INCOME TAX OFFICER v. RUIA SHELTERS LTD
[Citation -2006-LL-0609-5]

Citation 2006-LL-0609-5
Appellant Name INCOME TAX OFFICER
Respondent Name RUIA SHELTERS LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 09/06/2006
Assessment Year 1999-2000
Judgment View Judgment
Keyword Tags carry forward of loss • cessation of business • business activity • colourable device • income returned • stock-in-trade • profit on sale • belated return • business loss • opening stock • real estate
Bot Summary: The second ground was that the assessee was not carrying on any business during the previous year relevant to the assessment year under appeal and no deduction could have been allowable in computing the business loss of the assessee. The learned senior Departmental Representative further submitted that it is stated by the assessee that the business carried on by the assessee also include purchase and sale of shares but no such transactions are reflected for the concerned previous years mentioned above. The assessee has claimed interest expenses of Rs. 10,40,921 whereas in fact the assessee has not carried on any business and there was no need of deployment of interest bearing funds. In the said letter, the assessee has stated that the observations and finding given by the AO in the assessment order to the effect that during the relevant previous year the assessee company was not carrying on any business activity is not correct. The assessee has explained all the facts and also explained that the purchases and sales of shops are regular business of the assessee covered by the object clauses of the memorandum of understanding. In fact the CIT(A) has asked a pertinent question to the assessee that whether the assessee had carried on any business or not during the relevant period. The assessee further explained that the business was resumed by the assessee company during the impugned previous year and there was no question of not doing any business as apprehended by the AO. The contention of the learned senior Departmental Representative is that the purchase and sale of shops stated to be made during the impugned previous year was only a make-belief arrangement.


This appeal is filed by Revenue. relevant assessment year is 1999-2000. This appeal is directed against order passed by CIT(A)-IX at Mumbai on 6th Dec., 2002 and arises out of assessment completed under s. 143(3) of IT Act, 1961. assessee had returned loss of Rs. 25,83,603, for year under appeal. assessee claimed carry forward of loss returned by it. claim of carry forward was denied by assessing authority on ground that t h e return was filed beyond time stipulated under s. 139(1) and also on ground that assessee was not carrying on any business during relevant previous year and, therefore, no expenses could be allowed in computing business loss, thus on that ground also there will be no business loss to be carried forward. In first appeal CIT(A) found that even though return was filed on 28th Dec., 1999, it could not be held as belated return for reason that time for filing return for impugned asst. yr. 1999-2000 was extended up to 31st Dec., 1999 and as return was filed within said extended period, there was no delay in filing return of income. Therefore, he held that on that ground claim of carry forward of loss made by assessee could not be turned down. CIT(A) also observed that AO was wrong in not allowing carry forward of loss as he has not commented adversely on correctness of loss returned by assessee. He accordingly accepted claim of assessee and directed AO to allow benefit of carry forward of losses. It is against above order that Revenue has come in appeal before us. grounds raised by Revenue in this appeal are as follows: "1. On facts and in circumstances of case and in law, learned CIT(A) erred in directing AO to allow carry forward of loss of Rs. 15,62,706 with observation that assessee had disclosed income from sale of shops and miscellaneous income, without appreciating fact that neither of this was assessable under head "Profits and gains of business or profession" as clearly held by AO in para 3 of assessment order which finding was not questioned by CIT(A). learned CIT(A) failed to appreciate that assessee had not carried o n any business right from asst. yr. 1998-99 and therefore there was no question of net result of computation under head "Profits and gains of business or profession" being loss in terms of s. 72 of Act. learned CIT(A) failed to appreciate that shops sold by assessee were never declared as its stock-in-trade not even as opening stock in balance sheet of this year, nor was trading in shops ever assessee s line of business and, therefore, loss declared from this activity could not be allowed to be carried forward under s. 72 of IT Act." Shri Ashwani Kumar Sinha, learned senior Departmental Representative appearing for Revenue argued case at length. He stated that claim for carry forward of loss was denied by AO on two grounds. first ground was that return was filed belatedly. second ground was that assessee was not carrying on any business during previous year relevant to assessment year under appeal and, therefore, no deduction could have been allowable in computing business loss of assessee. learned senior Departmental Representative submitted that even though CIT(A) has adjudicated on first ground regarding delay of filing of return, CIT(A) has not taken cognizance of crucial observation made by assessing authority in his order that no business was carried on by assessee company during relevant previous year and, therefore, there was no justification in allowing any deductions in computing its profit or loss under h e d Business income . learned senior Departmental Representative invited our attention to p. 4 of paper book filed by assessee where P&L a/c of assessee for relevant previous year is placed. income returned by assessee company was from profit on sale of shop. It was not out normal business activities. He invited our attention to pp. 11 to 15 of paper book. At p. 11, details of purchases and sales for year ending as at 31st March, 1996 are available. He pointed out that for subsequent years ending on 31st March, 1997 and 31st March, 1998 there are no purchases or sales at all. For year ending 31st March, 1999, purchases and sales were only of shops and exactly speaking, shops were purchased from assessee s o w n family circles thereby all transactions being given smell of colourable device to evade payment of tax. But for this colourable device of purchases and sales of shops from assessee s own associates, no other business was carried out by assessee even during impugned previous year. learned senior Departmental Representative further submitted that it is stated by assessee that business carried on by assessee also include purchase and sale of shares but no such transactions are reflected for concerned previous years mentioned above. learned senior Departmental Representative further contended that in these circumstances huge amount of Rs. 28,80,046 claimed by assessee b y way of administrative expenses could not be considered as expenses incurred for business. Likewise, assessee has claimed interest expenses of Rs. 10,40,921 whereas in fact assessee has not carried on any business and there was no need of deployment of interest bearing funds. learned senior Departmental Representative further pointed out that even in administrative expenses, main component is bad debts amounting to Rs. 26,46,168. learned senior Departmental Representative, therefore, submitted that even though AO has not explained his second observation regarding non- carrying of business in very detailed manner in his assessment order, crucial fact has been brought on record and CIT(A) has erred in passing his order without giving due importance to said observation of assessing authority. learned senior Departmental Representative relied on Supreme Court decision in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC) to press his contention that purchases and sales of shops disclosed for impugned assessment year are nothing but colourable device to take undue benefit of income computations. He also relied on decision of Supreme Court in case of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 214 ITR 801 (SC) to supplement his argument that in this type of planned activities, direct evidences would be difficult to be collected and issues need to be decided in overall circumstances of case. Shri M. Subramanian, learned counsel appearing for respondent- assessee submitted that it is not correct to state that observation of AO regarding non-carrying on of business during relevant previous year was not considered by CIT(A) while passing appellate order. In fact CIT(A) has issued notice to assessee in course of hearing of matter and assessee has submitted detailed replies satisfying various queries raised by CIT(A). He invited our attention to pp. 16 and 17 of paper book wherein copy of letter filed by assessee before CIT(A), is available. In said letter, assessee has stated that observations and finding given by AO in assessment order to effect that during relevant previous year assessee company was not carrying on any business activity is not correct. assessee has explained all facts and also explained that purchases and sales of shops are regular business of assessee covered by object clauses of memorandum of understanding. learned counsel further submitted that claim of carry forward of loss of Rs. 25,83,603 made by assessee company is not constituted of loss relating to impugned asst. yr. 1999-2000 alone. loss claimed to be carried forward by assessee was only Rs. 15,62,706 for impugned assessment year whereas balance amount represented loss determined for earlier asst. yrs. 1997-98 and 1998-99 and brought forward for further set- off. He, therefore, submitted that contention of learned Departmental Representative that entire loss should be ignored for purpose of carry forward for reason of non-carrying of business during impugned previous year is against facts of case. learned counsel further explained that even though AO has made such observation that assessee has not carried on any business during t h e previous year relevant to assessment year under appeal, it is very pertinent to note that AO himself has determined loss for impugned assessment year at Rs. 25,83,603. De hors observation made by assessing authority in assessment order, once AO determined loss for particular year, it is statutory right of assessee to claim carry forward of said loss under provisions of s. 72 of IT Act, 1961. learned counsel further explained that it is not correct to say that assessee had not carried on any business during previous year relevant to assessment year under appeal and also during year preceding said previous year. It was not case of non-carrying on of business or stoppage of business. It was case of lull period. assessee was carrying on business in past and was carrying on business in subsequent assessment year also. But during interregnum period market was so adverse that assessee did not venture into dealing in transactions. business carried on by assessee is purchase and sale of shops, real estate and also dealing in shares and securities. Unless market conditions are conducive transactions cannot be entered into in these businesses. Therefore, assessee was lying low during interregnum period on ground of adverse market conditions and it does not mean that assessee did not carry on business nor assessee has stopped business. learned counsel relied on decision of Madras High Court in case of Kanaka Films (P) Ltd. vs. ITO (1989) 75 CTR (Mad) 209: (1989) 177 ITR 88 (Mad) to assert his contention that once loss is determined in assessment, assessee has statutory right and AO has corresponding duty to set- off loss carried forward from one year to following year. learned counsel relied on decision of Bombay High Court in case of Karsondas Ranchhoddass vs. CIT (1972) 83 ITR 1 (Bom) wherein Court has held that long period of inactivity does not mean non-carrying on of business or stoppage of business and such inactivity could not be treated as cessation of business and for that matter expenses incurred by assessee through period of inactivity should be treated as business expenditure. learned Departmental Representative in reply explained that irrespective of fact that AO has explained and considered relevant issues in proper perspective or not, it is duty of Tribunal to pass appropriate orders after declaring correct law even if order passed by Tribunal might go against appellant and fall in favour of respondent. He submitted that in present case, AO has not explained in very many words infirmities reflected in claim made by assessee. But that does not mean that Tribunal should not go into those basic facts which is necessary to determine issue in accordance with law. He relied on decision of Calcutta High Court in case of C.C.A.P. Ltd. vs. CIT (2005) 193 CTR (Cal) 74: (2004) 270 ITR 248 (Cal). He also relied on decision of Ahmedabad Bench "A" in case of Abhinav Finance & Leasing Co. Ltd. vs. Dy. CIT (2002) 75 TTJ (Ahd) 917: (2002) 81 ITD 339 (Ahd). We heard both sides in detail. As held by Hon ble Calcutta High Court, it is duty of Tribunal to come to correct decision on basis of facts placed before it even though orders of lower authorities might not have dealt with those facts in comprehensive manner. But above principle has to be applied in such appropriate cases. issue in present case before us is whether assessee was carrying on any business during relevant previous year or not. assessee has purchased and sold shops during previous year. Purchase and sale of shops is one of business empowered by object clauses of assessee company. During earlier two previous years, assessee has not carried on any business. But that inactivity should not be viewed in isolation. assessee had carried on business previously and subsequently. Only during interregnum period of two years that assessee was not in fact concluding any transactions as such. But that does not mean cessation of business as held by Bombay High Court in case of Karsondas Ranchhoddass (supra). This aspect of case should be clear if we go through detailed letter written by assessee company to CIT(A) on 9th Oct., 2003. In fact CIT(A) has asked pertinent question to assessee that whether assessee had carried on any business or not during relevant period. assessee has furnished statement giving details of purchase and sale of shops made by it during previous year relevant to assessment year. assessee has also stated that similar activity was carried on by assessee in previous year relevant to asst. yr. 1996-97. During previous year period relevant to asst. yrs. 1997-98 and 1998-99, t h e assessee could not carry on any business because of hostile market conditions prevailed in real estate business. assessee further explained that business was resumed by assessee company during impugned previous year and, therefore, there was no question of not doing any business as apprehended by AO. contention of learned senior Departmental Representative is that purchase and sale of shops stated to be made during impugned previous year was only make-belief arrangement. But we find to state that there is no material on record to support such observation. On other hand, details were furnished before CIT(A) and on that ground, CIT(A) has come to conclusion that assessee has carried on business during relevant previous year. Therefore, it is to be stated that CIT(A) has considered both objections raised by AO against claim of assessee on question of carry forward of loss. CIT(A) has held on proper grounds that both reasons pointed out by assessing authority did not survive. It is for that reason, he has directed AO to carry forward loss determined by him. In these circumstances, we agree with order passed by CIT(A). In result, this appeal filed by Revenue is dismissed. *** INCOME TAX OFFICER v. RUIA SHELTERS LTD.
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