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2018 (11) TMI 253 - AT - Income TaxDisallowance of expenditure as busniss discontinued of power distribution - Legal Scope on discontinuation of business - intention to continue the business - Held that:- It is a settled legal proposition that the existence of “intention” to continue business and its demonstration by the assessee assumes significance in matters relating to decision on the cessation of business. The undisputed facts of (i) demonstration by way of passing of Resolution by AGM of assessee for continuation for fighting for renewal of license (ii) approaching the State Govt. MERC, APTEL, Supreme Court etc. for renewal of license, (iii) opposing the takeover bid of the MERC for MSEDCL with or without consideration; (iv) compliance to the legal orders of Supreme Court/APTEL without prejudice to the demand for renewal of license; (v) assessee never entertained the idea of sale of assets and infrastructure to MSEDCL, (vi) assessee did not entertain the idea of lease of assets too; (vii) assessee did not resort to liquidation or insolvency, (viii) assessee receives compensation of ₹ 1 crore plus every month from MSEDCL and reports to income tax office every year; (ix) no authority/executive/judiciary ever rejected the demand for renewal of license till date. Further, various committees recommended for grant of renewal of license to the assessee along with MSEDCL along with subsidy if any. Therefore, all these undisputed facts, in our view, support the existence of “intention” to do business of power distribution. The business of the assessee cannot be held to be a discontinued one. All the administrative expenses have to be allowable as business expenditure. - Decided in favour of assessee. Expenses debited to Profit and Loss Account constitute business expenditure eligible for claim of deduction u/s.37 - Held that:- We heard both the sides and examined all the accounts debited to profit and loss account of the year/assessee and found, prima-facie, that they are allowable expenditure and the salary expenses, bonus expenses, audit fee etc. relate to business expenditure allowable u/s.37 of the Act. However, there is no categorical finding by AO/CIT(A) with respect to the allowability of these expenditures accounts. In the absence of the same, we cannot decide this issue at this point of time as there is no adverse finding or otherwise exists on the allowability of disallowability of the expenses - We remand this issue to the file of AO for fresh adjudication both on the genuineness as well as on the allowability of the expenses amounting to ₹ 40.90 crores. We direct the AO to pass a speaking order on the claim in all individual accounts debited to profit and loss account. - - Decided in favour of assessee for statistical purposes. Set off of current year business loss against the scrap sales income and carry forward of loss - Held that:- We find that the set off of carry forward of the unabsorbed loss issue needs to be decided as per the provisions of Sections 70 to 72 of the Act. Thus, we direct the AO to pass a speaking order on this aspect of the claim of the assessee. It is also the claim of the assessee before us that the brought forward losses from earlier assessment years were not properly allowed in the order of the AO due to their adverse decision on the “intention to continue the business”. AO is directed accordingly.
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