2011 (3) TMI 1655 - AT - Income Tax

Summary

Issues involved: Appeal against order of Commissioner of Income Tax (Appeals) for assessment year 2004-05 regarding disallowance of business loss and expenses.

Ground 1: Challenge to the order of Commissioner of Income Tax (Appeals) as bad in law.

Ground 2: Disallowance of business loss amounting to Rs. 2,04,94,278/- due to lack of export activities and foreign exchange earnings, questioning applicability of sec. 115.

Ground 3: Disallowance of business loss of Rs. 12,76,000/- as no sales were made during the period, with unverified purchases despite having significant stock.

The Tribunal initially decided the appeal but later acknowledged a mistake in not adjudicating Ground No. 3. Upon Department's application, the Tribunal allowed consideration of Ground No. 3.

During the hearing, the Departmental Representative argued that the assessee did not conduct any business in the relevant assessment year, leading to disallowance of declared loss. The Representative contended that the Assessing Officer's decision should be upheld due to lack of exports caused by political unrest.

Conversely, the Authorized Representative of the assessee supported the Commissioner of Income Tax (Appeals)'s decision, emphasizing the expenses incurred for business purposes despite no sales during the period. The Representative provided a breakdown of expenses and defended the claim under "Operating Expenses."

The Tribunal reviewed submissions and lower authorities' orders. It noted the absence of specific mention or disallowance of the disputed sum of Rs. 12,76,000/- in the Commissioner of Income Tax (Appeals)'s order or the Assessing Officer's decision.

After examining the expense details, including foreign exchange loss, the Tribunal affirmed the Commissioner of Income Tax (Appeals)'s decision to allow the claimed expenses related to business activities. It rejected Grounds No. 1 & 2 and upheld the Commissioner of Income Tax (Appeals)'s order, concluding that the assessee maintained its business despite challenges.

Given the lack of challenge to the genuineness of the assessee's claim and the necessity to cover establishment and administrative expenses during the unrest period, the Tribunal dismissed the Department's appeal, supporting the Commissioner of Income Tax (Appeals)'s decision.

The Tribunal directed the reading of the current order with previous decisions and pronounced the appeal dismissal in an open court session on 25.03.2011.