TaxTMI 
TaxTMI 
2007 (7) TMI 351
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....r, when no business was conducted by the assessee during the relevant previous year. 3. The material facts of the case are like this. The assessee is a domestic company and, in the relevant previous year, it had income only from interest and dividend. In the course of scrutiny assessment proceedings, the AO noticed that no business activities were carried out by the assessee. He thus required the assessee to show cause as to "why not the expenses of the assessee be disallowed as there was no business activity during the year" and "the income earned be brought to tax". The assessee submitted that the expenses incurred by the assessee are only on account of salaries and conveyance to staff which was required to run the office, and on accou....
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....ming to the conclusion that the expenditure is to be allowed even as there is no business activity during the relevant previous year. It is also pointed out that reasonableness of expenditure also has no bearing on this issue. It is further pointed out that the reasoning of the CIT(A) is vague and lacks specific and cogent reasons, germane to the context, for deleting the disallowance of expenses. Learned Departmental Representative relies upon/Tribunals' order in the case of Adasoft (India) (P) Ltd. vs. Dy. CIT (2006) 9 SOT 31 (Del) in support of the disallowance of expenditure when business is not in existence. She relies upon the order of the AO, justifies the same, and urges us to restore the order of the AO. Dr. Gupta, learned counsel ....
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....s held that the expenditure incurred by a company, for retaining its status as company and for its continued existence as such, is allowable deduction, even after discontinuation of business in certain circumstances. On the strength of these precedents, he justifies the conclusions arrived at by the CIT(A). His next tier of defence consists of the proposition that only because no business activity is carried on in the relevant previous year, and in the absence of any categorical finding to the effect that business has closed for good, the AO cannot jump to the conclusion that the business has ceased. The distinction between closure of business and suspension of business activity is sought to be highlighted and the relevant judicial preceden....
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.... observation that the assessee did not carry out any business transactions which at best was AO's finding about an activity of business not being functional in the relevant previous year. In our opinion, not carrying on business activity in a particular period cannot be equate with closure of business as it takes an unsustainably narrow view of the scope of cessation of a business. In the case of L.VE. Vairavan Chettiar vs. CIT (1969) 72 ITR 114 (Mad), their Lordships of Hon'ble Madras High Court were in seisin of a situation where the assessee had obtained an import licence for doing arecanut business but due to adverse conditions in market, he temporarily suspended the arecanut business for the assessment year in question. Nevertheless, h....
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....rried out during the relevant previous year, 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 share dealing business, merely because there are no business transactions in the relevant previous year cannot, be reason enough to come to....