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TMI Blog2011 (7) TMI 1351X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractual obligations. The business infrastructure and other related activities were continued to keep in readiness the business infrastructure to enable the company to carry on its business though during the year due to a sudden slack in the business, the business activities were carried out at a very low key. The Assessing officer has held that the business activities were closed down and has accordingly disallowed expenses earned in continuing the business activities of the assessee. The surplus funds in the business were according to the assessee gainfully employed to maximize the returns for the time being and such interest earned on the surplus funds in the course of business was accordingly shown as business income. The AO has assessed the income as income from other sources. Further income received from professional fees received by the appellant during the assessment year has also been taxed as income from other sources. The AO has also disallowed the depreciation claimed by the appellant company on the goodwill. 4. Before the Ld. CIT(A), the AR of the assessee submitted as follows: "The AO disallowed the following expenses incurred by the company on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to look after the old business. The new business of call centre was started and in the year under consideration, the appellant has claimed business expenditure relating to the old business which was disallowed by the AO by holding that the business of the company was closed in October, 2002. The income of the new business relating to interest received was assessed under the head income from other sources, therefore, the expenditure debited to P&L A/c was disallowed. Before me, the appellant has argued that the business activities were continued to meet the existing ongoing contractual obligations. But no evidence was submitted before me to substantiate its claim. The appellant also relied on the decision of the Hon'ble Court to strengthen his view. Since the facts of this case is different because the business was closed in October, 2002 which is an admitted fact and the appellant has failed to file any evidence to prove that business activities were continued to meet the existing ongoing contractual obligations. Therefore, the decisions relying upon by the appellant are not helpful to him. In the present case, the appellant himself admitted that new business of call centre was sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 10. The Ld. Counsel for the assessee on the other hand stated that the business activities were continued to meet the existing ongoing contractual obligations and it is not relevant that the parties are closely connected or not. The short point for consideration is whether the business has to be taken as closed down or to be continuing in a slack manner at a low key for fulfilling the existing contractual obligations. As held by the Madras High court in the case of Vairavan Chettiar Vs CIT 72 ITR 114 wherein it has been held as follows: "The question whether a business was being carried on or discontinued must depend in each case on its own facts. It is not necessary that business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern though it may for some time be quiet and dormant." Therefore lull in business would not amount to closure. The income earned from interest from its surplus funds is to be treated as business income and the expenses incurred should be allowed against the taxable income earned by the assessee. 11. The corrected 3rd ground raised by the Revenue reads as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1,42,710/- as interest from other investments. The surplus funds from the business had to be employed in the course of business for maximizing the income as the assessee has already in transition from one business to another. Therefore we are of the view that the interest income is to be treated as business income relying on the decision in the case of Sujay Trading (P) Ltd., Vs JCIT, Mumbai ITAT Bench G-Third Member. 17. The 4th ground relates to compensation under VRS for the assessment year 2002-03 and 2003-04 etc. 1/5th expenditure has been allowed u/s. 35DDA and hence the same is to be allowed for this year also. Therefore ground No. 4 raised by the assessee is allowed. 18. Ground No. 5 raised by the assessee reads as follows: "The Ld. AO has erred not considering and giving effect to the carried forward losses and depreciation of the appellant pertaining to the earlier assessment years." 19. There is no finding before the AO and Ld. CIT(A). However, the issue is consequential and to be allowed following the decision in ground Nos. 1 to 3. 20. Ground No. 6 raised by the assessee reads as follows: "The LD. AO has wrongfully disallowed depreciation claimed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to accounting exigencies has disallowed the claim of depreciation on Goodwill. In this regard we would like to draw your Honours' attention the decision of Delhi High Court in the case of CIT Vs Yamaha Motor India Pvt. Ltd. wherein it was held that: "The expression "used for the purpose of the business" as found in Sec. 32 of I.T. Act, 1961 when used with respect to discarded machinery would mean that the user in the business is not in the relevant financial year/previous year but in the earlier financial years' thus, the discarded machinery may not be actually used in the relevant previous year as long as it is used for the purposes of business in the earlier years, the assessee can claim the benefit of depreciation thereon'. Attention is also drawn to the decision in the case of Natco Exports Vs CIT A.Y. 1997-98 and 1998-99 (86 ITD 445)(BCAJ)" 23. The Ld. CIT(A) held as follows: "I have considered the submissions of the appellant, the order of the AO and facts of the case that the appellant has made payment to Tata Company for receiving goodwill from whom the company has purchased its business of insurance. Later on, in October, 2002 the business of insurance was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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