M/S MINESTONE, Mumbai V. ACIT-16(2), Mumbai

ITA 2536/MUM/2019

AI Insights

The case involves M/S MineStone Mumbai, a partnership firm engaged in the manufacture and export of diamonds, which filed an appeal against the order of the CIT(A)-59 Mumbai. The appeal contested the disallowance of expenses amounting to Rs. 37,56,360 and depreciation of Rs. 55,00,367 for the assessment year 2011-12. The Assessing Officer had disallowed these claims on the grounds that no business activity was conducted during the year, and thus, no business-related expenses should be allowed. The CIT(A) upheld this decision, leading to the appeal before the Tribunal. The Tribunal found that the business was not permanently discontinued and that the expenses were incurred in the normal course of business, thus should not be disallowed.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125096 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 23-04-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; TDS
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & SHRI GAGAN GOYAL, AM आयकरअपीलसं./ I.T.A. No. 2536/Mum/2019 (निर्धारणवर्ा / Assessment Year: 2011-12) M/S MINESTONE MUMBAI Room no.32, 4 th Floor, Plot no.98, Sagar Bhavan Bldg no.2, Lohar Chawl Kalbadevi, Mumbai-400002 बिधम/ Vs. ACIT-16(2) 2 nd Floor, Matru mandir, Tardeo Road,Mumbai-400007 स्थायीलेखासं./जीआइआरसं./PAN No. AABCH9958C (अपीलाथी/Appellant) : (प्रत्यथी / Respondent) अपीलाथीकीओरसे/ Appellant by : Shri Jeet kamdar, Adv. प्रत्यथीकीओरसे/Respondent by : Shri Chetan M. Kacha, Sr.AR. सुनवाईकीतारीख/ Date of Hearing : 16.03.2023 घोषणाकीतारीख / Date of Pronouncement : 23.03.2023 आदेश / O R D E R Per Amit Shukla, Judicial Member: The aforesaid appeal has been filed by the assessee against the order dated 25.03.2019, passed by Ld. CIT(A)-59 Mumbai, for the quantum of assessment passed u/s 143(3), for the AY 2011-12. 2 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE In the grounds of appeal assessee has raised according two effective grounds: 1. The Ld. CIT (A) - 59 has erred in law and in facts in disallowing the appellant's claim of expenses amounting to Rs. 37,56,360/- on assumptions and presumptions ignoring that the same were general and administration expenses which were required to be incurred even if there was no business activity during the year under consideration. 2. The Ld. CIT (A) - 59 has erred in law and in facts in disallowing depreciation of Rs 55,00,367/- on assumptions and presumptions basis ignoring the fact that no new asset was purchased and such depreciation was claimed on the assets acquired in earlier years which were used for the purpose of the business. 2. The facts in briefs are that assessee is a partnership form which was carrying on the business of “Manufacture and Export of Diamonds” from last several years. During the year Assessee had filed return of income issuing total loss of Rs. 53,81,543/-. The Assessing Officer from the perusal of the audited financial statements noted that assessee has debited an expenditure of Rs. 3 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE 37,56,360/- and depreciation of Rs. 55,00,367/-. Assessing Officer noted that assessee has not made any sales of purchase during the year and there was no such business activity carried out by the assessee. The other income of Rs. 38,06,6026/- consisted of Rs.9,14,854/- of dividend of interest and foreign exchange fluctuation of Rs. 28,91,772/-. 3. In response to the show cause notice as to why expenses and depreciation is claimed should not be disallowed as no business was conducted by the Assessee and there is no business income. In response the assessee submitted that there was a huge recession and global melt down in the business of diamond which has affected assessee very badly and assessee has incurred huge losses. Apart from that, in the absence of LC, export realization substantially got delayed and in many cases it has not even received at all. It was further submitted that there was a temporary suspension of the business and not permanent discontinuance of business. These expenses were purely administrative expenses and therefore are allowable. The Ld. Assessing Officer held that since there is no business activity and there are no expenses incurred for 4 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE the business purposes, therefore, the expenses on account of administrative expenses cannot be allowed, because there are no direct nexus expenses with the income own by the assessee. Accordingly, the disallowed the entire expenditure claims as well as the depreciation. 4. The Ld. CIT (A) too after noting down various judgments has confirmed the order of the Assessing Officer which are not been discussed here, because it is more on preposition of law and his interpretation of certain judgments. 5. Before the Ld. CIT(A), Assesses also filed various documents in form of additional evidence rule 46A in support of the expenses incurred during the year, which has been rejected by him. After detail discussion he held that expenditure cannot be allowed. Another finding given by him was that certain expenses, are disallowable u/s 40(a)(ia) on account of non deduction of TDS. 6. We have heard both the parties, perused the relevant finding given impugned orders. The main issue involved is disallowance of various expenses debited in the profit and loss account and also the depreciation on the block of assets. The nature of expenditure 5 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE debited in the profit and loss account which has been disallowed by the authorities below are as under: SI. Particulars Amount 1 Bank charges and others 7,00,548/- 2 Salary and bonus 4,27,950/- 3 Provident fund 39,177/- 4 ESIC 18,729/- 5 Legal and professional fees 22,75,000/- 6 Printing and stationery 6,812/- 7 Office expenses 24,236/- 8 Motor car expenses 3,432/- 9 Telephone & Fax expenses 71,871/- 10 Electricity expenses 1,48,250/- 11 Insurance on property 18,400/- 6 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE 12 Repairs and Maintenance 21,455/- 13 Interest on TDS 500/- Total 37,56,360/- 7. In so far as, depreciation is concerned, the same was claimed on the assets that were purchased, owned and used for business and appearing in the scheduled of fixed assets forming part of the block of assets. Admittedly, no new assets have been purchased during the year under appeal. Further, on the perusal of the records as brought on the records before us the Ld. Counsel, the Assessee was carrying on the business of manufacture and trading of diamonds and jewellery and it was mostly engaged in the export of such diamonds and jewelry. During the year there was no activity of purchase and sale of manufacturing which is evident from the financial statements. From the bare perusal of the nature of expenses, it can be seen that, these are general and administrative expenses which are incurred during the normal course of business. Merely because assessee did not have any business income during the year, that does not lead to any inference, that business has 7 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE been completely shut down during the year, i.e., in the year under consideration. There is nothing on record that assessee had closed down the business completely and has wounded up during this year. There is a distinction between temporary suspension of the business or lull in the business and complete closer of the business. 8. The Ld. CIT (A) has noted that even after this year, Assessee has not corrected in commercial activity. During the course of hearing were asked the Ld. Counsel for the Assessee as to whether assessee has claimed any such expenses in the subsequent years, when no such business activity was carried out to which he has categorically stated and also brought on record that in subsequent years no such expenses have claimed in the computation of income. And not even the depreciation after Assessment Year 2013-14. Thus, it was only this year assessee is claimed because assessee intended to bring back its business which was there till last year. Under these facts and circumstances we did not find any reasons as to why when there is no closer of business during the year accept for there was no business income why the general and 8 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE administrative expenses can be disallowed. Temporary suspension of business does not mean it is dissolved on the business is completely shut down its Akin to Lull business which as stated by the assessee was various genuine reasons. 9. Accordingly, in principle such expenses cannot be disallowed. In so far as, legal professional fees of Rs. 22,25,000/- is concerned, we has raised specific query to the Ld. Counsel as to what was the nature of legal expenses paid, to which Ld. Counsel submitted that Assessee had submitted the bill raised by a Advocate and solicitors, Bhrube Liladhar and Company. These payments were made for filling of several civil suits, before the Hon’ble Bombay High Court for recovery of amount from the creditors. He has also filed the copy of the suit and matters pending before the Hon’ble Bombay High Court to show that all the litigation expenses were on account of recovery of money. From perusal of these documents it is seen that the payments have been made by the assessee for the filling of various suit for recovery of money from the debtors like Fancy Impacts, Marble Gems, Asugems Sugey Gems which is still pending, and the suits were filed in 2012. Thus, this legal expenses 9 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE cannot be disallowed as they have been incurred during carrying of the business. 10. However, before us the Ld. DR submitted that Ld. CIT(A) has observed no TDS have been deducted on such payment of professional fees and therefore same should be disallowed u/s 40(a)(ia). 11. Before us, the Ld. Counsel cannot clarify that, whether any TDS have been deducted, therefore this matter is restored back to the file of the Assessing Officer to see whether any TDS has been deducted on the payment of professional legal fee to the legal firm and whether provisions of 40(a)(ia) are applicable. Thus, issue of claim of expenses as treated as partly allowed for statistical purposes. 12. In so far as, disallowance of depreciation is concerned, once assets of forming part of the block of assets, and same where used for the purpose of business in the earlier years, then, depreciation cannot be disallowed. Accordingly, appeal of the assessee is partly allowed for statistical purposes. 10 I . T . A . N o . 2536/ M u m / 2 019 M/S .MINESTONE Orders pronounced in the open court on 23 rd March, 2023. Sd/- Sd/- (Gagan Goyal) (Amit Shukla) Accountant Member Judicial Member मुंबई Mumbai;ददनांक Dated : 23.03.2023 Mrs. Urmila आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. दवभागीयप्रदतदनदि, आयकरअपीलीयअदिकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER, .उि/सहधयकिंजीकधर (Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai