M/s. Mula Pravara Electric Co-op. Society Ltd., Ahmednagar V. Deputy ssistant Commissioner of Income-tax,

ITA 1776/PUN/2016

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7274 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 22-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT DUA
• Assessee Lawyers: S M DOSHI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Carry forward of business losses; Opportunity of being heard; Principle of natural justice; Question of law; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . .. . / ITA NO. 1776/PUN/2016 / ASSESSMENT YEAR : 2012-13 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., WARD NO.7, BELAPUR ROAD, TAL. SHRIRAMPUR, DIST. AHMEDNAGAR PAN : AAAAT3309A ....... / APPELLANT / V/S. DCIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR / RESPONDENT ASSESSEE BY : SHRI S.M. DOSHI REVENUE BY : SHRI AMIT DUA / DATE OF HEARING : 24.08.2018 / DATE OF PRONOUNCEMENT : 28.09.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY ASSESSEE AGAINST THE ORDER O F CIT (APPEALS)-2, PUNE, DATED 30.06.2016 FOR THE A.Y.2012-13. 2. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED HERE AS UND ER: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE ASSESSMENT ORDER PASSED BY THE AO HOLDING THAT THE APPELLANT HAS DISCONTINUED ITS BUSINESS AND IN THE PROCESS CIT(A) HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF BUSINESS EXPENSES INCLUDING DEPRECIATION TOTALING TO RS.41,89,87,895/ - DEBITED TO THE P&L ACCOUNT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN CONTINUATION WITH GROUND NO.1 CIT(A) HAS ERRED IN NOT GIVING THE BENEFIT OF CARRY FORWARD OF CURRENT YEAR BUSINESS LOSS OF RS.41,82,75,484/-. THE ABOVE GROUNDS OF APPEAL MAY KINDLY BE ALLOWED T O BE AMENDED, ALTERED AND/OR MODIFIED IN THE INTEREST OF NATURAL JUSTICE. 2 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A SOCIETY ENGAGED IN THE BUSINESS OF DISTRIBUTION OF ELECTRICITY -A SERVICE PROVIDER. ASSESSEE FILED THE RETURN OF INCOME DECLARING LOS S OF RS.16.23 CRORES (ROUNDED OFF). SUBSEQUENTLY, THE RETURN WAS REVISE D BY REVISING THE LOSS AT RS.43.04 CRORES (ROUNDED OFF). DURING THE SCRUTINY PROCEEDINGS, AO NOTICED THAT THE ASSESSEE REFLECTED THE RENTAL INCOME OF RS.1,59,831, SCRAP SALES OF RS.5,29,950/- AND MISCELLANEOUS RECEIPTS OF RS.22,630/- TOTALLING TO RS.7,12,411/-. AGAINST THIS INCOME, ASSESSEE CLA IMED VARIOUS EXPENSES INCLUDING VRS EXPENDITURE OF RS.41.90 CRORES (ROUN DED OFF). AS SUCH, NO INCOME ON ACCOUNT OF THE CORE ACTIVITY OF DIST RIBUTION OF ELECTRICITY IS REPORTED BY THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION. 3.1 REGARDING THE ELECTRICITY DISTRIBUTION BUSINESS, ASSESSEE WAS ENGAGED IN THE BUSINESS FOR THE PAST 20 YEARS UNDER T HE LICENSE ISSUED BY GOVERNMENT OF MAHARASHTRA UNDER THE PROVISIONS OF INDIAN ELECTRICITY ACT, 1910. THE LICENSE WAS RENEWED FROM TIME TO TIME. EV ENTUALLY, THE SAID LICENSE GRANTED TO THE ASSESSEE EXPIRED ON 31-01-2 011. THE MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (MERC) ISSUED LICENSE TO THE MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIM ITED (MSEDCL) FOR DISTRIBUTION OF ELECTRICITY TO THE SPECIFIED AREAS . THUS, THE ASSESSEE WAS ORDERED TO HAND OVER THE INFRASTRUCTURE AND DATABASE OF CLIENTELE ETC. OF THE ASSESSEE TO MSEDCL. 3.2 ON THESE FACTS, AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO TREAT THE ASSESSEE AS CLOSED BUSINESS AND RESULTANTLY, THE ASSESSEE SHALL NOT BE ELIGIBLE TO CLAIM THE BUSINESS EXPENDIT URE AS ALLOWABLE AS WELL AS NOT ELIGIBLE FOR CARRY FORWARD OF BUSINESS LOSSES. AO OBSERVED THAT THE REMOVAL OF EMPLOYEES OF THE ASSESS EE UNDER VOLUNTARY RETIREMENT SCHEME (VRS) SUPPORTS THE AOS DECISION. IN RESPONSE, 3 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., ASSESSEE SUBMITTED THAT THE SAID DEVELOPMENT OF HANDING OVER THE BUSINESS TO MSEDCL BY MERC IS A TEMPORARY PHENOMENON. IN THIS REGARD, ASSESSEE SUBMITTED THAT THE FACTS RELATING TO TH E PENDENCY OF THE APPEAL BY THE ASSESSEE BEFORE THE APPELLATE TRIBUNAL FOR ELECTRICITY WHICH SET ASIDE THE ORDER OF THE MERC NO. 39/2011, DATED 17- 12-2011. IN THIS ORDER, THE APPELLATE TRIBUNAL FOR ELECTRICITY (APTEL) DIRECTED THE MERC TO CONSIDER THE ISSUING OF LICENSE TO THE ASSESSEE AND DISPOSE THE IS SUE ON MERITS. THERE IS AN INDICATION OF RENEWING/GRANTING LICENSE TO THE ASSESSEE AS WELL AS TO MSEDCL TO OPERATE IN SOME AREAS . THE ASSESSEE CHALLENGED THE SAME BEFORE THE APPELLATE TRIBUNAL FOR ELECTR ICITY (APTEL) VIDE NO.222 AND 223/2014. IN THIS REGARD, THE APTEL PAS SED AN ORDER DATED 13-03-2015 REQUIRING THE MSEDCL TO PAY RS.50 CRO RES TILL THE FINAL QUANTUM OF DUES IS DECIDED. THUS THE ASSESSEE TRIED TO DEMONSTRATE THE EXISTENCE OF BUSINESS OPERATIONS OF THE ASSESSEE AND ARG UED THAT THE EXPENDITURE OF RS.41.90 CRORES (ROUNDED OFF) IS INCURRED FOR B USINESS PURPOSES. ASSESSEE PLEADED FOR ALLOWING THE CLAIM OF EXPEND ITURE AND ALSO FOR CARRY FORWARD OF THE CURRENT YEAR LOSSES. 3.3 IN THE ASSESSMENT, AO CONSIDERED THE ABOVE SUBMISSIO NS OF THE ASSESSEE AND CONCLUDED THAT THERE IS NO POSSIBILITY OF R EVIVAL OF THE BUSINESS. AO HELD THAT THE BUSINESS OF THE ASSESSEE IS S UBSTANTIALLY A CLOSED ONE AND THE ASSESSEE IS ONLY TO RECEIVE THE COM PENSATION OR RENT FROM THE MSEDCL FOR HANDING OVER OF THE ENTIRE INFRASTRUC TURE OF THE ASSESSEE. FURTHER, AO DISCUSSED CERTAIN CASE LAWS, I.E. NEW SEVEN SUGAR AND GUR REFINERY CO. LTD. VS. CIT 74 ITR 7 (SC), MADRAS SILK A ND RAYON MILLS PVT. LTD. VS. ITO & ANOTHER 262 ITR 122 (MAD.), UNIVERS AL PLAST LIMITED VS. CIT 237 ITR 454 (SC), GUNTUR MERCHANTS COTTON PRESS COMPANY LTD. VS. CIT 154 ITR 861 ETC. AND HELD THAT, H OW A PARTICULAR 4 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., RECEIPT OF INCOME IS TAXED UNDER THE INCOME FROM BUSINES S OR FROM INCOME FROM OTHER SOURCES IS SPECIFIC TO THE FACTS OF TH AT CASE. FURTHER, HE ALSO DISCUSSED INTENTION OF THE ASSESSEE TO RESUME TH E BUSINESS AFTER OBTAINING THE LICENSE FROM THE GOVT. AO OPINED THAT THE IN TENTION TO CARRY ON THE BUSINESS IS THE DETERMINING FACTOR. 3.4 FURTHER, REFERRING TO THE JUDGMENT OF THE APPELLATE TR IBUNAL FOR ELECTRICITY DATED 13-03-2015, THE ASSESSEE MENTIONED THA T THE APTEL DIRECTED THE STATE COMMISSION TO EVALUATE THE ASSETS OF THE ASSESSEE AND TO PAY RS. 1 CRORE PER MONTH TOWARDS THE LEASE RENT O F THE INFRASTRUCTURE OWNED AND HANDED OVER BY THE ASSESSEE. THE FACT OF AB OUT GRANTING 10% INTEREST PER ANNUM TO COMPENSATE THE OUTSTANDING AMOU NT DUE TO ASSESSEE WAS ALSO DIRECTED BY THE STATE TRIBUNAL. BASED ON THESE, AO CONCLUDED THAT ASSESSEE IS NOT GOING TO RESUME THE BU SINESS OF DISTRIBUTION OF ELECTRICITY AND IT IS ONLY TO EARN RENTAL INC OME FROM THE LAYING OF THE INFRASTRUCTURE OF MSEDCL. REFERRING TO THE SU PREME COURT JUDGMENT IN THE CASE OF UNIVERSAL PLAST LIMITED VS. CIT 237 ITR 454 (SC) AND VIKRAM COTTON MILLS LTD. 169 ITR 597 (SC), THE AO HIGHLIG HTED THE INTENTION OF THE ASSESSEE TO START OR TO STOP THE BU SINESS AND IN PARA NO.16 OF THE ASSESSMENT ORDER, THE AO CONCLUDED BY STAT ING IF THERE IS NO INTENTION TO RESUME THE BUSINESS THE TRANSACTION OF EARN ING RENT WILL NOT BE FOR BUSINESS PURPOSES. APPLYING THE SAME TO THE CAS E OF THE ASSESSEE, THE AO RELIED HEAVILY ON THE ORDER OF THE APPELLATE TRIBUN AL FOR ELECTRICITY (APTEL) AND TREATED THE INCOME EARNED BY THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. CONTENTS OF PARA NO.19 ARE RELEVANT IN THIS REGARD AND THEREFORE, WE PROCEED TO EXTRACT THE SAME HERE AS UN DER : 19. IN VIEW OF ABOVE, THE ENTIRE INCOME CLAIMED UN DER THE HEAD OF RENT INCOME, INCOME FROM SALE OF STORE SCRAP MATERIAL AN D OTHER MISC. RECEIPTS, I.E. RS.7,12,411/- AS PER PARA-111 MISC. REVENUE TO THE PROFIT & LOSS 5 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., ACCOUNT FOR THE YEAR ENDING AS ON 31-03-2012 TREATE D INCOME UNDER THE HEAD OF INCOME FROM OTHER SOURCES. 3.5 RESULTANTLY, CONSIDERING THE DECISION OF AO ON THE CES SATION OF BUSINESS OF THE ASSESSEE, THE AO DID NOT ALLOW THE CLAIM OF BUSINESS EXPENDITURE AND ALLOW THE CARRY FORWARD AND SET OFF OF EAR LIER YEARS BROUGHT FORWARD LOSSES AGAINST THE INCOME REPORTED BY T HE ASSESSEE IN THIS YEAR. EVENTUALLY, THE AO TAXED THE SAID SUM OF RS.7 ,12,410/- AS INCOME FROM OTHER SOURCES. 4. AGGRIEVED WITH THE SAME, THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE TRIBUNAL AND RAISED VARIOUS ISSUES RELATING T O THE DISCONTINUATION OF BUSINESS TREATING THE INCOME AS INCOME FR OM OTHER SOURCES DENYING THE CARRY FORWARD OF LOSSES ETC. 5. BEFORE THE CIT(A) : ASSESSEE FILED VARIOUS WRITTEN SUBMISSIONS DURING THE PROCEEDINGS BEFORE THE CIT(A). ASSESSEE RELIE D ON VARIOUS JUDGMENTS/ORDERS PASSED BY MERC, APTEL, HONBLE SUPREM E COURT TO DEMONSTRATE THE INTENTION TO CONTINUE THE BUSINESS. FURT HER, ASSESSEE RELIED ON VARIOUS JUDGMENTS IN ITS FAVOUR AND CONTENDED T HAT HIS CASE IS NOT THE CASE OF DISCONTINUATION OF BUSINESS AND IT IS MERE LY A TEMPORARY PHENOMENON. ASSESSEE WOULD RESUME THE BUSINESS SOON A FTER THE LICENSE IS RENEWED. THEREFORE, ASSESSEE REQUESTED FOR REVERSING THE ORDER OF THE AO. HE ALSO SUBMITTED THE FACTS RELATING TO THE PENDING J UDICIAL PROCEEDINGS BEFORE THE HONBLE SUPREME COURT AND ALSO R ELIED IN THE INTERIM ORDER OF THE HONBLE SUPREME COURT DATED 11-05-2016. IN FACT, THE HONBLE SUPREME COURT UPHELD THE ORDER OF THE APTEL DA TED 06-05-2016 AND ON THE COMPENSATION ISSUE, THE HONBLE SUPREME COUR T GAVE A DIRECTION TO STATE COMMISSION TO RELEASE RS.64 CRORES FROM MSEDCL TO THE ASSESSEE AND ALSO DIRECTED FOR CONSIDERING THE INFRASTRUCTU RAL ASSETS OF 6 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., THE COMPANY AS SECURITY AGAINST THE SAME. THE HONBLE SUPREME COURT ALSO DIRECTED THE ASSESSEE TO FURNISH THE UNDERTAKING TH AT, INCASE, THE ASSESSEE IS ENTITLED TO SAID AMOUNT AS PER THE FINAL ORDER IT WILL REFUND THE SAID AMOUNT WITH INTEREST. BASED ON THESE, ASSESSEE SUB MITTED THAT THE ASSESSEE STAND A CHANCE OF WINNING ON THE CORE ISSUES A ND FOR THIS, ASSESSEE RELY ON THE COURTS OBSERVATION ABOUT THE AS SETS AND THE POSSIBILITY OF WINNING IS NOT RULED OUT. THE DECISIONS RELIED U PON BY THE ASSESSEE ARE ENLISTED IN PAGES 9 TO 11 OF THE ORDER OF CIT(A). IN PARA NO.5 OF HIS ORDER, THE CIT(A) EXTRACTED THE CONTENTS OF PARA N OS. 4 TO 17 OF THE AOS ORDER AND GAVE HIS CONCLUSION AGAINST THE ASSESSEE AS PER THE DISCUSSION GIVEN IN PARA NO.5.2 OF THE ORDER OF CIT(A). THE C ONTENTS OF THE SAME AS EXTRACTED HERE AS UNDER : 5.2.1 I HAVE EXAMINED THE FACTS OF THE CASE ON THI S ISSUE. IT IS SEEN THAT THE APPELLANT SOCIETY WAS HAVING DISTRIBUTION LICEN SE TILL 31 ST JANUARY 2011. THEREAFTER THE REGULATORY AUTHORITY, I.E. MERC CALL ED FOR EXPRESSION OF INTEREST FROM PROSPECTIVE APPLICANTS AND AFTER CONS IDERING THE APPLICATIONS FILED, THE DISTRIBUTION LICENSE WAS FINALLY ISSUED IN FAVOUR OF MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. (MSEDCL ). THE RELEVANT OPERATIVE PART OF THE ORDER OF MERC DATED 27-01-201 1 READS AS UNDER : XIV. ACCORDINGLY THE MPECS IS REQUIRED TO VEST THE UNDERTAKING OF DISTRIBUTION TO THE NEW LICENSEE. XV. OVER THE PERIOD OF 40 YEARS, MPECS HAS EXPANDED THE DISTRIBUTION NETWORK, IT INHERITED FROM ERSTWHILE M SECS. NOW, AS FRESH DISTRIBUTION LICENSE TO MPECS IS REJECTED BY THE COMMISSION, THERE IS NO USE OF DISTRIBUTION NETWORK FOR MPECS. THEREFORE, IN THE INTEREST OF THE CONSUMERS IN MPECS AREA, THE COMMIS SION DIRECTS MPECS, TO HAND OVER THEIR COMPLETE DISTRIBUTION NET WORK AND ALLIED EQUIPMENTS AND ASSET TO MSEDCL, MPECS WILL HOWEVER BE ENTITLED TO CLAIM VALUE FOR THE ASSETS HANDED OVER. MPECS M AY FILE A SEPARATE PETITION BEFORE THE COMMISSION FOR DECIDING TRANSFER VALUE OF THEIR ASSET, WITH ALL RELEVANT DOCUMENTARY EVIDE NCE. XVI. ALSO, MPECS IS DIRECTED TO HANDOVER ALL THE CO NSUMER AND BILLING DATABASE IN HARD AS WELL AS SOFT FORMAT TO MSEDCL. THE COMMISSION ALSO DIRECTS MPECS TO HAND OVER THE SCRUT INY DEPOSITS PAID BY THE CONSUMERS TO MSEDCL, ALONG WITH RECORDS , AND NOT TO CREATE ANY THIRD PARTY INTEREST ON THE SECURITY DEP OSIT HELD BY THEM. XVII. KEEPING IN VIEW THE LARGER INTEREST OF ALL CO NSUMERS IN THIS AREA, CONSISTING OF 183 VILLAGES IN FIVE TALUKAS , THE COMMISSION DIRECTS THE DIRECTORS, THE MANAGEMENT AND OFFICERS OF THE MPECS TO PROVIDE ALL HELP AND ASSISTANCE TO THE MANAGEMENT A ND OFFICERS OF 7 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., MSEDCL, TO ENSURE A SMOOTH TRANSITION FROM THE EXIS TING SERVICE PROVIDER (MPECS) TO A NEW SERVICE PROVIDER (MSED CL) WITH EFFECT FROM IST FEBRUARY, 2011. 5.2.1 ON A PERUSAL OF THE AFORESAID ORDER ISSUED B Y MERC, IT IS VERY CLEAR THAT AFTER DETAILED EXAMINATION OF VARIOUS PROPOSAL S RECEIVED, MERC ISSUED THE LICENSE TO MSEDCL AND THE APPELLANT WAS DIRECTE D TO HAND OVER THE ENTIRE INFRASTRUCTURE OF ELECTRICITY DISTRIBUTION, POWER SYSTEM INCLUDING ELECTRICAL SYSTEM, SUBSTATIONS, OVERHEAD LINES, SER VICE LINES, OFFICES AND ASSOCIATE FACILITIES LIKE LAND, BUILDINGS, MATERIAL S, STORES AND PLANTS IN THE AREAS OF ITS OPERATION W.E.F. 01-02-2011. NOT ONL Y THAT, THE APPELLANT WAS ALSO DIRECTED TO HANDOVER THE CONSUMER AND BILLING DATABASE INCLUDING SECURITY DEPOSITS PAID BY THE CUSTOMERS TO MSEDCL. 5.2.2 IN VIEW OF THE ABOVE FACTS, IT WAS RIGHTLY HE LD BY THE ASSESSING OFFICER THAT FOR ALL PURPOSES BUSINESS OF ELECTRICI TY DISTRIBUTION OF THE APPELLANT SOCIETY WAS DISCONTINUED AND CLOSED W.E.F . 01-02-2011. NO SUCH ACTIVITY COULD BE STARTED EVEN UP TO THE CURRENT YE AR AND THERE WAS NO POSSIBILITY OF RESTARTING THE BUSINESS. ALL THE DE CISIONS ON THE APPELLANTS APPEAL TILL DATE ARE AGAINST THE APPELLANT. THIS P OINT IS FURTHER CEMENTED BY THE FACT THAT ALMOST ALL EMPLOYEES OF THE APPELLANT SOCIETY WERE GRANTED VRS. I AM THEREFORE IN AGREEMENT WITH THE VIEW OF THE ASSESSING OFFICER THAT THE BUSINESS ACTIVITY OF THE APPELLANT HAS DIS CONTINUED AND THEREFORE CLAIM OF ALLOWING ANY BUSINESS EXPENSES OR DEPRECIA TION DOES NOT ARISE AT ALL. 5.2.3 THE RELIANCE PLACED BY THE APPELLANT ON VARIO US DECISIONS ARE DISTINGUISHABLE ON FACTS. IN THE CASE RELIED UPON ON I.C.D.S. LTD. VS. CIT, THE FACT WAS ENTIRELY DIFFERENT AS IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF HIRE PURCHASE AND LEASING AND HIGH COURT HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE LEASED VEHICLES. NO SUCH FACT IS THERE IN THE PRESENT CASE. 5.2.4 THE APPELLANT HAS ALSO PLACED RELIANCE ON THE CASE OF CIT VS. VELLORE ELECTRIC CORPORATION. IN THIS CASE, THE APPELLANT HAD CLAIMED ESTABLISHMENT, SALARY AND OTHER EXPENSES WHICH WAS DISALLOWED BY T HE ASSESSING OFFICER AND IN VIEW OF THE APPEAL FILED BY THE ASSESSEE IT WAS HELD BY THE HONBLE COURT THAT THESE EXPENSES WERE ALLOWABLE. HOWEVER FACTS ARE LITTLE DIFFERENT IN THE PRESENT CASE AS BECAUSE IN THE PRESENT CASE THE APPELLANT WAS DIRECTED TO HANDOVER ALL ASSETS INCLUDING DATABASE AND SECURITY DEPOSITS OF THE CUSTOMERS TO NEW LICENSEE, I.E. MSEDCL. NOT ON LY THAT IN THE PRESENT CASE, THE APPELLANT SOCIETY ITSELF HAS GIVEN VRS TO ALMOST ALL OF ITS EMPLOYEES. SUCH FACTS WERE NOT PRESENT IN THE CITE D CASE. 5.2.5 THE APPELLANT HAS ALSO PLACED RELIANCE ON THE CASE OF K.N.P. SECURITIES, ITAT, MUMBAI. THE FACTS ARE AGAIN DIST INGUISHABLE AND IN THE CITED CASE SEBI HAD CANCELLED THE REGISTRATION OF T HE ASSESSEE FOR BEING INVOLVED IN SHARES SCAM. HOWEVER IN THE PRESENT CA SE NO SUCH FACT IS THERE AND IN FACT THE ENTIRE BUSINESS ASSET AND ALL RELAT ED ESTABLISHMENTS AND DATABASES WERE TRANSFERRED TO NEW LICENSEE. NO SUC H FACT IS THERE IN THE CITED CASE. 5.2.6. I ACCORDINGLY UPHOLD THE ACTION OF THE ASSES SING OFFICER IN HOLDING THAT THE BUSINESS OF ELECTRICITY DISTRIBUTION OF TH E APPELLANT SOCIETY HAS BEEN CLOSED AND THEREFORE IT IS NOT ENTITLED FOR ANY CLA IM OF BUSINESS EXPENSES AND DEPRECIATION. GROUND OF APPEAL NO.1 IS ACCORDI NGLY DISMISSED. 8 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) RELIED HEAV ILY ON THE ORDER OF THE APTEL AND MERC FOR CONSIDERING THE ASSESSE E AS A DISCONTINUED ENTITY. CIT(A) ALSO RELIED ON CERTAIN DECISIONS FO R DECIDING THE ISSUE AGAINST THE ASSESSEE. HANDING OVER OF THE ASS ETS OF THE SOCIETY, RETRENCHMENT OF THE EMPLOYEES OF THE SOCIETY, HANDING OVE R OF DATABASES ETC., ARE OTHER SUPPORTING REASONS. 6. FURTHER, ON THE ISSUE OF TAXABILITY OF RENTAL INCOME OF RS.1,59,831/-, THE CIT(A) HELD THAT THE SAME IS TAXABLE AS INCOME FROM HOUSE PROPERTY AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES AS HELD BY THE AO. ACCORDINGLY, THE CIT(A) ALLOWED THIS ISSUE IN FAVOUR OF THE AS SESSEE. OTHER RECEIPTS SUCH AS SCRAP SCALES/MISC. RECEIPTS ARE TREATED AS INCOME FROM OTHER SOURCES:. IN THE RESULT, THE CIT(A) PARTLY ALLOWED T HE APPEAL OF THE ASSESSEE. 7. AGGRIEVED WITH THE SAME, THE ASSESSEE FILED THE APPEAL BEFORE US WITH THE GROUNDS EXTRACTED ABOVE. BEFORE THE TRIBUNAL 8. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE NARRATED THE AFOREMENTIONED FACTS OF THE CASE/ISSUE AND FILED THE PAPER BOOKS GIVING THE VARIOUS ORDERS OF THE MERC, APTEL, INTERIM ORDERS OF THE HONBLE SUPREME COURT, THE PROCEEDING OF THE COMMITTEES OF STATE GOVT. ETC. HE ALSO FILED THE COMPENDIUM OF JUDGMENTS TO ESTABLISH THE LAW O N THE ISSUE OF INTENTION OF THE ASSESSEE, CONTINUATION OF BUSINESS, RELATE D ISSUES OF ALLOWABILITY OF EXPENSES AND SET OFF OF CARRY FORWARD OF LOSSES ETC. AFTER ALL THESE THINGS, LD. COUNSEL LISTED THE ISSUES FOR ADJUDICATION AND THE SAME ARE (A) WHETHER THE BUSINESS STANDS DISCONTINUED THE INTENTION OF THE ASSESSEE VIDE THE JUDGMENT OF HONBLE SUPREME COURT IN THE ASSESSEES 9 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., OWN CASE; (B) WHETHER THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT CONSTITUTE BUSINESS EXPENDITURE ELIGIBLE FOR CLAIM OF DEDUCTIO N U/S.37 OF THE ACT; AND (C)WHETHER THE ASSESSEE IS ELIGIBLE TO CARRY FORWARD OF THE LOSSES AFTER SET OFF AGAINST THE CURRENT YEARS BUSINESS IN COME AS CLAIMED BY THE ASSESSEE. WE SHALL DEAL WITH EACH OF THESE 3 ISSUES SEPARATELY IN TH E SUCCEEDING PARAGRAPHS OF THE ORDER. (A) WHETHER THE BUSINESS OF ASSESSEE STANDS DISCONTIN UED THE INTENTION OF THE ASSESSEE VIDE THE JUDGMENT OF HONB LE SUPREME COURT IN THE ASSESSEES OWN CASE 9. DURING THE PROCEEDINGS BEFORE US, LD. COUNSEL FOR THE ASSESSEE FILED A THICK PAPER BOOK AS WELL AS CHART OF MAJOR DEVELOPMEN TS PERTAINING TO THE BUSINESS OF THE ASSESSEE. THE SAID CHART CONTAINS T HE CHRONOLOGY OF EVENTS AND BRIEF NARRATION OF THE ISSUES. FOR THE SAKE O F COMPLETENESS, THE SAID CHART IS EXTRACTED HERE AS FOLLOWS : CHART SHOWING VARIOUS EFFORTS UNDERTAKEN FOR RENEWA L OF LICENSE/BUSINESS - INTENTION SR.NO. DATE EVENT REMARK 1 28-01-1971 LICENSE FOR CARRYING ON THE BUSINESS O F ELECTRICITY GRANTED BY GOVERNMENT OF MAHARASHTRA. ELECTRICITY TO BE PROVIDED IN THE AREA OF 167 VILLAGES OF 4 TALUKAS NAMELY RAHURI, SHRIRAMPUR, NEWASA AND SANGAMNER. THE VALIDITY OF THE LICENSE IS OF 20 YEARS, I.E. EXPIRING ON 31-01-1991 SEE PAGE 7 TO 15 OF PAPER BOOK 2 02-05-2000 RENEWAL OF LICENSE BY NOTIFICATION DAT ED 02-05-2000 UPTO 31-01-2011 SEE PAGE NO.17 & 18 OF PAPER BOOK 3 27-01-2004 MERC BY ITS LETTER DATED 27-01-04 REQUIRED SECRETARY (ENERGY) INDUSTRIES, ENERGY AND LABOUR DEPARTMENT TO SUBMIT ITS VIEWS ON THE FINDINGS AND RECOMMENDATIONS RELATING TO THE VIABILITY OF THE APPELLANT 4 24-08-2004 GOM BY ITS GR DATED 24-08-2004 DIRECTE D MERC TO ALLOW THE APPELLANT TO CONTINUE ITS OPERATION AS DISTRIBUTION LICENSE AND FOR THAT PURPOSE PROVIDING REVENUE SUBSIDY OF RS.72 CRORES AND CAPITAL SUBSIDY RS.4 CRORE PER ANNUM SEE PAGE NO.168 & 169 OF PAPER BOOK 10 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., 5 13-07-2010 ADMINISTRATIVE STAFF COLLEGE OF INDIA FURNISHED THE REPORT RECOMMENDING FOR GETTING ITS LICENSE RENEWED SEE PAGE NO.579 TO 587 OF THIS SYNOPSIS 6 28-07-2010 MAHARASHTRA ELECTRICITY REGULATORY COMMISSION (MERC) INVITED EXPRESSION OF INTEREST FOR GRANTING THE LICENSE FOR THE PERIOD AFTER THE EXPIRY OF LICENSE ON 31-01- 2011 BY PUBLISHING NOTICE TO THAT EFFECT IN NEWSPAPER. APPELLANT AND OTHER FILED APPLICATIONS IN RESPONSE TO INVITATION BY MERC OF EXPRESSION OF INTEREST. APPLICANT FILED APPLICATION ON 28-07-2010 FOR RENEWAL. OF THESE 6 APPLICANTS THERE REMAINED ONLY 2 APPLICANTS NAMELY APPELLANT AND MAHARASHTRA STATE ELECTRICITY DISTRIBUTION LTD. (MSEDCL) SEE PAGE NO.19 TO 35 OF PAPER BOOK 7 27-01-2011 MERC ON EXAMINING THE APPLICATIONS FIL ED BY MSEDCL AND APPELLANT GRANTED LICENSE TO MSEDCL AND REFUSED THE RENEWAL OF LICENSE TO APPELLANT VIDE ITS ORDER IN CASE NO.85 AND 87 DATED 27-01- 2011 SEE PAGE NO.42 TO 53 OF PAPER BOOK. IN PARA 24 OF THIS ORDER MERC HAS GIVEN THE REASONS FOR NOT GRANTING THE RENEWAL OF LICENSE TO THE APPELLANT 8 16-12-2011 THE APPELLATE TRIBUNAL FOR ELECTRICITY (APTEL) ON AN APPEAL FILED BY THE APPELLANT BY ITS CASE NO.39 OF 2011 SET ASIDE THE ORDER OF MERC WITH THE DIRECTION TO RECONSIDER THE APPLICATION FOR RENEWAL OF LICENSE AND CONSIDERING THE FEASIBILITY OF GRANTING LICENSE TO BOTH MSEDCL AND APPELLANT TO PROVIDE THE ELECTRICITY IN THE SAID AREA. THE TRIBUNAL IN THIS ORDER CLEARLY HELD THAT : I. LICENSE ALREADY TO APPELLANT IS NEITHER SUSPENDED NOR REVOKED. II. MERC HAS NO POWER TO DIRECT THE TRANSFER OF ASSETS UNLESS ITS EXISTING LICENSE IS SUSPENDED/REVOKED. III. IT CANNOT DIRECT THE APPELLANT TO VEST ALL ITS ASSETS IN MSEDCL. IV. SINCE NO PROPER OPPORTUNITY WAS GIVEN DIRECTED MERC TO RECONSIDER THE APPLICATION OF THE APPELLANT SEE PAGE NO.61 TO 124 OF PAPER BOOK. PARTICULARLY 117 TO 124 OF PAPER BOOK 9 15-10-2012 MERC IN INTERIM ORDER DATED 15-10-2012 DIRECTED MSEDCL TO PAY THE USER CHARGES OF RS. 1 CRORE PER MONTH FOR USING THE INFRASTRUCTURE ETC OF THE APPELLANT AS TEMPORARY ARRANGEMENT SEE PAGE NO. OF PAPER BOOK 10 28-02-2014 SUPREME COURT ORDER THE APPELLANT TO HOLD THE ELECTION SEE PAGE NO.182 & 183 OF PAPER BOOK 11 18-06-2014 MERC GAVE EFFECT TO THE ABOVE ORDER O F APTEL BY ITS ORDER DATED 18-06-2014. IN THIS ORDER MERC HAS NEITHER REFUSED RENEWAL OF LICENSE NOR REVOCATED OR SUSPENDED. IT HOWEVER DIRECTED THE APPELLANT TO FILE FRESH APPLICATION SEE PAGE NO.125 TO 161 OF PAPER BOOK 11 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., 12 31-07-2014 APPELLANT FILED APPEAL NO.222 AND 223 AGAINST THE MERC ORDER DATED 18-06- 2014 REITERATING THAT IT ONLY SHOULD BE GRANTED THE LICENSE AND TO HOLD THAT MSEDCL IS NOT DISTRIBUTION LICENSE SEE PAGE NO.163 & 164 OF PAPER BOOK AND PAGE NO.296 TO 578 OF THE SYNOPSIS. PARTICULARLY PAGE NO.431 13 30-09-2015/ 16-08-2016/ 25-09-2016 RESOLUTIONS PASSED BY THE APPELLANT IN ORDER TO PURSUE THE GOVERNMENT TO GRANT THE RENEWAL OF LICENSE SEE PAGE NO.588 TO 590 OF SYNOPSIS 14 01-03-2016 GOM VIDE ITS ORDER DATED 01-03-2016 A S PER ITS RESOLUTION DATED 07-11-12 APPOINTED THE COMMITTEE TO RECOMMEND THE REALITY OF THE DEMAND OF THE APPELLANT BY ITS LETTER DATED 01-03-2016 SEE PAGE NO.172 & 173 OF PAPER BOOK. THIS COMMITTEE HAS NOT YET GIVEN THE REPORT 15 11-05-2016 ORDER OF SUPREME COURT DIRECTING APPELLANT TO GIVE UNDERTAKING TO REFUND THE USER CHARGES PAID BY MSEDCL WITH INTEREST ON SORTING OUT ISSUE OF GRANTING THE LICENSE IF IT GOES AGAINST THE APPELLANT SEE PAGE NO.626 TO 628 OF PAPER BOOK 16 13-05-2016 UNDERTAKING GIVEN BY APPELLANT AS PER THE ORDER OF SUPREME COURT SEE PAGE NO.605 TO 606 OF PAPER BOOK 17 04-01-2018 BUSINESS PLAN OBTAINED FROM WORLD INSTITUTE OF SUSTAINABLE ENERGY (WESE) PUNE SEE PAGE NO.599 TO 603 OF PAPER BOOK SUMMARY OF CHART : FROM THE ABOVE CHRONOLOGY OF EVENTS, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS LICENSED TO BE A SERVICE PROVIDER QUA THE DISTRIBUTION OF ELECTRICITY TO 183 VILLAGES S PREAD OVER IN FIVE MANDALS OF THE STATE OF MAHARASHTRA. ASSESSEE IS EN GAGED IN THIS BUSINESS ACTIVITY SINCE 1971. REFERRING TO THE ABOVE CHAR T OF CHRONOLOGY OF EVENTS, LD. COUNSEL FOR THE ASSESSEE LABORED EXTENSIVEL Y TO DEMONSTRATE THAT THE ASSESSEE HAS ALWAYS BEEN FOR CONTINUATION OF T HE BUSINESS. ASSESSEE HAD TO STRUGGLE AT THE TIME OF FIRST RENEWAL IN 2000 TILL THE LICENSE WAS RENEWED ON 02-05-2005, DOING THE BUSINESS FOR ANOTHER PERIOD OF 20 YEARS. EVENTUALLY, THE LICENSE WAS RENEWED. PRESENTLY, FOR RENEWAL, ONLY THE ASSESSEE HAS BEEN LITIGATING BEFORE MERC , APTEL AND HONBLE SUPREME COURT AGAINST THE DECISION OF NOT RENEW ING OF LICENSE, NOT AWARDING OF COMPENSATION IN LIEU OF USE OF THE ASSETS O F THE COMPANY BY THE MSEDCL ETC. ASSESSEE SPENT HUGE AMOUNT OF TIM E AND MONEY IN THIS ENDEAVOUR AND IT IS ALL FOR THE PURPOSES OF THE CONTIN UATION OF 12 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., BUSINESS. HAVING CONSIDERED THE FACTUAL MATRIX AND THE VARIOUS STEPS TAKEN UP BY THE ASSESSEE FOR CONTINUATION OF BUSINESS/RE NEWAL OF LICENSE, WE SHALL NOW PROCEED TO EXAMINE THE INTENTION OF ASSESS EE FOR CONTINUATION OF BUSINESS IN THE FOLLOWING PARAGRAPHS. 10. INTENTION TO CARRY ON THE BUSINESS OF SERVICE PROVI DER QUA THE ELECTRICITY DISTRIBUTION CASE OF THE ASSESSEE : BEFORE US, ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE FILED A WRITTEN SUBMISSION EXPLAINING THE FACTS AND THE ISSUES AND SUBMITTED VARIOUS ARGUMENT S ENLISTED FROM A TO O OF THE WRITTEN SUBMISSIONS. THE SAME ARE EXTRACTED AS UNDER : A THE AO. AS WELL AS THE LD. CIT(A) PLACED THEIR HEAVY RELIANCE. I. ORDER OF MERC IN CASE NO.85 & 87 OF 2010 DATED 27/0 1/2011 II. THE ASSESSEE SOCIETY HAS GIVEN VRS 1522 EMPLOYEES. B. THE RELIANCE PLACED ON ORDER DATED 27/01/2011 OF MERC BY THE BOTH THE AUTHORITIES IS MISPLACED AS SAID ORDER IS NONEST AS THE SAME HAS BEEN SET ASIDE BY THE APPELLATE TRIBUNAL FOR ELECTR ICITY, DELHI (APTE) ALLOWING THE APPEAL FILED BY THE ASSESSEE BEING APP EAL NO.13 OF 2011 ORDER DATED 16/12/2011 (PAGE NO._ PAPERBOOK). - HON'BLE APTE, DELHI HELD THAT IMPUGNED ORDER OF M ERC DATED 27/01/2011 IS SET ASIDE. - MERC'S DIRECTION FOR HANDING OVER ASSETS TO THE MSE DCL IS NOT IN ACCORDANCE WITH LAW. - MATTER WAS SET ASIDE TO MERC FOR FRESH ADJUDICATION AND ALSO TO CONSIDER GRANTING OF LICENCE TO THE ASSESSEE WITH M SEDCL. (PAGE NO._ PAPERBOOK). C. IN RESPECT OF DETERMINATION OF INTERIM COMPENSAT ION/USER CHARGES DIRECTED MSEDCL TO PAY RS.1 CRORE PER MONTH (CASE N O.24 OF 2012 ORDER DATED 15 TH OCTOBER, 2012). D. MERC DID NOT FINALISE THE COMPENSATION/CHARGES P AYABLE BY MSEDCL FOR THE USE OF ASSETS AND INFRASTRUCTURE OF THE ASSESSEE AND DISPOSED OF CASE NO.24 OF 2012. E. MSEDCL REFUSED TO PAY AD INTERIM USER CHARGES/CO MPENSATION AS DIRECTED BY MERC ON ADHOC BASIS. F. ASSESSEE CHALLENGED ORDER PASSED BY MERC DATED 1 5 TH OCTOBER, 2012 ON THE ISSUE OF PAYMENT OF AD INTERIM COMPENSA TION/USER CHARGES BY FILING APPEAL IN THE APTE, NEW DELHI. THE APTE DIR ECTED MSEDCL VIDE ORDER DATED 13 TH MARCH, 2015 TO PAY RS.1 CRORE PER MONTH AS PER INT ERIM 13 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., ORDER DATED 15/10/2012 IN CASE NO.24 OF 2012 BY MER C. APTEL ALSO DIRECTED MERC TO DO VALUATION OF THE ASSETS OF THE ASSESSEE THROUGH INDEPENDENT AGENCY AND DETERMINE USER CHARGES/COMPE NSATION. G. MSEDCL CHALLENGED THE ORDER OF THE APTE DATED 13 TH MARCH, 2015 IN THE HONBLE SUPREME COURT, I.E. CIVIL APPEAL NO.607 9 OF 2015. HONBLE SUPREME COURT DISMISSED APPEAL OF THE MSEDCL VIDE O RDER DATED 17/09/2015 AND DIRECTED MSEDCL TO DEPOSIT USER CHAR GES IN THE MERC, MUMBAI. THE HONBLE SUPREME COURT ALSO DIRECTED ME RC TO MAKE INVESTMENT IN BANK FIXED DEPOSITS AND DISBURSEMENT OF DEPOSIT SHALL BE SUBJECT TO FINAL OUTCOME OF THE DISPUTE (PAGE NO._ P APER BOOK S.C. ORDER) H. MERC DISPOSED OF THE INTERIM APPLICATION OF THE ASSESSEE VIDE ORDER DATED 02/05/2016 ON THE ISSUE OF PAYMENT OF THE INT ERIM USER CHARGES/COMPENSATION. I. MERC ALSO DISPOSED OF THE APPLICATION OF THE ASS ESSEE BEING CASE NO.87 OF 2010 BY DECLINING TO GRANT LICENSE AND DIR ECTED THE ASSESSEE TO FILE FRESH APPLICATION VIDE ORDER DATED 18-06-2014. ASS ESSEE CHALLENGED THE ORDER OF THE MERC, MUMBAI IN HONBLE APTE, NEW DELH I WHICH IS REGISTERED AS APPEAL NO.223 OF 2014 WHICH IS PRESENTLY PENDING HEARING AND FINAL ADJUDICATION ON THE ISSUE OF GRANT OF LICENSE TO THE ASSESSEE SOCIETY. THE ASSESSEE SOCIETY IS FIGHTING ITS CASE FOR REN EWAL AND GRANT OF LICENSE UNDER ELECTRICITY ACT, 2003. THE MATTER HAS NOT REACHED THE FINALITY. THE ORDERS OF HON'BLE APTE, DELHI CHALLENGED BY MS EDCL BEFORE THE HON'BLE SUPREME COURT WERE ON THE ISSUE OF PAYM ENT OF INTERIM COMPENSATION/USER CHARGES. AS ON TODAY MSEDCL CHALL ENGED ALL THE ORDER PASSED BY HON'BLE APTE, DELHI. J. THE ASSESSEE SUBMIT THAT THE ORDERS OF THE MERC AND APTE ON THE PAYMENT OF INTERIM COMPENSATION/ USER CHARGES REACH ED THE HON'BLE APEX COURT AND AS PER THE ORDER OF THE APEX COURT DATED 11/05/2016 IT IS CLARIFIED THAT ASSESSEE SHOULD FILE UNDERTAKING IN CASE IT IS NOT ENTITLED TO THE AMOUNT OF INTERIM COMPENSATION/USER CHARGE, THE SHALL BE REFUNDED TO MSEDCL. K. THE RELIANCE PLACED BY THE ASSESSING OFFICER AS WELL AS LD. CIT(A) ON THE FOLLOWING DECISION IS TOTALLY MISPLACED, AS THE FACTS ARE TOTALLY DIFFERENT. A. IN CASE OF SAVAN SUGAR AND GUR REFINERY COMPANY LTD. (SUPRA) - IN THIS CASE THE SAID ASSESSEE LEASE OUT ITS BUILDING, MACHINERY AND PLANT FOR INITIAL PERIOD OF FIVE YEARS WITH OPTION TO RENEW T HE LIST. ASSESSEE HAD OPTION TO TERMINATE LEASE AFTER FIRST TWO YEARS. ON INTERP RETATION OF THE TERMS OF THE LEASE DEED IT WAS HELD THAT INTENTION OF SAID ASSES SEE WAS TO GO OUT OF BUSINESS. B. IN CASE OF MADRAS SILK & RAYON MILLS (P) LTD. (S UPRA) - COMPANY WAS RUNNING INTO LOSSES AND SOLD MOST OF HIS MACHINERIE S WITHOUT CARRYING ON ANY MANUFACTURING ACTIVITY AND LEASE OUT ITS PREMIS ES. IN BACKDROPS OF THOSE FACTS IT WAS HELD THAT LEASE RENT CANNOT BE T REATED AS A BUSINESS INCOME. C. IN CASE OF UNIVERSAL PLAST LTD. (SUPRA) - THE AP EX COURT LAID DOWN FOLLOWING IMPORTANT GUIDELINES. 1. NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN WH ETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE AMOUNT , RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING OR LETTIN G OUT OF ASSETS 14 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., WOULD FALL UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'; 2. IT IS A MIXED QUESTION OF LAW AND FACT AND HAS T O BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE, INCLUDING TRUE INTERPRETATION OF THE AGREEMENT UNDER WHICH THE ASS ETS ARE LET OUT; 3. WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OUT , THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR T O FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSIN ESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME: 4. IF ONLY OR A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINE SS ACTIVITIES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHE RWISE THAN EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROFIT FO R THAT BUSINESS; BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BU T CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANSACTION WILL ONLY BE EXPLOITATIO N OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASS ETS. L. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISIO N OF THE HON'BLE APEX COURT IN THE CASE OF UNIVERSAL PLAST LTD. (SUP RA). IN FACT THE TASTE LAID DOWN IN SAID DECISION SUPPORT THE CONTENTION OF THE ASSESSEE THAT INTENTION OF THE ASSESSEE IS NOT TO GO OUT OF BUSINESS BUT ASSESSEE IS FIGHTING LEGAL BATTLE FOR RESTORATION OF IT'S LICEN CE TO RESUME ITS BUSINESS. M. IN THE CASE OF CIT VS. VELLORE ELECTRIC CORPORATION LTD. - 243 ITR 529 (MAD). SAID ASSESSEE WAS PRIVATE ELECTRIC COMPANY. ITS UNDERTAKING VESTED WITH THE STATE GOVERNMENT DUE TO ENACTMENT OF THE T AMIL NADU ELECTRICITY SUPPLY UNDERTAKING (ACQUISITION) ACT, 1973. SAID AS SESSEE CHALLENGED VALIDITY OF THAT ACT IN THE SUPREME COURT. THE ASSE SSEE CLAIMED EXPENDITURE ON SALARY PAID TO EMPLOYEES AND OTHER EXPENSES. HON'BLE HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL HOLDING THAT IT CANNOT BE SAID THAT THERE WAS A PERMANENT CLOSURE OF ASSESSEE'S BUSINES S AS VALIDITY OF THE ACT WAS PENDING IN SUPREME COURT AND SAID COMPANY WAS MAINTAINING ESTABLISHMENT WAS INDICATION OF ITS INT ENTION TO RESUME BUSINESS. N. IT IS SUBMITTED THAT IN THE AGM BY THE MEMBERS O F ASSESSEE'S SOCIETY IT WAS RESOLVED TO FIGHT FOR GRANT OF LICEN CE. COPY OF AGM RESOLUTION NO. 17(5) DATED 30/09/2015 AND RESOLUTIO N NO.17(5) DATED 25/05/2016 ARE FILED IN THE PAPERBOOK. THE ASSESSEE ALSO APPROACHED TO THE WORLD INSTITUTION FOR SUSTAINABLE ENERGY AND SOUGHT THE BUSINESS PLAN (COPY SUBMITTED). THE ASSESSEE IS ALSO PURSUIN G THE ISSUE OF RESTORATION OF LICENCE WITH THE GOVT. OF MAHARASHTR A. IT IS SUBMITTED THAT THE FACT AND EVIDENCES SUPPORT THE CASE OF THE ASSE SSEE THAT IT HAS INTENTION TO RESTART BUSINESS ONCE LICENSE IS RESTO RE. O. THE ISSUE OF VRS GIVEN TO THE EMPLOYEES CANNOT B E TAKEN AS A GROUND BY THE ASSESSING OFFICER AS WELL AS LD. CIT( A) TO COME TO ERRONEOUS CONCLUSION THAT ASSESSEE HAS CLOSED DOWN IT'S BUSINESS PERMANENTLY. THE INDUSTRIAL DISPUTE ACT, 1947 GIVES RIGHT TO THE EMPLOYER TO RETRENCH HIS EMPLOYEES/WORKMEN SEC.25(F ) OF THE I.D. ACT, 1947, IF EMPLOYEES ARE SURPLUS AND EMPLOYER UNABLE TO GIVE WORK TO HIS EMPLOYEES. TILL TODAY MINIMUM REQUIRED EMPLOYEES/ST AFF ARE WITH THE ASSESSEE LOOKING AFTER DAY TO DAY MATTERS AND ALSO PURSUING COURT CASES. HENCE, IT IS SUBMITTED THAT CLAIM OF EXPENSE S, BROUGHT FORWARD LOSSES AND THE DEPRECIATION CANNOT BE DENIED TO THE ASSESSEE AND THE 15 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., SAME MAY BE ALLOWED UNDER THE HEAD PROFIT AND GAINS , BUSINESS OR PROFESSION I.E. AS BUSINESS LOSS. THUS, AS PER THE LD. COUNSEL FOR THE ASSESSEE, THE CASE OF THE AO IS THAT, WITH THE REMOVAL OF 1522 EMPLOYEES THROUGH THE VR S AND ALSO WHEN THE MERC ORDERED FOR NON-RENEWAL OF LICENSE, THE BUSINESS OF THE ASSE SSEE SHOULD BE CONSIDERED DISCONTINUED. IN THIS REGARD, THE INT ENTION OF ASSESSEE IS NOT A RELEVANT FACTOR. CONSEQUENTLY, THE CLA IM OF EXPENDITURE IS NOT AN ALLOWABLE ONE AND THE LOSS COMPUTED FOR THIS YEA R UNDER CONSIDERATION IS NOT ALLOWABLE TO BE SET OFF AGAINST THE BUS INESS INCOME EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AND ALSO NOT ALLOWABLE FOR THE CARRY FORWARD BENEFITS U/S.70 TO 71 OF THE ACT. 10.1 IN REPLY, LD. COUNSEL COMMENTED THE ABOVE CONCLUSIO N OF THE AO IS FACTUALLY ERRONEOUS. THE FACT IS THAT THE ORDER OF MERC STANDS SET-ASIDE BY THE APTEL IN APPEAL PROCEEDINGS. APTEL DIRECTED FOR FR ESH CONSIDERATION OF THE ASSESSEES CLAIM. THE MSEDCL, WHO IS NOW GIVEN THE JOB OF POWER DISTRIBUTION TO THE SAID VILLAGES, ALSO DID NOT COMPLY WITH SAID ORDER OF THE MERC IN MATTERS OF PAYMENT FOR USE OF THE ASSETS/INFRASTRUCTURE OF THE ASSESSEE. IN THE INTERIM O RDER, THE ASSESSEE WAS TO RECEIVE RS.1 CRORE PER MONTH AS PER THE ORDER OF THE APTEL. AGAINST THE SAID ORDER, MSEDCL APPROACHED THE APEX COU RT AND ITS ATTEMPT FOR NON-PAYMENT OF FEE TO ASSESSEE DID NOT FRUCT IFY. HONBLE APEX COURT CONFIRMED THE DIRECTION OF APTEL AND DETAILED THE AV AILABLE SAFEGUARD FOR THE MSEDCL FOR RECOVERY OF THE FEE PAID TO THE ASSESSEE IN CASE THE ASSESSEE REQUESTS FOR LICENSE IS EVENTUALLY ALLO WED. AS PER THE ASSESSEE, SUCH A DIRECTION OR THE OBSERVATION OF THE HON BLE SUPREME COURT IS TAKEN AS HOPE TO ASSESSEE IN MATTERS OF THE C ORE ISSUE OF RENEWAL OF LICENSE. 16 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., 10.2 AS ON DATE, THE MERC IS STILL CEASED UP WITH THE ISSUE OF GRANTING OR RENEWAL OF LICENSE TO THE ASSESSEE VIDE THE APPEAL NO.223 OF 2014. ASSESSEE ALSO DISTINGUISHED SERIES OF JUDGMENTS RELIED UPO N BY THE AO VIDE THE DISCUSSION IN PARA K VIDE PARA 10 ABOVE. IN P ARA L & M ABOVE, LD. COUNSEL HIGHLIGHTED THE TEST RELATING TO INTENT ION OF THE ASSESSEE VIDE THE APEX COURTS JUDGMENT IN THE CASE O F UNIVERSAL PLAST (SUPRA). 10.3 FURTHER, LD. COUNSEL RELY ON ANOTHER JUDGMENT OF HO NBLE SUPREME COURT IN THE CASE OF M/S. VELLORE ELECTRIC CORPORATION LTD. (SUPRA) AND SUBMITTED, LIKE THE ASSESSEES CASE, THE COMPANY WAS TAK EN OVER GOVT.OF TAMILNADU, EMPLOYEES WERE REMOVED AND EXPENSES WAS INCU RRED ON SALARIES ETC.. IN THE CONTEXT OF DISALLOWING OF THE CLAIM OF BUSINESS EXPENDITURE U/S.37 OF THE ACT, HONBLE SUPREME COURT HIG HLIGHTED THE INTENTION OF THE ASSESSEE TO STAY IN THE BUSINESS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 10.4 FURTHER, LD. COUNSEL RELY ON THE RESOLUTION NO. 17(5) & 17(5) DATED 25-05-2016 AND 30-09-2015 OF AGM OF ASSESSEE FOR CONTIN UATION OF LEGAL FIGHT FOR RENEWAL OF LICENSE. 11. LEGAL PROPOSITIONS : THUS. LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING JUDGMENTS/DECISIONS IN FAVOUR OF HIS CLAIMS OF EXIS TENCE OF DEEP INTENTION FOR CONTINUATION OF ITS BUSINESS, ALLOWABILITY B USINESS EXPENSES, SET OFF AND CARRY FORWARD OF LOSSES. THEY ARE (1 ) SUPREME COURT JUDGMENTS IN THE CASE OF UNIVERSAL PLAST LIMITED VS. CIT 237 ITR 454 (SC); (2) VIKRAM COTTON MILLS LTD. 169 ITR 597 (SC); (3) CIT V. LAH ORE ELECTRIC SUPPLY COMPANY LIMITED. 60 ITR 1; (4) CIT VS. VELLO RE ELECTRIC 17 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., CORPORATION LTD. 243 ITR 529; AND (5) CIT VS. SHRI LAKSHMI SILK MILLS LIMITED 20 ITR 451 12. PER CONTRA, TO CONTINUE THE ELABORATE CASE OF THE R EVENUE, THE DEMAND FOR RENEWAL OF LICENSE IS A FUTILE EXERCISE AS THE GOV T. OF MAHARASHTRA ALREADY ALLOWED/EMPLOYED LICENSED MSEDCL FOR P ROVIDING DISTRIBUTION OF POWER TO SPECIFIED VILLAGES BY THE STATE GOVT . OF MAHARASHTRA. FURTHER, IT IS UNDISPUTED FACT THAT THE ASS ESSEE GRANTED VRS OF 1552 EMPLOYEES AND CLAIMS EXPENSES OF RS.36.03 CRO RES ON THIS ACCOUNT. ASSESSEE HAS NOT RENDERED ANY SERVICE OF PRO VIDING BUSINESS ACTIVITIES DURING THE YEAR. FURTHER, LD. DR SUBMITTED THA T THE ASSESSEE DID NOT REPORT ANY BUSINESS INCOME OUT OF POWER DISTRIBUT ION DURING THE YEAR. NO SALES, NO RECEIPT OF SERVICE CHARGES OUT OF CORE ACTIVITIES OF ELECTRICITY DISTRIBUTION ETC. WAS REPORTED. INFACT, ASSESS EE HAS NO LICENSE TO DO SUCH BUSINESS TILL DATE DESPITE THE LONG LEGAL PROCEEDINGS INITIAT ED BY THE ASSESSEE BEFORE THE MERC/APTEL, HONBLE SUPREME CO URT ETC. THEREFORE, ASSESSEE STANDS NO POSSIBILITY OF REVIVAL OF ITS B USINESS. AO CONCLUDED THAT IT IS A CASE OF CESSATION OF BUSINESS ONCE AND FOR ALL AND HENCE, IT STANDS CLOSED. AS PER LD. DR, ASSESSEE IS ONLY TO RECEIVE THE RENT OR COMPENSATION SUBJECT TO THE CONDITIONS SPECIFIED IN THE JUDGMENT OF HONBLE SUPREME COURT. FURTHER, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A). 13. RESPONDING TO THE ELABORATE ARGUMENTS OF LD. COUNSE L ON THE INTENTION ASPECT, LD. DR SUBMITTED THAT THE ASSESSEE FAILE D TO PROVE THE INTENTION OF THE ASSESSEE IN MATTERS OF CONTINUATION OF TH E BUSINESS. HE ALSO REITERATED THE FACT THAT EVEN AFTER 7 YEARS OF LITIGAT ION THERE IS NOTHING CONCRETE MATERIALIZED IN FAVOUR OF THE ASSESSEE SO FAR AS GRANTING OF LICENSE IS CONCERNED. THEREFORE, LD. DR SUBMITTED FOR CONFIR MING THE 18 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., ORDERS IF THE CIT(A)/AO IS WITHOUT ANY MODIFICATION ON ALL THE THREE ISSUES , I.E. (I) CONTINUATION OF BUSINESS INTENTION; (II) SET OFF OF EXPENSES A GAINST THE BUSINESS INCOME; (III) BROUGHT OR/AND CARRY FORWARD OF BU SINESS OR BROUGHT FORWARD LOSSES TO FUTURE ASSESSMENT YEARS FOR S ET OFF AGAINST INCOME OF SUBSEQUENT ASSESSMENT YEARS. TRIBUNAL DECISION 14. THUS SOFAR, WE HAVE CULLED OUT THE FACTS NECESSARY OR RELEVANT FOR ADJUDICATION OF THREE ISSUES, I.E. (I) THE CONTINUATION OF BUSIN ESS OR INTENTION FOR CONTINUING BUSINESS; (II) THE SET OFF OF CURRENT Y EAR EXPENSES AGAINST THE INCOME OF THE YEAR; AND (III) BROUGHT OR CARRY FO RWARD OF LOSSES TO SUBSEQUENT ASSESSMENT YEARS. FURTHER, WE HAVE ALSO RECORDED THE VARIOUS ARGUMENTS OF LD. COUNSEL AS WELL AS LD. DR EXHAUST IVELY. WE HAVE EXTRACTED THE WRITTEN SUBMISSIONS OF THE ASSESSEE WHEREVER NECESSARY AND RECORDED VARIOUS DECISIONS/JUDGMENTS CITE D BY THE LD. COUNSELS. ON COMPLETION OF THE SAME, WE SHALL NOW PROCEED TO ADJUDICATE EACH OF THE TRIPLE ISSUES IN THE SUCCEEDING PARAGRAPHS OF THE ORDER. A. DISCONTINUATION OF BUSINESS INTENTION VIDE GR OUND NO.1 : HONBLE SUPREME COURT HELD IN THE CASE OF M/S. LAHORE EL ECTRIC SUPPLY COMPANY LTD. (SUPRA) THAT THE INTENTION OF THE ASSESSEE DECIDES THE ISSUE OF CONTINUATION OR OTHERWISE OF THE BUSINESS OF THE A SSESSEE. ON HEARING BOTH THE SIDES ON THE ISSUE OF INTENTION TO CON TINUE THE BUSINESS OR DISCONTINUE THE SAME, BRIEFLY, WE FIND THE CASE OF THE AO IS THAT THE BUSINESS STANDS CLOSED IN VIEW OF THE NON-RENEWAL OF THE LICENSE BY MERC TO DISTRIBUTE THE ELECTRICITY TO THE SAID AREAS. FURTHER, WITH THE REMOVAL OF 1522 EMPLOYEES, THERE IS NO POSSIBILITY OF GRANT OF RENEWAL O F LICENSE. THEREFORE, CONDUCTING OF ANY BUSINESS OF POWER DISTRIBUTION DOES NOT 19 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., ARISE. FURTHER, EARNING OF RENTAL INCOME OR COMPENSATION INCOME FROM MSEDCL IN ACCORDANCE WITH THE DIRECTIONS OF THE HONBLE S UPREME COURT, APTEL ETC., IS THE ONLY SOURCE OF INCOME AND THE SAME C ANNOT BE HELD AS BUSINESS INCOME OF THE ASSESSEE. REVENUE ALSO RELY ON V ARIOUS DECISIONS AS DISCUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. WHEN THE BUSINESS IS SUBSTANTIALLY CLOSED, MAKING CLAIMS OF DEDUCTION O F EXPENDITURE ON ACCOUNT OF VRS AND OTHERS, IS NOT SUSTA INABLE. CONSEQUENTLY, THE CLAIM OF SET OFF OF THE EXPENDITURE AGAINS T THE INCOME EARNED BY THE ASSESSEE DURING THE YEAR AND THE CARRY FORWARD OF THE BALANCE OF EXPENDITURE/LOSSES TO THE FUTURE YEARS IS NOT SUSTAINAB LE. PER CONTRA, THE CASE OF THE ASSESSEE, IN BRIEF, IS THAT THE BUSINESS IS NEVER CLOSED DESPITE THE NON-RENEWAL OF THE LICENSE FOR POWER DISTRIBUTION IN THOSE 183 VILLAGES OF 5 TALUKAS. NO AUTHORITY /LEGAL BODIES HAVE EVER CANCELLED THE LICENSE FOR DOING THE BUSINESS BY THE ASSESSEE. IT IS MERELY A CASE OF NON-RENEWAL OF LICENSE AND THE SAME IS DISTINCT FROM NON CANCELLATION OF LICENSE. THE CANCELLATION OF LICENSE IS D IFFERENT FROM NON-RENEWAL OF LICENSE. ASSESSEE HAS BEEN EARNING INCOM E BY EXPLOITING THE BUSINESS ASSETS OF THE ASSESSEE SINCE THE YEAR 201 1, THE YEAR OF NON- RENEWAL OF LICENSE. ASSESSEE HAS BEEN SHOWING THE SAME IN THE RETURNS FILED REGULARLY SINCE THE A.Y. 2012-13 ONWARDS. THE FACT T HAT ASSESSEE REPORTED EARNING OF SUCH INCOME EITHER ON ACCOUNT OF CO MPENSATION OR ON ACCOUNT OF SALE OF SCRAP AND OTHERS AND IT DEMONST RATE THE SPIRIT OF CONTINUATION OF BUSINESS. FURTHER, THE FACT THAT ASSESSEE HAS BEEN SINCERELY KNOCKING THE DOORS OF EVERY INSTITUTION, I.E. HON BLE SUPREME COURT, MERC OR APTEL ETC DEMONSTRATES THAT THE ASSE SSEES BONAFIDE DESIRE FOR CONTINUATION OF THE BUSINESS SHOULD BE BEYOND ANY DOUBT. AS PER LD. COUNSEL, THE ASSESSEE NEVER SURRENDERED THE RIG HT TO CONDUCT THE 20 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., BUSINESS OF POWER DISTRIBUTION IN ANY FORM BEFORE ANY AUTHO RITY/JUDICIAL BODY. NO AUTHORITY HAS EVERY ORDERED FOR CLOSURE OF TH E BUSINESS. ASSESSEE STILL OWNS THE BUSINESS ASSETS SUCH AS LAND, OFFICE BUILDING, DISTRIBUTION NETWORK, DATABASE, OF THE CUSTOMERS, GOODWILL WIT H ELECTRICITY CONSUMERS ETC. AND HE HAS NO INTENTION TO SELL THE SAME . HENCE, THIS IS MERELY THE CASE OF NON-RENEWAL OF LICENSE. ELABORATING THE BUSINESS ASSETS OF THE ASSESSEE, LD. COUNSEL SUBMITTED THAT THE A SSESSEE BUILT UP HUGE INFRASTRUCTURE OVER THE PAST 50 YEARS IN THOSE V ILLAGES AS NOTIFIED BY THE GOVERNMENT. THE ASSETS OF THE COMPANY ARE NEVER FOR SALE. THE ASS ESSEE HAS BEEN INCESSANTLY KNOCKING THE DOORS OF HONBLE SUPREME COURT, TRIBUNAL, MERC ETC. FOR GRANT OF RENEWAL OF LICENSE. THE BUSINESS ASS ETS ARE BEING USED BY MSEDCL AGAINST THE PAYMENT OF FEE AND THIS ARRA NGEMENT IS APPROVED BY THE HONBLE SUPREME COURT. ASSESSEE REMO VED 1522 EMPLOYEES PENDING THE ORDER ON RENEWAL OF LICENSE. THESE ARE SOME OF THE ISSUES, WHICH NEED TO BE ANALYSED WHEN IT COMES TO THE ASSESSEES INTENTION TO CONTINUE THE BUSINESS. THE SAME ARE ELABORA TELY DISCUSSED AND ADJUDICATED IN THE FOLLOWING PARAGRAPHS. 14.1 INFRASTRUCTURE NOT FOR SALE : COMING TO THE INFRASTRUCTURE OF THE ASSESSEE, THE CASE OF THE ASSESSEE IS THAT ASSESSEE OW NS CRORES WORTH OF INFRASTRUCTURE BY WAY OF LAND, BUILDING, TRANSMISSION NETWORK, POWER CONNECTIONS, CUSTOMER DATABASE ETC. HE RELIES ON THE BO OKS OF ACCOUNT IN THIS REGARD. THE ASSESSEE NEVER SOLD THE SAID INFRASTRUC TURE FOR ANY CONSIDERATION IN ANY FORM. THIS DECISION/RESOLUTIONS OF THE A SSESSEE- SOCIETY FOR FIGHTING FOR RENEWAL OF LICENSE INDICATES THE ASSES SEES EARNEST DESIRE TO CONTINUE THE BUSINESS AND HE IS HOPEFUL THAT, ON E DAY, THE ORDER OF RENEWAL OF LICENSE BY THE STATE GOVERNMENT FOR POWER D ISTRIBUTION WILL 21 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., BE ISSUED IN ONE FORM OR OTHER, I.E. STAND-ALONE BASIS OR IN CONTINUATION OF MSEDCL. THE SAME IS LEFT TO THE DISCRETION OF THE GOVER NMENT. IN THIS REGARD, RELYING ON JUDGMENT OF HONBLE SUPREME COURT (SU PRA) AND THE ORDER OF THE APTEL (SUPRA), ASSESSEE ASSERTED THE POS SIBILITY OF RESUMING BUSINESS IN THOSE VILLAGES ON A STANDALONE BASIS OR IN ASSO CIATION WITH THE MSEDCL AS JOINT SERVICE PROVIDERS. THEREFORE, WE HAVE TO HOLD THAT ASSESSEE NEVER GAVE UP THE DEMAND FOR RENEWAL OF LICENSE IMPLYING THE INTENTION TO NOT TO EXIT THE BUSINESS OF POWER DISTRIBUTION. 14.2 POSSIBILITY OF RENEWAL OF LICENSE (ROL) : MENTIONING ABOUT THE POSSIBILITY OF RENEWAL OF LICENSE, THE CASE OF THE ASSESSEE IS THAT THE POSSIBILITY OF GRANTING LICENSE TO ASSESSEE AS WELL AS MSEDCL IN THE SAME LOCATIONS WAS ALREADY COMMUNICATED BY JUDICIAL BODIES AS DIS CUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. IN THIS REGARD, ASSESSEE RE LYING ON THE HONBLE SUPREME COURTS JUDGMENT WHICH ORDERED FOR FILING AN AFFIDAVIT FOR THE REFUND OF AMOUNT OF COMPENSATION BY THE ASSESSEE TO THE MSEDCL AS AND WHEN THE DECISION OF MERC/APTEL/HONBLE SUPREME COURT ON THE CORE ISSUE OF RENEWAL OF LICENSE GOES IN VAR IOUS OF THE ASSESSEE. ASSESSEE ALSO RELIES ON THE ORDER OF THE APTE L IN THIS REGARD. ASSESSEE INDICATES THE CHANCE OF RENEWAL OF LICENSE. IN TH ESE CIRCUMSTANCES, AOS FINDING THAT THE BUSINESS IS SUBSTANTIA LLY CLOSED OR CLOSED AND NO POSSIBILITY OF RENEWAL OF LICENSE, ARE NOT HELD ON SOUND FOOTING. THE VERY FACT THAT THE APTEL HAS REFERRED THE MATTER BACK TO THE MERC FOR RECONSIDERATION AND THE MERCS DIRECTION TO FILE A FRESH APPLICATION BY THE ASSESSEE FOR GRANT OF RENEWAL OF LICENSE ALSO INDICATES THE POSSIBILITY OF RENEWAL OF LICENSE. IT IS A MATTER FOR TH E FUTURE AND THE FINALITY OF THE JUDICIAL BODIES. WE HAVE NOTHING TO COMMENT O N THIS AS THE MATTER IS SUB-JUDICE BEFORE THE OTHER INSTITUTIONS. 22 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., 14.3 ASSESSEE EARNS INCOME BY WAY OF FEE : HIGHLIGHTING THE FACT THAT ASSESSEE EARNS FEE/INCOME OF RS.1 CRORE PER MONTH FROM MSEDCL OF THE STATE GOVERNMENT CONSEQUENT TO THE HONBLE SUPREME COURTS JUDGMENT READ WITH ORDER OF THE APTEL IN THE ASSESSEES OWN CAS E (SUPRA), ASSESSEE CLAIMS THAT HE DID NOT CLOSE OR DISCONTINUE THE BUSINESS AS HELD BY THE A O ERRONEOUSLY. THIS DECISION OF CIT(A) WAS CONFIRMED UNFAIRLY WITHOUT APPRECIATING THE FACTS. THE FACT IS THAT ASSESSEE EARNS INCOME FROM MSEDCL ON TAKE OVER OF THE ASSETS/DATABASE ETC. CONSE QUENT TO THE ORDER OF THE APTEL AND THEN CONFIRMED BY THE JUDGMENT OF HON BLE SUPREME COURT AND THE SAME CONSTITUTES BUSINESS INCOME AND IT E VIDENCES THE FACT OF CONTINUATION OF BUSINESS. IN THIS REGARD, ASSESSEE SUBM ITS THAT ASSETS OF ASSESSEE ARE NOT FOR SALE OR LEASE TO MSEDCL AND AS SESSEE WOULD NEVER HAVE TO HAND OVER THE ASSETS/INFRASTRUCTURE BUT FOR TH E JUDGMENT OF THE HONBLE SUPREME COURT OR APTEL OR MERC. THUS, THE ASS ESSEE IS DETERMINED TO FIGHT OUT FOR RENEWAL OF LICENSE TILL THE END AND INTEND IS TO RESUME THE BUSINESS. REPORTING OF BUSINESS INCOME IN THE RETURN OF INCOME OF THE YEAR IS UNDISPUTED. THEREFORE, IN OUR OPINION , THE ASSESSEE CANNOT BE SAID TO HAVE NO INTENTION TO CONTINUE THE BUS INESS. THUS, WE AGREE WITH THE SAME AND ORDER ACCORDINGLY. 14.4 INTENTION LITIGATION : FURTHER, DETAILING THE EXTENT OF LITIGATION UNDERTAKEN BY THE ASSESSEE FOR RENEWAL OF LICENSE, THE CA SE OF THE ASSESSEE IS THAT THE ONGOING LITIGATION FOR THE GRANT OF LIC ENSE EVER SINCE 2011 TILL 2018 SHOULD DEMONSTRATE THE ASSESSEES STRONG INTENTION TO CONTINUE THE BUSINESS IN THIS LINE. ASSESSEE ALSO TAKES A CUE FROM THE DEVELOPMENT FROM THE RENEWAL AFTER 2000, AND MENTIONED TH AT THE PROCESS OF RENEWAL OF LICENSE BY THE MERC WAS NEVER A SMOOTH AFFA IR. THE ASSESSEE HAD TO WAIT FOR NEARLY A DECADE DURING THE FIRS T RENEWAL OF LICENSE 23 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., VIDE NOTIFICATION DATED 02-05-2000 (SL.NO.2 OF THE CHRONOLOGY OF EVENTS CHART). IN OUR VIEW, IT CANNOT BE CONCLUDED THAT THE A SSESSEE DOES NOT HAVE THE INTENTION TO CONTINUE THE BUSINESS. WE ORDER ACCORDINGLY . 14.5 LEGAL SCOPE ON DISCONTINUATION OF BUSINESS ASSESS EES INTENTION: AFTER CONSIDERING THE CASE OF THE ASSESSEE AND THE REV ENUE ON THE ISSUE OF INTENTION VS. DISCONTINUATION OF BUSINESS, WE HAV E PERUSED THE SAID DECISIONS RELIED ON BY BOTH THE PARTIES. A. IN THE CASE OF CIT VS. VIKRAM COTTON MILLS LTD. THE HONBLE SUPREME COURT HELD THAT WHERE AN ASSESSEE LEASES ITS ASSETS AN D THE INTENTION OF THE ASSESSEE IS NOT TO DISCONTINUE THE BUSINESS BUT TO LEASE OUT THE ASSETS FOR A TEMPORARY PERIOD AS A PART OF THEIR EXPLOITATION, THE LEASE RENT DERIVED FROM LETTING OUT THE ASSETS IS ASSESSABLE AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. B. IN THE CASE OF CIT VS. NATIONAL MILLS CO. LTD. THE HONB LE SUPREME COURT HELD THAT COMPANY UNDER LIQUIDATION HAVING LEASED ITS PLANT AND MACHINERY, IT COULD NOT BE SAID THAT BUSINESS OF COMPANY CEASED IN THE FACE OF CLEAR FINDINGS OF TRIBUNAL AND INCOME FROM LEASING C OULD BE SET OFF AGAINST PAST LOSSES. C. IN THE CASE OF CIT VS. SHRI LAKSHMI SILK MILLS LTD., THE HO NBLE SUPREME COURT THAT WHERE A MANUFACTURER, BEING UNABLE TO USE HIS PLANT GAINFULLY, LETS IT OUT TEMPORARILY FOR MAKING PROFITS FOR THAT BUSINESS, THE PLANT SO LET OUT DOES NOT CEASE TO BE A COMMERCIAL ASSET OF THE MANUFACTURER AND THE INCOME EARNED BY LETTING IT OUT IS CHARGEABLE AS BUSINESS INCOME UNDER SEC.10 OF 1922 ACT. D. IN THE CASE OF CIT VS. VELLORE ELECTRIC CORPORATION LT D., THE HONBLE MADRAS HIGH COURT HELD THAT THERE WAS NO DISCONTINUATION OF ASSESSEES 24 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., BUSINESS WHILE IT WAS CHALLENGING THE ACQUISITION OF ITS UNDERT AKING BY STATE GOVERNMENT AND THE MATTER WAS PENDING IN THE CO URT; ALL THE EXPENSES INCURRED BY ASSESSEE IN RUNNING THE ESTABLISHMENT DURING THAT PERIOD ARE ALLOWABLE AS DEDUCTION. E. IN THE CASE OF L.VE. VAIRAVAN CHETTIAR VS. CIT, THE HO NBLE MADRAS HIGH COURT HELD THAT IF A PERSON CARRIES ON TWO OR MORE DISTINCT BUSINESSES, THE PROFITS OR LOSSES OF ALL OF THEM OUGHT TO B E ADDED TOGETHER AND THE AGGREGATE SUM WOULD REPRESENT HIS PROFITS OR GAINS IN THE BUSINESS. F. IN THE CASE OF CIT VS. LAHORE ELECTRIC SUPPLY CO. LTD., THE HONBLE SUPREME COURT OBSERVED AS UNDER (HELD PORTION) : NONE OF THE ABOVE GROUNDS LED TO THE CONCLUSION TH AT THE COMPANY INTENDED TO CANYON BUSINESS. THE MERE FACT THAT THE COMPANY HAD NOT GONE INTO LIQUIDATION WOULD NOT ESTABLISH THAT IT H AD THE INTENTION TO DO BUSINESS. THERE WAS FURTHER NO QUESTION OF THE COMP ANY'S GOING INTO LIQUIDATION IN THE ACCOUNTING YEARS, FOR, DURING TH AT TIME IT HAD NOT RECEIVED FROM THE GOVERNMENT THE ENTIRE AMOUNT DUE TO IT AS COMPENSATION FOR THE SAID ACQUISITION. AT THE RELEV ANT TIME THE COMPANY WAS NOT POSSESSED OF ANY COMMERCIAL UNDERTAKING. IT WAS UNNECESSARY TO GO INTO THE QUESTION WHETHER AN EXPRESSION OF AN INTENTION TO RESUME BUSINESS IN VACUO WOULD AMOUNT TO CARRYING O N BUSINESS. IT WAS SUFFICIENT FOR THE PURPOSE OF THIS CASE TO S TATE THAT EVEN AN INTENTION TO RESUME BUSINESS HAD NOT BEEN ESTABLISH ED. THEREFORE, THE BUSINESS WAS CLOSED AND THE COMPANY HAD NOT ESTABLISHED AN INTENTION TO RESUME IT. THAT WOULD B E ENOUGH TO SHOW THAT NO BUSINESS WAS CARRIED ON AND IT WOULD B E IRRELEVANT TO ENQUIRE WHETHER THE BUSINESS WAS PERMANENTLY CLO SED. THE FACTS THAT THE COMPANY HAD TO PAY THE GOVERNMEN T HALF SHARE OF THE PROFITS BETWEEN 27-11-1942, AND 5-9- 1 946 AND THAT IT HAD TO RETURN TO THE CONSUMERS THE DEPOSITS MADE BY THEM WOULD NOT INDIC ATE THAT IT WAS CARRYING ON A BUSINESS. IT WOULD BE LAYING DOWN STR ANGE LAW TO HOLD THAT WHERE A BUSINESS HAD IN FACT CEASED TO BE RUN, IT M UST BE DEEMED AS CONTINUING BECAUSE THE OUTSTANDING LIABILITIES O F THAT BUSINESS HAD NOT BEEN LIQUIDATED. BUSINESS AS CONTEMPLATED B Y SECTION 10 IS AN ACTIVITY CAPABLE OF PRODUCING A PROFIT WHICH CAN BE TAXED. PAYMENT OF OUTSTANDING LIABILITIES WAS NOT AN ACTIV ITY WHICH COULD EVER PRODUCE SUCH A RESULT. IT COULD NOT BE S AID, THEREFORE, THAT BECAUSE LIABILITIES OF A CLOSED BUSINESS WERE OUTSTANDING, IT HAD TO BE HELD THAT EITHER THE BUSINESS WAS CONTINU ING OR THAT AN INTENTION TO RESUME BUSINESS MUST BE INFERRED. HENC E, THE 25 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., COMPANY HAD CEASED TO CARRY ON BUSINESS, AND THE TRIBUNAL'S CONCLUSION TO THE CONTRARY WAS INCORRECT. THESE RATIOS OF VARIOUS DECISIONS/JUDGMENTS SUPPORT THE CASE OF THE ASSESSEE AND THE CLAIMS NEED TO BE ALLOWED IN FAVOUR OF TH E ASSESSEE. WE ORDER ACCORDINGLY. 14.6 REMOVAL OF 1522 EMPLOYEES NOT A LITMUS TEST : COMING TO THE AOS RESERVATION ON THE DECISION OF THE ASSESSEE IS GIVIN G VRS TO 1522 EMPLOYEES, WE FIND IT A PRUDENT COMMERCIAL DECISION AND THE SAME CANNOT BE INTERPRETED AGAINST THE ASSESSEE AS LACK OF INTENTION. IN OUR VIEW, SAYING BYE TO THESE EMPLOYEES CANNOT BE EQUATED WITH T HE DECISION OF NO SALE OF CAPITAL ASSETS LIKE LAND/BUILDING/DISTRIBUTION NETWORK, D ATABASE ETC. RECRUITMENT OF EMPLOYEES IS NOT A SIGNIFICANT AND DECISIV E EVENT TO DECIDE THE TERMINATION OF BUSINESS. IN THIS REGARD, LD. CO UNSEL SUBMITTED THAT THE MOMENT, THE ASSESSEE GETS THE ORDER ON RENE WAL OF LICENSE, THE ASSESSEE SHALL RECRUIT THE EMPLOYEES AS REQUIRED FOR THE BUSINESS. W E FIND MERIT IN THE SAME. THEREFORE, WE DISMISS THIS ASPECT OF O BJECTION FROM REVENUE SIDE. WE ORDER ACCORDINGLY. 14.7 FURTHER, ON THE OTHER OBJECTION OF THE AO ON THE O RDERS OF MERC/APTEL ABOUT THEIR CLOSURE ORDER, WE FIND THE SAME A RE UNSUSTAINABLE IN VIEW OF SUBSEQUENT DEVELOPMENTS TILL 2016 O N THE DECISION OF MERC AND APTEL. THEREFORE, WE DISMISS THE SAME TOO. SUMMARY : THEREFORE, TO SUM UP, IT IS A SETTLED LEGAL PROPOSITION THAT THE EXISTENCE OF INTENTION TO CONTINUE BUSINESS AND ITS DEMO NSTRATION BY THE ASSESSEE ASSUMES SIGNIFICANCE IN MATTERS RELATING TO DECISIO N ON THE CESSATION OF BUSINESS. THE JUDGMENT IN THE CASE OF LAHORE ELECT RIC SUPPLY CO. LTD. (SUPRA) IS RELIED. IN THIS REGARD, WE CONSIDERED T HE UNDISPUTED 26 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., FACTS OF (I) DEMONSTRATION BY WAY OF PASSING OF RESOLUTION BY AGM OF ASSESSEE FOR CONTINUATION FOR FIGHTING FOR RENEWAL OF LICENSE (II) APPROACHING THE STATE GOVT. MERC, APTEL, SUPREME COURT ETC. FOR RENEWAL OF LICENSE, (III) OPPOSING THE TAKEOVER BID OF THE MERC FOR MSEDCL WITH OR WITHOUT CONSIDERATION; (IV) COMPLIANCE TO THE LEGAL ORDERS OF SUPREME COURT/APTEL WITHOUT PREJUDICE TO THE DEMAND FOR RENEWAL OF LICENSE; (V) ASSESSEE NEVER ENTERTAINED THE IDEA OF SALE OF A SSETS AND INFRASTRUCTURE TO MSEDCL, (VI) ASSESSEE DID NOT ENTERTAIN T HE IDEA OF LEASE OF ASSETS TOO; (VII) ASSESSEE DID NOT RESORT TO LIQUIDATION OR INSOLVENCY, (VIII) ASSESSEE RECEIVES COMPENSATION OF RS.1 CRORE PLUS EVERY MONTH FROM MSEDCL AND REPORTS TO INCOME TAX OFFICE EVERY YEAR; (IX) N O AUTHORITY/EXECUTIVE/JUDICIARY EVER REJECTED THE DEMAND FOR RENEWAL OF LICENSE TILL DATE. FURTHER, VARIOUS COMMITTEES RECOMMENDED FOR GRANT OF RENEWAL OF LICENSE TO THE ASSESSEE ALONG WITH MSEDCL ALONG WITH SUBSIDY IF ANY. THEREFORE, ALL THESE UNDISPUTED FACTS, IN OUR VIEW, SUPPORT T HE EXISTENCE OF INTENTION TO DO BUSINESS OF POWER DISTRIBUT ION. UNLIKE IN THE CASE OF LAHORE SUPPLY CO. LTD.(SUPRA) WHERE MERE C LEARING OF OUTSTANDING LIABILITIES IS ONLY DEFENSE FROM REVENUE IN SUPP ORT OF INTENTION FOR CONTINUATION OF BUSINESS ACTIVITY, THE CASE ON HAND AND ITS FACTS DISTINGUISHES THE FACTS OF OTHER CASE. FURTHER, WE FIN D THE JUDGMENT IN THE CASE OF VELLORE ELECTRIC CORPORATION LTD. (SUPRA) IS V ERY CLOSE TO THE FACTS OF THE PRESENT ONE UNDER CONSIDERATION SO LONG AS THE TAKEOVER DECISION OF THE COURT IS CONCERNED. BUT THE BASIS OF ACTIO NS OF THE PRESENT ASSESSEE KEEPS THE ASSESSEE ON A DIFFERENT PEDESTAL. TH EREFORE, THE BUSINESS OF THE ASSESSEE CANNOT BE HELD TO BE A DISCONT INUED ONE. ALL THE ADMINISTRATIVE EXPENSES HAVE TO BE ALLOWABLE AS BUSINESS EXPENDITURE. 27 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., THEREFORE, WE FIND IT DIFFICULT TO CONCLUDE THAT THE ASSESSEE DOES NOT HAVE ANY INTENTION TO CONTINUE THE BUSINESS OF POWER DISTRIBUTION. ACCO RDINGLY, THE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. (B) WHETHER THE EXPENSES DEBITED TO PROFIT AND LOSS A CCOUNT CONSTITUTE BUSINESS EXPENDITURE ELIGIBLE FOR CLAIM OF DEDUCTION U/S.37 OF THE ACT 15. ON SCRUTINIZING OF THE PROFIT AND LOSS ACCOUNT OF THE ASSES SEE, THE MAIN EXPENDITURE INCURRED BY THE ASSESSEE RELATES TO C LAIM OF RS.41.90 CRORES. GROUND NO.2 RELATES TO DENIAL OF BENEFIT OF CARRY FORWARD OF THE CURRENT YEAR BUSINESS LOSSES AND SET OFF OF THE ASSESSEE AND DETER MINATION OF PROPER HEAD OF INCOME FOR TAXING THE RETURNED INCOME OF RS.7,21,411/- ARE THE ISSUES CONNECTED TO THE GROUND NO.2. DURING TH E ASSESSMENT PROCEEDINGS, AO NOTED THAT THE ASSESSEE CLAIMED HUGE EX PENDITURE AMOUNTING TO RS.41.90 CRORES. MORE THAN 1522 EMPLOYEES AVAILED VRS OF THE ASSESSEE WHICH DEMANDED INCURRING OF THE ABOVE EXPE NDITURE. IN THE RETURN OF INCOME, ASSESSEE DID NOT CLAIM THE SAME AS AN A LLOWABLE EXPENSES CONSIDERING THE SPECIFIC INCOME TAX PROVISIONS MEANT FOR C LAIM OF VRS EXPENSES. THESE ARE THE EXPENSES INCURRED ON EMP LOYEES, IN VIEW OF COMMERCIAL EXPEDIENCY AND THE PRUDENT BUSINESS DECISION. 16. ARGUMENTS OF LD. COUNSEL FOR THE ASSESSEE : LD. COUNSEL SUBMITTED THAT THE GENUINENESS AND CORRECTNESS OF THE EXPENDITURE ON THIS ACCOUNT WAS NEVER VERIFIED BY THE AUTHORITIES BELOW D UE TO THEIR DECISION ON THE ASPECTS OF CESSATION OF BUSINESS. THE C LAIM OF THE ASSESSEE WAS PASSIVELY DENIED CONJOINT WITH THE ADVERSE DECISION ON CONTINUATION OF BUSINESS. IN THIS REGARD, LD. COUNSEL FOR TH E ASSESSEE FILED THE PAPER BOOK GIVING THE DETAILS OF THE EXPENDITURE (PAGES 4 TO 9 OF THE PAPER BOOK) AND EXPLAINED THE BUSINESS EXIGENCY IN IN CURRING OF THE EXPENSES. REFERRING TO PAGE 1 OF THE PAPER BOOK, LD. CO UNSEL FOR THE 28 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., ASSESSEE FURNISHING OF THE BREAKUP OF THE EXPENDITURE FOR RS.36,71,81,348/-. THE SALARY OF EMPLOYEES WITH THE FIGURE OF RS.36,03,23,569/- IS A MAJOR EXPENDITURE. RS.15 LAKHS WAS P AID AS GRATUITY TO THE EMPLOYEES. OTHER MAJOR EXPENDITURE INC LUDES AUDIT FEES AT RS.13,69,000/- AND ADMINISTRATIVE EXPENSES AT RS.16,51,54 7/-. LD. COUNSEL SUBMITTED THAT THESE EXPENSES CONSTITUTES ESTA BLISHMENT, ADMINISTRATIVE/PERSONAL COST. HE SUBMITTED THAT SINCE THE SE DETAILS ARE NOT EXAMINED BY THE AUTHORITIES AND THEREFORE, THE SAME NEEDS TO BE ALLOWED. FURTHER, LD. COUNSEL FOR THE ASSESSEE SUBMITTED FO R REMANDING THE ISSUES. FURTHER, LD. COUNSEL ALSO SUBMITTED THAT THE ASSESSEE EA RNED TOTAL INCOME OF RS.7,12,411/-, I.E. RS.1,59,831/- AND RS.5,29,950/- O UT OF RENTAL INCOME AND INCOME ON SALE OF SCRAP RESPECTIVELY. A SSESSEE CONSIDERED THE ENTIRE INCOME AS BUSINESS AND SET OFF THE SAME AGAINST THE EXPENDITURE BEFORE CLAIMING THE BENEFIT OF CARRY FORWARD OF LOSS FOR SET OFF IN FUTURE ASSESSMENT YEARS. AO TAXED RS.1,59,831/- (RENTA L INCOME) AND RS.5,29,950/- (INCOME FROM SALE OF SCRAP) UNDER THE HEAD IN COME FROM OTHER SOURCES. HOWEVER, THE CIT(A) CONFIRMED THE AOS AC TION REGARDING RS.1,59,831/-. HOWEVER, CIT(A) UPHELD THE AOS VIEW ON THE DISCONTINUATION OF BUSINESS AND CONSEQUENT CLAIM OF SET OFF O F CARRY FORWARD OF LOSSES. FURTHER, LD. COUNSEL SUBMITTED THAT THE CLAIM OF ASSESSEE FOR TAXING RS.5,29,950/- UNDER THE HEAD BUSINESS INCOME IS SUSTAINABLE AND RELIED ON THE JUDGMENT IN THE CASE OF VELLORE ELECTRIC CORPORATIO N LTD. (SUPRA). FURTHER, HE ALSO SUBMITTED THAT THE EXPENDITURE INCURRED ON PERSONNEL (VRS + GRATUITY OF ESTABLISHMENT ETC.) CONSTITUTES BUSINESS EXPENDITURE AND THE SAME NEEDS TO BE ALLOWED U/S.37 OF THE ACT. 29 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., 17. ARGUMENTS OF LD. DR FOR THE REVENUE : ON THE OTHER HAND, LD. DR FOR THE REVENUE SUBMITTED THAT ALLOWABILITY OF THESE EXPE NSES BECOMES RELEVANT ONLY IF THE ISSUE RELATING TO CONTINUATION OF BUSINE SS IS DECIDED AGAINST THE REVENUE. HE ALSO SUBMITTED THAT ASSESSEE D ID NOT HAVE THE RECOGNITION REQUIRED FOR GRANTING OF VRS. THEREFORE, IT IS A CASE OF REMOVAL OF EMPLOYEES IN VIEW OF CLOSURE OF BUSINESS. FURTHER, LD. DR ARGUED THAT THE CLAIM OF VRS EXPENDITURE IS CAPITAL NATURE AS IT IS A ON E-TIME EXPENDITURE. HOWEVER, WHEN THE ASSESSEE REFERRED TO TH E APPROVAL DATED 24-05-2012 OF THE LABOUR COMMISSIONER, MAHARASHTRA GOV T., AND DEMONSTRATED THE BUSINESS NATURE OF IT. 18. DECISION OF THE TRIBUNAL ON GROUND NO. 2 : WE HEARD BOTH THE SIDES ON THIS ISSUE, PERUSED THE ORDERS OF THE REVENUE A ND THE PAPER BOOK FILED BY THE ASSESSEE. FURTHER, WE HAVE ALSO PERUSED THE DECISIONS RELIED ON BY BOTH THE SIDES. THE FACT ON VRS OF 1522 EMPLOYE ES OF THE COMPANY WAS ALSO ANALYSED. IN THIS REGARD, THE CASE OF THE ASSES SEE IS THAT THERE IS NO POINT IN BEARING THE EMPLOYEE COST WHEN THE REQUEST FOR RENEWAL OF LICENSE IS NOT YET DECIDED BY THE MERC, WHO ORDERED FOR H ANDOVER OF THE POWER DISTRIBUTION NETWORK TO MSEDCL. ASSESSEE ALSO DEM ONSTRATED THE BUSINESS NATURE OF EACH AND EVERY ACCOUNT DEBITED TO P ROFIT AND LOSS ACCOUNT. FURTHER, JUSTIFYING THE EXPENDITURE, ASSESSEE C LAIMS THAT THE BUSINESS OF THE ASSESSEE IS SUBJECTED TO UP & DOWNS DU E TO MANY ADVERSE CIRCUMSTANCES AROUND IT. ANY BUSINESS HAS ITS FINANCIAL RISK S OF VARIOUS KINDS WHICH FORCES THE MANAGEMENT TO TAKE FINANCIAL DECISIO N. DECLARATION OF VRS TO THE EMPLOYEES IS A COMMERCIAL DECISION OF THE ASSESSEE AND THE SAME IS RIGHTLY JUSTIFIED. THE SAME IS D ONE WITH THE APPROVAL OF THE STATE GOVT. LD. COUNSEL ALSO MENTIONED THAT THE ASSESSEE 30 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., IS IN THE PROCESS OF GETTING THE RENEWAL OF LICENSE SOON A ND IN THE EVENT OF POSITIVE ON THIS, THE SAME IS FOLLOWED BY THE FRESH REQUIREM ENT OF THE EMPLOYEES. LD. COUNSEL REQUESTS FOR GRANTING THE SET OFF TO THE EXTENT OF AVAILABLE CURRENT YEAR PROFIT OF RS.5,29,950/- AND PRAYED FO R GRANT OF THE BENEFIT OF CARRY FORWARD OF THE EXPENDITURE OF SUCH LOSSES. GENUINENESS OF EXPENDITURE : WE FIND THAT THE ASSESSEE CLAIMED TOTAL EXPENDITURE OF RS.40.90 CRORES AGAINST THE TOTAL INCOME OF THE YEAR AT RS.7,12,411/-. GENUINENESS OF EXPENDITURE WAS NEVER THE IS SUE BEFORE THE AO/CIT(A) FOR THE REASON THAT THEY CONCLUDED AGAINST THE ASSESSEE ON THE ISSUE OF DISCONTINUATION/CESSATION OF BUSINESS OF ELECTRIC ITY DISTRIBUTION. THIS ISSUE OF DISCONTINUATION OF BUSINESS WAS IN DEPENDENTLY RAISED IN GROUND NO.1 AND THE SAME STANDS ADJUDICATED BY US IN FAVOU R OF THE ASSESSEE. CONSEQUENTLY, THE GENUINENESS, THE ALLOWA BILITY ETC. BECOMES RELEVANT NOW. THEREFORE, ON THIS ISSUE, WE HEARD BOTH THE SIDES AND EXA MINED ALL THE ACCOUNTS DEBITED TO PROFIT AND LOSS ACCOUNT OF THE Y EAR/ASSESSEE AND FOUND, PRIMA-FACIE, THAT THEY ARE ALLOWABLE EXPENDITURE AND T HE SALARY EXPENSES, BONUS EXPENSES, AUDIT FEE ETC. RELATE TO BUSINES S EXPENDITURE ALLOWABLE U/S.37 OF THE ACT. HOWEVER, THERE IS NO CATEGORIC AL FINDING BY AO/CIT(A) WITH RESPECT TO THE ALLOWABILITY OF THESE EXPENDITU RES ACCOUNTS. IN THE ABSENCE OF THE SAME, WE CANNOT DECIDE THIS ISSUE AT THIS POINT OF TIME AS THERE IS NO ADVERSE FINDING OR OTHERWISE EXISTS ON THE ALLOWABILITY OF DISALLOWABILITY OF THE EXPENSES. HENCE, WE FIND IT RELEVANT TO REMAND THIS ISSUE TO THE FIL E OF AO FOR FRESH ADJUDICATION BOTH ON THE GENUINENESS AS WELL AS ON THE ALLOWABILITY OF THE EXPENSES AMOUNTING TO RS.40.90 CRORES. WE DIRECT THE AO TO PASS A 31 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., SPEAKING ORDER ON THE CLAIM IN ALL INDIVIDUAL ACCOUNTS DEBITE D TO PROFIT AND LOSS ACCOUNT. AO SHALL NOTE THAT EMPLOYEE COST CONS TITUTES AN BUSINESS EXPENDITURE AND THERE ARE SPECIFIC PROVISIONS IN T HE ACT FOR ALLOWING THE VRS EXPENDITURE. AO IS DIRECTED TO ADMIT ANY EVIDENCE FOR ADJUDICATION OF THIS ISSUE. AO SHALL GRANT REASONABLE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE IN THE SAID REMAND PROCEEDINGS A S PER THE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, THIS PART OF THE GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 19. SET OFF OF CURRENT YEAR BUSINESS LOSS AGAINST T HE SCRAP SALES INCOME AND CARRY FORWARD OF LOSS BEFORE US, ON THE ISSUE OF GIVING SET OFF OF BUSINESS LOSS AGA INST THE RECEIPTS EARNED ON SALE OF SCRAP AS WELL AS ON THE ISSUE OF GRANT OF BENEFIT OF CARRY FORWARD OF UNABSORBED LOSS FOR SET OFF AGAINST INCO ME IN SUBSEQUENT ASSESSMENT YEARS, BOTH THE COUNSELS SUBMITT ED THAT THIS ISSUE NEEDS TO BE DECIDED AS PER THE PROVISIONS OF THE A CT. THEY ALSO MENTIONED THAT THE SAME IS LINKED TO THE FINDING OF THE TRIB UNAL ON THE GROUND NO.1 IN THE GROUNDS OF APPEAL. ON HEARING BOTH THE SIDES ON THIS TECHNICAL OR CONSEQU ENTIAL ISSUE, WE FIND THAT THE SET OFF OF CARRY FORWARD OF THE UNABSORBE D LOSS ISSUE NEEDS TO BE DECIDED AS PER THE PROVISIONS OF SECTION 70 TO 72 OF THE ACT. THUS, WE DIRECT THE AO TO PASS A SPEAKING ORDER ON THIS ASPECT OF THE CLAIM OF THE ASSESSEE. IT IS ALSO THE CLAIM OF THE ASSESSE E BEFORE US THAT THE BROUGHT FORWARD LOSSES FROM EARLIER ASSESSMENT YEAR S WERE NOT PROPERLY ALLOWED IN THE ORDER OF THE AO DUE TO THEIR ADV ERSE DECISION ON THE INTENTION TO CONTINUE THE BUSINESS. AO IS DIRECTED ACCORDINGL Y. 32 ITA NO.1776/PUN/2016 M/S. MULA PRAVARA ELECTRIC CO-OP. SOCIETY LTD., IN THE REMAND PROCEEDINGS ON THIS ISSUE, AO SHALL CONSIDER OUR FAVOURABLE FINDING ON GROUND NO.1, I.E. CONTINUATION OF BUSINESS AND DECIDE THESE LINKED-ISSUES TOO AFTER CONSIDERING THE SAID PROVISIONS ON ONE SIDE AND THE JUDGMENTAL LAWS ON THE OTHER. AO SHALL GRA NT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY , THIS PART OF GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 28 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER / PUNE; / DATED : 28 TH SEPTEMBER, 2018. SATISH $ % ' $ % ' $ % ' $ % ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-2, PUNE. 4. THE PR. CIT-1, PUNE. 5. , , , / DR, ITAT, B BENCH, PUNE. 6. ' / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.