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2022 (1) TMI 482 - AT - Income TaxDisallowance of the expenses claimed on account of employees benefit expenses - AO making the disallowance on the ground that assessee has claimed the expenses basically to reduce its profitability because to earn income from the bank deposits and rental income, one need not require to incur huge legal and professional fees and entertainment expenses and such other expenses - HELD THAT:- Hon’ble Calcutta High Court following the decision in the case of CIT vs., Rampur Timber & Turnery Co. Ltd. [1981 (2) TMI 75 - ALLAHABAD HIGH COURT] held that such expenses are allowable for the purpose of keeping the business of the assessee-company alive and for retaining the status of the assessee-company. A limited company, even if it does not carry on business, even if it derives income from other sources, has to maintain its establishment for complying with statutory obligation so long it is in operation and its name is not struck off the register or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes. So long as it is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income is pre-eminently a reasonable conclusion. We have considered a similar case in New Savan Sugar & Gur Refining Co. Ltd.[1969 (2) TMI 7 - SUPREME COURT] Genuineness of the expenditure is not in dispute and the Company in subsequent assessment years has shown income from operations, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the addition. - Decided in favour of assessee.
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