9911796707
TMI Blog1982 (5) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... been validly reopened. He annulled the reassessment. The relevant facts are these: 2. The assessee has been carrying on various businesses, one of which was the production and manufacture of tea. The company had three different estates called Meloram, Vadakemala and Alangad. These estates have been under tea cultivation from 1934. The assessee found that there was continuous loss in these and, therefore, took up a phased programme of planting these estates with rubber in place of tea. In the directors' report, for the year ended 31-3-1974, submitted at the 25th Annual General Meeting of the shareholders, held on 31-10-1974, the following passage appears: "Meloram, Vadakemala and Alangad have been mainly tea properties for the past 40 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 331, the opening stock value of Rs. 331 and the expenses of Rs. 17. Against this loss was set off, the profit on the sale of machinery referred to in the directors' report for this year. The profit was worked out at Rs. 77,246. This profit is included in the assessment under section 41(2) of the Act. After adjusting this profit, the balance income under the head 'Business' was taken at Rs. 77,229. This was again adjusted against the loss of Rs. 4,718, for the assessment year 1967-68, Rs. 9,068 for 1969-70, Rs. 9,440 for 1970-71, Rs. 5,134 for 1971-72, Rs. 34,158 for 1972-73 and Rs. 31,872 for 1973-74. As the total of these losses amounted to Rs. 89,672 there was a balance loss of Rs. 17,161, relating to the assessment year 1973-74. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceding accounting year, after the business is closed, cannot be considered as a continuation of business. He rejected another contention of the assessee that the Explanation to section 41(2) should be taken to its logical conclusion and, therefore, the business must be deemed to be in existence during the previous year. The assessee filed an appeal challenging both the reopening and the merits of the assessment. The Commissioner (Appeals) held that this was not a case where the audit has merely drawn the attention either to a factual position or to a point of law, arising out of an authoritative decision, by way of judicial interpretation. He has pointed out that the records show that the assessee had shown the unabsorbed losses in the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny overtones of legal interpretation and, therefore, would constitute valid information for the purpose of section 147(b). On the second ground in its appeal, the departmental representative points out that the Explanation to section 41(2) is limited to the purpose of deeming the continued existence of the business, in order to enable the application of section 41(2), in respect of a discontinued business. It is submitted that section 41(2) and the Explanation thereof should be read with section 41(5) of the Act which limits the setting off of the loss against the income under section 41(2), to the loss sustained in the year in which the business was discontinued and not for the earlier years. 6. On behalf of the assessee it is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the losses brought forward from the assessment year 1969-70. 7. We have carefully considered these submissions. We are of the opinion that the ITO has not assumed valid jurisdiction under section 147(b). The question whether the action taken by him is valid in law would depend upon whether the audit objection has merely pointed out a fact to the ITO, namely, that the assessee closed down its business, or whether it has, by a process of reasoning, interpreted a legal position on this question, viz., whether, in the facts and circumstance, the assessee could be considered to have carried on the business during the previous year, for this assessment year. The audit objection has been extracted by the Commissioner (Appeals). As has been poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the directors should be viewed in the light of the sales of tea, that have taken place during the previous year for this assessment year. We would, therefore, conclude that the statement of the directors was essentially a declaration that no further tea would be processed or manufactured after 5-5-1973, and that the business would be closed down after all the tea on hand is sold. Since the tea has been sold completely only in the previous year for this assessment year, it must be taken that the assessee has carried on the business, in fact, during the previous year for this assessment year. If that is the position, then the action of the ITO, in the original assessment, in allowing the set off of the losses from 1969-70 onwards, is in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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