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TMI Blog2015 (3) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... rded by the CIT(A) have not been controverted by the department by brining any positive material on record. The case of Gemini Cashew Sales Corporation [1967 (4) TMI 4 - SUPREME Court] as applied by the AO is distinguishable on facts, insofar as business of the erstwhile partnership was dissolved by death of one of the two partners. The partnership firm was dissolved, it was held by the Hon'ble Court that retrenchment compensation was not allowable in the year of dissolution of partnership firm, whereas the facts in the instant case clearly distinguishable wherein textile business of assessee was continued. The findings recorded by CIT(A) are as per material on record, which have not been controverted by Ld DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings recorded by the CIT(A), which resulted into deletion of addition made by the AO. - Decided against revenue. - ITA No. 4709/Mum/2013 - - - Dated:- 16-1-2015 - R. C. Sharma, AM And Sanjay Garg, JM,JJ. For the Appellant : Shri Asghar Zain VP For the Respondent : Shri Vijay Mehta ORDER Per: R C Sharma(A.M. ) This is an appeal filed by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate basis, 25% of the gratuity and compensation payments to common support staff amounting to ₹ 20,06,098/- by holding that .since the assessee closed down its processing activity permanently, it is only logical that a proportion of the termination expenses incurred on common support staff which are attributable to the processing activity should be disallowed. 2.1 The A.O further noted in the assessment order that the assessee has debited operating and other expenses to the Profit Loss Account which include general charges of ₹ 21,44,776/and other miscellaneous expenses of ₹ 66,07,429/-. A.O, on estimate basis, disallowed a sum of ₹ 10,00,000/- out of the above expenses by holding that some of the expenses are related to or attributable to the processing activity and since the processing activity was permanently closed down, the expenses related to the said activity cannot be allowed as a deduction. 3. By the impugned order, the CIT(A) deleted the disallowance of ₹ 2,61,36,752/- paid on account of gratuity and compensation by observing as under:- 9.0 The facts of the case, the grounds of appeal, the stand taken by the AO in the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order which is as under: Accounting Year Cloth sales Yarn Sales Processing charges LF/Rental Warehousing Others Total 1997-98 1,99,29,373 10,71,73,493 7,79,41,153 5,06,65,101 70,32,532 4,20,87,787 30,48,29,439 1998-99 1,88,54,877 4,76,93,090 38,01,328 7,17,23,353 35,01,174 7,62,31,433 22,18,05,255 1999-2000 1,69,15,737 4,63,66,679 - 8,89,45,643 68,82,878 7,55,90,559 23,47,01,496 2000-2001 1,53,71,583 5,86,61,272 - 7,88,70,548 1,06,46,382 6,78,50,887 23,14,00,672 9.2 From the above data, A.O has concluded that the appellant has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,61,36,753/-. In addition, A.O has also disallowed 25% of the total payments made to support staff and accordingly a disallowance of ₹ 20,06,098/- was arrived at. The reasons stated for such a disallowance are that certain percentage of gratuity and compensation payments pertained to support staff of the processing division of the appellant. On a similar basis, A.O has also disallowed an amount of ₹ 10,00,000/- out of the general charges and miscellaneous expenses. The other reasons stated by the A.O for supporting the case of disallowances is that the business divisions of the appellant such as cloth sales, yarn sales, processing, spinning and such other activities are not interdependent or interlacing or interconnected in any way. 9.3 On the other hand, the appellant has emphasized that it had been carrying on the two main businesses i.e. textile business and rental business. It is submitted that the appellant had not closed down the textile business but it had to downsize certain operations of the textile business so as to not to incur losses in certain divisions. The appellant is stated to have reconstructed its business activities by closing down the processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and additional gratuity / compensation has to be viewed in the context of textile business that had been carried on by the appellant rather than in the context of closure of one of the divisions namely processing division. The decisions relied upon by the appellant are as under: (i) In the case of CIT vs. Pfizer Ltd. (233 CTR 521), the Hon'ble Bombay High Court has held that - The assessee which engages in the manufacture and sale of pharmaceutical products had three units at Ankleshwar, Thane and Chandigarh. The assessee entered into a memorandum of understanding with its trade union on November 16, 1998, in pursuance of which an amount of ₹ 5lakhs was to be paid to each permanent employee upon the closure/ sale of the Ankaleshwar unit. On March 24, 1999, the assessee issued a notice of closure. Thereafter, under a supplementary memorandum of understanding of July 12, 1999, further ex gratia of ₹ 2 lakhs was paid to each permanent employee. The Ankleshwar unit was closed down with effect from July 31, 1999. The payment made to the employees, inter alia, comprised of retrenchment compensation under section 25F of the Industrial Disputes Act, 1947 and payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Estimated disallowance of ₹ 10 lakhs, general charges and miscellaneous expenses and payment made to common supporting staff amounting to ₹ 20,06,098/- were deleted by the CIT(A) after having the following observations :- 9.6 In ground no.2, the appellant contested the disallowance of 25% of the gratuity and compensation payments made to common support staff. It is seen that the disallowance is made on estimate basis. The appellant has incurred an expenditure of ₹ 80,24,493/- towards the gratuity and compensation payments of the common support staff of the entire business of the appellant. The estimated disallowance @ 25% of the said payments worked out to ₹ 20,06,098/-. In the additional ground no.1 of the appeal, the appellant has contested that one more estimated disallowance was made by the A.O amounting to ₹ 10,00,000/-. It is seen that A.O made an adhoc disallowance of ₹ 10,00,000/- out of the general charges and miscellaneous expenses on the basis of reasoning that some of the expenditure incurred under these heads are attributable to the processing division. 9.7 Both these grounds of appeal are subsidiary to the main ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angements to close down its processing activities. 8. As per ld. AR assessee company has composite textile mill wherein the business of manufacturing of cotton and blended yarn and processing of the cloth. The entire business was controlled by the same head office and the finances of the company was centralised. There are enough evidences to demonstrate that there exists interdependence and interlacing of the business activities and unity of control of the business as a whole. Accordingly, the AO was not justified in disallowing the expenses. Further reliance was placed on judicial pronouncements in case of CIT Vs. R.M.Maruthai Naidu and sons, 192 ITR 666; Chhabirani Agro Industrial Enterprises Ltd. Vs. CIT, 191 ITR 226, Veecumsees Vs. CIT, 220 ITR 185(SC) and CIT Vs. Pfizer Ltd., 330 ITR 62 (Bom). Further reliance was placed on the findings recorded by CIT(A) and the justification of law applied by him for deleting the disallowance. 9. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on judicial pronouncements referred by lower authorities in their respective orders as well as judicial pronouncements cited at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or constructing cinema theatre. After closure of cinema business, the interest on borrowed capital is deductible u/s.36(1)(iii) of the Act. The Hon'ble Supreme Court has categorically held that the fact that the particular part of the business for which the loans had been obtained had been transferred or closed down did not alter the fact that the loans had, when obtained, been for the purpose of the assessee's business. Apart from this, the Tribunal found as a fact that the business carried on by the assessee as jeweler and in running the cinema theatre, etc., was composite. In view of this finding also, the assessee was entitled to the deduction of the interest paid on the loans in question under section 36(1)(iii) of the Act. 12. The Hon'ble Madras High Court in the case of CIT Vs. R.M.Maruthai Naidu Sons (supra), has observed as under :- The question whether two or more lines of a business may be regarded as the same business or different businesses depends not upon the special methods prescribed by the Income-tax Act for computation of the taxable income, but upon the nature of the businesses, the nature of their co-organisation, management, source of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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