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2018 (6) TMI 1118 - AT - Income TaxDisallowance u/s 37(1) - the assessee had not carried out any business operation during year under consideration and the siness of the assessee was closed? - taxing receipt / discount on loan restructuring under the head Income from Other Sources - Held that - The reason for taxing this receipt / discount on loan restructuring under the head Income from Other Sources is that there is no business activity. However, as held in the immediately preceding para that while there was no business activity during the relevant AY, yet the business was not discontinued. There is no evidence of such even in the impugned order. Accordingly, the addition made in the impugned order on this point is deleted - Decided in favour of assessee
Issues Involved:
1. Legality of deleting the disallowance of ?55,71,019 u/s 37(1) of the Income Tax Act, 1961. 2. Justification for deleting the disallowance based on the claim of temporary suspension of business. 3. Acceptance of new claims and documents by the assessee without fulfilling conditions under Rule 46A of the Income Tax Rules, 1962. 4. Assessment of ?15,50,510 under the head 'income from other sources' related to one-time settlement with the bank. Issue-wise Detailed Analysis: 1. Legality of Deleting the Disallowance of ?55,71,019 u/s 37(1) of the Income Tax Act, 1961: The Revenue contended that the Ld. CIT(A) was not justified in deleting the disallowance of ?55,71,019 under Section 37(1) of the Act, as the assessee did not carry out any business operations during the year. The AO observed that the assessee had claimed various expenses despite no business activities being conducted. The AO disallowed these expenses, reasoning that the assessee failed to justify how these expenses were incurred for business purposes when no operations were ongoing. 2. Justification for Deleting the Disallowance Based on the Claim of Temporary Suspension of Business: The Ld. CIT(A) accepted the assessee's claim that the business was temporarily suspended and not discontinued. The assessee argued that the company was forced to stop operations due to the bank taking over its assets but continued activities such as recovering dues and making payments to creditors. The CIT(A) cited judicial precedents, including the Supreme Court decision in Laxmi Narayana Ram Gopal vs. Government of Hyderabad, which held that business activities need not involve continuous operations and can include periods of inactivity. The CIT(A) concluded that the expenses were incurred in the routine course of business and allowed them. 3. Acceptance of New Claims and Documents by the Assessee Without Fulfilling Conditions Under Rule 46A: The Revenue argued that the Ld. CIT(A) accepted new claims and documents from the assessee without adhering to Rule 46A, which requires providing an opportunity for the AO to examine the evidence. The CIT(A) did not address this procedural lapse explicitly but focused on the substantive issue of whether the expenses were justifiable as business expenses despite the temporary suspension of operations. 4. Assessment of ?15,50,510 Under the Head 'Income from Other Sources' Related to One-Time Settlement with the Bank: The AO assessed ?15,50,510 as 'income from other sources,' arguing that the amount resulted from a one-time settlement with the bank and was not related to business activities. The Ld. CIT(A) disagreed, holding that the business was not discontinued and the settlement amount should be considered under 'other operating revenue' related to the business. The CIT(A) referenced judicial precedents supporting the view that temporary cessation does not equate to discontinuation of business. Conclusion: The Tribunal upheld the Ld. CIT(A)'s order, agreeing that the business was temporarily suspended and not discontinued. The expenses were deemed justifiable as business expenses, and the settlement amount was correctly classified under 'other operating revenue.' The Tribunal dismissed the Revenue's appeal, finding no need for interference with the CIT(A)'s well-reasoned order. The appeal filed by the Revenue was dismissed, and the CIT(A)'s order was upheld.
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