2013 (8) TMI 1016 - AT - Income Tax

Expenses incurred to keep its corporate entity allowed or not? - Temporary lull in the business of the assessee - No business income - HELD THAT - The claimed nature of expenses such as audit fees salaries professional charges insurance etc are necessary to maintain the corporate entity and thus allowable. In no case the Assessing Officer could form an opinion that assessee has closed its business and disallow expenses. Decision in favor of assessee.

Summary

Issues involved: Appeal against deletion of addition of Rs. 14,74,375 u/s assessment year 2008-09.

Summary:
The Assessing Officer observed that the assessee showed rental income and misc. income, claiming expenses of Rs. 14,74,375 against a misc. receipt of Rs. 42,700, resulting in a loss under the head income from business or profession. The Assessing Officer disallowed the amount as the nature of the receipt was unclear and deemed that the assessee was not carrying out any business activity during the year.

Upon appeal, the Commissioner noted that there was no evidence that the assessee had closed its business, and expenses were essential to maintain the corporate entity. The Commissioner accepted that the expenditure was incurred for this purpose and noted that in subsequent years, the assessee derived income from business activity. Therefore, the addition of Rs. 14,74,375 was deleted.

During the appeal before the ITAT, the Departmental Representative argued that the claimed expenses were not allowable as they did not relate to any business activity during the year. The Counsel of the assessee contended that there was only a temporary lull in business, and similar disallowances in preceding years had been deleted by the Commissioner. The ITAT found the expenses necessary to maintain the corporate entity and upheld the Commissioner's decision based on precedent and the assessee's subsequent business activities.

Ultimately, the ITAT dismissed the appeal filed by the Revenue, upholding the decision to delete the addition of Rs. 14,74,375.

Judgment delivered by: SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER