2007 (6) TMI 295 - AT - Income Tax

Carry-forward and set-off of business losses u/s 72 - Purchase and sale of shops - Whether the assessee was carrying on any business during the relevant previous year or not - HELD THAT - The assessee had carried on business previously and subsequently. Only during the interregnum period of two years that the assessee was not in fact concluding any transactions as such. But that does not mean the cessation of business as held by the Bombay High Court in the case of Karsondas Ranchhoddass 1971 (1) TMI 33 - BOMBAY HIGH COURT . This aspect of the case should be clear if we go through the detailed letter written by the assessee-company to the CIT(A). In fact the CIT(A) has asked a pertinent question to the assessee that whether the assessee had carried on any business or not during the relevant period. The assessee has furnished statement giving details of purchase and sale of shops made by it during the previous year relevant to the assessment year. The assessee has also stated that similar activity was carried on by the assessee in the previous year relevant to the assessment year 1996-97. During the previous year period relevant to the assessment years 1997-98 and 1998-99, the assessee could not carry on any business because of hostile market conditions prevailed in the real estate business. The assessee further explained that the business was resumed by the assessee-company during the impugned previous year and, therefore, there was no question of not doing any business as apprehended by the Assessing Officer. The contention of the ld senior DR is that the purchase and sale of shops stated to be made during the impugned previous year was only a make-belief arrangement. But we find to state that there is no material on record to support such an observation. On the other hand, the details were furnished before the CIT(A) and on that ground, the CIT(A) has come to a conclusion that the assessee has carried on business during the relevant previous year. Therefore, it is to be stated that the CIT(A) has considered both the objections raised by the Assessing Officer against the claim of the assessee on the question of carry forward of the loss. The CIT(A) has held on proper grounds that both the reasons pointed out by the assessing authority did not survive. It is for that reason, he has directed the Assessing Officer to carry forward the loss determined by him. Thus, we agree with the order passed by the CIT(A). In result, this appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Timeliness of the return filing.
2. Whether the assessee was carrying on any business during the relevant previous year.
3. Validity of the claim for carry forward of losses.

Issue-wise Detailed Analysis:

1. Timeliness of the Return Filing:
The Revenue argued that the assessee's return was filed beyond the time stipulated under section 139(1) of the Income-tax Act, 1961. The CIT(A) found that the return filed on 28-12-1999 was within the extended deadline of 31-12-1999 for the assessment year 1999-2000. Therefore, the return was not belated, and the claim for carry forward of loss could not be denied on this ground.

2. Whether the Assessee was Carrying on Any Business During the Relevant Previous Year:
The Assessing Officer (AO) denied the carry forward of the loss on the grounds that the assessee was not carrying on any business during the relevant previous year. The CIT(A) observed that the AO did not comment adversely on the correctness of the loss returned by the assessee. The CIT(A) accepted the assessee's claim, noting that the purchase and sale of shops were part of the assessee's business activities as empowered by the object clauses of the company. The CIT(A) also considered the detailed letter and evidence provided by the assessee, indicating that the business was resumed during the impugned previous year after a lull period due to adverse market conditions.

3. Validity of the Claim for Carry Forward of Losses:
The Revenue contended that the shops sold were never declared as stock-in-trade, and trading in shops was not the assessee's line of business. The CIT(A) found that the assessee had carried on business activities, including the purchase and sale of shops, which were covered by the object clauses of the company's Memorandum of Understanding. The CIT(A) also noted that the loss determined by the AO for the impugned assessment year was Rs. 25,83,603, and the assessee had a statutory right to claim the carry forward of this loss under section 72 of the Income-tax Act, 1961.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the assessee had carried on business during the relevant previous year and that the return was filed within the extended deadline. The Tribunal dismissed the Revenue's appeal, affirming that the assessee was entitled to carry forward the loss determined by the AO. The Tribunal emphasized that long periods of inactivity do not equate to the cessation of business, and expenses incurred during such periods should be treated as business expenditures. The Tribunal also noted the absence of evidence to support the Revenue's claim that the transactions were a colorable device to evade tax.