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TMI Blog2011 (2) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in deleting the addition of Rs.9,01,232/- made by the Assessing Officer on account of expenditure relating to the closed business? 3. Whether the Hon'ble ITAT has erred in law in deleting the disallowance of Rs.2,79,306/- made by the Assessing Officer by holding that the business of the assessee continued during the year? 3. The assessee filed return on the net loss which included brought forward losses. The Assessing Officer did not accept the return and disallowed the expenses and brought forward loss on the ground that no business was being carried on by the assessee. Its electricity supply had been cut off and there was no transaction of business. The factory was lying closed. Operation of bank account also showed that no business was being run. No workers were employed. On appeal, the CIT(A) set aside the additions on the ground that the assessee had operated the bank accounts, its books of account were duly audited and thus, its business was continuing. On further appeal, the said finding was affirmed. 4. We have heard learned counsel for the appellant. None appears on behalf of the assessee inspite of service. 5. Learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available with the firm before the same were utilized for actual business and as such same were incidental to the business activity of the assessee and interest on short term deposits should be treated as business income. The assessee relied upon the decision of Madras High Court reported on 876 Taxman -2. 3.2 The assessee further submitted that a single transaction of sale comes under the definition of business as being adventure in the nature of trade provided the transaction bears clear indication of trade. The assessee relied upon the decision of Supreme Court in the case of Narain Swadesh Weaving Mills v. CEPT 26 ITR 765, CIT v. Khariagarh Timber Traders 137 (MP) CIT v. Bharat Insurance Co.Limited 142 ITR 342 (Delhi). 3.3 On perusal of cash book and ledger of the assessee it transpires that except making withdrawal and deposits in bank there is no other transactions which could lead to the assessee's as certain that the assessee was carrying on business during the year. Cash book reflects balance of Rs.18,89,080.42 as on 1.4.94, despite so much cash available still on 29.6.94 the assessee is making withdrawal of Rs.50,000/- in cash and again on 30.6.94 Rs.3,50,000/- in cash. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndries and the assessee has not furnished any explanation as to why interest could not be charged from it when the assessee was carrying on money lending business also. 3.6 The assessee had adopted a clear device of preparing its profit and loss account with a single make belief transactions of purchases/sale just to claim set off of losses against interest income. It is not understood when electric connection was disconnected in February 1992, how the business was being carried on. The assessee did not have even any working capital facilities with any bank and dispute was pending in court with the bank of India. Though the assessee stated in letter dated 3.7.1997 that the business transactions are still in operation the assessee has not furnished any evidence how the business transactions are in operation and how many workers were employed. The cases relied upon by the assessee are of no help since in these cases the assesses were not carrying on any business earlier and had embarked upon the sole transaction and the dispute was whether the sole transaction was an adventure in the nature of trade. In view of decision of Supreme Court reported in 148 ITR 154 in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 and 157 ITR 77 (SC) the device of the assessee in claiming set off losses against interest income cannot be allowed." 7. The CIT(A) allowed the appeal of the assessee on the ground that even a single transaction could be treated as business. The quantum of business was not relevant. The bank transactions had been made. Non withdrawal of money from the bank was on account of outstanding loan liability. The account books had been audited. The assessee had claimed following expenses:- "Legal & Professional charges Rs.2200/- Cartage outward Rs. 195/- Sales tax paid Rs.6,06,378/- Bank interest Rs.2,79,306/- Depreciation Rs. 13,153/- ------------------------ Total Rs.9,01,232/- 8. Finally, the CIT(A) concluded as under:- "I have considered the submission of the appellant firm and found that appellant firm is a registered partnership firm engaged in manufacturing and trading of different types and sizes of iron and steel wires. The business firm is operating at plot No.34, Sector 6, Faridabad. The facts have never been denied by the Assessing Officer. Further as per clause 3 of partnership deed, the firm is involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed business and remaining expenditure of Rs.901232/- as per details given at point Nos. 5(2) of this order treating these expenditure pertaining to closed business, applying his own ratio for deciding the separate business operations of the firm, has no basis and there was no device to avoid tax to set off losses against interest income of the business of the firm. I found that on facts of the case, the business of the firm, cannot be considered as closed and disallowance of these expenditure cannot be sustained and is deleted." 9. The Tribunal has affirmed the above finding. 10. It is clear that the CIT(A) as well as the Tribunal erred in holding that the assessee was still carrying on business. It has not been disputed that the electricity supply of the assessee had been cut off and the business had stopped. The expenses claimed also do not show any claim towards wages or electricity charges. Irrespective of meaning of the term 'business', entirety of facts and circumstances are required to be seen. No doubt, if business is being run, its volume may not be conclusive. However, where numerous circumstances indicate closure, insignificant turnover can be taken into acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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