TMI Blog2011 (10) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... tax free income. Under the circumstances, by respectfully following the decision of the ITAT, ‘F’ Bench (supra), we hold that adhoc disallowance of ₹ 37,512/- made by the Assessing Officer is not in accordance with law. Deduction towards business expenditure - commencement of business - Held that:- It is well settled that in order to claim deduction towards business expenditure it is not necessary that an assessee has to earn business income in the same year so long as it can be shown that the company intends to continue its activities. The expenditure reflected in the assessment year clearly indicate that these are the basic expenditure in order to continue its status as a company and in the absence of proving that the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of section 14A of the Act ? (b) Whether the Assessing Officer was justified in disallowing a sum of ₹ 59,833/-, as expenditure not relatable to business, mainly on the ground that income earned by the assessee is only in the form of dividend income, capital gains on sale of units and in the absence of not carrying of any other business, business expenditure cannot be claimed and allowable ? (c) Whether professional fees pertaining to the period 1990-1991 to 2003-2004 is allowable as deduction in the assessment year 2005-2006 mainly on account of the fact that it was actually paid in this year ? 2. During the previous year relevant to the assessment year under consideration assessee earned dividend income amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company incurred only fixed expenditure which are required for the day to day activity and it has no nexus to earning of dividend income or income from capital gains but it was an expenditure necessary to continue the identity as company. The Assessing Officer was of the opinion that a portion therefrom i.e., ₹ 37,512/- has to be treated as expenditure connected to earning of tax free income and hence, by invoking the provisions of section 14A read with Rule 8D, the Assessing Officer disallowed the said expenditure and the learned CIT(A) confirmed the action of the Assessing Officer. 3.1. Assessing Officer further observed that in the absence of carrying on any business in the year under consideration assessee is not entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to claim deduction under section 37(1) of the Act. It was contended that assessee is continuing in the business though no activity was carried on in this year and the nature of expenditure clearly reflect that it was the bare minimum expenditure to run the day-to-day activity of the company and hence it has to be considered as expenditure wholly and exclusively incurred for the purpose of business. Not earning income therefrom is not a criteria to disallow the claim of deduction. 6. With regard to disallowance of ₹ 19,850/-, learned Counsel submitted that professional tax can be claimed as deduction, under section 43B of the Act, only in the year of payment and by statutory compulsion the assessee-company has to make a claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts activities. The expenditure reflected in the assessment year clearly indicate that these are the basic expenditure in order to continue its status as a company and in the absence of proving that the assessee, by its conduct, had taken a decision not to carry on its business forever the minimum expenditure claimed by the assessee cannot be disallowed. We therefore, direct the Assessing Officer accordingly. 9. The third issue is with regard to the prior period expenses of ₹ 19,850/-. The case of the learned DR is that the assesseecompany followed mercantile system of accounting and hence professional tax payable has to be claimed as deduction in the year to which it pertains to and only upon disallowing such claim in the earlier y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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