M/S. TANSY INVESTMENTS PVT.LTD., MUMBAI V. ACIT-8(3), MUMBAI

ITA 3723/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6288 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 20-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SU RENDRA KUMAR
• Keywords: Business income

Judgement Text

I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH, MUMBAI [CORAM : D K AGARWAL JM, AND PRAMOD KUMAR AM] ITA NO.: 3723/MUM/09 ASSESSMENT YEAR: 2005-06 TANSY INVESTMENTS PVT. LTD. .. APPELL ANT 1, ANUP, SUN BEAM CHS NEW VERSOVA LINK ROAD ANDHERI (WEST), MUMBAI 400 053 PAN : AAACT4959N VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 8(3), MUMBAI 400 020 .. RESPONDE NT APPEARANCES: STANY SALDHANA, FOR THE ASSESSEE SURENDRA KUMAR, FOR THE ASSESSING OFFICER O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF EXPENDITURE OF RS 12,41,096 ON THE GROUND THAT THER E ARE NO BUSINESS ACTIVITIES DURING THE YEAR UNDER CONSIDERATION AND THAT THE ASSESSEES INCOME OF DIVIDEND, INTEREST AND OTHER INCOME BEING TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSMENT YEAR IN VOLVED IN 2005-06 AND THE IMPUGNED ASSESSMENT WAS FRAMED UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961. I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 2 OF 8 2. LEARNED REPRESENTATIVES AGREE THAT WHATEVER IS D ECIDED IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2004-05 ( ITA NO. 37 22/MUM/09) WILL FOLLOW IN THIS APPEAL AS WELL. THE MATERIAL FACTS A ND ISSUE IN APPEAL ARE ADMITTEDLY THE SAME. 3. VIDE OUR ORDER OF EVEN DATE, WE HAVE, IN ITA NO. 3722/MUM/09, HELD AS FOLLOWS : 2. THE ISSUE IN APPEAL LIES IN A VERY NARROW COMPAS S OF MATERIAL FACTS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTICED THAT THE WHILE THE ASSESSEE HAS SHOWN INCOM E OF RS 29,44,729 AGAINST DIVIDEND, INTEREST AND OTHER INCOMES WHICH ARE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS 12,55,869 WHICH IS IN THE NATURE OF EXPENDITU RE WHICH CAN ONLY BE ALLOWED DEDUCTION FOR BUSINESS INCOME. IT WAS IN TH IS BACKDROP THAT THE ASSESSING OFFICER DISALLOWED THE EXPENSES OF RS 12, 55,869. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE WAS AN INVESTMENT COMPANY AND WAS ASSESSED AS SUCH IN PAST. SINCE THE ASSESSEE WAS IN THE BUSINESS OF INVESTMENT, THE EXPENDITURE RELATING TO ITS BUSINES S WAS TO BE ALLOWED AS DEDUCTION IN COMPUTATION OF BUSINESS INCOME. THE M AIN BUSINESS OF THE ASSESSEE WAS CLAIMED TO BE INVESTMENT. IT WAS ALSO CONTENDED THAT TO CARRY ON BUSINESS IT HAD TO HAVE ITS OWN INFRASTRUCTURE, AND, FOR THIS PURPOSES, THE ASSESSEE HAD INCURRED EXPENDITURE. IT WAS ALSO SUBM ITTED THAT MOST OF THE EXPENSES CONSIDERED ABOVE ( I.E. SALARY, REPAIRS AN D MAINTENANCE, ELECTRICITY AND PHONE CHARGES, AUDITORS REMUNERATION, DEPRECIAT ION, PRINTING AND STATIONERY ETC) WERE STATUTORY IN NATURE AND HAD TO BE INCURRED EVEN IF NO INCOME COULD HAVE ARISEN DURING THE YEAR AND THAT, OTHER THAN SUCH EXPENSES, THE EXPENSES WERE FOR DAY TO DAY MAINTEN ANCE OF OFFICE. IT WAS THUS CONTENDED THAT MERELY BECAUSE INCOME EARNED BY THE ASSESSEE WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, THE DEDUCTION OF EXPENSES COULD NOT BE DECLINED. THE CIT(A) WAS NOT REALLY IMPRESSED BY THESE ARGUMENTS. HE OBSERVED THAT THE APPELLANT HA D NOT BROUGHT ON RECORD ANY MATERIAL TO SUGGEST THAT THE APPELLANT I S CONDUCTING INVESTMENT ACTIVITIES THROUGHOUT THE YEAR WITH A VIEW TO EARN PROFIT AND TOOK NOTE OF THE ASSESSING OFFICERS FINDING THAT INVESTMENTS HA VE NOT CHANGED DURING THE YEAR. HE ALSO NOTED THAT THOUGH, AS STATED IN T HE REMAND REPORT, THE ASSESSEE COMPANY WAS TREATED AS INVESTMENT COMPANY IN PAST, IT CANNOT BE TREATED AS INVESTMENT COMPANY IN VIEW OF HIS ABOVE OBSERVATIONS. IT WAS ALSO NOTED THAT THE EXPENDITURE IN QUESTION COULD N OT BE ALLOWED AS DEDUCTION UNDER THE HEAD INCOME FROM OTHER SOURCES . THE CIT(A) THUS UPHELD, AND IN FACT FURTHER FORTIFIED, THE IMPUGNED DISALLOWANCE. THE ASSESSEE IS NOT SATISFIED WITH THE ORDER OF THE CIT (A) AND IS IN APPEAL BEFORE US. I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 3 OF 8 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE FIND THAT THE ISSUE IN THIS APPEAL IS SQUAREL Y COVERED BY A COORDINATE BENCHS DECISION IN THE CASE OF ITO VS MOKUL FINANCE PVT LTD (110 TTJ 445), WHEREIN THE TRIBUNAL HAS, INTER ALIA , OBSERVED AS FOLLOWS : 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSING OFF ICER IS AGGRIEVED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELE TING THE ADDITION OF RS. 6,36,210 ON ACCOUNT OF EXPENSES CLA IMED DURING THE YEAR, WHEN NO BUSINESS WAS CONDUCTED BY THE ASS ESSEE DURING THE RELEVANT PREVIOUS YEAR. 3. THE MATERIAL FACTS OF THE CASE ARE LIKE THIS. TH E ASSESSEE IS A DOMESTIC COMPANY AND, IN THE RELEVANT PREVIOUS YEAR , IT HAD INCOME ONLY FROM INTEREST AND DIVIDEND. IN THE COUR SE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT NO BUSINESS ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE. HE THUS REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY NOT THE EXPENSES OF THE ASSESSEE BE DISALLOWED AS THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR AND THE INCOME EARNED BE BROUGHT TO TAX. THE ASSESSEE SUBMITTED THAT THE EXPENSES INCU RRED BY THE ASSESSEE ARE ONLY ON ACCOUNT OF SALARIES AND CONVEY ANCE TO STAFF WHICH WAS REQUIRED TO RUN THE OFFICE, AND ON ACCOUN T OF PAYMENT OF PROPERTY TAX OF THE BUILDING FROM WHICH OFFICE I S RUN. IT WAS POINTED OUT THAT THERE WAS NO SALE AND PURCHASE OF SHARES IN THE RELEVANT PREVIOUS YEAR AS THE STOCK MARKET WAS UNST ABLE AND MARKET CONDITIONS WERE NOT STABLE. THERE IS NO DISP UTE ABOUT THE FACT THAT IN THE EARLIER YEARS, THE ASSESSEE WA S ENGAGED IN BUSINESS OF BUYING AND SELLING SHARES AND ITS INCOM E FROM THIS ACTIVITY WAS BROUGHT TO TAX UNDER THE HEAD BUSINES S INCOME. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF T HE ASSESSEE BY OBSERVING THAT AS ADMITTEDLY THERE WAS NO BUSINE SS ACTIVITY DURING THE RELEVANT PREVIOUS YEAR, NO EXPENSES COUL D BE ALLOWED. THE LOSS CLAIMED BY THE ASSESSEE WAS DISAL LOWED, AND THE BUSINESS INCOME WAS ASSESSED AT NIL. AGGRIEVE D, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) HELD THAT THE ASSESSING OFFICER HAS NOT DOUBTED GENUINEN ESS OF THE EXPENDITURE, THAT THE EXPENDITURE WAS NECESSARY FOR RUNNING THE ORGANISATION, THAT IT WAS NEITHER EXTRAVAGANT N OR EXCESSIVE, AND THAT, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE SAME. THE ASSESSING OFFICER IS AGGR IEVED OF THE RELIEF SO GIVEN BY THE CIT(A) AND IS IN APPEAL BEFO RE US. 4. SMT. IYER, LEARNED DEPARTMENTAL REPRESENTATIVE, SUBMITS THAT THE CIT(A) WAS INFLUENCED BY THE FACTORS WHICH WERE NOT RELEVANT TO DECIDE WHETHER OR NOT THE EXPENSES IN Q UESTION SHOULD BE ALLOWED AS DEDUCTION IN COMPUTATION OF BU SINESS INCOME. SHE SUBMITS THAT GENUINENESS OF EXPENDITURE , ON WHICH I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 4 OF 8 EMPHASIS IS PLACED BY THE CIT(A), IS WHOLLY IRRELEV ANT IN COMING TO THE CONCLUSION THAT THE EXPENDITURE IS TO BE ALL OWED EVEN AS THERE IS NO BUSINESS ACTIVITY DURING THE RELEVANT P REVIOUS YEAR. IT IS ALSO POINTED OUT THAT REASONABLENESS OF EXPEN DITURE ALSO HAS NO BEARING ON THIS ISSUE. IT IS FURTHER POINTED OUT THAT THE REASONING OF THE CIT(A) IS VAGUE AND LACKS SPECIFIC AND COGENT REASONS, GERMANE TO THE CONTEXT, FOR DELETING THE D ISALLOWANCE OF EXPENSES. LEARNED DEPARTMENTAL REPRESENTATIVE RE LIES UPON TRIBUNALS ORDER IN THE CASE OF ADASOFT (INDIA) (P. ) LTD. V. DY. CIT [2006] 9 SOT 31 (DELHI) IN SUPPORT OF THE DISALLOWANCE OF EXPENDITURE WHEN BUSINESS IS NOT IN EXISTENCE. SHE RELIES UPON THE ORDER OF THE ASSESSING OFFICER, JUSTIFIES THE S AME, AND URGES US TO RESTORE THE ORDER OF THE ASSESSING OFFICER. D R. GUPTA, LEARNED COUNSEL FOR THE ASSESSEE, SUPPORTS AND JUST IFIES THE ORDER OF THE CIT(A). DR. GUPTA SUBMITS THAT THE ASS ESSEE IS A COMPANY AND THE EXPENDITURE INCURRED BY THE ASSESSE E ARE MINIMAL EXPENDITURE JUST TO KEEP THE COMPANY AFLOAT . IT IS SUBMITTED THAT THE ASSESSEE WAS NOT CARRYING OUT BU SINESS ACTIVITY DUE TO ADVERSE MARKET CONDITIONS, BUT THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, HAS TO INCUR EXPENDITURE FOR MAINTAINING ITS EXISTENCE AND FOR CARRYING OUT WHAT EVER LITTLE ACTIVITIES THAT THE ASSESSEE IS INVOLVED IN. OUR AT TENTION IS INVITED TO HONBLE CALCUTTA HIGH COURTS JUDGMENT I N THE CASE OF CIT V. GANGA PROPERTIES LTD. [1993] 199 ITR 94 1 WHEREIN IT IS HELD THAT EVEN WHEN COMPANY HAS ONLY EARNINGS INCOM E FROM OTHER SOURCES, THE EXPENDITURE INCURRED BY THE COMP ANY FOR ITS CONTINUED EXISTENCE AND FOR RETAINING CLERICAL STAF F, SECRETARY AND ACCOUNTANT AND OTHER INCIDENTAL EXPENSES, ARE A LLOWABLE DEDUCTION. DR. GUPTA THEN TAKES US THROUGH THE JUDG MENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NAKODAR BUS SERVICE (P.) LTD. V. CIT [1989] 179 ITR 506 2 WHEREIN IT WAS HELD THAT EVEN WHEN THE ASSESSEES BUSINESS WAS DIS CONTINUED, DEDUCTION IN RESPECT OF SALARIES PAID TO EMPLOYEES WAS ALLOWABLE DEDUCTION AGAINST INTEREST INCOME. THE NE XT JUDICIAL PRECEDENT HE RELIES UPON IS A JUDGMENT OF HONBLE A LLAHABAD HIGH COURT IN THE CASE OF CIT V. RAMPUR TIMBERY & T URNERY CO. LTD. [1981] 129 ITR 58 3 . IN THIS CASE, IT WAS HELD THAT THE EXPENDITURE INCURRED BY A COMPANY, FOR RETAINING IT S STATUS AS COMPANY AND FOR ITS CONTINUED EXISTENCE AS SUCH, IS ALLOWABLE DEDUCTION, EVEN AFTER DISCONTINUATION OF BUSINESS I N CERTAIN CIRCUMSTANCES. ON THE STRENGTH OF THESE PRECEDENTS, HE JUSTIFIES THE CONCLUSIONS ARRIVED AT BY THE CIT(A). HIS NEXT TIER OF DEFENCE CONSISTS OF THE PROPOSITION THAT ONLY BECAUSE NO BU SINESS ACTIVITY IS CARRIED ON IN THE RELEVANT PREVIOUS YEA R, AND IN THE ABSENCE OF ANY CATEGORICAL FINDING TO THE EFFECT TH AT BUSINESS HAS CLOSED FOR GOOD, THE ASSESSING OFFICER CANNOT J UMP TO THE CONCLUSION THAT THE BUSINESS HAS CEASED. THE DISTIN CTION BETWEEN CLOSURE OF BUSINESS AND SUSPENSION OF BUSIN ESS ACTIVITY IS SOUGHT TO BE HIGHLIGHTED AND THE RELEVANT JUDICI AL PRECEDENTS CITED. IN REJOINDER, SMT. IYER ACCEPTS THAT THERE I S NO CATEGORICAL FINDING ABOUT CLOSURE OF BUSINESS, BUT SHE ADDS THA T THE LACK OF I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 5 OF 8 SUCH A FINDING CANNOT MEAN THAT EXPENSES ARE TO BE ALLOWED EVEN AS THERE IS NO BUSINESS IN EXISTENCE. SHE REIT ERATES HER SUBMISSIONS AND URGES US TO RESTORE THE DISALLOWANC E MADE BY THE ASSESSING OFFICER. 5. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE RI VAL CONTENTIONS AND THE MATERIAL ON RECORD, WE ARE INCL INED TO UPHOLD THE CONCLUSIONS ARRIVED AT BY THE CIT(A). AS DR. GUPTA RIGHTLY CONTENDS, THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDITURE TO KE EP ITSELF AFLOAT AND HAVE ITS CONTINUED EXISTENCE. UNLIKE1 A NATURAL PERSON, A COMPANY CAN ONLY OPERATE THROUGH OTHER NA TURAL PERSONSWHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE OF THE ASSES SEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS-A-VIS ITS LEGITIM ATE BUSINESS REQUIREMENTS. THE HONBLE HIGH COURTS HAVE CONSISTE NTLY HELD THAT IN THE CASE OF THE CORPORATE ASSESSEES SUCH EX PENSES HAVE TO BE ALLOWED AS DEDUCTION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGAGED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE CIT(A) WAS, THEREFORE, JU STIFIED IN HIS CONCLUSIONS. THAT IS, HOWEVER, NOT THE ONLY REASON WHY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS UNSU STAINABLE IN LAW. WE AGREE WITH DR. GUPTAS SECOND LINE OF AR GUMENT AS WELL. WE FIND THAT THE WHOLE CAUSE OF ACTION OF DIS ALLOWANCE OF EXPENSES IS IN THE BACKGROUND OF ASSESSING OFFICER S OBSERVATION THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS TR ANSACTIONS WHICH AT BEST WAS ASSESSING OFFICERS FINDING ABOUT AN ACTIVITY OF BUSINESS NOT BEING FUNCTIONAL IN THE RELEVANT PR EVIOUS YEAR. IN OUR OPINION, NOT CARRYING ON BUSINESS ACTIVITY I N A PARTICULAR PERIOD CANNOT BE EQUATE WITH CLOSURE OF BUSINESS AS IT TAKES AN UNSUSTAINABLY NARROW VIEW OF THE SCOPE OF CESSATION OF A BUSINESS. IN THE CASE OF LVE. VAIRAVAN CHETTIAR V. CIT [1969] 72 WR 114, THEIR LORDSHIPS OF HONBLE MADRAS HIGH COUR T WERE IN SEISIN OF A SITUATION WHERE THE ASSESSEE HAD OBTAIN ED AN IMPORT LICENCE FOR DOING ARECANUT BUSINESS BUT DUE TO ADVE RSE CONDITIONS IN MARKET, HE TEMPORARILY SUSPENDED THE ARECANUT BUSINESS FOR THE ASSESSMENT YEAR IN QUESTION. NEVER THELESS, HE WAS MAINTAINING THE ESTABLISHMENT AND WAS WAITING F OR IMPROVED MARKET CONDITIONS IN ARECANUT. IT WAS THUS AN ADMITTED POSITION THAT NO ACTIVITIES WERE CARRIED O UT SO FAR AS THIS PART OF THE BUSINESS WAS CONCERNED. ON THESE F ACTS, THEIR LORDSHIPS TOOK NOTE OF THE POSITION THAT THERE IS NOTHING ON RECORD TO SHOW THAT HE COMPLETELY ABANDONED OR CLOS ED THE BUSINESS FOREVER. ON THE OTHER HAND, HIS BOOKS OF A CCOUNT REVEALED THAT HE WAS MEETING THE ESTABLISHMENT CHAR GES AND INTEREST PAYMENTS AS DETAILED IN THE ACCOUNTS IN TH E YEAR OF ACCOUNTS. IT WAS THEN OBSERVED THAT THE QUESTION W HETHER THE BUSINESS IS BEING CARRIED ON MUST DEPEND IN EACH CA SE ON ITS OWN FACTS AND NOT ON ANY GENERAL THEORY OF LAW. THE IR LORDSHIPS THEN REFERRED TO, WITH APPROVAL, LORD SUMMERS OBSE RVATION IN IRC V. SOUTH BEHAR RAILWAY CO. LTD. [1925] 12 TAX C ASES 657 I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 6 OF 8 THAT BUSINESS IS NOT CONFINED TO BEING BUSY; IN MAN Y BUSINESSES LONG INTERVALS OF INACTIVITY OCCUR. ...THE CONCERN IS STILL A GOING CONCERN THOUGH A VERY QUIET ONE. AFTER ELABORATE S URVEY OF JUDICIAL PRECEDENTS ON THE ISSUE, THEIR LORDSHIPS C ONCLUDED, IN THE LIGHT OF, AS NOTED ABOVE, THE FACTUAL POSITION THAT THERE IS NOTHING ON RECORD TO SHOW THAT HE COMPLETELY ABANDO NED OR CLOSED THE BUSINESS FOREVER. ON THE OTHER HAND, HIS BOOKS OF ACCOUNT REVEALED THAT HE WAS MEETING THE ESTABLISHM ENT CHARGES AND INTEREST PAYMENTS AS DETAILED IN THE AC COUNTS IN THE YEAR OF ACCOUNT, THAT THE LOSS IN ARECANUT BUS INESS, IN WHICH ADMITTEDLY NO ACTIVITY WAS CARRIED OUT DURING THE RELEVANT PREVIOUS YEAR, WAS TO BE SET OFF AGAINST A SSESSEES BUSINESS INCOME IN THE YEAR. AS THE RATIO OF THE AF ORESAID JUDGMENT IS SUMMED UP IN THE ITR HEADNOTES AT P. 11 5 OF THE REPORT, AS THE ASSESSEE WAS MAINTAINING THE ESTABL ISHMENT AND WAITING FOR THE IMPROVED MARKET CONDITIONS IN ARECA NUTS AND THERE WAS NOTHING TO SHOW THAT HE COMPLETELY ABANDO NED OR CLOSED THE BUSINESS FOREVER, THE BUSINESS MUST BE D EEMED TO BE CONTINUING. IN THE LIGHT OF THIS LEGAL POSITION, I T WOULD FOLLOW THAT UNLESS THERE IS SOME MATERIAL ON RECORD TO SHO W THAT THE ASSESSEE HAS COMPLETELY ABANDONED THE SHARE DEALING BUSINESS, MERELY BECAUSE THERE ARE NO BUSINESS TRANSACTIONS I N THE RELEVANT PREVIOUS YEAR CANNOT BE REASON ENOUGH TO C OME TO THE CONCLUSION THE BUSINESS HAS COME TO AN END. IT COUL D NOT THUS BE SAID; AS WAS THE CASE BEFORE THE HONBLE MADRAS HIG H COURT, THAT THE ASSESSEE HAD COMPLETELY ABANDONED OR CLOSED TH E BUSINESS FOREVER. UNLESS THE BUSINESS IS ABANDONED OR CLOSE D AND EVEN IF BUSINESS IS AT A DORMANT STAGE WAITING FOR PROPER M ARKET CONDITIONS TO DEVELOP, THE EXPENDITURE INCURRED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS DEDUCTION. FOR THIS REASON ALSO, THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R WAS NOT JUSTIFIED, AND THE CIT(A) RIGHTLY DELETED THE SAME. 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH, AND WE ARE IN CONSIDERED AGREEMENT WITH THE SAME. THE ASSESSEE BEING AN ARTI FICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDITURE TO KEEP ITSEL F AFLOAT AND HAVE ITS CONTINUED EXISTENCE. UNLIKE A NATURAL PERSON, A COM PANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONSWHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS-A-VIS ITS LEGITIM ATE BUSINESS REQUIREMENTS. THE HONBLE HIGH COURTSS, AS REFERRED TO IN THE COORDINATE BENCH ORDER, HAVE CONSISTENTLY HELD THAT IN THE CAS E OF THE CORPORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWED AS DEDUC TION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGAGED IN ACTIVE BU SINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE MERE FACT TH AT NO BUSINESS OPERATIONS HAVE BEEN CARRIED OUT IN THE RELEVANT PR EVIOUS YEAR ALSO DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE CEASED TO BE IN BUSINESS. UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINESS IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, THE EXPENDITURE INCURRED IN THE COURSE OF SUCH A BUSINE SS IS TO BE ALLOWED AS I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 7 OF 8 DEDUCTION. IN VIEW OF THESE DISCUSSIONS, AS ALSO B EARING IN MIND THE ENTIRETY OF THE CASE, THE IMPUGNED DISALLOWANCE IND EED DESERVES TO BE DELETED. FOR THE REASONS SET OUT ABOVE, WE DELETE T HE IMPUGNED DISALLOWANCE OF RS 12,55,869. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US FOR THE ASSESSMENT YEAR 2004-05 . RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE IN THE TERMS INDICATED ABOVE. 5. THE ASSESSEE HAS ALSO RAISED GRIEVANCES, BY WAY OF ADDITIONAL GROUNDS OF APPEAL, REGARDING ASSESSING OFFICERS HO LDING THAT THE LOSS CARRIED FORWARD FROM THE EARLIER YEARS WAS TO BE D ECLINED. OUR ATTENTION IS INVITED TO THE FACT THAT BY WAY OF A RECTIFICAT ION ORDER FOR THE PRECEDING ASSESSMENT YEAR, THE ASSESSING OFFICER HAS ALLOWED THE CARRY FORWARD, AND, AS A COROLLARY THERETO, THE SAME MUST BE TAKEN INTO ACCOUNT FOR THE CURRENT YEAR AS WELL. 6. WE SEE SUBSTANCE IN PLEA OF THE ASSESSEE. NOW TH AT THE ASSESSING OFFICER HIMSELF HAS ACCEPTED THE CARRY FORWARD IN T HE PRECEDING YEAR, THE CONSEQUENTIAL EFFECT HAS TO BE GIVEN IN THIS YEAR A S WELL. WE DIRECT THE ASSESSING OFFICER TO DO SO. 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 24 TH DAY OF NOVEMBER, 2010. SD/- SD/- (D K AGARWAL) (PRAMOD KUM AR) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 24 TH _ DAY OF NOVEMBER 2010 . I TA NO.: 3723 /MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 8 OF 8 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER - , MUMBAI 4. COMMISSIONER (APPEALS) - , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, J BENCH, MUMBAI 6. GUARD FILE TRUE COPY BY O RDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI