ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "SMC-2", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
I.T.A. Nos. 2105-2106/DEL/2014
A.YRS. 2008-09 & 2009-10
M/S M.S. ASSOCIATES, ACIT, CENTRAL CIRCLE-4,
267, MASJID MOTH, UDAY PARK, VS. NEW DELHI
FRONT PORTION, 2ND FLOOR,
NEW DELHI
(PAN:AABFM1714A)
(APPELLANT) (RESPONDENT)
AND
I.T.A. Nos. 2077-2078/DEL/2015
A.YRS. 2010-11 & 2011-12
M/S M.S. ASSOCIATES, ACIT, CENTRAL CIRCLE-4,
267, MASJID MOTH, UDAY PARK, VS. NEW DELHI
FRONT PORTION, 2ND FLOOR,
NEW DELHI
(PAN:AABFM1714A)
(APPELLANT) (RESPONDENT)
Assessee by : SH. R.S. SINGHVI, CA
Department by : Sh. SUDHIRANJAN, SENAPATI,
SR. DR
Date of Hearing : 06-08-2015
Date of Order :21-09-2015
ORDER
PER H.S. SIDHU : JM
These appeals by the Assessee are directed against the
separate Orders of the Ld. Commissioner of Income Tax (Appeals)-
XII, New Delhi pertaining to assessment years 2008-09 to 2011-12.
Since the issues raised in these appeals are common and identical,
hence, these appeals are being consolidated and disposed of by this
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
common order. For the sake of convenience, we are dealing with the
ITA NO. 2105/DEL/2014 (AY 2008-09). The grounds raised in the
assessment year 2008-09 read as under:-
1(i). That on the facts and circumstances of the case, the
Ld. CIT(A) was not justified in confirming the order
of the AO regarding closure of the business without
appreciating facts and written submission of the
appellant.
(ii) That finding about closure of the business is illegal,
arbitrary and without appreciating the facts and
legal principles.
2(i) That the claim of expenses were in respect of the
existing business and there being no dispute about
the genuineness of the claim, orders of the lower
authorities in rejecting the claim are without any
legal and factual basis.
(ii) That all the claim of expenses are relating to year
under reference and claim being in accordance
with mercantile system of accounting, there is no
ground or basis for disallowance of same.
(iii) That the AO has even disallowed the expenses
which are of statutory and incidental nature.
3(i) That on the facts and circumstances of the case, the
AO was not justified in considering interest income
which is incidental to the business activities as
income from other sources as against the claim of
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
the assessee that same is part of business and
assessable under the head business.
(ii) That the interest being on in relation to bank
guarantees and margin money, the same is directly
related to incidental to business and as such there
is no ground or basis for considering the interest
under the head income from other sources.
(iii) That orders of the lower authorities are in total
disregard to past history of the case.
4. That orders of the lower authorities are not justified
on facts and the same are bad in law.
2. The facts narrated by the revenue authorities are not disputed
by both the parties, hence, the same are not repeated here for the
sake of convenience.
3. During the hearing, Ld. Authorised Representative/CA of the
assessee, Shri R.S. Singhvi, has stated that Ld. CIT(A) was erred in
confirming the order of the AO regarding closure of the business
without appreciating the facts and written submission of the
assessee. He further stated that the finding about the closure of
the business is illegal, arbitrary and without appreciating the facts
and legal principles. In order to support his contention he stated
that the claim of expenses were in respect of the existing business
and there being no dispute about the genuineness of the claim, all
the claims of expenses are relating to year under reference and
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
claim being in accordance with mercantile system of accounting,
hence, there is no basis for disallowance of the same. Therefore, he
requested that the order of the Ld CIT(A) may be set aside.
4. On the other hand, Ld. Sr. DR, Sh. Sudhiranjan Senapati, has
relied upon the order of the Ld. CIT(A).
5. I have heard both the parties and perused the records,
especially the order of the Ld. CIT(A). For the sake of convenience, I
am reproducing the hereunder the findings of the Ld. CIT(A):-
"1.1 I have considered the grounds raised in appeal and,
the facts of the case. I have also considered the
submission filed by the AR of the appellant.
1.2 The Assessing Officer has disallowed the expenses
and depreciation totalling to Rs. 68,79,508/- and added to
the income of the assessee. The assessee has not shown
any receipt from its business of purchase and sale of
state lottery tickets being sole distributors of lotteries of
Nagaland and Meghalaya state. The assessee has
simultaneously claimed expenses of Rs.61,84,590/- and
depreciation of Rs.6,94,918/0- against the in receipt from
the said business of purchase and sale of state lottery
tickets. The Assessing Officer has given a detailed
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
breakup of the administrative expenses claimed
amounting to Rs.61,84,590/-. Further, the Assessing
Officer has enquired about the status of the lottery
business from the point of view of allowability business
expediency of the claim of the said expenses. The
assessee has tried to justify the claim by stating that
dispute is going. on with the Director Meghalaya State
Lotteries due to their demand of increasing their profit
component. The fact is that the Director Meghalaya State
Lotteries has stopped the distributorship of the
assessee's on line lotteries during November 2006 and
from then on it has not been revived. The assessee has
stated to have incurred lots of expenditure in hope of
resuming the business. And there is no business receipt
during the financial year. The appellant pleaded hope for
revival of the business and justified the claim of
expenses.
1.3 The appellant has relied upon a number of case
laws in support of the contention.
1.4 I have carefully considered the submission filed by
the appellant, the facts of the case and the legal position
of the issue. The claim of assessee that it had to spend
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
lots of expenses to-resume the lottery business is devoid
of merit for the reason that not only in the instant year
but subsequent also no such business has been resumed.
The assessee itself has submitted .a letter dated
20.11.2008, a reference of which has been made in the
order of assessment, from the lotteries, branch of
Finance Department of the Government of Nagaland
makes it abundantly dear that no such business has
resumed. Rather the fact remains that the assessee has
not transacted any business during the year and in
subsequent years. In view of this, the claim of expenses,
administrative as well as depreciation is liable to be
disallowed. Further, the interest received from bank is
liable to be considered as income from other sources
instead of the claim as business income. The Assessing
Officer has correctly placed reliance on the decision of
Hon'ble Delhi High Court reported in International
Marketing Ltd. Vs. Income Tax Officer [2007] 292 ITR 504
(Del).
1.5 Further, the claim of the legal and professional
charges included, in the administrative expenses
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
pertained to earlier years as found by the Assessing
Officer and not to the instant year.
1.6 In view of the above and in view of the fact that the
assessee has not produced anything on record by virtue
of which the assessee can substantiate that it is litigating
with the State Government for retrieval of the license
before any adjudicating authority, "the claim of the
assessee for allowability of the expenses and considering
of the bank interest as business income, is devoid of any
merit. Further, till date no operations have commenced to
justify that during the interim period the assessee was in
the process of reviving the business. The case laws relied
upon by the appellant are distinguishable on facts. In
view of this, the contention of the appellant is rejected
and the grounds raised in appeal are dismissed."
6. After hearing both the parties and perusing the aforesaid
finding of the Ld. CIT(A), I find considerable cogency in the
assessee's submissions made before the Ld. CIT(A) that the
assessee is a partnership firm and income under the head business
has been computed at NIL and there is no case of any tax liability.
The AO has made disallowance of claim of expenses on the ground
that no business activities has been carried out during the year
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
under reference. I also find from the record that the assessee is
engaged in the business of lotteries and the business has never
been closed or discontinued, as stated by the Ld. Counsel of the
assessee. The firm is still in existence and maintaining regular
establishment and infrastructure. The lottery business is being
carried out on in terms of agreement with Nagaland and Meghalaya
Authorities. However, the business was discontinued by these
authorities on the technical reasons and dispute which is still
pending in arbitration. I find that the assessee has a regular
establishment and incurred various expenses as a part of running
business clearly establish that business has neither being closed or
discontinued by the assessee. In my view it is an established legal
position that merely on the ground that there is no business receipt
during the year, there cannot be any presumption about closure of
the business. In view of the above, I note that neither the AO nor
the Ld. CIT(A) has appreciated the facts and evidence filed by the
Assessee before them which in my opinion, needs to be considered
by the AO. In the interest of justice, we remit back the issues in
dispute to the file of the AO with the directions to consider the
written submission filed by the assessee before the Ld. CIT(A) and
decide the case afresh, under the law, after giving adequate
opportunity of being heard to the assessee. Assessee is also
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ITA NOS.2105-2016/Del/2014 &
2077-2078/DEL/2015
directed to cooperate with the AO and filed all the evidences /
documents to the AO to substantiate its case.
7. In the result, all the four Appeals filed by the Assessee stand
allowed for statistical purposes.
Order pronounced in the Open Court on 21/09/2015.
Sd/-
[H.S. SIDHU]
JUDICIAL MEMBER
Date 21/09/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Assistant Registrar,
ITAT, Delhi Benches
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