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2016 (5) TMI 284 - ITAT DELHI

2016 (5) TMI 284 - ITAT DELHI - TMI - Disallowance of expenditure including depreciation incurred and claimed by the appellant company - case of temporary suspension of business - finding of the learned Commissioner of Income Tax (Appeals) that on plot of land was leased overlooks the buildings constructed by the assessee and forming part of fixed assets declared in financial statement furnished alongwith return of income - Held that:- Apart from requiring the lessee to pay rent the lessee is fu .....

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essor assessee being a Private Limited company and the lessee being a partnership firm also function from the very same premises as per the lease deed. In the peculiar facts and circumstances of the present case it is necessary to first address the facts which admittedly have not been properly addressed. Principally if the assessee is able to show that the expenditure claimed qua Ground no.1 pertains to it alone and not to the related concern and is incurred to keep its existence alive the expen .....

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ced before us to show what is the nature of work entered into by the related concern i.e. the partnership firm to whom a plot of land has been leased. Thus the issues arising in Ground No.1, we deem it appropriate to restore to the AO giving liberty to the assessee to lead evidence if any in support of its claim. Qua Ground No.2, we find in the absence of any evidence to the contrary the clear recitals in the lease deed relied upon consistently by the tax authorities do not call for any variatio .....

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nds :- 1. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming disallowance of ₹ 5,72,702/- representing expenditure including depreciation incurred and claimed by the appellant company. 1.1. That the learned Commissioner of Income (Appeals) has factually and legally erred in concluding that it is not a case of temporary closure of business but a case of permanent closure and as such the learned Assessing Officer was fully justified in disa .....

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e aforesaid expenditure has been incurred for maintaining and protecting the assets of the appellant company and to discharge statutory obligations of the appellant company and therefore, such an expenditure even otherwise was an admissible business expenditure. 2 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining disallowance of ₹ 1,80,0001- representing statutory deduction claimed u/s 24(a) of the Act. 2.1 That the finding of the learne .....

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2(1) by an order u/s 143(3). 2.1. The AO in the scrutiny proceedings took note of the fact that the returned income has been arrived at after setting off business loss of ₹ 5,72,702/- against income of ₹ 7,56,000/- declared under the head income from house property . Considering the fact that the business activity of manufacturing and job work of precision turned components had been discontinued after 31.3.2009 the claim of the assessee in setting off business loss was held to be not .....

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unge, within jurisdiction of Sub-Registrar Khed 2 (Chakan) Distt. Tal. Khed Pune, Maharashtra which as per the lease deed was described as a mere plot of land disallowed the deduction claimed u/s 24(a) of ₹ 1,80,000/- worked out @ 30% of the rent receipts of ₹ 6,00,000/-. As a result of these disallowances the income of the assessee was assessed at ₹ 9,36,002/-. 3. Aggrieved the assessee came in appeal before the CIT(A). 4. In the course of the hearing before the CIT(A), the as .....

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es A/c attached herewith. The production operation in the factory of the appellant has not been restarted as yet as there is slow down in the automobile sector. However your appellant is trying to restart the production as early as possible. Sir, the appellant will be too willing to provide any further information which your good self shall require to dispose of the appeal. 4.1. Apart from that reliance was placed upon, the following two decisions namely Hon ble Punjab & Haryana High Court i .....

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but a case of permanent closure extending for the last 7 to 8 years. The case law relied upon was held to be distinguishable as temporary closure of business was established there. Accordingly the Assessing Officer was held to be correct in disallowing the expenses and the depreciation claimed by the assessee. 5. Qua the disallowance of ₹ 1,80,000/- the view taken by the AO was confirmed holding as under :- 5.3. I have carefully considered the appellant s submissions :- The only issue to b .....

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see to lease the said plot of land ................. It is further seen that clause 2d of the lease deed reads as under :- The Lessee shall be allowed to make any permanent construction or alternations in the said plot as per his requirements without the previous consent of the lessor. These provisions of the lease deed clearly show that the property under construction was only a plot not a constructed building. The appellant s contention that there is mention of the word Property in the lease a .....

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n heard. Whereas the Ld. AR submitted that there is nothing on record to conclude that the business of the assessee is completely shut down. It was his submission that in fact it is a case of temporary suspension of business. The lull in the business has occurred on account of temporary recession. In the circumstances, the CIT(A) was not justified in concluding that the assessee had no intention to continue its business. It was his submission that the nature of expenses incurred would show they .....

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pted by an order under section 143(1). Only in 2008-09 assessment year the returned income was accepted by an order passed under section 143(3) accepting the declared loss of ₹ 16,36,041/-. Copy of this order dated 27/12/2010 it was submitted is available in the paper book page 14. 8. Addressing ground No. 2 in the present appeal it was submitted that no doubt the property has been described as a plot of land in para 1 of the lease deed. However when the said para is read along with para 2 .....

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ch was leased out. 9. The Ld. Sr. DR heavily relying upon the orders of the authorities below submitted that the grounds deserve to be dismissed. Addressing the paper book filed it was his submission that when the profit and loss account and the balance sheet for the year under consideration is considered at pages 2 and 3 along with details at pages 5 and 6 which has been filed by the assessee it would be seen that the assessee continues to hold the very same inventory for years on end. Similarl .....

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le to establish that the expenses of rent staff and various other business expenses were incurred to keep its business alive they cannot be disallowed merely on the ground of temporary lull in business. Thus a temporary lull on account of the circumstances prevailing in the market cannot lead to the conclusion that the assessee has no intention to resume its business. The law on this issue is well-settled. Similarly the decisions in the context of the assessee company being an artificial judicia .....

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liar facts and circumstances of the case the assessee has pleaded recession in the market. No evidence in support of the said claim has been placed either before us or before the Tax Authorities. We further find that the assessee has rental income from Pune, Maharashtra and Solan, Himachal Pradesh. The lease deed entered into with the related concern Pune, Maharashtra described as a plot of land only is also an issue before us. Copy of the lease deed has been filed before us is placed at pages 2 .....

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see shall pay to Lessor ₹ 50,000/- (Rs.Fifty thousand only) per month as Rent for use of the said property. b. Lessee shall pay electricity charges as per his use/MSEB Meter. c. Lessee shall pay all other local charges till expiry of lease period. d. The Lessee shall be allowed to make any permanent construction or alternations in the said plot as per his requirements without the previous consent of the Lessor. e. The Lessee will not assign, transfer, sublet or put parts of possession of a .....

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sor further expresses that it has no objections for inspection/verification of the bonded premises by the Central Excise and Customs officer at any time. Not only the fact that both the lessor and the lessee in regard to its Registered office function from the very same location. The lessor assessee being a Private Limited company and the lessee being a partnership firm also function from the very same premises as per the lease deed. In the peculiar facts and circumstances of the present case it .....

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