TaxTMI 
TaxTMI 
2010 (12) TMI 879
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.... No.1 in Revenues' appeal and Ground No.1 in assessee's appeal reads as follows: Ground No.1- Revenue's Appeal: "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the expenses of Rs.30,39,460/- relying on the Supreme Court decision in the case of BR Ltd. (113 ITR 647) without appreciating the fact that assessee's case differs from the case of BR Ltd. and further the CIT(A) has not considered the Supreme Court decision in the case of L.M. Chhabda and Sons (65 ITR 638) which has been incorporated while making the addition in the assessment order." Ground No.1- Assessee's Appeal: "1. On facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in granting only partial relief i.e. not granting any relief against disallowance of expenses of Kavesar Factory of Rs.2,76,080/- comprising of expenses on stores and spares, traveling, entertainment, repairs, postage and Courier, office expenses, insurance, legal fees and bank charges and depreciation of Rs.1,90,225/- pertaining to fixed assets of Kavesar Factory." 4. The assessee is a company which is engaged in the business of....
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.... that the manufacture of Pigment was a distinct business. According to the AO the business for which expenditure is incurred must exist during the previous year. Expenditure relating to business which ceased to exist at commencement of year cannot be allowed as deduction while computing total income as held in L.M. Chhabda and Sons v. CIT 65 ITR 638 (SC). Therefore, Rs.35,05,765/- was disallowed being expenses and depreciation in relation to Kavesar factory. 5. Before CIT(A) the Assessee submitted that the pigment operations at Kavesar was one of the units of business activities among several others like that in Lower Parel, Chiplun and Kanpur. The entire business was controlled from head office- Lower Parel and there was unity and control of management and finance. The pigment was one of the basic raw materials used for the manufacture of paint. It pleaded that the AO's action was not proper in view of the fact that interlacing and inter connection of all the business activity exist and mere discontinuation of one of the activities does not amount to discontinuation of the entire business. Without prejudice to the above submission, it was submitted that even otherwise the ....
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....of Kavesar factory. The Kavesar factory was manufacturing pigment used in manufacture of paints. The Assessee even after closure of the Kavesar factory continued to carry on the business of manufacture of paint. In other words, the closure of Kavesar unit had no impact on the main business of the Assessee company viz., that of manufacture of paints. The further fact that the Assessee used the Kavesar factory for keeping its old accounting records is also not in dispute. There was inter-connection, inter-lacing, and unity between the Kavesar unit and the other units because of common management, common business organization, common administration, common fund but there was no inter dependence between the various unit. As already stated even after the closure of the unit at Kavesar the business of manufacture of paint continued. 11. The case of the revenue is based on the decision of the Hon'ble Supreme Court in the case of Chhabda and Sons (L.M.) vs. Commissioner of Income-tax 65 ITR 638 (SC). The facts in the aforesaid case was that the Assessee in that case was carrying on the business of exhibiting cinematograph films in Ahmedabad and in Bombay. The lease in respect of on....
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....ining when two lines of business would constitute the same business is as follows:- "A fairly adequate test for determining whether the two constitute the same business is furnished by what Rowlatt J. said in Scales vs. George Thompson and Co. Ltd.: 'Was there any inter-connection, any inter-lacing, any inter-dependence, any unity at all embracing those two businesses ?' That inter-connection, inter-lacing, inter-dependence and unity are furnished in this case by the existence of common management, common business organization, common administration, common fund and a common place of business." She placed further reliance on the decision of the Hon'ble Supreme Court in the case of Veecumsees vs. Commissioner of Income-tax 220 ITR 185 (SC). The facts in the said case were the assessee ran a jewellery business. It then commenced business also in the exhibition of cinematographic films. In 1961, it obtained loans for building a cinema theatre. The said theatre was built in 1962 and was run by the assessee until July 31, 1965, when it was transferred to another firm. For the years during which the assessee exhibited films in the said theatre the interest....
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....by the assessee as jeweller and in running the cinema theatre, etc., was composite. In view of this finding also, the assessee was entitled to the deduction of the interest paid on the loans in question under section 36(1)(iii) of the Act. 13. What emerges from the aforesaid decisions is the principle that in deciding the question as to whether various activities carried on by the Assessee constitute the same business or separate business no single test can be devised as universal and conclusive. The question has to be decided on a consideration of all the relevant facts and circumstances. Some facts may tend one way and some others the other way. An overall view has to be taken and a conclusion arrived at. (as held by the Hon'ble Supreme Court in the case of Waterfall Estates Ltd. vs. CIT (1996) 219 ITR 563 (SC)) We are also of the view that the facts in the case of veecumsee's case (Supra) were different, in as much as, the borrowing in respect of which interest was paid after closure of the business was in relation the business at the time when the borrowing was made. The Assessee being one and the same person, the payment of interest was considered as one for the purpos....
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....ns of section 14A of the I.T. Act, 1961 expenditure attributable to the income exempted under the Income tax Act is not an allowable expenditure and the Assessing Officer has rightly estimated, in absence of the information regarding the actual expenses incurred in the aforesaid connection, a small sum of Rs.13,25,892/p being 5% of the total exempted income of Rs.2,65,17,835/- towards financial and administrative expenditure attributable to the said exempted income." 15. The assessee during the previous year earned dividend income of Rs.1,27,61,808/- on shares and units and Rs.1,37,56,027/- on interest on tax free bonds. According to the assessee it did not take any loans for the purpose of making investment which yielded the tax free dividend and interest income and, therefore, no disallowance under section 14A of the Income Tax Act, 1961(the Act) should be made. Assessing Officer however, did not accept the plea of the assessee. In his opinion the assessee might have incurred some expenditure in relation to the exempt income. He estimated the sum at 5% of the exempt income and disallowed a sum of Rs.13,25,892/-. 16. On appeal by the assessee the CIT(A) reduced the....