TaxTMI 
TaxTMI 
2020 (11) TMI 413
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.... Officer issued show cause notice dt.5.12.2018 and called for the documents. The Assessing Officer passed the assessment order Under Section 143(3) by disallowing depreciation as per Companies Act on Motor Car of Rs. 44,70,008 and legal and consultancy fees, professional fees, penalty and fines Under Section 37 of the Act aggregating to Rs. 7,89,522. On appeal, the CIT (Appeals) confirmed the order of the Assessing Officer however he directed the Assessing Officer to disallow the depreciation as per the Income Tax Act, 1961 ('the Act') and not as per the Companies Act. Against this order, the assessee is in appeal before us. 4. The learned Authorised Representative submitted that lower authorities disallowed the depreciation only on the basis that the assessee has not engaged in the hotel business. It is submitted that the assessee incurred loss from F & O operations which is reflected in the assessee's financial statements under the head "Profits and Gains of Business or Profession" and allowed such loss set off against capital gains and other income. The learned Authorised Representative submitted that in the assessment year under consideration the assessee engaged....
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....ting and to meet auditors, bankers & company secretaries. Hence the lower authorities are not justified in disallowing the depreciation on the motor car under Section 32 of the IT Act, solely based on their perverse observation that the appellant was not engaged in business. 4.3 Without prejudice to the above, the Lower Authorities have failed to appreciate that the appellant had carried on the business of operation of hotel in the past by taking the hotel property on lease and as the lessor took back the property, the appellant was endeavoring to take other hotel properties on lease, indicating continuance of hotel business. 4.4.1 The ld. AR relied on the order of Tribunal in Assessee's own case in ITA Nos.543 to 546/Bang/2013 for AYs' 2005-06, 2007-08, 2008-09 8s 2009-101 has made following observations: " The facts giving rise to the aforesaid issue in all these appeals are identical. The assessee is a company engaged in the business of running of hotel besides a consignment business of Suitcase and Travel Bag in the name & style of Samsonite. As already stated, it also receives income in the form of licence fees from letting of commercial space to vari....
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....han three decades. 4.4.3. According to ld AR, the Assessee was endeavoring to take other hotel properties on lease to resume its hotel business. During this process of the transitory disruption of the hotel business, the Appellant had to manage its assets (The total assets of the Appellant as on as on 31.03.2016 were Rs. 31.78 crores). The Appellant was engaged in the F&O operations. It is pertinent to note that no person of prudence is expected to keep the funds idle in the course of its business. 4.4.4 He relied on the judgment in the case of CIT Vs. Kriti Resorts (P.) Ltd. [2011] 243 CTR 341 , (Himachal Pradesh), it was held as under: " The AO held that since the assessee had discontinued its Business since 1995 the income was not income from business but income from other sources and therefore the expenses claimed and depreciation brought forward could not be set off against the said income. 12. The first question which arises is whether the assessee can still be said to be in business or not. No doubt the hotel of the assessee was washed away and in that respect it can be said that it has not conducted any hotel business thereafter. However, th....
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....g, which runs through these decisions cited by the assessee, is that in these cases there is no bright line that can be determinative as to when business commences. In case of the service sector, where the entity has involved itself in various kinds of steps, some of which are preliminary to setting up the main substantial commercial venture, the linkage between these preliminary steps and nature of the ultimate activity may be a relevant factor to be taken into account. Therefore, Carefour dealt with this trading related aspect and stated that even certain kinds of preliminary steps, such as engaging in negotiation or employment of personnel, could be relevant even though actual activity might not be involved. 15. Keeping this principle in mind, this Court is of the opinion that the petitioner's activity, which it claims to be preliminary steps towards the fulfillment of the purpose, which is embodied in the MoU and extracts of which have been reproduced above, clearly indicates that it had set up its business and that these steps were for the ultimate fulfillment of its purposes, which was the preparation of development plans leading to the projects" ii) PCI....
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....to use his plant gainfully, lets it out temporarily for making profits for that business, the plant so let out does not cease to be a commercial asset of the manufacturer and the income earned by letting it out is chargeable as business income under sec.1O of 1922 Act. vii) In the Case of Vellore Electric Corporation Ltd. (supra), the Hon'ble Madras High Court held that there was no discontinuation of assessee's business while it was challenging the acquisition of its undertaking by State Government and the matter was pending in the court; all the expenses incurred by assessee in running the establishment during that period are allowable as deduction. viii) In the case of L. Ve. Vairavan Chettiar v. CIT [1969] 72 ITR 114, the Hon'ble Madras High Court held that if a person carries on two or more distinct businesses, the profits or losses of all of them ought to be added together and the aggregate sum would represent his profits or gains in the business. ix) In the case of Lahore Electric Supply Co. Ltd. (supra), the Hon'ble Supreme Court observed as under (HELD PORTION). "None of the above grounds led to the conclusion that the co....
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....Therefore, all these undisputed facts, in our view, support the existence of "intention" to do business of power distribution. Unlike in the case of Lahore Electric Supply Co. Ltd. (supra) where mere clearing of outstanding liabilities is only defense from 'Revenue' in support of intention for continuation of business activity, the case on hand and its facts distinguishes the facts of other case. Further, we find the judgment in the case of Vellore Electric Corpn. Ltd. (supra) is very close to the facts of the present one under consideration so long as the takeover decision of the Court is concerned. But the basis of actions of the present assessee keeps the assessee on a different pedestal. Therefore, the business of the assessee cannot be held to be a discontinued one. All the administrative expenses have to be allowable as business expenditure. Therefore, we find it difficult to conclude that the assessee does not have any intention to continue the business of power distribution. Accordingly, the Ground No.1 raised by the assessee is allowed. Whether the Expenses debited to Profit and Loss Account constitute business expenditure eligible for claim of de....
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....18] 409 ITR 587 (Delhi) ix. CIT v. Raghuvir Synthetics Ltd [2013] 354 ITR 222 (Gujarat) x. Q PCIT v. Chain House International (P.) Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh) xi. John Laing International Ltd. v. DCIT [2013] 145 ITD 145 (Delhi Trib.) xii. Km. Preeti Singh v. ITO [2019] 176 ITD 137 (Delhi - Trib.) 5. According to the ld. AR, the assessee is entitled depreciation since the assessee fulfilled the conditions laid down in Section 32 of the Act. The assessee's impugned asset on which depreciation claimed was included in the block of assets. Further it was submitted that the Assessing Officer having granted the maintenance expenditure of Car, it is not proper to disallow the depreciation on the same Car. He relied on the following judgements : i) CIT Vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) ii) CIT Vs. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756 (SC) iii) CIT Vs. Lawrence D'Souza (2011) 203 Taxman 200 (Kar) iv) Hirsh Bracelet India (P) Ltd. Vs. ACIT (2019) 178 ITD 601 (Bang - Trib) v) Sai Fragrance & Flavours (P) Ltd. Vs. ACIT (2018) 169 ITD 235 (Mum-Trib). 5.1 Furthe....