N. Barathvaja Sankar, Accountant Member - (1.) THE Commissioner (Appeals) erred in holding that there was only a lull in the business of the assessee during the period under consideration and that the business must be considered to have been continued.
(2.) The Commissioner (Appeals) failed to note that AVK Industries had suspended its manufacturing activity as early as in 1989 and the expenditure claimed during the year under consideration was just the interest on bank loans outstanding. The Commissioner (Appeals) has failed to give any consideration for the case laws referred to by the Assessing Officer in his elaborate discussion in the asst. order but simply relied on the case laws cited by the assessee, the facts of which are distinguishable.
(3.) THE Commissioner (Appeals) ought to have followed the judicial decisions reported in 185 ITR 535,126 ITR 779, 126 ITR 476 and 65 ITR 643 and upheld the order of the Assessing Officer. 2. Briefly stated, the facts of the case are that the assessee is a cine actress by profession. Besides she is deriving income from property and also income from manufacturing and trading activity done under the name of AVK Chemical Industries. It is stated that the manufacturing activity in respect of AVK Chemical Industries was stopped since the year 1989 and that during the year 1984 the assessee had made some efforts to revive trading activity in respect of that business. In the course of the assessment proceedings the assessee had taken a plea before the Assessing Officer that the loss claimed under the head 'business' is allowable either for the reason that there is only a lull and inactivity of its business activities or for the reason that there is complete unity of control in respect of the assessee's activities both business as well as professional. THE assessee also furnished a number of case laws in respect of both the contentions raised by her. However, the Assessing Officer had negative all the contentions raised by the assessee and held that as there was no business activity, the entire expenses claimed against business income cannot be allowed. Hence the Assessing Officer had disallowed the loss of Rs. 3,73,328 and Rs. 2,88,257 claimed for the assessment years 1991 -92 and 1992-93 respectively in respect of the business from AVK Chemical Industries on the ground that there was no business activity at all. 3. Aggrieved by this order of the Assessing Officer the assessee moved the matter in appeal before the first appellate authority. Before the first appellate authority the learned counsel for the assessee contended that he had furnished enough evidence before the Assessing Officer to prove that AVK Chemical Industries was having both manufacturing and trading operations. According to him the concern was interested in manufacturing chemicals needed by pharmaceutical concerns and it was also doing some trading activities even in the past. THE expenditure claimed mostly related to interest on the borrower made for the purpose of investments in the assessee's business and professional activity. According to the learned counsel for the assessee there was only a period of lull and inactivity in the business due to reasons. beyond the control of the assessee and that since the year 1989 the assessee was making all efforts to revive manufacturing and trading activity. In fact during the year 1994 the manager of the concern Dr. Karunakaran had been in correspondence with a foreign concern for supply of steam coal. THE counsel also relied on the following decisions in support of his contention that there was only a temporary set back in the business activity and that all steps were being taken to revive the manufacturing and trading activities: - (a) Mrs. Sarojini Rajah v. CIT [1969] 71 ITR 504 (Mad. ) (b) L.V.E. Vairavan Chettiar v. CIT [1969] 72 ITR 114 (Mad.) (c) Karsandas Ram Chhoddam v. CIT 88 ITR 20 (Bom.) (sic) (d) CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC). THE counsel also further submitted that even though the department was not agreeable with the above argument yet the loss claimed had to be allowed since the assessee had been maintaining the common account for all her activities, namely profession and business. For this proposition the counsel relied on the Madras High Court decision in the case of CIT v. S.S.M. Ahmed Hussain [1987] 164 ITR 525. It was further submitted that according to the decision of the Madras High Court case, though the assessee's activity consisted of two entirely different lines of business, namely film business and national bonds (buying and selling) yet the High Court held that so long as there was unity of control for both the businesses like inter connection, inter lacing and inter dependence the loss claimed in one head of business can be allowed even though that business had been discontinued. It was further argued that the said Madras High Court decision was again based on the clear principles laid down by the Supreme Court in the case of Standard Refinery & Distillery Ltd. v. CIT [1971] 79 ITR 9. THErefore it was contended before the first appellate authority, for the reasons discussed above that the assessee's claim for allowance of loss under AVK Chemical Industries was admissible against her income from profession both on the ground of (a) temporary lull and inactivity and (b) unity of control in respect of both business and professional activity. After considering the submissions of the learned counsel for the assessee the first appellate authority had concluded that there was only a temporary period of inactivity in the business and hence the loss was allowable. He, however, did not deal with the alternative contention regarding unity of control in respect of both business and professional activities. 4. Aggrieved by this order of the first appellate authority the Revenue is on appeal before us with the grounds of appeal extracted elsewhere in this order. Before us the learned Departmental Representative placed on record his written submissions and reiterated the same as his arguments. To say in brief he submitted that: 4.1 In the ground No. 1 the Commissioner (Appeals) has erred in holding that there was only a lull in the business of the assessee during the period under consideration and that the business must be considered to have been continued. THE finding of the Commissioner (Appeals) is not correct as found on perusal of the assessee's assessment records for the assessment years 1989-90 to 1991-92 and 1992-93. 4.2 In the statement of total income for the year ending on 31 -3 -1989 (filed alongwith the return for the assessment year 1989-90) it has been mentioned that the assessee had sold the land pertaining to the AVK Chemical Industries and capital gains have been offered for assessment. Likewise the building pertaining to M/s. AVK Chemical Industries had also been sold and the capital loss was shown. It is very clear that the building which had been used for AVK Chemical Industries had been sold as the cost of the building had been taken at the written down value. 4.3 In the profit and loss account of AVK Chemical Industries for the year ending on 31-3-1990 the only bank interest of Rs. 5,50,160 and expense of Rs. 28,000 and depreciation of Rs. 57,441 had been debited. And the loss of Rs. 5,90,601 had been shown. No trading account has been filed. It shows that there has been no manufacture or trading in the assessment year 1990-91. 4.4 For the assessment year 1991-92 the assessee filed only the profit and loss account for M/s. AVK Chemical Industries and no trading or manufacturing account had been filed which shows that there has been no trading or manufacturing. THE Profit and loss account filed shows only profit on sale of land amounting to Rs. 1,59,400 and debit of Rs. 5,80,727 being the bank interest and debit of expense of Rs. 24,000. 4.5 For the assessment year 1992-93 the assessee has filed only the profit and loss account where only the bank interest of Rs. 2,88,257 had been debited and this is the only expenditure which resulted in loss of Rs. 2,88,257 in the case of M/s. AVK Chemical Industries. 4.6 From the above it is very clear that there has been a complete cessation of the business activity of the assessee, Le., namely M/s. AVK Chemical Industries right from the assessment year 1989-90 upto 1992-93. Even beyond it is clear from the profit and loss account filed by the assessee for the assessment year 1993-94 where only sale of old items of Rs. 2,750 has been reported. 4.7 THE case of Vikram Cotton Mills Ltd. (supra) quoted by the assessee is not relevant to the present case. This is the case where the point considered by the Apex Court was where the rental income on letting of mills on lease was business income or not and whether earlier years' losses could be set off against the rental income. THE stoppage of business as in the assessee's case was not considered at all by the Apex Court in the cited case.;