1984 (12) TMI 80 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under section 263.
2. Continuation of business activity despite no successful bids.
3. Allowance of business expenditure.
4. Continuation of registration of the firm.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under section 263:
The Commissioner issued a notice under section 263 seeking to revise the assessment orders and the continuation of registration. The assessee objected, arguing that the Commissioner had no jurisdiction to invoke section 263. However, the Tribunal concluded that the contention that the Commissioner had no jurisdiction to invoke section 263 could not be accepted.

2. Continuation of business activity despite no successful bids:
The assessee's business involved the export of coffee, which could only be purchased at auctions held by the Coffee Board. During the assessment years 1978-79, 1979-80, and 1980-81, the assessee participated in these auctions but was not a successful bidder, resulting in no coffee purchases or exports. Despite this, the assessee maintained its registered office and establishment, and the partners traveled abroad to explore export markets. The Tribunal found that the assessee was still engaged in business activities, as evidenced by correspondence with potential foreign buyers and the maintenance of its establishment. The Tribunal concluded that the business had not ceased to exist but was merely experiencing a lull and inactivity.

3. Allowance of business expenditure:
The Tribunal examined various expenses incurred by the assessee, such as establishment costs, telephone, motor car, printing and stationery, conveyance, telex charges, postage, office expenses, traveling expenses, sales tax, and registration. The Tribunal held that these expenses were legitimate business expenditures, as the assessee continued to maintain its establishment and made efforts to carry on the business. The Tribunal disagreed with the Commissioner's finding that the assessee was not entitled to the deduction of business expenses, citing several precedents where businesses experiencing temporary inactivity were still considered to be ongoing concerns.

4. Continuation of registration of the firm:
The Commissioner had directed the Income Tax Officer (ITO) to treat the assessee as an unregistered firm, arguing that a partnership could only exist if the firm was carrying on business. The Tribunal, however, found that the firm was in existence and engaged in business activities, despite the lack of successful bids during the relevant years. The Tribunal noted that the assessee had complied with the formalities by filing Form No. 12 for the continuance of registration and that the Commissioner's direction to apply the provisions of section 183(b) indicated that the firm was still considered a registered firm. The Tribunal concluded that the Commissioner was wrong in revising the assessment orders and the orders continuing registration.

Conclusion:
The Tribunal allowed the appeals, canceling the Commissioner's order dated 15-3-1983 made under section 263 for all the relevant assessment years. The Tribunal held that the assessee was engaged in business activities, the business expenditures were allowable, and the continuation of the firm's registration was justified.