BUSINESS ARE INDEPENDENT OF EACH OTHER. IN THIS BACKGROUND LD. COMMISSIONER OF INCOME TAX (APPEALS) R EJECTED THE CONTENTION OF THE ASSESSEE THAT IT HAS ONLY ONE IND IVIDUAL BUSINESS. 4.1 AS REGARDS THE DISALLOWANCE OF EXPENSES LD. COM MISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASSESSING OFFICER HAS MADE THE TOTAL DISALLOWANCE OF ` 55,48,424/-. HE NOTED THAT ASSESS ING OFFICER HAD PROCEEDED BY RELYING UPON THE JUDGEMENT OF THE HONBL E SUPREME COURT IN THE CASE OF CHABDA AND SONS (LM) VS. C.I.T. FOR THE PROPOSITION THAT ASSESSEE IS NOT HAVING ANY INTENTION TO REVIVE DHAMPUR WORKS AND THEREFORE, EXPENSES RELATED TO THIS BUSINESS CANNOT BE ALLOWED. ITA NO. 1462/DEL/2010 A.Y. 2006-07 7 ASSESSEES SUBMISSION IN THIS REGARD BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ARE AS UNDER:- 4.3 THE LD. A.R. HAVE SUBMITTED THE DETAILS OF EXP ENDITURE AND FURNISHED AN EXPLANATION THEREOF WITH REGARD TO EAC H HEAD OF EXPENSE WHICH IS AS FOLLOWS:- SALARY, WAGES AND BENEFITS TO EMPLOYEES:- THE ASSESSING OFFICER HAS NO WHERE DISCUSSED THE S UBMISSION OF THE ASSESSEE AND THE FACTUAL SITUATION THAT THE ASS ESSEE IS CARRYING ON ONE BUSINESS ACTIVITY. PLEASE REFER TO THE SUBMISSION OF THE ASSESSEE DATED 12.1.208 AS WELL AS 22.12.08 EXPLAINING IN DETAIL THAT THE ASSESSEE IS CARRYING ON THE BUSINES S ACTIVITY AND IT HAS NOT CLOSED ITS BUSINESS. THERE ARE COMMON BO OKS OF ACCOUNTS MAINTAINED AND AS EXPLAINED IN THE LETTER T HERE IS COMPLETE UNITY OF CONTROL, COMMON BANK ACCOUNTS, COMPL ETE INTERLACING AND INTERMINGLING OF FUNDS. WE ARE AGAIN ENCLOSING THE BREAK-UP OF SALARY, WAGE S AND BENEFITS PAID BY THE COMPANY WHICH WAS ALSO BEING S UBMITTED TO THE ASSESSING OFFICER. FROM THE DETAILS IT CAN BE SEEN THAT ONLY SALARY OF ` 76,747/- AND ` 60,374/- WERE BEING PAID TO PEON AND OFFICE ASSIS TANT IN RESPECT OF DHAMPUR OFFICE BUT ON THE ROLES OF MICRO ABRASIVES INDIA LTD. THE COMPENSATION PAID TO EMPLOYEES IS AS PER THE ORDE R OF ALLAHABAD HIGH COURT WHICH IS ALLOWED BY THE ASSESS ING OFFICER HIMSELF IN THE PARA 5.2 OF HIS ORDER. ITA NO. 1462/DEL/2010 A.Y. 2006-07 8 IN RESPECT OF EMPLOYEES WELFARE AND CONTRIBUTION TO PF AND ADMINISTRATIVE CHARGES ONLY ` 5,943/- AND ` 15,420/- RESPECTIVELY PERTAINS TO DHAMPUR OFFICE ON THE ROLES OF MICRO ABR ASIVES INDIA LTD. THIS IS ALSO IN RESPECT OF PEON AND OFFICE A SSISTANT. REPAIRS AND MAINTENANCE WE ARE ENCLOSING THE DETAILS OF EXPENSES AS SUBMITTE D BEFORE THE ASSESSING OFFICER. FROM THE DETAILS IT CAN BE SEEN THAT NO EXPENDITURE IS PERTAINING TO DHAMPUR UNIT. ONLY AN A MOUNT OF ` 14,821/- IS INCURRED AND THAT IS FOR THE CLEANING W ORK ETC. AT DHAMPUR FACTORY. OTHER EXPENSES WE ARE ENCLOSING THE DETAILS OF EXPENSES AS SUBMITTE D BEFORE THE ASSESSING OFFICER. FROM THE DETAILS, IT CAN BE SEEN THAT THE EXPENDITURE IS IN THE NORMAL COURSE OF CARRYING ON O F THE ASSESSEES BUSINESS. ASSESSEE BEING A CORPORATE ENTITY, DAY TO DAY RUNNI NG EXPENSES ARE INCURRED TO MAINTAIN THE OFFICE. THE ASSESSIN G OFFICER HAS MADE AN ADHOC DISALLOWANCE OF ` 29,52,650/- BEING 90 % OF THE TOTAL OTHER EXPENSES ON THE ASSUMPTION THAT THE SAME IS RELATED TO THE CLOSED UNIT OF THE ASSESSEE AND THE SAME IS NOT REQUIRED. IN THIS RELATION, THE ASSESSING OFFICER HAS NOT POI NTED OUT ANY SPECIFIC EXPENDITURE. BUT THE ASSESSING OFFICER NO WHERE DISCUSSED THE SUBMISSIONS AND MAKES THE DISALLOWANCE . THE LD. A.RS HAVE FURTHER THAT ..IF WE SEE THE PROFIT AND LOSS ACCOUNT, THE PERCENTAGE OF EXPENSES CLAIMED BY THE ASSESSEE TO THAT OF THE NET PROFIT IS 23.74% ONLY WHEREAS THE A SSESSING ITA NO. 1462/DEL/2010 A.Y. 2006-07 9 OFFICER HAS DISALLOWED 90.72% OF THE CLAIMED EXPEN SES. THE ASSESSING OFFICER DIDNT TAKE INTO CONSIDERATION THE FACT THAT IF THE ASSESSEE IS SHOWING A NET PROFIT OF ` 2,90,03,6 44/- THEN HE MUST HAVE INCURRED THE EXPENDITURE FOR EARNING THE SAME AND NOT FOR THE CLOSED DOWN UNIT. HOW CAN THE ASSESSI NG OFFICER TAKE AN ASSUMPTION THAT 90.72% OF THE EXPENSES CLAIMED R ELATES TO CLOSED DOWN UNIT AND ONLY 9.28% OF THE EXPENSE CLAI MED RELATES TO THE RUNNING BUSINESS FROM WHERE THE ASSESSEE IS D ERIVING ENTIRE NET PROFIT. 4.2 IT WAS FURTHER SUBMITTED BEFORE THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) THAT IN ALL EARLIER YEARS I.E. FROM 2002-03 UPTO 2006-07, NO DISALLOWANCES HAVE BEEN MADE BY THE ASSESSING OF FICER OF ANY EXPENDITURE RELATING TO DHAMPUR UNIT. 4.3 UPON EXAMINATION OF THE ASSESSEES SUBMISSION AN D THE PAPER BOOK IN THIS REGARD LD. COMMISSIONER OF INCOME TAX ( APPEALS) FOUND THAT PERUSAL OF THE DETAILS SHOWED THAT ASSESSEE HA D FURNISHED THE DETAILS EXPENDITURE RELATING TO DHAMPUR UNIT AS UND ER:- SALARIES, WAGES AND BONUS TO STAFF ` 1,59,765/ - STAFF WELFARE ` 5,943/- CONTRIBUTION TO PF & ADMINISTRATIVE CHARGES ` 15 ,420/- REPAIRS AND MAINTENANCE ` 14,821/- ITA NO. 1462/DEL/2010 A.Y. 2006-07 10 OTHER EXPENSES ` 3,87,180/- TOTAL TOTAL TOTAL TOTAL ` 5,83,129/ ` 5,83,129/ ` 5,83,129/ ` 5,83,129/- -- - 4.4 THEREAFTER LD. COMMISSIONER OF INCOME TAX (APPEALS ) CONCLUDED AS UNDER:- 4.7 I HAVE ALSO PERUSED THE AUDITED BALANCE SHE ET AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.3.2006. IT IS OBSERVED THAT THE APPELLANT COMPANY DECLARED NET [PROFIT OF ` 2.90 CRORES. THE INCOME, WHICH IS MAINLY FROM DEALING IN SHARES AND MUTUAL FUND IS REFLECTED AT ` 8.34 CRORES AND THE EXPENDIT URE IS SHOWN AT ` 5.44 CRORES. THE MAJOR EXPENDITURE IS TOWARDS PU RCHASE OF SHARES AND MUTUAL FUNDS OF ` 4.67 CRORES. THUS, THE BALANCE EXPENDITURE OF ABOUT ` 77 LACS (` 7,68,48,845/- TO BE PRECISE) HAS BEEN INCURRED BY THE APPELLANT ON THE OTHER HE ADS OF EXPENDITURE INCLUDING SALARY AND WAGES (` 21,08,770 ); REPAIRS AND MAINTENANCE (` 12,34,283/-); OTHER EXPENSES (`36 ,35,850); AND DEPRECIATION (`7,05,942). OUT OF THIS THE APPEL LANT HAS ADDED BACK ` 7,99,395/- IN THE COMPUTATION OF INCOME FILED WITH THE RETURN. THUS EXPENSES CLAIMED BY THE COMPANY FOR E ARNING A NET PROFIT OF ` 2,90,03,644/- AMOUNT TO ` 68,88,845/ - OF WHICH THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 62,46,7 27/- (ON ACCOUNT OF SALARY AND WAGES, REPAIRS AND MAINTENANCE , OTHER EXPENSES, AND DEPRECIATION). 4.8 FROM THE DETAILS FILED BY THE APPELLANT BEFORE TH E ASSESSING OFFICER (COPY OF LETTER DATED 12.12.2008 FILED WI TH THE PAPER BOOK AT PAGES 37 TO 52) IT IS SEEN THAT THE COMPANY HAS ADMITTED ITA NO. 1462/DEL/2010 A.Y. 2006-07 11 TO EXPENSES AMOUNTING TO ` 8,93,780/- AS PERTAININ G TO DHAMPUR UNIT (EXCLUDING DEPRECIATION OF ` 6,98,303/- WHICH IS DEALT WITH UNDER A SEPARATE GROUND OF APPEAL). OUT OF THESE TH E ASSESSING OFFICER HAS ALLOWED THE APPELLANT COMPANY TO CLAIM ` 3,10,651/- ON ACCOUNT OF PAYMENT MADE TO AN EMPLOYEE AS RETRENCHM ENT COMPENSATION ON THE BASIS OF AN ORDER OF THE HONBLE ALLAHABAD HIGH COURT. THIS LEAVES AN AMOUNT OF ` 5,83,129/- A S ATTRIBUTABLE TO DHAMPUR UNIT. THUS ACCORDING TO THE DETAILS FIL ED BY THE COMPANY BEFORE THE ASSESSING OFFICER TO EXPENSES R ELATABLE TO DHAMPUR UNIT WERE ` 5,83,129/- AGAINST WHICH THE ASSE SSING OFFICER PROCEEDED TO DISALLOW ` 55,48,424/- OUT O F EXPENSES UNDER THE HEAD SALARY, WAGES AND BENEFITS TO THE EMP LOYEE; REPAIRS AND MAINTENANCE; AND OTHER EXPENSES. (THE A SSESSING OFFICER ALSO DISALLOWED DEPRECIATION OF ` 6,98,303 /- WHICH IS BEING DEALT WITH SEPARATELY AT GROUND NO. 4 OF THE APPEAL). 4.9 ON PERUSAL OF THE ALL THE ABOVE FACTS, IT IS CL EAR THAT THE ASSESSEE IS A RUNNING A LIVE BUSINESS UNDERTAKING DEALING IN SHARES AND MUTUAL FUNDS. IT HAS EARNED NET PROFIT O F ` 2.90 CRORES AND HAS PAID TAX OF ` 67,82,628/-. THE EXPENSES CL AIMED BY THE COMPANY FOR EARNING A NET PROFIT OF ` 2,90,03,644/- AMOUNT TO ` 68,88,845/-. KEEPING IN MIND THE WORKING OF EXPENSES RELATABLE TO THE TWO BUSINESSES OF COMPANY FURNISHED BY THE LD . A.R., I FIND FORCE IN THE ARGUMENT OF THE LD. A.RS. THAT ANY PRU DENT BUSINESSMAN WOULD INCUR EXPENDITURE TOWARDS RUNNING BUSINESS AND NOT FOR CLOSED UNIT. I ALSO FIND THAT THE ASSE SSING OFFICER HAS NOT BROUGHT SUFFICIENT REASONS ON RECORD TO JUSTIF Y HIS ACTION IN DISALLOWING THE EXPENSES IN THE ASSESSMENT ORDER. KEEPING ALL THE FACTS OF THE CASE IN VIEW, I AM OF THE OPINIO N THAT THE ITA NO. 1462/DEL/2010 A.Y. 2006-07 12 EXPLANATION FURNISHED BY THE APPELLANT COMPANY DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS AND REITERATED IN THE APPELLATE PROCEEDINGS BEFORE ME THAT EXPENSES TO TH E TUNE OF ` 5,83,129/- PERTAIN TO THE CLOSED BUSINESS OF THE APPELLANT COMPANY AT DHAMPUR APPEARS REASONABLE AND JUSTIFIED SHOULD HAVE BEEN DULY CONSIDERED BY THE ASSESSING OFFICER . THE ORDER OF THE ASSESSING OFFICER DISALLOWING THE EXPENDITURE IS SUSTAINED TO THE EXTENT OF ` 5,83,129/- AND THE BALANCE AMOUNT OF ` 49,65,295/- IS DIRECTED TO BE DELETED. ON THIS GRO UND, THE APPEAL IS PARTLY ALLOWED. 4.5 WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) PA SSED AN ELABORATE AND SPEAKING ORDER AND UPON EXAMINATION OF THE FACTUAL DETAILS, HE FOUND THAT ONLY ` 5,83,129/- WORTH OF EXPENDITURE PERTAIN TO CLOSED DHAMPUR UNIT. UNDER SUCH CIRCUMSTANCES, DISAL LOWANCE OF EXPENDITURE BY THE ASSESSING OFFICER ON ADHOC BASI S CANNOT BE PERMITTED. IN THIS REGARD, WE PLACE RELIANCE UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT, BOMBAY VS. W ALCHAND AND CO. PRIVATE LTD. IN 65 ITR 381, WHEREIN IT WAS HELD THAT 'IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS, THE EXPE NDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN A ND NOT OF REVENUE'. ITA NO. 1462/DEL/2010 A.Y. 2006-07 13 4.6 THE ASSESSEE HAS SUBMITTED FACTUAL DETAILS THAT ONLY ` 5,83,129/- EXPENDITURE PERTAINS TO THE CLOSED DHAMPUR UNIT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DULY VERIFI ED THE SAME AND CONCLUDED THAT ASSESSEE SUBMISSION IN THIS REGARD AR E COGENT ONE. LD. COUNSEL OF THE ASSESSEE HAVE ALSO PRODUCED BEFORE A PAPER BOOK GIVING THE DETAILS OF EXPENDITURE. LD. D.R. COULD NOT CONT ROVERT THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE. 4.7 CONSIDERING THE ABOVE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN T HIS REGARD AND WE AFFIRM THE SAME. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/09/2010. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 24/09/2010 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES