TMI Blog2003 (8) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant previous year whereas the assessee had sought set off of losses incurred in earlier years against the incomes of the current year. It was in this backdrop that the AO, vide order-sheet entry dt. 31st Oct., 1995, raised the following query : "As per s. 72, the loss can be set off only if the business or profession for which the loss was originally computed continued to be carried on in the previous year for that assessment year. As per your letter dt. 11th Oct., 1995, the cement plant was not working during this year and, therefore, please explain as to why should the earlier loss not be ignored for set off because business for which loss was originally computed was not continued to be carried on during the year." In response to this query, it was submitted by the assessee that since the assessee had sold cement worth Rs. 15,64,250 in the current previous year, it could not be said that the business was closed. It was further submitted that manufacture and trading of cement was integrated and linked business of the assessee and that other activities of the assessee were carried on during the year which were also carried on in the years in which the losses were incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries (P) Ltd. vs. CIT (1961) 41 ITR 645 (Mad). It was also observed that the assessee had not entirely given up the cement manufacturing business while he carried on cement trading which was an integral part of assessee's business in earlier years as well. It was also observed that the assessee was in any event selling the cement manufactured in earlier years. In this backdrop, the CIT(A) concluded that the business of the appellant continued during the year and accordingly, loss incurred in earlier years is eligible for set off under s. 72, against current year's business profits. Revenue is aggrieved and in appeal before us. 5. Heard the parties, perused the orders of the authorities below as indeed the paper books filed before us and deliberated upon factual matrix of the case as also the applicable legal position. 6. We find that the whole cause of action of disallowance of loss carried forward arose in the background of AO's noting that "the cement plant was not working during this year" which at best was AO's finding about an activity of business not being functional in the relevant previous year and, in our opinion, takes an unsustainably narrow view of the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, was to be set off against assessee's business income in the year. As the ratio of the aforesaid judgment is summed up in the ITR headnotes at p. 115 of the report, "As the assessee was maintaining the establishment and waiting for the improved market conditions in arecanuts and there was nothing to show that he completely abandoned or closed the business forever, the business must be deemed to be continuing." In the light of this legal position, it would follow that unless there is some material on record to show that the assessee has completely abandoned the cement manufacturing activity, even if that can be treated as a distinct business by itself, merely because no manufacturing of cement in the relevant previous year cannot be reason enough to come to the conclusion that the losses incurred by the assessee in that business in the earlier years are not entitled to be set off against the assessee's business income in the present year. We have also taken note of the fact that, as evident from observations in paras 2.4 and 2.5 of assessment order for the asst. yr. 1995-96, that the assessee made efforts to resume the manufacturing activity of cement by arranging a survey by Sabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year relevant for that assessment year". It is thus clear (that) any non-speculation business loss brought forward by the assessee can be set off against any business income of the assessee, which essentially implies that it can be set off against any income from businesses even other than the business in which the loss was originally incurred; the question of activity in which loss is carried forward is of course much narrower an issue. However, the restriction placed by the proviso to s. 72(1)(i), which is extracted above, lays down the condition that the business in which loss was actually incurred must be continued to be carried on by the assessee in the relevant previous year also. In effect, whether the loss brought forward is set off against the assessee's income from the same business or any other business, the only material condition is that the business in which the loss was actually incurred must not have been closed down. The law requires that in order to set off the past losses, the business where loss was suffered should continue during the set off. There is no legal requirement that a loosing 'activity', which has distinct legal connotations from the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court, are furnished in this case, as were furnished in the case before Their Lordships, by the existence of common management, common business organisation, common administration, common fund and a common place of business. As a corollary to this finding, it follows that the business carried on by the assessee was a composite business and since some activities of this composite business were beyond dispute carried out in the relevant previous year, the AO was indeed in error in holding that the business in which losses were incurred in earlier years was not in existence in the relevant previous year. 9. We may also mention that Hon'ble Calcutta High Court, in the case of CIT vs. Produce Exchange Corpn. Ltd. (1963) 50 ITR 308 (Cal) held, that the "essential matter to be considered in determining whether the two businesses carried on by the assessee constitute the same business, is about the nature of the two businesses, the manner in which they are conducted being a secondary consideration". They observed that unity of control or management, the employment of the same or common finance, the user of the same business premises and the record of the transactions in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
