Case Law Details

Case Name : ADIT Vs Dolphin Drilling Ltd. (ITAT Delhi)
Appeal Number : I.T.A. No. 6393/Del/2012
Date of Judgement/Order : 28/06/2013
Related Assessment Year : 2009- 10
Courts : All ITAT (4268) ITAT Delhi (937)

Assessing Officer ignored the very fact that there was a temporary lull in the business of the assessee and it was not a cessation of business of activity. Therefore, the Assessing Officer disallowed the expenses incurred by the assessee for continuation of its business which deserve to be allowed. During the argument, the AR has submitted a detail of gross receipts from AY 2004-05 to 2012-13 which reveals that except assessment year under consideration in this appeal i.e. 2009-10, the gross receipt of the assessee is of high volume during the preceding and subsequent years which clearly reveals that there was a temporary lull in the business activity of the assessee during the year under consideration in this appeal.

The detail of gross receipts has not been disputed by the DR which clearly reflects that during the subsequent years, the business of the assessee again continued and the assessee undertook substantial business activities during this period. In this situation, we are inclined to hold that there was a temporary lull during the year under consideration in the business activity of the assessee and the business activities were again started by the asessee during the subsequent years by receiving huge amounts.

 In view of above, we hold that the Assessing Officer wrongly disallowed the expenses and made addition to the income of the assessee which was rightly deleted by the Commissioner of Income Tax(A) by passing the impugned order. We are unable to see any infirmity, perversity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A) in the impugned order. Hence, ground nos. 1 to 4 of the revenue being devoid of merits are dismissed.

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH `H’ NEW DELHI

BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT

AND

SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

I.T.A.No.6393/Del/20 12

Assessment Year : 2009-10

ADIT, International Taxation

vs

Dolphin Drilling Ltd.

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Appellant by: Shri Tarun Seem, Sr. DR Respondent by : Shri Amit Arora

O R D E R

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

This appeal has been preferred by the revenue against the order of Commissioner of Income Tax(A)-II, Dehradun dated 12.10.2012 in Appeal No. 294/C.I.T.(A)-II/2011-12 for AY 2009-10.

2. The main ground raised in this appeal read as under:-

“1. Whether on the facts and circumstances of the case, the CIT(A) has erred in allowing the expenditure incurred by the assessee even when business activity had ceased and drillship had left India waters in April 2007.

2. Whether on the facts and circumstances of the case, the C1 T(A) has erred in holding that the long period absence of drill ship can be termed as full in business activity, when in fact the contract had terminated and Drillship had left Indian waters.

3. Whether on the facts and circumstances of the case the CIT (A) has erred in holding that the expression ‘for the purpose of business’ is wider in scope, then the expression ‘for the purpose of earning profits’.

4. Whether on the facts and circumstances of the case, the CIT(A) has erred in allowing the expenses of personnel despite business having ceased.

5. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time of before the hearing of the appeal.”

Ground no. 1 to 4

3. Apropos these grounds, ld. DR submitted that the Assessing Officer observed and held that there was no business activity during the year as the drill rig had left the Indian waters way back in April 2007 itself i.e. financial year 2007-08. The DR further submitted that it was also observed by the Assessing Officer that there was no logic to continue incurring expenses on personnel and administrative expenses during the year under consideration after a long gap in activity since vessel had left Indian waters. The DR further contended that the nature of the activities of the assessee company is totally dependent on the drill ship and the same ceases to exist when the drill ship leaves Indian Ocean and stops operation of services. The DR further contended that when the contract of the assessee was terminated and even otherwise the detail of expenses provided by the assessee were not fully verifiable and substantiated, then disallowance and addition made by the Assessing Officer was sustainable. Pointing out the impugned order, the DR vehemently contended that the disallowance and addition made by the Assessing Officer was deleted by the Commissioner of Income Tax(A) without any reasonable basis and cogent reason. The DR concluded his argument with a final submission that the impugned order may be set aside by restoring that of the Assessing Officer. Replying to the above, assessee’ s representative contended that there was a temporary lull in the business and not a complete cessation of business activities by the assessee company. The AR further contended that the Assessing Officer has not pointed out any specific defects in the claim of expenses for any consideration of the genuineness of the expenses claimed and the Assessing Officer took a hyper technical approach in disallowing the genuine expenses claimed by the assessee. The AR placed reliance on the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of Commissioner of Income Tax vs Anita Jain(2009) 182 Taxman 173(Del) and another judgment of Hon’ble High Court of Madras in the case of L.Ve. Vairavan Chettiar vs Commissioner of Income Tax (1969) 72 ITR 114(Mad) and submitted that in the case of temporary suspension of business, there is nothing to show that the business has been abandoned permanently. Per contra, the assessee continued to incur the expenses on the maintenance of the establishment and on account of interest on loans, resultant loss being business loss is deductible. In the case of Anita Jain (supra), Hon’ble Jurisdictional High Court of Delhi decided the issue of allowability of business expenditure in case of lull in business and held that in case of lull of business and not cessation of business, the expenses incurred by the assessee are allowable and the same expenses and depreciation could not be disallowed.

4. On careful consideration of rival submissions, contentions, citation and material placed before us, we observe that the Commissioner of Income Tax(A) has decided in favour of the assessee with following observations:-

“3.2 The facts as brought out by the Ld. AO and the contentions of the Ld. ARs have been considered. An important fact mentioned in the averments of the Ld. ARs extracted above is that the Appellant concern could procure business for itself during financial year 2009-10. This would readily prove a situation where there is a temporary lull in business d not a complete cessation of activities. The case laws cited by the Ld. ARs merely illustrate and confirm a well established judicial precedent that expenses of a business en during a lull period shall be allowed if it is not proved that there is a complete cessation of activities. Also the Ld. AO has not pointed out specific defects in the claim, expenses for any consideration about the genuineness of expenses claimed. Thus keeping in view the conspectus of facts it is held that the Appellant was merely going though a temporary lull in business activities and the business was very much alive. Thus the expenses claimed are allowed. In view of this, the appellant succeeds with respect to ground of appeals numbers 1 and 2.”

5. In view of above and respectfully following the judgment of Hon’ble Jurisdictional High Court of Delhi in the case of Anita Jain (supra), we hold that the Assessing Officer ignored the very fact that there was a temporary lull in the business of the assessee and it was not a cessation of business of activity. Therefore, the Assessing Officer disallowed the expenses incurred by the assessee for continuation of its business which deserve to be allowed. During the argument, the AR has submitted a detail of gross receipts from AY 2004-05 to 2012-13 which reveals that except assessment year under consideration in this appeal i.e. 2009-10, the gross receipt of the assessee is of high volume during the preceding and subsequent years which clearly reveals that there was a temporary lull in the business activity of the assessee during the year under consideration in this appeal.

6. The detail of gross receipts has not been disputed by the DR which clearly reflects that during the subsequent years, the business of the assessee again continued and the assessee undertook substantial business activities during this period. In this situation, we are inclined to hold that there was a temporary lull during the year under consideration in the business activity of the assessee and the business activities were again started by the asessee during the subsequent years by receiving huge amounts.

7. In view of above, we hold that the Assessing Officer wrongly disallowed the expenses and made addition to the income of the assessee which was rightly deleted by the Commissioner of Income Tax(A) by passing the impugned order. We are unable to see any infirmity, perversity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A) in the impugned order. Hence, ground nos. 1 to 4 of the revenue being devoid of merits are dismissed.

8. Ground no. 5 is general in nature which needs no adjudication.

9. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 28th June, 2013.

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