TMI Blog2016 (4) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... er of ld. CIT (Appeals), Chandigarh dated 01.02.2013 for assessment year 2009-10 on the following grounds : 1. The CIT Appeals) has erred in law and facts of the case in sustaining the addition of ₹ 25,05,898/- being entire depreciation on fixed assets. 2. The ld. CIT (Appeals) has erred in law and facts of the case in confirming addition of ₹ 9,63,029/- being entire expenditure incurred by the assessee. 2. Earlier this appeal was dismissed in default. However, allowing the Miscellaneous Application of the assessee, the appeal was restored for hearing on merits. 3. The brief facts of the case are that the appellant company had a license to deal in wholesale trade of liquor for financial year 2007-08 relevant to assessment year 2008-09 for the State of Utter Pradesh. The appellant had applied for license for F.Y. 2008-09, but the same was not granted. In the absence of the license, the appellant was not authorized to carry on the liquor business and so the opening stock value of ₹ 45.14 crores brought forward from the previous year was transferred to the concerns, which had been granted license by the Government in the subsequent year. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not take place at one go or in one transaction but was a number of transactions. 5. The ld. CIT (Appeals), considering the submissions of the assessee, dismissed both the grounds of the assessee. The findings of ld. CIT(Appeals) in para 2.3 of the appellate order are reproduced as under : 2.3 I have considered the submission of the Ld. Counsel. The license for sale of liquor was not renewed in the case of the appellant company by the State Government and so the appellant was not entitled to carry on the liquor business during the year under consideration and the appellant did not carry on this business, ipso-facto. As per the excise policy, the appellant could not have sold the stock remaining at the end of the year in the market and so it was transferred to the concerns, which were granted license by the Government in the succeeding year. Such transfer of stock on 'as is where is basis' cannot be treated as sale and the explanation of the appellant that the so-called sale had been entered in ledger account is immaterial. In fact, the appellant could not have carried on the liquor business, during the year under consideration and did not do it also. Obviously no as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t afresh by floating another company. The assessee admitted before ld. CIT (Appeals) that assessee company had not been able to prove how the assets utilized by when no business was carried on by it. The assessee in the Paper Book filed the Profit Loss Account for the year ending 31.03.2009 (PB-18) in which also, it was admitted that net purchases (opening stock) was of ₹ 45.14 Cr and the same was sold at the same price. Merely because in the Profit Loss Account, assessee has used the word 'net purchases' or 'sales' but in fact, there were no purchases or sales conducted by the assessee in the year under consideration because the assessee was not having any license from the State Government to deal in wholesale trade of liquor. The alleged purchases are only the opening stock value of ₹ 45.14 Cr and the alleged sales in fact is the amount of the stock transferred to other companies at the cost price because assessee was not legally entitled to sell the stock. The submission of the assessee before ld. CIT (Appeals) thus, clearly shows that assessee has not made any purchases or sales during the year under consideration. No business is thus conducted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 84 of the Estate Duty Act, 1953, was a statutory duty unconnected with the business, though the occasion for imposition arose because of the territorial nexus afforded by the accident of its doing business in India. The expression for the purpose of the business is wider in scope than the expression for the purpose of earning profits . Its range is wide; it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of the business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hever is greater. (2) Whoever in contravention of this Act or any rule or order made thereunder or of any licence, permit or pass, obtained under this Act, manufactures any intoxicant or imports, exports, transports or possesses any charas, shall be punished with imprisonment which shall not be less that six months and which may extend to three vears and also with fine which shall not be less than two thousand rupees and which may extend to five thousand rupees.] (3) Whoever, in contravention of this Act, or any rule or order made thereunder, consumes any intoxicant, shall be punished with fine which shall not be less than five hundred rupees and which may extend to one thousand rupees-] 9. Since the assessee is assessed in State of Punjab, therefore, Section 61 of the Punjab Excise Act is also reproduced for the sake of convenience : 61. (1) Whosoever, in contravention of any Section of this Act or of any rule, notification issued or given thereunder or order made, or of any license, permit or pass granted under this Act. (a) imports, exports, transports, manufacturers, collects or possesses any intoxicant; (b) constructs or works any distillery or brewery; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock had been transferred without any element of profit. Thus, the finding of fact recorded by the authorities below in the light of the reply of the assessee clearly proved on record that assessee has not conducted any purchase or sale and did not deal in any type of liquor during the year under consideration and only the opening stock was transferred at the cost value to some other companies. There were no object also involved for making any profit. Thus, the assessee has not entered into any occupation or profession and has not dealt in any item with a profit motive. Therefore, there is no question of assessee doing any business or profession during the year under consideration. 11. Section 32 of the Income Tax Act provides for grant of depreciation in respect of building, machinery, plants or furniture etc. when the assets are owned wholly or partly by the assessee and used for the purpose of business or profession. As noted above, it is clear that assessee has not conducted any business or profession in the year under consideration, therefore, there is no question of using any asset by the assessee for the purpose of business or profession during the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as Abkari Contractor participating in abkari auctions. Because of abkari arrears due from the assessee, the assessee could not carry on the business after 1971-72 and until 1978-79. The questions referred at the instance of revenue was; (i) Whether, on the facts and in circumstances of the case, the Tribunal is right in holding that the absence of active trade in abkari during the previous year and in the earlier years amounted only to a lull in the business activity of the assessee and not a discontinuance of the assessee's business? (ii) Whether on the facts and circumstances of the case, the assessee is entitled to claim deduction of interest on the related payment (beyond the 20th) of abkari dues? 15. The question No. 1 raised in the reference at the instance of the revenue was answered in negative against the assessee and in favour of the revenue. In view of answer to question No. 1, question No. 2 was found to have academic interest only. The findings of the Hon'ble High Court reads as under : Under section 28 of the Income Tax Act, 1961, the profits and gains of any business or profession which carried on by the assessee at any time during the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d there was no discontinuity of the assessee's business. The authorities as well as the Tribunal came to the conclusion that, on account of the prohibition in law, the assessee could not carry on the abkari business and that during the previous year, the assessee obtained remuneration as an employee from firm C. Thereafter, it was not open to the Appellate Tribunal to come to the conclusion that the assessee must be considered to have carried on its business in a passive sense during the previous year for the assessment year. 16. The Hon'ble Delhi High Court in the case of Dalmia Dairy Industries Ltd. v. CIT [2000] 241 ITR 9 held as under : Held, that the expenditure incurred was in connection with the assessee's business ventures in Pakistan which stood transferred to the PPCIL and hence the assessee did not have any business which it could be said to be carrying on. Since the same was not incurred wholly and exclusively for the assessee's business it was not allowable under Section 37 of the Income Tax Act, 1961. The main object of the expenditure in question was to realize the sale consideration of the fixed assets in Pakistan in cash or in kind. The expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration, the assessee even could not possess or sell any liquor in the year under consideration otherwise the possession or selling of the liquor by itself would be an offence and prohibited by law under the State Excise Act. Section 37(1) is therefore, clearly attracted in the case of the assessee because when assessee has not conducted any business or profession during the year under consideration, no expenditure was allowable and as per Explanation to the above provision, even if some expenses were incurred by assessee for the business of dealing in wholesale liquor without license, the same would be prohibited by law and as such on both counts, the expenditure could not be allowed as deduction in favour of the assessee. 19. The ld. counsel for the assessee relied upon decision of the Calcutta High Court in the case of Multican Builders Ltd. v. CIT [2005] 278 ITR 142 on the proposition that when asset is ready for use, depreciation is allowable. There is no quarrel with the legal proposition decided in this case. However, the facts of the case of assessee are clearly distinguishable because the assessee was not authorized by the State Government to deal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, I am writing this separate Order. 2. It will be useful to narrate the facts in little more detail. The assessee is a private limited company engaged in the business of wholesale liquor trading. This business can be carried only after obtaining a license which is granted by the State Government which is obtained through bidding in the auction conducted by the State Govt. The assessee had license in the previous year but during the year assessee could not win the license to carry on the trading activity, therefore, as per Excise Rules, the opening stock was transferred to another dealer who won the bidding and acquired the license. The assessee had income from other sources mainly consisting of interest on FDRs, refund of tender fee and misc. income. Such other income amounted to ₹ 49,69,607/-. Against this the assessee has claimed certain expenses as well as depreciation. After claiming such depreciation and expenses, return of income was filed declaring income of ₹ 32,73,350/-. 3. During assessment proceedings the Assessing Officer noticed that since there were no sales, therefore, assessee cannot be said to have carried on any business. Accordingly, asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes but they are kept ready then depreciation had to be allowed. In the case before us the assets were ready to be used whenever the license was to be won. It was the case of only temporary lull of business and, therefore, expenses as well as depreciation should be allowed. In this regard he relied on the following decisions:- (a) L. Ve. Vairavan Chettiar (supra) (b) Hindustan Chemical Works Ltd. (supra) (c) Multican Builders Ltd. (supra) (d) Anil Bulk Carriers (P.) Ltd v. CIT [2005] 276 ITR 625 (e) Carefour WC C India (P) Ltd. (supra) (f) Dhoomketu Builders Development (P) Ltd. (supra) (Copy of the judgments filed in the paper book - ITA 528/2012 529/2012) 6. On the other hand Ld. DR while strongly supporting the order of CIT(A) submitted that since the assessee has discontinued business during the year, therefore, disallowance of expenses as well as depreciation is totally justified. 7. I have considered the rival submissions carefully. In the present case there is no dispute regarding the fact of incurring expenditure or genuineness of expenses. The only dispute is whether the assessee was carrying on business or the business was disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of liquor trade there is no doubt that business can be conducted only when a license is granted by the State Govt. which is generally granted through auctions. It may be a practice that generally this business is conducted by floating of temporary firms and then such firms are closed when the license is not obtained. However, in the present case, the assessee is incorporated as a company which itself shows that intention was to carry on the business in the longer term. Further, assessee has taken a godown as well as office for the purpose. The assessee cannot be expected to vacate godown and office immediately on expiration of license. Such godown and office etc. are again required whenever the assessee is able to win the license. In fact, in the case before us admittedly the assessee has again obtained the license in assessment year 2010-11 i.e. immediately in the following year and carried on this business. 9. No doubt in the case of liquor business, the business cannot be carried out until and unless license is there with the businessman and if assessee did not have license but then it can be said that there was a temporary lull in the business because assessee faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est for raising the loan during the relevant year. (see p. 799B-D) 12. Therefore, it becomes clear that even if the assessee is not carrying on the business in a particular year because of not winning the license in auction, it cannot be said that assessee has gone out of the business. Therefore, in my opinion the assessee was very much in business and expenses incurred by the assessee should have been allowed. It is to be noted that expenses have been incurred mainly on payment of godown rent and statutory expense like audit fee, filing fee and only a sum of ₹ 1 lakh has been paid towards salaries which seems to be for minimum of employees. The second question was whether in such circumstances the depreciation should be allowed. In my opinion on the basis of same analogy as given for allowance of expenditure, the depreciation is also required to be allowed. In this regard Ld. Counsel has cited the judgment of Hon'ble Calcutta High Court and Allahabad High Court in the case of Multican Builders Ltd. v CIT (supra) and Anil Bulk Carriers (P.) Ltd (supra) where depreciation was held to be allowable even when the assets are kept ready for use. In fact in this regard our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med were relatable to any business activity of the assessee. The learned Accountant Member, on the same set of facts holds that since the assessee, subsequent to the assessment year in question was granted license by the Uttar Pradesh Government to carry on trade of liquor, it cannot be said that there was any intention to have permanently abandoned the business activity or that it had ceased to exist. His opinion was that it was a temporary cessation. Under these circumstances, both the Assessing Officer as also the appellate authority were wrong in disallowing the expenditure claimed. 3. It is not denied and accepted by the parties that the assessee was dealing in wholesale trade of liquor in the State of Uttar Pradesh, for which he had been granted a lawful licence under the relevant law. It was only in the year under consideration that there was no business activity because the assessee had no licence in its favour. The learned Members note that for the year in question, the liquor licence was not renewed and that the closing stock of liquor lying with it was transferred to a third trader. On this difference, two questions have been referred: (i) Whether on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. By the use of the expression 'profit motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions, it predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In the case of Commissioner of Income-tax v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 (SC), Sarkar J., speaking for the majority, observed that business as contemplated by Section 10 of the Indian Income-tax Act, 1922, is an activity capable of producing a profit which can be taxed. In the case of the appellant-trust the activity of the trust, as observed earlier, has in fact been yielding profits and that apparently accounts for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es exist but then it is not a conscious or deliberate act on the part of the assessee which would lead to the abandonment of business. In L.Ve. Variavan Chettiar (supra), court held that it is the peculiar facts of the case which would determine as to whether the assessee has ceased to carry on its business or it was a temporary discontinuance. In CIT v. Integrated Technologies Ltd., the High Court of Delhi in ITA No. 530/2011 dated 16.12.2011, holds that the only condition to claim depreciation etc., as expenditure is that it is not necessary that plant machinery owned by the assessee should be actually put to use in the relevant accounting year to justify the claim of depreciation and even if such plant machinery or other assets are kept ready for use in assessee's business, the assessee would be entitled to claim depreciation. The only condition added is that the business should not be closed down once and for all and that the assessee should demonstrate that the hopes of the business being revived are alive and real. It is however not a matter that can turn entirely on the assessee's hopes alone but then there should be evidence on record to show that the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of the auction notification. (P. 907) held that the assessee had no right to carry on business, therefore, the expenditure was disallowed. The court holds Under Section 28 of the Act, the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year shall be chargeable to income-tax and the income so chargeable shall be computed in accordance with Sections 30 to 43. Section 37 provides for the deduction of revenue expenditure. In order to get deduction under this section, the amount should be expended for the purpose of the business. The finding of the authorities is to the effect that the abkari business has not been carried on by the assessee during the previous several years. The business expenditure has to be related to a business which is taxed or taxable before it can be deducted and, therefore, there is no scope for deduction of the interest paid by the assessee in this case. There is no justification, and there was no material at all before the Tribunal, to come to the conclusion that there was only a lull in the business activity of the assessee and there was no discontinuity of the assessee's b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on Sreedharan's decision to urge that the case of the assessee is squarely covered by the law laid down therein. What I find is that Chacko's decision, which is a Division Bench judgment, has not been considered in this decision. In these circumstances, submission made by the learned Counsel for the assessee cannot be accepted. It is Chacko's case which is nearer to the facts in the present case. I may add at this stage that it is not disputed by both the sides that section 60 of the Uttar Pradesh Excise Act, which is attracted to the facts of the present case, outlaws any business activity in Liquor without license, making it punishable with imprisonment. It is also urged for me that the expression 'for the purpose of business' as defined in section 10(2)(xv) of the Act, is much wider in scope than the expression 'for the purpose of earning profits'. There is no dispute about this established proposition of law. 11. Some other decisions of various Benches of this Tribunal were cited to urge that in order to claim expenditure there should be evidence or material to show that the assessee made efforts to keep the business alive. I am not going into t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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