1. Since common points are 0involved, these appeals are disposed of together.
2. These appeals are filed against the common order dated 15-3-1983 of the Commissioner made under Section 263 of the Income-tax Act, 1961 ('the Act'). The facts of the case are that the assessee's business is export of coffee. The assessee was a registered exporter from 1974. The coffee can be purchased only at the auction held by the Coffee Board.
During these three years, the assessee participated in the bid at the auction held by the Coffee Board, but was not a successful bidder.
Hence, the assessee could not purchase or sell the coffee during these years. Thus, the assessee could not export coffee during these three years under the appeal, but in the earlier years, the assessee had exported coffee. During these three years, the assessee maintained its registered office and the establishment. The partners had gone abroad also for exploring the possibilities for export market there. During these three years, funds were invested in fixed deposits and interest was earned, which was returned by the assessee. During these years, the assessee filed loss returns. The ITO after disallowing a sum Rs. 5,000 in the year 1978-79, Rs. 4,000 in 1979-80 and Rs. 6,000 in 1980-81, out of the expenses claimed, determined the net loss at Rs. 91,110, Rs. 38,960 and Rs. 54,902 for the assessment years 1978-79, 1979-80 and 1980-81, respectively. The assessee had filed applications in Form No.12 for continuance of registration. The ITO granted continuance of registration in all these three years.
3. The Commissioner issued notice under Section 263, seeking to revise the assessment orders and the continuation of registration in response to which the assessee filed explanation objecting to the proceedings under Section 263. It was urged before him that in view of the adverse market conditions in world market and also since the assessee was not a successful bidder, the assessee could not purchase or sell the coffee but efforts had been made to do business. Evidence was also produced before him in support of the assessee's contention. The Commissioner in his order, dated 15-3-1983, made under Section 263, held that the circumstances indicate that the maintenance of office and registration with the Coffee Board is nothing but a facade and, hence, cannot be taken cognizance of having carried on business and the assessee is not entitled to the deduction of expenses on account of business. The receipts being only the interest on fixed deposits, no expenses have been correlated to earning of this income. He directed the ITO to determine the income being the interest on fixed deposits during these years. He further held that a partnership can exist only when there is a business carried on by the firm. As in the assessee's case, business is not carried on, the assessee cannot be considered for registration and the order continuing the registration is not in order. Hence, the assessee is to be treated as an unregistered firm. He directed the ITO to treat the assessee as an unregistered firm, subject to application of the provisions of Section 183(6) of the Act, in all these years.
Against the said order, the assessee has preferred these appeals.
4. The learned counsel for the assessee firstly submitted that the Commissioner had no jurisdiction to invoke the provisions of Section 263. On merits, he submitted that the assessee exported coffee in the earlier years, but in these years the assessee, though participated in the auction was not a successful bidder. Hence, there were no exports but registration with the Coffee Board continued, establishment of the assessee continued and the partners visited foreign countries to explore the possibilities for export of coffee. Thus, there was lull in the business activity during these years but the business has not been stopped. Hence, the expenses claimed by the assessee have been rightly allowed and the loss has been rightly determined. The Commissioner was not justified in the view he has taken. He also urged that as the firm carried on the business and has complied with the formalities by filing Form No. 12, registration was rightly continued during these years. The Commissioner was not right in holding that the continuation of registration is not in order. The very fact that he directed the ITO to treat the firm as unregistered firm would indicate that the firm carried on the business. Further, the Commissioner has directed the ITO to apply the provisions of Section 183(b), which also indicates that the assessee would be treated as a registered firm and there is no prejudice to the interests of the revenue. He urged that the order of the Commissioner should be cancelled. The learned departmental representative supported the order of the Commissioner. He urged that as the assessee did not export coffee during these years, no business has been carried on and as such the expenses claimed cannot be allowed.
On that account registration also cannot be granted. Thus, he supported the order of the Commissioner.
5. We have considered the rival submissions. The assessee is a registered exporter of coffee from 1974 and continues to be so even now. In the earlier years, the assessee exported coffee to foreign countries. During these years, the assessee participated in the bid held by the Coffee Board but was not a successful bidder. Coffee can be purchased only if he is a successful bidder at the auction held by the Coffee Board. Since, he was not a successful bidder, he could not purchase and export the coffee during these years. The assessee maintained establishment and registered office. The partners of the assessee-firm visited the foreign countries for exploring the export market. The Reserve Bank of India (RBI) released the foreign exchange for their visit to foreign countries. This is evident from the letter, dated 5-7-1976 of the RBI. There is also correspondence between the assessee and the purchasers in the foreign countries, which also showed that the assessee has been making efforts to export coffee to foreign countries. This is evident from the letter dated 9-9-1977, addressed by Pancommerce, Espanola, Madrid, addressed to the assessee. Similar letters are dated 20-10-1977 of A. Gallo, 10-11-1979 of Victoria Wakefield, Hong Kong, 17-10-1980 of Amoco Fabrics Co., Florida, 27-10-1980 of Muller Batavier B.V. Rotterdam and letter dated 5-11-1980 of Multi-Terminals, Waalhaven B.V. Rotterdam. The Coffee Board in its letter, dated 5-1-1980, required the exporters to furnish bank guarantee and in the list annexed to that the assessee figures as No.36, who is required to furnish the bank guarantee to the extent of Rs. 50,000. Accordingly, the assessee has furnished the bank guarantee, which is evident from the letter dated 13-8-1982 of the Syndicate Bank, Gandhinagar, Bangalore. The letter dated 1-8-1984 of the Coffee Board states that the assessee was a registered coffee exporter during the calendar years 1976 to 1980 and during these years they were unsuccessful in their bids except for a small quantity of 25.5 tonnes in January 1976. Another letter of the Coffee Board dated 4-7-1984 states that the assessee purchased 7.5 tonnes of plantation 'C' coffee for export in the export auction held on 4-7-1984. We admit the latter two letters, though they, were not produced before the lower authorities as they are the relevant evidence for the disposal of the case. The profit and loss account will indicate the various expenses for the establishment, telephone, motor car, printing and stationery, conveyance, telex charges, postage, office expenses, travelling expenses, sales tax and registration, etc., which would clearly show that the assessee has maintained its establishment and has been making all efforts for carrying on the business. It is clear from the letters dated 1-8-1984 and 4-7-1984 of the Coffee Board that the assessee was unsuccessful in the bids at the auction held by the Coffee Board except for a small quantity of 25.5 tonnes in January 1976 and 7.5 tonnes on 4-7-1984. It is clear from the facts that the assessee exported coffee in the earlier years. During these three years, i.e., 1978-79, 1979-80 and 1980-81, the assessee participated in the auction but was a unsuccessful bidder. During these three years, there was lull and inactivity in the business of the assessee. It did some business again in 1984, having purchased 7.5 tonnes of coffee in auction held on 4-7-1984. The assessee maintained its establishment. The partners went abroad for exploring the export market. Thus, the assessee was very much in the business though no export of coffee took place in these three years. It cannot be said that the assessee has stopped the business. All that can be said is that there was lull and inactivity in the assessee's business during these three years. Merely because there was lull and inactivity it cannot be held that the business has ceased to exist. We are unable to agree with the findings of the Commissioner that the assessee had no intention to carry on the business nor carried on the business. He was wrong in holding that the assessee is not entitled to the deduction of expenses of business. In our view, the firm existed during these years. The business activity was there and the business did not cease to exist.
6. In Inderchand Hari Ram v. CIT  23 ITR 437, the Allahabad High Court held as under : ... A company may not obtain or be able to execute a single business contract for months and yet it may be deemed to carry on its business if during the period of lull and inactivity it is kept alive, retains its registered office and holds meetings etc. It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern though it may, for some time, be quiet and dormant. The mere fact that a businessman has not been able to obtain a contract and the business has for some time been, in that sense, dormant would not mean that it has ceased to exist if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business will be successful. How long he shall remain in hope and in what manner he must carry on his work to gain success is primarily his own concern. The mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purposes of his business....
Thus, it was held therein that the mere fact that a businessman had not been able to obtain a contract and the business had for some time been dormant would not mean that it has ceased to exist if the assessee continues to maintain the establishment and incurred expenses on the expectation that work would come and business will be successful. The above ratio squarely applies to the instant case. The above decision has been followed by the Madras High Court in L. Ve. Vairavan Chettiar v. CIT  12 ITR 114. The assessee claimed loss of Rs. 14,059 from a trade in arecanuts which he had temporarily suspended in the year of account on account of unfavourable market conditions due to increase of import duty on allotments. The question whether the assessee has closed his arecanuts business and that the loss claimed is allowable came up for consideration before the Madras High Court. It was held therein that as the assessee was maintaining the establishment and was waiting for improved market conditions in arecanuts and there was nothing to show that he completely abandoned or closed the business for ever, the business must be deemed to be continuing and, hence, the disallowance of the amount of loss claimed was not valid in law. The same view has been taken by the Madras High Court in Mrs. Sarojini Rajah v. CIT  71 ITR 504, where also a long interval between 1948-49 and 1953-54 existed during which there were no transactions in shares by the assessee. In Karsondas Ranchhoddass v. CIT  83 ITR 1, the Bombay High Court held that the period of inactivity is not conclusive in deciding whether a person is or is not doing business. In that case, business was carried on up to 1947-48 and there was no business between 1948-49 to 1953-54. Thereafter, again there was some business. On those facts, it was held that it is impossible to infer from the interregnum between 1948-49 and 1953-54 that the assessee has ceased to do business in shares and during the period of inactivity also its intention to do business did not cease. In General Corpn. Ltd. v. CIT  3 ITR 350 (Mad.) the assessee claimed deduction of a sum of Rs. 5,420 being expenses incurred in carrying on of the mica business. The mining business was started in 1926, which was worked till November 1927, when the production was stopped on account of a cyclone. With a view to resume the production, the company did some prospecting work and incurred an expenditure of Rs. 5,420 in 1928-29. The amount was made up of the expenses on account of salary, wages, etc. The production was not resumed by the company. The question arose whether the assessee can be said to have been carrying on the business and the expenses claimed could be allowed. It was observed as under: ...When production was stopped by a cyclone, the company started prospecting to find out whether the business can be carried on, and incurred, the expenses in question, with a view to resume production. How can it then be said that the business had stopped It is admitted that the old staff of the company doing the mica business was maintained by it on a reduced scale, the work of prospecting was done by that staff and that the expenses were incurred in trying to see whether the production can be resumed. It appears to us that the fact that there was some period of inactivity in the carrying on of the business does not really affect the question, nor is the question affected by the consideration that the business was not resumed after the expenses had been incurred....
It was held therein that the expenditure incurred was with respect to the carrying on of mica business which it carried on along with its other businesses and the amount is, therefore, allowable as deduction.
In Mandsaur Starch & Chemicals v, CIT  4 Taxman 449, the Madhya Pradesh High Court held that the question as to whether a partnership firm carried on any business in the relevant previous year will not be relevant in determining as to whether there was in existence during the previous year a genuine firm. The reason given by the Tribunal for refusing registration that the assessee did not carry on the business in the previous year, cannot constitute a valid reason for refusing registration.
7. The ratio laid down in the above cases squarely apply to the instant case. In the instant case, the assessee exported coffee in the earlier years. In the year 1984 also the assessee purchased coffee at the auction held on 4-7-1984. During these three years, there was lull and inactivity in the business as the assessee was not a successful bidder at the auction. The assessee continued to be the registered exporter of coffee. It maintained its establishment. The partners went abroad to explore the export market. The facts of the case will clearly prove that the assessee had the intention to carry on the business and it made all efforts to run the business. Merely because the assessee could not export coffee during these years, it cannot be held that the business has ceased to exist. In our view, the assessee carried on the activity of business and the expenditure claimed by the assessee is allowable. The firm was in existence and it carried on the business.
Thus, the Commissioner was wrong in revising the assessment orders and the orders continuing registration.
8. The assessee's contention that the Commissioner had no jurisdiction to invoke Section 263 at all cannot be accepted. Accordingly, we cancel the order dated 15-3-1983 of the Commissioner made under Section 263 in all these years.