2010 (4) TMI 821 - AT - Income Tax

Dissallowance-The assessee-company had neither carried out any manufacturing activities nor made any sales but claimed the expenses to the tune of Rs. 13,41,135 on account of salary, depreciation, etc. - Held that - The facts are similar to Sassoon J. David & Co. (P.) Ltd (1979 -TMI - 5203 - SUPREME Court) the assessee-company was neither dissolved nor its business was closed and was holding regular meeting of its directors and also filing the return, the expenses claimed by the assessee are allowable as rightly held by the learned first appellate authority.

Summary

Issues:
Appeal against deletion of addition on account of expenditure claimed by the company for assessment year 2003-04.

Analysis:
The Department filed an appeal against the order of the Commissioner of Income-tax (Appeals) regarding the deletion of an addition on account of expenditure claimed by the company. The Department argued that the company had not conducted any manufacturing activities or sales but claimed expenses amounting to Rs. 13,41,135. The Departmental representative contended that the Assessing Officer had rightly made the addition, and the first appellate authority had erred in deleting it. The Department sought to quash the order of the first appellate authority.

During the hearing, the Departmental representative relied on the Assessing Officer's order and stated that the company had failed to provide evidence to substantiate its claim for expenses. However, the first appellate authority had deleted the addition by citing precedents such as the decision of the Supreme Court in Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 and the Rajasthan High Court in CIT v. Bhagwati Rerolling Mills [1995] 211 ITR 227. The Tribunal noted that the company, engaged in the manufacture and export of garments, faced a recession during the relevant year, leading to a lack of export orders. Despite this, the company only claimed necessary expenses to maintain its business and assets.

The Tribunal found that the company was still operational, holding meetings, filing returns, and not dissolved or closed. In line with the precedent and considering the circumstances, the Tribunal upheld the first appellate authority's decision to allow the claimed expenses. The Tribunal dismissed the appeal filed by the Revenue, affirming the order of the first appellate authority.