2022 (1) TMI 482
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....e of Rs. 31,75,375/-. He, therefore, asked the assessee to justify and prove the nexus of the expenses claimed with the revenue earned. Rejecting the various explanations given by the assessee and distinguishing the various decisions cited before him, the A.O. held that the assessee failed to establish the nexus of expenditure incurred with the income earned. He, therefore, disallowed 50% of the expenses claimed on account of employee benefit expenses of Rs. 25,80,244/- and other expenses of Rs. 43,08,171/- both totaling to Rs. 34,44,207/-. 2.1. In appeal, the Ld. CIT(A) upheld the action of the A.O. by observing as under : Finding:- Ground no 2 to 5 pertains to disallowance of Rs. 34,44,207/- out of expenses claimed. The fact of the case that the appellant filed return of income declaring total income of Rs. 5,40,49,840/-. The appellant has shown income from interest, rental income and profit from sale of investment. The AO noted that the appellant has shown nominal income of Rs. 1,25,000/- on operations and other income of Rs. 6,11,38,102/-. However the appellant has claimed expenses under various head of Rs. 77,94,580/-. The finding of the AO is as follows : "The above ex....
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....velling expenses, general expenses salary paid to staff has been furnished. Even in the course of hearing Ld.AR has not argued on this point. Simply by furnishing further bifurcation of expense and some of the sample bills, are not sufficient enough to allow the claim of the appellant. The expense are allowable as per section 37 of the Act. The primary condition that the expenses should be incurred for business purpose. The AO has made categorical finding that even in preceding last 3-4 years no business income has been earned. The AO has already allowed 50% of the expenses which takes care suo motto disallowance by the appellant. In view of the discussion I do not find any reason to interfere in the finding of the AO. The disallowance made by the AO is confirmed and the ground of appeal is dismissed. In the result, the appeal is dismissed." 3. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal, by raising the following grounds : 1. That the learned Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in sustaining an adhoc disallowance of Rs. 34,44,207/- (i.e., 50 percent of the expenses claimed on account of emplo....
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.... by the Revenue was dismissed. Relying on various other decisions, he submitted that since the Revenue in the preceding and subsequent assessment years has not disallowed any expenses out of employees benefit expenses and other expenses, therefore, following the rule of consistency and also in view of the various decisions cited (supra), the order of the Ld. CIT(A) should be set aside and the grounds raised by the assessee should be allowed. 4.1. The Learned Counsel for the Assessee further submitted that in the instant case the genuineness of the expenses is not in dispute. The A.O. is only 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. He submitted that in the subsequent year the income from operation has substantially gone-up, details of which are at Page-49 of the PB. Further neither in the preceding nor in the subsequent assessment years, such disallowance has been made. For the above proposition, the Learned Counsel for the Assesse....
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....e nexus of the expenses claimed and the revenue earned. We find the Ld. CIT(A) upheld the action of the A.O, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the Learned Counsel for the Assessee that genuineness of the expenses are not in dispute and the only allegation of the Revenue is that because of the meagre income from operations, the assessee by claiming such expenditure on account of employee's remuneration and other expenses has tried to reduce its profit and that the assessee failed to establish the nexus of the expenditure with the income shown. It is his submission that the expenses incurred by a Company even when it does not carry on any business activity has to be allowed as deduction since it has to maintain establishment for complying with the statutory obligations unless its name is struck-off by the Registrar of Companies or it is dissolved. 6.1. We find merit in the above arguments of the Learned Counsel for the Assessee. We find an identical issue had come-up before the Hon'ble Calcutta High Court in the case of CIT vs., Ganga Properties (supra). In that case also the ITO disallowed certain expenses claimed ....