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Issues Involved
1. Whether there was only a lull in the business of the assessee during the period under consideration and if the business should be considered to have continued. 2. Whether the expenditure claimed during the period was allowable despite the cessation of manufacturing activity. 3. Consideration of case laws cited by the Assessing Officer versus those cited by the assessee. 4. Applicability of judicial decisions reported in 185 ITR 535, 126 ITR 779, 126 ITR 476, and 65 ITR 643. Detailed Analysis 1. Lull in Business and Continuation The Commissioner (Appeals) held that there was only a lull in the business of the assessee during the period under consideration and that the business must be considered to have continued. The assessee, a cine actress, also derived income from property and manufacturing/trading activity under AVK Chemical Industries. The manufacturing activity had stopped since 1989, but the assessee argued that efforts were made to revive trading activity. The Assessing Officer disallowed the loss claimed, stating there was no business activity. The first appellate authority, however, concluded that the inactivity was temporary and allowed the loss. 2. Expenditure Claims The Revenue argued that the Commissioner (Appeals) failed to note that AVK Industries had suspended its manufacturing activity in 1989 and that the expenditure claimed was merely interest on outstanding bank loans. The assessee contended that the expenditure related to interest on borrowings for business purposes and that there was an attempt to revive the business. The Tribunal noted that even if there was no sale, the interest on borrowed funds used for business purposes constituted a business loss. 3. Consideration of Case Laws The Commissioner (Appeals) was criticized for not considering the case laws referred to by the Assessing Officer, which included decisions reported in 185 ITR 535, 126 ITR 779, 126 ITR 476, and 65 ITR 643. The assessee cited various case laws to support the claim of a temporary setback, including decisions in Mrs. Sarojini Rajah v. CIT, L. VE. Vairavan Chettiar v. CIT, Karsandas Ram Chhoddam v. CIT, and CIT v. Vikram Cotton Mills Ltd. The Tribunal concluded that the current year's loss from business could be set off against the current year's profit from the profession under sections 28 and 70 of the Income-tax Act. 4. Applicability of Judicial Decisions The Revenue argued that the Commissioner (Appeals) should have followed judicial decisions reported in 185 ITR 535, 126 ITR 779, 126 ITR 476, and 65 ITR 643, which dealt with the cessation of business and non-allowability of expenses. The Tribunal, however, found that the assessee's business and professional activities were interconnected and interdependent, particularly concerning finance. It was noted that even a single transaction could constitute a trade, and the assessee's efforts to revive the business were evident from subsequent sales. Conclusion The Tribunal upheld the order of the first appellate authority, allowing the set-off of the current year's business loss against the current year's professional income. The appeals by the Revenue were dismissed, affirming that the temporary lull in business did not negate the business loss claimed by the assessee.
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