ACIT, CHENNAI V. Rallan Tanning Private Limited, CHENNAI

ITA 969/CHNY/2011

• Counselvise Citation: 96921714 RSA 2011
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 969/MDS/2011 ASSESSMENT YEAR : 2006-07 THE ACIT COMPANY CIRCLE V(3) CHENNAI VS M/S RALLAN TANNING PVT. LTD 8, KARPURA STREET PERIAMET CHENNAI 600 003 [PAN AAACR3687H] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIRUDH RAI, CIT/DR RESPONDENT BY : NONE DATE OF HEARING : 08-08-2011 DATE OF PRONOUNCEMENT : 08-08-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEA R 2006-07, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), CHENN AI, DATED 25.2.2011. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT F OR ASSESSMENT YEAR 2006-07, THE ASSESSEE-COMPANY HAS ADMITTED TOT AL INCOME OF ` 86,36,130/- IN ITS RETURN OF INCOME FILED ON 30.11. 2006. THE ASSESSEE- ITA 969/11 :- 2 -: COMPANY HAS DISCLOSED INCOME FROM DIVIDEND OF ` 10,48,980/-, INTEREST INCOME OF ` 5,73,925/- AND UNCLAIMED CREDITORS OF ` 12,62,039/-, UNDER THE HEAD BUSINESS INCOME. IT HAS ALSO SHO WN PROFIT ON SALE OF ` 90,26,162/- UNDER THE HEAD SHORT TERM CAPITAL GAI N. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE- COMPANY WAS ENGAGED IN THE BUSINESS AS A MERCHANT OF LEATHER EX PORTS, BUT DURING THE YEAR THIS BUSINESS WAS NOT DONE. THE UNCLAIMED LIABILITY OF ` 12,62,039/- HAS BEEN ADMITTED AS ITS INCOME AS IT W AS OUTSTANDING FOR MORE THAN THREE YEARS. AGAINST THIS INCOME, EXPENS ES ON RENT, STAFF SALARY, REMUNERATION TO DIRECTORS ETC. TOTALING TO ` 25,79,081/- HAS BEEN CLAIMED. THE ASSESSING OFFICER HAS NOT ALLOWE D THE SAME ON THE PREMISE THAT THE ASSESSEE HAS STOPPED BUSINESS AND NO BUSINESS INCOME HAS BEEN SHOWN I.E INCOME FROM EXPORT OF LEA THERS. CONTRARY TO THIS, THE LD. CIT(A) HAS ALLOWED THESE EXPENSES. NOW, THE REVENUE IS AGGRIEVED. 3. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS REGARDING ALLOWABILITY OF BUSINESS EXPENDITURE DESPITE THERE BEING LULL IN THE BUSINESS DURING THE RELEVANT PERIOD. THE ASSESSING OFFICER HAD DIS ALLOWED ADMINISTRATIVE EXPENSES OF ` 22,15,782/- CLAIMED BY THE ASSESSEE AS BUSINESS EXPENDITURE. THE ASSESSEE ALSO ADMITTED U NCLAIMED LIABILITIES TO THE EXTENT OF ` 12,62,039/- AND HAS OFFERED THE SAME AS BUSINESS ITA 969/11 :- 3 -: INCOME. AS A RESULT, THE ASSESSEE ADMITTED NET LOS S OF ` 12,13,957/- WHICH WAS ADJUSTED AGAINST THE SHORT TERM CAPITAL G AINS AND INTEREST. THE LD. CIT(A) HAS DELETED THIS ADDITION BY FOLLOWI NG THE HON'BLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF L.VE. VARIVAN CHETTIAR VS CIT, 72 ITR 114, INTER ALIA. THE REVENUE HAS D ISPUTED THIS DELETION MAINLY ON THE ARGUMENT THAT THE ASSESSEE HAS NOT BE EN ABLE TO ESTABLISH THAT THERE WAS A TEMPORARY LULL IN THE BU SINESS. THE CASE OF THE LD. CIT(A) IS THAT THERE WAS A TEMPORARY LULL I N THE BUSINESS AND IT IS THE RIGHT OF THE ASSESSEE TO KEEP THE BUSINESS A LIVE EVEN IF DURING THE YEAR NO CONTRACT COULD BE OBTAINED BY IT. THE ONLY OBJECTION OF THE REVENUE IN THIS REGARD SEEMS TO BE THAT DURING THE RELEVANT PERIOD BUSINESS HAD BEEN DISCONTINUED AND THE ASSESSEE HAS NOT PROVED THAT THERE WAS A TEMPORARY STOPPAGE OF BUSINESS. 4. WE MAY MENTION THAT NOBODY WAS PRESENT TO REPRESENT THE CASE OF THE ASSESSEE WHEN THIS APPEAL WAS TAKEN UP FOR H EARING DESPITE HAVING DULY SERVED THE NOTICE AND THERE WAS NO REQU EST FOR ADJOURNMENT OF THE HEARING, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE CHOSE TO HEAR THE APP EAL EX-PARTE. ITA 969/11 :- 4 -: 5. AFTER HEARING THE LD.DR VIS--VIS THE FACTS OF TH IS CASE, WE ARE CONVINCED THAT THERE WAS A TEMPORARY LULL IN THE BU SINESS OF THE ASSESSEE. THE FINANCIAL STATEMENT ENCLOSED WITH R ETURN OF INCOME EVIDENCED THAT THERE WAS NO PURCHASE, SALE, OPENING STOCK OR CLOSING STOCK, AND THUS, THERE WAS NO BUSINESS ACTIVITY. B UT THERE IS FORCE IN THE SUBMISSION OF THE ASSESSEE THAT THERE WAS A TEM PORARY LULL IN THE BUSINESS. IN SUCH CIRCUMSTANCES, ADMINISTRATIVE EX PENSES ETC. WHICH ARE NECESSARY TO KEEP THE BUSINESS ALIVE HAVE TO BE TREATED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. WE DRAW SUPPORT FROM THE ABOVE DECISION OF THE HON 'BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF L.VE.VAIRAVAN CH ETTIAR VS CIT (SUPRA) WHICH IS ON IDENTICAL FACTS. IN THAT CASE IT HAS BEEN HELD THAT THE ASSESSEE CAN MAINTAIN ITS ESTABLISHMENT TO WAIT FOR IMPROVED MARKET CONDITIONS. IN THIS CASE, THE ASSESSEE-COMP ANY DID NOT GET ANY ORDERS, SO THE BUSINESS COULD NOT BE DONE. THERE I S NO CONTRARY EVIDENCE IN THE POSSESSION OF THE REVENUE TO SHOW T HAT THERE WAS NO TEMPORARY STOPPAGE OF BUSINESS BUT THE BUSINESS HAS PERMANENTLY STOPPED. THE ACTION OF THE LD. CIT(A) STANDS APPRO VED. CONSEQUENTLY, WE CANNOT ALLOW THE APPEAL OF THE REVENUE AND DISMI SS THE SAME. ITA 969/11 :- 5 -: 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.0 8.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 08 TH AUGUST, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR