TMI Blog2010 (8) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... f income on 31.10.2005 declaring a total loss of ₹ 16,53,701/-. The case was selected for scrutiny and notices under section 143(2) dated 10.07.2006 fixing the case for 27.07.2006 was issued ad served upon the assessee. In response thereto, an adjournment was sought for by one Mr. Jagroop. Subsequently the AO issued a questionnaire dated 03.05.2007 along with statutory notices under section 143(2)/142(1) fixing the matter for 17.05.2007. Again an adjournment was sought for. The matter was further adjourned and finally the case was fixed for hearing on 26.12.2007. However, no cooperation was received by the AO from the assessee and, therefore, the AO proceeded to make the assessment ex parte under section 144 on the basis of material available on record. In the assessment, the assessee s claim of expenses of ₹ 9,35,031/- debited to the Profit Loss account was disallowed by the AO by observing that no business activity was carried out by the assessee for this year and hence, the expenditure incurred were not laid out for the purpose of business. The AO also revalued the stock, and found that the assessee revalued the stock on lower side to the extent of ₹ 19,80,19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and not a correct view in the light of the various decisions on the issue. It thus clarified that in every business and at all the times, one cannot earn profit and at some stage or phase merely every business gives losses or goes through the lull period. It was also contended by the assessee before the learned CIT(A) that though the assessee could not make any sales but the assessee tried to increase its earnings by way of machine hire charges and by putting serious efforts to recover its dues so that the assessee can resume manufacturing activities in the near future. It was thus contended that taking all these facts together it is established that the assessee was in business in the relevant year and has not gone out of it. After considering the assessee s submissions and Assessing Officer s order, the learned CIT(A) confirmed the disallowance of expenses to the extent of ₹ 6,70,160/- out of the total disallowance of ₹ 9,35,031/- made by the AO. The learned CIT(A) disallowed all the other expenses other than the claim of depreciation which has been allowed in the light of the fact that the assessee had shown an income of ₹ 4,86,979/- by way of hire charges of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 975/- (2) Job charges received ₹ 30,099/- (3) Machine hire charges Rs.3,00,000/- (4) Deferred tax income ₹ 30,575/- (5) Sundry balance written off Rs.1,25,330/- Total Rs.4,86,979/- The aforesaid income of ₹ 4,86,979/- has been included in the total income assessed by the AO. The assessment for subsequent Assessment Year 2006- 07 has been completed under section 143(3) of the Act vide order dated 16.12.2008 where the assessment was made determining the total income under sec. 115JB at ₹ 84,84,037/-, as tax on regular income as per normal provisions of the Income-tax Act amounting to ₹ 14,08,509/- was less than the tax chargeable under sec. 115JB of the Act. In the Assessment Year 2006-07 no disallowance of business expenses has been made by the AO. It thus makes it clear that the AO has accepted the position that the assessee was carrying on busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In such a circumstance, it cannot be said that no business was carried on and their income derived from the machine letting was only a rental income. There was a temporary suspension of business for a temporary period with the object of tiding over the crises condition. There was never any act indicating that the assessee never intended to carry on the business. 13. In the present case before us, the department has not brought any material or evidence to indicate that the assessee never intended to carry on the business in subsequent year rather in the subsequent assessment year all the business expenses have been allowed by the AO by making an assessment under sec. 143(3) of the Act. Moreover, depreciation on various assets has been allowed by the CIT(A) against which department has not filed any appeal and for that reason the total disallowance of ₹ 9,35,031/- made by the AO has been reduced to ₹ 6,70,160/- by the CIT(A). When the depreciation has been allowed on assets held and used for the purpose of business, the question of disallowing other expenses does not arise inasmuch as it has been admitted that letting out the plant and machinery for a tempora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with the quality of stock, has determined the value of the closing stock every year at net realization value being the lower of the cost price to the assessee. He further pointed out that it is not only in the year under consideration, the value of the stock has been reduced but the assessee company has been doing it in the past also. He therefore, submitted that the assessee has taken the value of closing stock as per the accounting norms regularly followed by the assessee in the past. It was therefore, contended that the authorities below were very much not justified in rejecting the assessee s valuation of closing stock, and taking the value of closing stock as on 31.03.2005 as equal to the value shown as on 1st April 2004. It was thus contended that the disallowance so made by the AO and further confirmed by the CIT(A) is to be deleted. 19. The learned DR on the other hand, reiterated the AO s contentions to submit that the assessee has not been able to establish that the valuation made as on 31.3.2005 was correct and true as per accounting norms and no valuation report in that regard had been submitted. 20. We have heard both the parties and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made by the Assessing Officer except by hammering upon that the assessee has failed to produce any valuation report. In order to value the closing stock, the businessman used to apply his knowledge and information connected to his business activity and then determine the value of closing stock either at cost or at market price, whichever is lower. There is no evidence on record to show that the items which were valued as on 31.03.2005 at a particular amount, were sold immediately thereafter at a price higher than the price taken by the assessee in the closing stock. In this view of the matter and having regard to the consistent method of accounting for valuing the closing stock followed by the assessee, we are of the opinion that the assessee s claim of reduction in valuation of closing stock as on 31.03.2005 as compared to the value of the opening stock of the same item as on 01.04.2005 is justified and it is to be allowed while determining the assessee s income from business. We therefore, delete the addition so made by the Assessing Officer and further confirmed by the CIT(A) and allow this ground raised by the assessee. The AO shall modify the assessment order according ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
