Temporary business dormancy can still support deduction of maintenance and revival-related expenditure; asset-wise depreciation depends on actual use.

Business expenditure remains deductible where operations are only temporarily dormant and the business has not been permanently closed, because maintenance of the establishment, continuing legal obligations, and revival-related litigation show an intent to resume. The disallowance was deleted. Depreciation on plant and machinery was not allowable where no manufacturing activity occurred during the year, while depreciation on furniture and building was still permitted on the facts. An addition for interest on income-tax refund was deleted because no refund income was received or booked during the year. The Revenue's appeals failed and the relief granted below was sustained.

---

---

Issues: (i) whether business expenditure was allowable where the assessee's business was temporarily dormant but not permanently closed; (ii) whether depreciation on plant and machinery could be disallowed while depreciation on furniture and building was allowed, and whether the interest component of income-tax refund required addition.

Issue (i): whether business expenditure was allowable where the assessee's business was temporarily dormant but not permanently closed.

Analysis: The assessee had not gone out of business; the facts showed only a lull in operations. The maintenance of an establishment, continuation of legal obligations, and pending litigation concerning compensation for acquired assets indicated an intention to resume business when circumstances permitted. A temporary discontinuance or lean period is not the same as permanent closure of business.

Conclusion: The business expenditure was allowable and the disallowance was rightly deleted, in favour of the assessee.

Issue (ii): whether depreciation on plant and machinery could be disallowed while depreciation on furniture and building was allowed, and whether the interest component of income-tax refund required addition.

Analysis: Since no manufacturing activity had taken place during the year, depreciation on plant and machinery was not allowable, but depreciation on furniture and building could still be granted. The addition relating to interest on income-tax refund was deleted because no such refund income had been received or booked during the year.

Conclusion: The partial treatment of depreciation was upheld and the addition of the refund interest was correctly deleted, in favour of the assessee.

Final Conclusion: The Revenue's appeals failed in both years, and the relief granted by the first appellate authority was sustained.

Ratio Decidendi: Where business has only suffered a temporary lull and has not been permanently closed, expenditure incurred to maintain the establishment and pursue revival-related obligations remains deductible; asset-wise depreciation and refund-related additions must be tested on the actual activity and receipt position for the year.

---