2009 (5) TMI 840 - AT - Income Tax

Disallowance of depreciation - membership rights of the BSE card - office equipments and various other expenses claimed on account of interest paid to bank and others and operational expenses - No business activity - SEBI instructions not to operate business and also cancelled the registration - involved in share scam - Meaning of ''Discontinuation'' - CIT(A) has also confirmed the action of AO - HELD THAT - The establishments of the assessee were intact and they were to be maintained. Staff members were kept and salaries were paid to them. Loans taken from various banks and others for the purpose of business activity in the past were outstanding during the year under consideration therefore, any interest, accrued was to be paid during the year under consideration or was payable. The assessee is having a valid BSE card which could not be used for the reason that the SEBI has passed an order barring the assessee not to do any business activity. Therefore, it also cannot be said that the assessee could not use the BSE card on its own which was ready to use. In these circumstances, we are of the considered view that the assessee's business does not come to an end or discontinued. The meaning of discontinuation is explained in the Law Lexicon where it implies a voluntary act and abandonment of possession followed by the actual possession of another, it implies that the person discontinuing has given up the lend and left it to the possessed by anyone choosing to come in as held in the case of Qadir Bux v. Ramchand, 1969 (3) TMI 88 - ALLAHABAD HIGH COURT . It is further explained at the same page at 563 of the Law Lexicon that discontinue ; to cause to cease or to put a stop . Neither is the business discontinued on account of voluntary act of the assessee nor has the same put to stop on its own. The business could not be done for the reason that the SEBI has barred the assessee not to do any business activity till further orders. The assessee was barred till further orders clearly means that the assessee was not barred permanently. The permanent order issued in the year 2007 and from the year of 2007, the assessee cannot do any business activity therefore, at the most it can be said that no expenses can be allowed from that year. However, for the earlier year, in our considered view, the expenses incurred by the assessee for the purpose of its business activity are allowable as the establishment was not scrapped and the assessee was still hopeful to start its business activity. In the present case, no such facts are involved as all the expenses incurred were in connection with the business activity only and for keeping the business alive, to maintain its business establishment and to meet the obligation of interest on loan, etc., taken for its business activity therefore, we hold that various expenses incurred by the assessee are allowable as deduction. However, admissibility of the expenditure was not examined by AO for the reason that he has disallowed the expenditure on the ground that they are not allowable as the assessee has not done any business activity. Therefore, for the purpose of examining the admissibility/ genuineness of these expenses, the matter is sent to the file of the AO. The assessee has contended that depreciation and interest have been allowed by the Tribunal as allowable while passing order for the AY 2000-01. AO will take into consideration the order of the Tribunal and if it is found that facts are similar then of course, in view of the decision of the Tribunal, the claim of the assessee on account of depreciation and interest has to be allowed. Regarding the remaining expenses, AO will examine the admissibility as stated above, after allowing opportunity of being heard to the assessee. We order accordingly. In the result, the appeals of the assessee are allowed for statistical purpose.

Issues Involved:
1. Confirmation of addition of dividend and interest income from other sources.
2. Disallowance of depreciation on membership rights of the BSE card.
3. Disallowance of depreciation on office equipment and various other expenses related to interest paid to the bank and operational expenses.

Detailed Analysis:

1. Confirmation of Addition of Dividend and Interest Income from Other Sources:
Issue: The assessee did not press the ground relating to confirming the addition of dividend and interest income from other sources.
Judgment: This ground was dismissed as not pressed.

2. Disallowance of Depreciation on Membership Rights of the BSE Card:
Issue: The assessee claimed depreciation on the BSE card, which was disallowed by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) on the grounds that there was no business activity due to SEBI's restrictions.
Arguments by Assessee: The assessee argued that the business was forcibly stopped by SEBI due to alleged involvement in a share scam, and the BSE card was ready for use, thus qualifying for depreciation. The assessee cited various case laws to support the claim.
Arguments by Department: The Department contended that no business activity was conducted, and hence, no depreciation could be allowed on the BSE card as it was not used.
Tribunal's Analysis: The Tribunal noted that the assessee was barred from business activities by SEBI orders but maintained its establishment and staff. The Tribunal referred to the Law Lexicon and relevant case laws to conclude that the business was not discontinued voluntarily but was forced to stop. The Tribunal held that the BSE card was ready for use and the business was not permanently closed until 2007, thus allowing the depreciation claim.
Judgment: The Tribunal allowed the depreciation on the BSE card, noting that the business was not voluntarily discontinued and the establishment was maintained.

3. Disallowance of Depreciation on Office Equipment and Various Other Expenses:
Issue: The disallowance of depreciation on office equipment and various other expenses, including interest paid to the bank and operational expenses, was confirmed by the Commissioner of Income-tax (Appeals) due to the lack of business activity.
Arguments by Assessee: The assessee argued that despite SEBI's restrictions, it had to maintain its establishment, pay salaries, and meet other business-related expenses. The assessee cited case laws to argue that these expenses should be allowed as they were incurred to keep the business alive.
Arguments by Department: The Department argued that no business activity was conducted, and thus, no expenses should be allowed.
Tribunal's Analysis: The Tribunal reviewed the facts and relevant case laws, noting that the business was forcibly stopped, not voluntarily discontinued. The Tribunal referred to the case of CIT v. Vellore Electric Corporation Ltd. and Sree Meenakshi Mills Ltd., where expenses incurred to maintain the business during forced interruptions were allowed. The Tribunal concluded that the expenses were necessary to maintain the business and should be allowed.
Judgment: The Tribunal allowed the expenses claimed by the assessee, including depreciation on office equipment and interest expenses. However, the admissibility and genuineness of these expenses were to be examined by the Assessing Officer, who was directed to verify the claims in light of the Tribunal's decision for the assessment year 2000-01.

Final Judgment: The appeals of the assessee were allowed for statistical purposes, with directions to the Assessing Officer to examine the admissibility and genuineness of the expenses claimed. The order was pronounced on May 29, 2009.

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