2015 (9) TMI 1448 - AT - Income Tax

Disallowance of expenses - no business activities carried out during the year under reference - assessee is engaged in the business of lotteries - Held that - As find from the record that the assessee is engaged in the business of lotteries and the business has never been closed or discontinued, as stated by the assessee. The firm is still in existence and maintaining regular establishment and infrastructure. The lottery business is being carried out on in terms of agreement with Nagaland and Meghalaya Authorities. However, the business was discontinued by these authorities on the technical reasons and dispute which is still pending in arbitration. Find that the assessee has a regular establishment and incurred various expenses as a part of running business clearly establish that business has neither being closed or discontinued by the assessee. It is an established legal position that merely on the ground that there is no business receipt during the year, there cannot be any presumption about closure of the business. Neither the AO nor the Ld. CIT(A) has appreciated the facts and evidence filed by the Assessee before needs to be considered by the AO. In the interest of justice, we remit back the issues in dispute to the file of the AO with the directions to consider the written submission filed by the assessee before the Ld. CIT(A) and decide the case afresh, under the law, after giving adequate opportunity of being heard to the assessee. Assessee is also directed to cooperate with the AO and filed all the evidences / documents to the AO to substantiate its case. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Appeals against orders of Ld. Commissioner of Income Tax (Appeals) for assessment years 2008-09 to 2011-12. Common issues raised in the appeals include closure of business, disallowance of expenses, treatment of interest income, and justification of orders by lower authorities.

Closure of Business Issue:
The Assessee challenged the confirmation of the order regarding closure of the business by the Ld. CIT(A), claiming the closure finding was illegal, arbitrary, and without appreciating facts and legal principles. The Assessee argued that expenses were for the existing business, in accordance with accounting principles, and should not be disallowed. The Ld. CIT(A) disallowed expenses and depreciation, stating the business of lottery tickets was not operational, and expenses claimed were unjustified. However, the ITAT found that the business was not closed, as the Assessee was still in existence, maintaining infrastructure, and engaged in lottery business, albeit disrupted due to technical reasons and disputes. The ITAT remitted the issue back to the AO for fresh consideration based on the Assessee's submissions and evidence.

Disallowance of Expenses Issue:
The AO disallowed expenses related to the lottery business due to lack of business activities during the year. The Ld. CIT(A) upheld the disallowance, stating the expenses were not justified as the business had not resumed. The ITAT, however, noted that the business was ongoing, and expenses were part of regular operations. It directed the AO to reconsider the issue, emphasizing the need to review the Assessee's evidence and provide a fair opportunity for explanation.

Treatment of Interest Income Issue:
The Assessee contested the treatment of interest income as income from other sources instead of business income. The Ld. CIT(A) supported the AO's decision, citing legal precedents. The ITAT found merit in the Assessee's argument that the interest was related to business activities, specifically bank guarantees and margin money. It directed the AO to reassess the interest income under the appropriate head after considering the Assessee's submissions and evidence.

Justification of Lower Authorities' Orders Issue:
The Assessee challenged the lower authorities' orders as unjustified and legally flawed. The ITAT acknowledged the Assessee's contentions and found discrepancies in the assessment of closure of business and disallowance of expenses. It remitted the issues back to the AO for a fresh decision, emphasizing the importance of considering all evidence and providing a fair hearing. Ultimately, the Appeals by the Assessee were allowed for statistical purposes.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both parties, decisions of lower authorities, and the ITAT's directions for reconsideration, ensuring a fair and thorough review of the case.