TMI Blog2017 (12) TMI 1044X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the issue is restored back to the file of the Assessing Officer. Disallowance of various expenses under the head dead rent,Environment expenses and salary and wages paid - Held that :- With regard to the claim of these expenses, we have already decided that the issue that these requires verification at the level of the Assessing Officer with regard to the genuineness and justification of the expenses for business of assessee, therefore, this ground of appeal is also restored back to the file of the Assessing Officer - ITA No. 1137/JP/2016 - - - Dated:- 17-11-2017 - SHRI VIJAY PAL RAO, JM AND SHRI BHAGCHAND, AM For The Assessee : Shri A.B. Dangyach (CA) For The Revenue : Shri P.R. Meena (Addl.CIT) ORDER PER: BHAGCHAND, A.M. This is an appeal filed by the assessee emanates from the order of the ld. CIT(A)-I, Jaipur dated 28/10/2016 for the A.Y. 2012-13. 2. The return of income for the assessment year under consideration was filed on 26/09/2012 declaring total income of ₹ 5,99,790/-. The assessment was finalized U/s 143(3) of the Income Tax Act, 1961 (in short the Act) on 26/03/2015 at an income of ₹ 51,83,310/-. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities were carried out by the appellant during the year under consideration and the income from letting off of machinery cannot be assessed under the head business income. The AO placed reliance on the decision of the Hon ble High Court of Delhi in the case of CIT vs. K. Narendra [2000] 246 ITR 579 (Del.). ( ii) During the appellate proceedings, it was stated by the appellant that it has been engaged in mining and manufacturing business since 1982-83 when mining leases were granted to it by the Govt. of Rajasthan and it has been doing mining business thereafter. Under the provisions of Mining Conservation Rules, 1988 and Environment Protection Rules, every lessee of mining lease, have to get approved their mining plans in block of every 5 years and environment clearance has to be obtained before commencement of mining operation in mining lease area. Therefore, although business was commenced by appellant company after grant of mining lease in year 1983-84 but during the accounting year relevant to the assessment year under consideration, mining operation could not be continued for want of statutory and contractual requirement j of approval of Mining Plan and Environment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es renewed or could not obtain the environment clearance for mining. It is noted from the two lease agreements dated 01.04.2008 executed between the appellant company and M/s UMDSPL, a group concern that the appellant has given grinding machinery namely Pulverizers P-l, P-2 and P-3 on a monthly rent of ₹ 5 Lac and the period of lease was from 01.04.2008 to 31.03.2014 i.e. lease was given for a period of 6 years. It shows that the appellant was not intended to resume its mining operations in the year 2008-09 itself when these lease agreements were executed. ( vi) The appellant relied heavily on clause-7 as stated in its Memorandum of Association, it may be mentioned here that the Memorandum specifies the activities which a company can undertake and specifying a particular activity in the Memorandum does not lead to the conclusion that it is doing business in that particular line and surrounding circumstances have to be seen while deciding whether a company is engaged in any business activities or not. ( vii) It may be mentioned that in the Memorandum of Association of the appellant company, there is no main object and it provided only page 1 of the MOA. It would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities of any other corporation having objects altogether or in part similar to those of the company. Thus, it is evident from the above that the main object as per its MOA are relating to mining activities only. ( viii) It may be mentioned that in a recent decision in the case of Chennai Properties Investments Ltd. Vs CIT[2015] 56 taxmann.com 456 (SC), the Hon ble Apex Court considered the main objects of the appellant company and held that where in terms of Memorandum of Association, main object of assessee- company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not as income from house property. The Hon ble Apex Court also referred to Constitution bench decision of Sultan Brothers (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC) and noted as under: 10. No doubt in Sultan Brothers (P.) Ltd.'s case (supra), Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained. It was further submitted that since the environment clearance has not yet been obtained, therefore, the appellant company could not commence mining activities in the mining lease area. ( x) Thus, it is evident that during the year under consideration, the appellant company was still not able to obtain statutory and contractual approvals which are required for doing the mining activities. It may be mentioned that as per Rule 58 of Mineral Conservation and Development Rules, 1988, the contraventions of any of the provisions of these Rules shall be punishable with imprisonment or fine or both. It would be appropriate to reproduce Rule 58 as under: 58. Penalty Whoever contravenes any of the provisions of these rules shall be punishable with imprisonment for a term which may extend up to two years, or with fine extending to fifty thousand rupees or with both, and in the case of continuing contravention with an additional fine which may extend up to five thousand rupees for every day during which such contravention continues, after conviction for the first such contravention: Provided that for repeated contravention the punishment should be in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n turn entirely on the assessee's hopes alone but then there should be evidence on record to show that the assessee took efforts to keep the business alive in the hope of reviving it. [Para 6] * It is not disputed by both the sides that section 60 of the Uttar Pradesh Excise Act, which was attracted to the facts of the present case, outlawed any business activity in Liquor without license, making it punishable with imprisonment. [Para 10] * In the circumstances, it is held that because of the statutory prohibition under the Uttar Pradesh Excise Act, it could not be said that there was a temporary lull in the business of the assessee but that there was a legal bar. (emphasis supplied) * In the result, it is held that assessee is not entitled to deduction on account of depreciation and other expenses as claimed when no business of wholesale liquor trade was carried on by the assessee in assessment year in appeal. [Para 12] ( xii) The facts of the instant case under consideration are similar the facts of the above referred case of Royal Beverages Pvt. Ltd. Vs. DCIT (Supra) and are squarely covered by the said decision as in both the cases, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the similar issue was also decided by the ITAT while deciding the ITA No. 436/JP/2016 for the A.Y. 2010-11 order dated 19/10/2016 and in that case, the matter has been restored to the file of the ld. CIT(A). The relevant para of the ITAT s order is as under: 6. After hearing the revenue and from perusal of the records available, it is noticed that there is nothing on the record, which suggests that the business was closed due to temporary lull. Since the pulverizer was leased out to M/s U.M.D.S.P. Ltd. for the same purpose, which the assessee was doing from the same machinery. Therefore, it is not established that there was a temporary lull in the business. Further, it is also not clear from the record for what period this pulverizer was leased out to M/s U.M.D.S.P. Ltd. Whether the lease was only for the year under consideration or for a longer period. Further, what was status in the subsequent years. The crucial facts regarding temporary lull in the business are not available on record. The period of lease is also not known from the records available. Considering all these facts, I find it appropriate that in the interest of justice and equity to restore the issue to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Determination : ( i) The brief facts are that the appellant has shown income on account of various heads including lease rent and claimed expenses in its profit and loss account. The income and expenses claimed are summarized as under: Employees benefits expenses ₹ 44,00,617/- Leasing rent ₹ 60,00,000/- Finance Cost ₹ 3,373/- Dividend ₹ 7,508/- Administrative ₹ 10,89,783/- Interest from IT ₹ 2,055/- expenses refund Depreciation ₹ 5,64,546 Bank interest ₹ 87,260/- - - Interest from others Rs.37,554/- Sundry balances written off ₹ 5,788/- Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, it was submitted by the appellant that the said expenditure has been incurred wholly for the purposes of the business and it is neither personal expenditure nor capital expenditure. It was further submitted that it is not open to the Department to prescribe what expenditure should be incurred and under what circumstances, it should incur such expenditure. The payments to those employees have been made as a prudent trader because their valuable services will be required soon after obtaining approval of mining plan and environment continuation and their continuation in the service with the appellant company has saves substantial money. ( iii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is true that the AO cannot enter into the shoes of the assessee, however, at the same time, only those expenses could be allowed which are incurred wholly and exclusively for the purposes of the business of the appellant. It has been held earlier that earning of lease rental income is not a business activity and no business was carried out by the appellant during the year under consideration and thus there is no question of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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