Ramgosri Constructions P. Ltd. vs Income Tax Officer

Prabha Sridevan, J.—The question of law raised in these tax case appeals is as follows:

Whether in an assessment proceedings particularly u/s 148 of the Income Tax Act, 1961, mere suspicions, surmises and conjectures on the part of the Assessing Officer in denying the set off of losses of business income without considering the weight of evidence submitted before it is sufficient for the Tribunal to remit the matter back for fresh ascertainment of facts when all the materials were available before it on record?

The learned senior Counsel appearing for the appellant would submit that the Tribunal was not correct in coming to the conclusion that the matter should be remitted to the Assessing Officer with a specific direction to find out whether the assessee has temporarily suspended its business and actually incurred the expenditure.

The assessee is engaged in the business of manufacturing plastic moulds and plastic products. According to the assessee, its very first project to manufacture a plastic mould did not take off. Therefore, it had to suspend and stop that manufacturing activity. It filed its return for the assessment years 1998-99 to 2001-02 and 2003-04. In its return it claimed that it was entitled to the benefit of set off of losses computed under the head "Business" against the "income from house property". The Assessing Officer declined to give the benefit of set off as claimed.

The Commissioner of Income Tax (Appeals) allowed the appeals filed by the assessee partly. Against that both the Revenue and the assessee filed appeals before the Income Tax Appellate Tribunal.

The Tribunal remitted the matter back to the file of the Assessing Officer with a specific direction to find out whether the assessee has temporarily suspended its business and actually incurred expenses to the extent of its claim. Against this the present appeal has been filed.

According to the learned senior Counsel the Tribunal had allowed the depreciation based on the materials on record and findings had also been given. The matter was remitted only for the purpose of verification of some mistakes and, therefore, the finding of the Tribunal that the appellate authority had not gone into the relevant details is not correct.

On the other hand, the learned senior standing Counsel Mrs. Pushya Sitaraman appearing for the respondent would submit that the evidence was before the Assessing Officer, as seen from paragraphs 6.2 to 6.5 paragraphs of the order passed toy the Commissioner of Income Tax (Appeals), which reads as follows:

6.2. The appellant''s representative also objected to the Assessing Officer''s statement that no evidence in regard to the sale of scrap was furnished. It was stated in the written submission that the scrap of the mould was sold to the same person during both the accounting periods and the copies of the invoices raised were also furnished during the course of the assessment proceedings for the assessment year 1999-2000, vide letter dated December 24, 2004, and that for the assessment year 1998-99, a copy of invoice was furnished along with the books produced on February 24, 2005.

6.3. With regard to the Assessing Officer''s observation that the expenditure incurred and claimed by the appellant-company could be considered as pre commencement business expenditure, the appellant''s representative pointed out that the Assessing Officer was once again not correct in coming to such a conclusion, because, as per the Companies Act, a private limited company is to be taken to have commenced business on its very incorporation.

6.4. It was further explained by the appellant''s representative that it is only in a big project involving huge capital outlay which included activities like construction of factory, installation of machinery, etc., the issue of items of expenditure to be considered prior to the commencement of the business would be relevant, whereas, in the present situation, the appellant-company had prepared a mould during the accounting period relevant for the assessment year 1998-99 which fact was not denied. Thus, it was argued that considering the nature of the business of the company, it would be proper to hold this activity itself as a business activity and the Assessing Officer ought to have appreciated the fact that there was no need for the company to incur any expenditure prior to commencement of this activity or to capitalise any of the expenditure items claimed.

6.5. The appellant''s representative also filed copies of quotations submitted by the appellant-company to the other company along with the drawings and purchase orders issued by the other; company in respect of the two moulds to be supplied by the appellant-company.

The Tribunal has not set aside the findings of the appellate authority and remitted the entire issue to the file of the Assessing Officer. The Tribunal had merely contented itself by saying that neither the Assessing Officer nor the appellate authority had examined the relevant details and that it is not clear whether the records were before the Assessing Officer. But it does not appear to be correct since there were materials before the Assessing Officer as well as the appellate authority for them to draw the respective conclusions. Therefore, we remit the matter back to the Tribunal to decide the matter afresh as expeditiously as possible on the basis of the available materials.

The tax case appeals are ordered accordingly. No costs.