9911796707
TMI Blog2010 (8) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... oss 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 ₹ 19,80,196/- which was disallowed by the AO. 4. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us 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 plant and machinery which has been considered as business income by the AO. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,575/- (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 business in Assessment Year 2006-07, which goes to show that during the period relevant to the Assessment Year 2005-06, which is under consideration, there was a temporary suspension of business activity. It is well settled that during the temporary suspension or lull period of any business, it cannot be said that the business has been discontinued for all times to come. In the light of the facts and circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht 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 temporary period was a business income against which depreciation was also allowed. We therefore, hold that all other expenses claimed in the profit & loss account are to be allowed as business expenses inasmuch as the assessee has not gone out of the business in the year under consideration. 14. Coming to the merit of the allowability of various expenses, we find that these expenses are normal expenses incurred during the course of carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 material on record. Admittedly, the opening stock valued at ₹ 1,83,81,266/- on 1st April, 2004 has been revalued by the assessee at lower value of ₹ 1,64,01,070/- as on 31.3.2005. Thus, there was a reduction in the value of closing stock by ₹ 19,80,196/- as compared between the value of opening stock vis-à-vis of closing stock. It is also not in dispute that the assessee has been following the method of valuing of closing stock at cost or market value, whichever is lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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