2022 (12) TMI 931 - AT - Income Tax

Determining the income of the assessee as against Nil income - Non existence of business of assessee - commencement of business - Disallowance of carry forward and set off of Depreciation, Establishment and General Expenses and Interest on Loan - assessee is a Co-operative Society (AOP) and derives income from rent and other income - HELD THAT - We note that before the CIT(A), it was claimed that the assessee still intends to continue the business of distribution of electricity, but however, there was no evidences were shown before the CIT(A) as the assessee has every chance in continuing its business operations. CIT(A) clearly held that the assessee is not entitled to claim depreciation, establishment and general expenses and interest on loan as the assessee handed over electricity distribution and power system including all electrical system, sub-stations, overhead lines, service lines, office and associated facilities like lands, building, works, material, stores and plants in the area of its operation to MSEDCL w.e.f. 01-02-2011 which means the assessee has no business existed as on the end of F.Y. 2011 itself. The only contention has been made from 2011 to the year under consideration i.e. 2015-16, even before us, that the assessee s renewal application is pending before the competent appellate authority. When there is no business existed, in our opinion, the assessee is not entitled to claim deduction under the head Depreciation, Establishment and General Expenses and Interest on Loan and resultantly, carrying forward losses. We totally agree with the finding of CIT(A) in confirming the order of AO in denying deduction claimed by the assessee. Therefore, we do not find any infirmity in the order of CIT(A) and it is justified. Thus, the grounds raised by the assessee are dismissed.

Summary

Issues:
Whether the CIT(A) was justified in confirming the order of AO in determining the income of the assessee at Rs.6,49,12,471/- as against Nil income.

Analysis:
The assessee, a Co-operative Society (AOP), derived income from rent and other sources, initially declaring total current year income at Rs.42,96,82,992/- but showing total income as Nil after claiming set off of brought forward losses. The AO issued notices under sections 143(2) and 142(1) of the Act, questioning the rental income and disallowing claimed expenses totaling Rs.5,30,10,297/- due to lack of business activity. The AO concluded that the assessee failed to prove business commencement, leading to denial of expense deductions and carry forward of losses.

The CIT(A) upheld the AO's decision, emphasizing that the assessee ceased electricity distribution business in 2011, handing over infrastructure to MSEDCL. Despite the assessee's claim of business continuation pending before appellate authority, no evidence was presented, leading to the confirmation of rental income assessment as income from other sources and disallowance of claimed expenses.

The appellate tribunal agreed with the CIT(A), stating that without existing business operations, the assessee couldn't claim deductions under "Depreciation, Establishment and General Expenses and Interest on Loan," denying carry forward of losses. The tribunal supported the CIT(A)'s detailed reasoning, citing legal precedents and holding that mere intention to continue business couldn't justify expense deductions without actual business existence.

In conclusion, the tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal and confirming the denial of claimed deductions. The order was deemed justified, and the appeal was dismissed accordingly.