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M/s. Kalpana Trading Corporation Versus ITO-12 (3) (1) , Mumbai

Disallowance of interest payments and other general and administrative expenditure - disallowance as there is no business activity - Held that:- The factual matrix of the case supports the plea of the assessee that it is not a case of discontinuation or closure of business, but temporary lull in activity. During this period of lull or interregnum, the assessee is expected to continue maintenance of its business apparatus and for that purpose the expenses of general and administrative nature clai .....

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for Assessment Year 1998-99. On this aspect, assessee had pointed out before the lower authorities that since the past investments have been made in stock-in-trade of shares and such investments were made out of funds available from Partners Capital and other loan funds, on such loan funds assessee had incurred interest expenditure which has been disallowed. In Assessment Year 1998-99 similar claim for deduction of interest expenditure was disallowed by the Assessing Officer, which was allowed b .....

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PANNU, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For The Assessee : Shri J.P. Bairagra For The Revenue : Shri Shiddaramappa Kappattanavar ORDER PER G.S. PANNU, AM : The captioned two appeals have been preferred by the same assessee for two different Assessment Years but involve common issue. Therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 2. Since the facts and circumstances are identical in .....

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horities in holding that no business activity was carried out by the assessee, thereby denying the claim of loss determined on account of expenses claimed in the Profit & Loss account. To put it differently, the claim of the assessee is that the business loss determined at ₹ 24,35,949/- has erroneously not been considered by the Assessing Officer for set-off against other income of the year. 4. Briefly put, the relevant facts are that the appellant is a partnership firm whose stated bu .....

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/- was set-off against business loss determined at ₹ 24,35,949/- thereby resulting in net loss of ₹ 6,99,235/-. In the ensuing assessment, the Assessing Officer noted that in the Profit & Loss account assessee had not shown any activity of sale and purchase. The Assessing Officer also noted that even the activity of trading in shares has not been carried out by the assessee for the past several years. In sum and substance, as per the Assessing Officer there was no business activi .....

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mporarily facing a lull. It was also pointed out that so far as investment in stock-in-trade of shares were concerned, it was made in the past years out of funds available with the assessee by way of Partners Capital, interest from deposits and interest bearing loans raised from time to time. In this manner, expenditure on interest was sought to be justified. With regard to the general administrative expenses claimed in the Profit & Loss account, it was pointed out that same were genuine. It .....

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tead affirmed the action of the Assessing Officer. 6. Against the aforesaid, learned representative for the assessee submitted before us that the lower authorities have erred in not recognizing the business loss suffered by the assessee during the year under consideration. It was pointed out that it is a case where there is a temporary lull in the business and it cannot be understood to mean that the business has been discontinued. The learned representative pointed out that in Assessment Years .....

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expenses and determined loss from business in an assessment finalized u/s 143(3) of the Act dated 31.12.2004. It was, therefore, pointed out that though in the Assessment Year 2005-06 there are no sales undertaken, but it cannot be said that the business has been discontinued. With respect to the disallowance of expenditure on account of interest payments made to HDFC, Partners and other loans, the learned representative pointed out that a similar issue had come up before the Tribunal in Assess .....

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aragraphs and are not repeated for the sake of brevity. 8. We have carefully considered the rival submissions. The sum and substance of the case set-up by the Assessing Officer is that in the present year there are no sales undertaken by the assessee, which according to him show that no trading activities have taken place. Therefore, as per the Assessing Officer the expenses claimed in the Profit & Loss account on account of interest payments and other general and administrative expenditure .....

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rred in business. Similar is the situation in the assessment finalized for Assessment Years 2007-08 and 2008-09 u/s 143(3) of the Act. On such basis, it is sought to be pointed out that it is not a case of closure or discontinuation of business, but it is a case where there is a temporary lull in business and in such a situation, the expenditure debited by the assessee in its Profit & Loss account deserves to be allowed. It is further pointed out that the expenses are of routine nature by wa .....

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imed by the assessee deserve to be allowed. In this context, we find that the ratio of the judgment of the Hon ble Delhi High Court in the case of Anita Jain, 182 ITR 173 (Del), which was relied upon by the assessee before us, supports the allowability of such expenditure. Therefore, on this count we allow the plea of the assessee. 9. Insofar as the payment of interest is concerned, the dispute raised is similar to what was considered by the Tribunal in assessee s own case for Assessment Year 19 .....

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