2009 (5) TMI 840 - AT - Income Tax

Tribunal allows appeal for expenses in forcibly stopped business during SEBI interruption

KNP Securities P. Ltd. Versus Assistant Commissioner of Income-tax

KNP Securities P. Ltd. Versus Assistant Commissioner of Income-tax - [2010] 1 ITR 130 Issues Involved:1. Confirmation of addition of dividend and interest income from other sources.2. Disallowance of depreciation on membership rights of the BSE card.3. Disallowance of depreciation on office equipment and various other expenses related to interest paid to the bank and operational expenses.Detailed Analysis:1. Confirmation of Addition of Dividend and Interest Income from Other Sources:Issue: The assessee did not press the ground relating to confirming the addition of dividend and interest income from other sources.Judgment: This ground was dismissed as not pressed.2. Disallowance of Depreciation on Membership Rights of the BSE Card:Issue: The assessee claimed depreciation on the BSE card, which was disallowed by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) on the grounds that there was no business activity due to SEBI's restrictions.Arguments by Assessee: The assessee argued that the business was forcibly stopped by SEBI due to alleged involvement in a share scam, and the BSE card was ready for use, thus qualifying for depreciation. The assessee cited various case laws to support the claim.Arguments by Department: The Department contended that no business activity was conducted, and hence, no depreciation could be allowed on the BSE card as it was not used.Tribunal's Analysis: The Tribunal noted that the assessee was barred from business activities by SEBI orders but maintained its establishment and staff. The Tribunal referred to the Law Lexicon and relevant case laws to conclude that the business was not discontinued voluntarily but was forced to stop. The Tribunal held that the BSE card was ready for use and the business was not permanently closed until 2007, thus allowing the depreciation claim.Judgment: The Tribunal allowed the depreciation on the BSE card, noting that the business was not voluntarily discontinued and the establishment was maintained.3. Disallowance of Depreciation on Office Equipment and Various Other Expenses:Issue: The disallowance of depreciation on office equipment and various other expenses, including interest paid to the bank and operational expenses, was confirmed by the Commissioner of Income-tax (Appeals) due to the lack of business activity.Arguments by Assessee: The assessee argued that despite SEBI's restrictions, it had to maintain its establishment, pay salaries, and meet other business-related expenses. The assessee cited case laws to argue that these expenses should be allowed as they were incurred to keep the business alive.Arguments by Department: The Department argued that no business activity was conducted, and thus, no expenses should be allowed.Tribunal's Analysis: The Tribunal reviewed the facts and relevant case laws, noting that the business was forcibly stopped, not voluntarily discontinued. The Tribunal referred to the case of CIT v. Vellore Electric Corporation Ltd. and Sree Meenakshi Mills Ltd., where expenses incurred to maintain the business during forced interruptions were allowed. The Tribunal concluded that the expenses were necessary to maintain the business and should be allowed.Judgment: The Tribunal allowed the expenses claimed by the assessee, including depreciation on office equipment and interest expenses. However, the admissibility and genuineness of these expenses were to be examined by the Assessing Officer, who was directed to verify the claims in light of the Tribunal's decision for the assessment year 2000-01.Final Judgment: The appeals of the assessee were allowed for statistical purposes, with directions to the Assessing Officer to examine the admissibility and genuineness of the expenses claimed. The order was pronounced on May 29, 2009.