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TMI Blog2016 (8) TMI 1522X X X X Extracts X X X X X X X X Extracts X X X X ..... It is proved that business of the assessee was not discontinued rather temporarily stayed under the order of the Hon ble Court which has been revived now by vacation of stay with effect from settlement reached between parties. The suspension or discontinuation of one of the activities of business out of several such activities does not disentitle the taxpayer from deduction of interest or other expenditure incidental to the business. All the business activities taken together constitutes the business undertaking as one and so long the same remains under the common management with common resource employment and common establishment and control it cannot be said that the business activity is separate and distinct. The appellant continued its business in the relevant assessment year and the business was neither closed nor discontinued nor it had ever ceased to be functional during the previous year relevant to the assessment year under appeal. Thus we direct the AO to delete the disallowance of interest expenditure. Thus the appeal of the assessee is allowed. - ITA No. 446/JP/2012, 764/JP/2013 & 158/JP/2015 - - - Dated:- 22-8-2016 - SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. Addl. CIT (2006) 150 Taxman 17 (Asr.)(Mag.). The ld. Counsel also placed reliance on the decision of Tribunal in the case of KNP Securities (P) Ltd. vs. ACIT, 33 DTR 210 (Mumbai)(Trib.) and on the judgment of the Hon ble Allahabad High Court in the case of CIT vs. Raj Kumar Singh, 295 ITR 81 (All.). The ld. Counsel for the assessee has reiterated the submissions as made in the written submission. 5.1. On the contrary, ld. D/R opposed the submissions of the assessee and submitted that there is no illegality in the orders of the authorities below. He submitted that the facts of the present case are distinguishable from the facts of the case law as relied upon by the ld. Counsel. He submitted that admittedly the assessee has not carried out any business activity during the year under appeal, therefore, interest expenditure so paid is not allowable. 5.2. We have heard rival contentions, perused the material available on record and gone through the orders of authorities below. In the written submission the assessee has submitted as under :- At the outset, it is submitted that the disallowance of identical nature by making similar allegation under similar circumstance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department for the Assessment Year 2005-06 2007-08 vide order dated 13.01.2011 passed in ITA Nos. 416 417/JP/2010 (APB 42-45) by observing that the issue is squarely covered by the decision of Hon ble ITAT for the assessment year 2004-05 and confirmed the order of Ld. CIT(A), deleting the disallowances. In the year under appeal Ld. CIT(A) confirmed the disallowance by alleging that there were certain facts which were not brought on record in preceding assessment years therefore, the judicial proprietary could not be followed. Such conclusion of Ld. CIT(A) is based on mis-appreciation of the facts solely relying upon the remand report given by the AO (APB 8-11) wherein the Ld. AO had exceeded his jurisdiction and tried to comment upon the matters which have already been settled by the Hon ble ITAT in the case of the appellant company itself specially with reference to the cost of work in progress carried over from A.Y. 1995-96 which order traveled up to the Hon ble ITAT and the closing work in progress as claimed by the appellant was confirmed by the Hon ble Bench however merely for a typographical error such cost which has been made basis for disbelieving the submissions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Kalpana Trading Corporation Vs. ITO, 156 Taxman 78, ITAT, Mumbai Bench, Mumbai. Based on these facts, the Ld. CIT(A) as well as the Hon ble Bench had allowed the expenses claimed by the assessee on account of interest paid on such borrowed funds. In the year under appeal while disallowing the expenditure, the observations of Ld. Assessing Officer himself are self contradictory as: In Page 3 point 2 (first para) of assessment order the Ld. AO observed that: section 36(1)(iii) categorically spells that only that interest paid is an allowable expenditure if it is in respect of capital borrowed for the purpose of business In Page 3 point 4 (fourth para) of assessment order he further observed that: As regards the interest payment, it deserves a mention here that the assessee had taken loans from various parties in the F.Y. 1995-96 for the purpose of business of Real Estate i.e. for constructing shops and offices in a commercial complex. In the instant year i.e. A.Y. 2007-08 fresh loans have been taken by assessee not for the purpose of business of real estate and sale of shops and offices, but to repay old loans .. From the perusal of the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities related to the business continued in its routine manner during the entire year under consideration, which is a part and parcel of the main business activity from which the total receipts is duly forming part of the income declared. In this regard, kind attention of Hon ble bench is invited to profit loss a/c for the year ended 31-03-2008 (APB 70), on perusal of which, it is evident that apart from interest expenses (including Finance cost) disallowed by Ld. AO, Administrative Other expenses to the tune of ₹ 13,03,479/- (APB 74) have also been debited to P L A/c, which inter alia include Complex Maintenance expenses ₹ 7,71,290/-, Salary ₹ 1,43,567/- and electric charges of ₹ 2,92,211/-. It is pertinent to note here that neither Ld. AO nor Ld. CIT (A) has raised any objection in respect of allowability of these expenses. In other words, by allowing these expenses, lower authorities have conceded the fact that business of the assessee was very much in existence and it was merely temporary suspension of real estate business activities. Basic difference between discontinuation of business and temporary suspension is that in the former situation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss Account as a make believe story since the assessee has received loans from the same persons who are the debtors and the interest receivable was never received but a debit entry to this effect was made in the debtors account by grossly ignoring the fact that the same was accepted by the department since beginning and even in the year under appeal where the assessments were also completed u/s 143(3). It is further submitted that an application under Rule 29 (for filing of additional evidences) the Income Tax Rules has been filed before Hon ble Jaipur Bench on 27- 05-2015 stating that the suit filed by Smt. Sudha Yadav, erstwhile partner of the assessee firm, in the District Court was dismissed and direction was given to resolve the dispute through arbitration (APB 96-104). The said order of District Court was challenged in appeal before the Hon ble Rajasthan High Court wherein, vide order dated 18.07.2005 passed in S.B. Civil First Appeal No. 76/2003 the Hon ble Court referred the matter to arbitration appointing Mr. Justice N.M. Kasliwal, former judge Supreme Court of India as the sole arbitrator to decide the dispute, who vide passed an interim award on 01.05.2007 which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso kept its business assets ready for use its claim of business expenditure incurred on minimum electricity charges and other office establishment expenses alongwith depreciation could not be disallowed because of temporary suspension of manufacturing activity. It has been so held in the case of Shingar Lamps Ltd. Vs. Addl. CIT (2006) 150 Taxman 17 (Asr.) (Mag.). Thus although there was a stay by court on the appellant do deal with certain specific properties but there was no suspension, cessation, closing down and discontinuous of business activity of the appellant. In view of above submissions, facts and circumstances it is humbly prayed that since the issue under the year consideration is squarely covered by the decision of Hon ble ITAT passed in earlier years thus the disallowance of ₹ 2,51,64,779/- deserves to be deleted. Reliance is also placed on the following case laws: Commissioner of Income Tax vs. Raj Kumar Singh and Co. (No. 2) 295 ITR 81 (All) KNP Securities (P) Ltd. vs. Assistant Commissioner of Income Tax 33 DTR 210 (Mumbai) (Trib) Dy. CIT Vs. Sarabai Pitamal Pharmaceuticals Ltd. 8 SOT 815 (Mum.) CIT Vs. Gom Industries Ltd. 299 ITR 42 (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the Tribunal in ITA No. 416 417/JP/2010 pertaining to assessment years 2005-06 and 2007-08 confirmed the deletion of addition by ld. CIT (A) by holding as under :- 7. We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find no infirmity in the finding of ld. CIT (A). The ld. CIT (A) has ascertained the factual aspect that this is not a closure of business but temporary discontinuance of business. We further noted that in earlier year the interest expenditure claimed by assessee were allowed by the department itself. However, in the year under consideration the same was not allowed for the reason that during the year under consideration fresh loans have been taken by the assessee for repayment of old loans taken for the purpose of business. Fresh loans taken during the year under consideration for the purpose of repaying the loans taken in past for the purpose of business, in our considered view does not change the character of the loan taken during the year under consideration. The loan taken for the year under consideration has to be treated as taken for business purposes for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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