TMI Blog1998 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... 980-81 are like that assessee is a closely held private limited company deriving income from manufacturing and sale of agricultural pumping sets including engines and spare parts. For the assessment year under consideration, the assessee furnished its return of income returning a loss of Rs. 2,82,904 (including brought forward loss of Rs. 2,79,910) against which assessment was completed by the AO at an income of Rs. 71,250 by making several additions, disallowances and without giving benefit of carry forward or brought forward losses, which was challenged in appeal. The CIT(A) set aside the order of the AO to be framed de novo after verifying whether the assessee had business income during the year under consideration or not. The AO in the order passed pursuant to the set aside order of the CIT(A) computed the total income of the assessee at Rs. 71,250 i.e. on the same basis and at the same figure at which original assessment was completed. 5. In appeal, the CIT(A) confirmed the order of the AO allowing relief only of Rs. 660 for expenses incurred on sale of assets. 6. In further appeal, the Tribunal, Delhi Bench set aside the issue, whether the assessee has carried on business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that is to be considered not its existence or otherwise is manufacturing and sale of engines and pumping sets and components thereof. Therefore, the cessation of business of the assessee to an end so as to deny the assessee right of carry forward of losses and depreciation and set off of the same against other heads for the year under consideration. If the stock which is with the assessee is of the components of engines and pumping sets which were being manufactured and that the stock is being sold, the business of the assessee will be continuing and question of not bringing forward and set off of loss under the head would not arise. It would have to be granted to the assessee. But unfortunately, there is no enquiry on this aspect of the matter. "The AO while reframing and re-examining the issue held that there was no business conducted by the assessee at all during the year under consideration and disallowed the claim of carry forward and set off of brought forward losses and depreciation and reliance was placed on Seth Banarsi Das Gupta vs. CIT (1977) 106 ITR 559 (All), Brooke Bond Co. Ltd. vs. CIT (1970) 77 ITR 220 (Cal), CIT vs. Jaipuria China Clay Mines (P) Ltd. (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore CIT(A) which was partly allowed and on further appeal, the Tribunal vide their order, dt.22nd March, 1991, set aside the matter back to the AO for making fresh assessment and pursuant to that, fresh assessment was made on4th Sept., 1992, whereby income was assessed at Rs. 34,940. In doing so, learned AO disallowed the brought forward loss of Rs. 1,14,330 and also treated the interest income of Rs. 37,965 received by the assessee-company on investment of surplus funds under the head income from other sources and further restricted the allowance of business expenditure to Rs. 3,030 as against the total expenditure of Rs. 3,980 incurred by the assessee-company. While doing so, the learned AO held that assessee-company had discontinued business. The assessee preferred appeal against the assessment so framed and action of AO was confirmed in appeal. Hence, assessee is in second appeal. 12. Facts relating to asst. yr. 1986-87 are like this that assessee-company filed return of income on28th May, 1986, declaring a loss of Rs. 66,760 and original assessment was completed by the AO at an income of Rs. 13,585 vide order, dt.30th Nov., 1988. The assessee-company preferred an appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that business of the assessee is to be considered in existence or otherwise is manufacture and sale of engine and pumping sets and components thereof. Therefore, the mere cessation of the manufacturing activity would not bring this composite business of the assessee to an end so as to deny the assessee s right of carry forward of loss and depreciation and set off the same against the other heads of income for the year under appeal. The stock which is with the assessee of the components of engines and pumping sets which were being manufactured and that stock is being sold, the business of the assessee will be continuing and question of not bringing forward setting off loss and depreciation would not arise. It was emphasised that it would have to be granted to the assessee. Further pointed out that treatment given in books of accounts to a transaction is not determining of its treatment under the Act. Reliance is placed in this regard on the decision of the Supreme Court in the case of Kedar Nath Jute Manufacturing Co. vs. CIT (1971) 82 ITR 363 (SC). The assessee has also derived income from hiring out its assets and interest as amounts outstanding on sale of machinery, etc. to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that assessee received Rs. 4,198 as hire charges on fixed assets for asst. yr. 1981-82, which has also been assessed as income from other sources. Whereas as per settled position of law income earned on lease of assets to tide over a bad phase is to be treated as business income. Reliance was placed in this regard on Supreme Court decision in the case of CIT vs. Vikram Cotton Mills (1988) 67 CTR (SC) 259 : (1988) 169 ITR 597 (SC). It was pleaded that interest income, hire charges on fixed assets constitute business income of the assessee which are to be set off against unabsorbed loss carry forward in earlier years. 19. It was also submitted that assessee was engaged in realisation of dues outstanding from its debtors as also had given the fixed assets on hire to earn some income and was in the process of selling its unsold stock. Though no manufacturing activity was being carried on by the assessee yet keeping in mind the composite nature of assessee s business, i.e., manufacture and sale of engines, it could not be said that no business was carried on by the assessee during the relevant previous year. The Tribunal, Delhi Bench in assessee s own case for asst. yrs. 1981-82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the business which has or is due by selling the plant and machinery outstanding in 1977. It was urged for confirmation of orders of the authorities below. 23. Since there is no business of the assessee in either of the years under consideration, interest cannot be held to be business income as such it was rightly treated as income from other sources and similarly, there cannot be allowed brought forward losses of earlier years against the interest income earned on outstanding amount due from the purchase of the plant and machinery. 24. We have heard rival submissions, perused the record and looking into the facts and circumstances and going through the orders of the authorities below and considering case law as cited, are of the view that the case law relied upon by the assessee s representative is distinguishable on facts and in the case of New Commercial Mills it was specifically recorded "facts show that assessee never intended to close its business permanently". Similarly, other cases relied upon by the assessee are distinguishable on facts and ratio laid down therein is not applicable in the case in hand. While upholding the order of authorities below on the basis and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim of bad debts cannot be allowed and assessee preferred appeal against such confirmation of disallowance made by him. 27. Before us, it was pleaded that since amount was irrecoverable despite making best efforts, it is an allowable expenses against business income as claimed by the assessee. It was pleaded for allowing the said claim. 28. The learned Departmental Representative relying upon the order of the CIT(A) pleaded that since business has ceased to exist, therefore, claim of bad debt is not allowable. The CIT(A) was justified in not allowing the same. It was urged for confirmation of the order. 29. We have heard the rival submissions, perused the record and considered the submissions made by both the sides and are of the view that the claim of the assessee of business being in existence, has not been accepted in our order as given in earlier paragraphs, thus claim of bad debt which could be allowed against business income cannot be allowed. So while confirming the order of the CIT(A), we dismiss this ground of the assessee. 30. Ground No. 5 in appeal for asst. yr. 1980-81 and ground No. 4 in appeal for asst. yr. 1985-86 relates to confirmation of disallowing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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