2013 (8) TMI 282 - AT - Income Tax

Disallowance of office expenditure - Held that - there is no agreement about indemnity of expenses as far as Simplex Sport Complex at Ranchi is concerned, which constitutes the major receipt of consultancy fee - assessee, as a businessman, has the liberty to carry on its business in the manner it thinks feasible. The expenditure having been incurred for business purposes cannot be disallowed on ipsi dixit, beyond which the revenue has not been able to make out any further case - expenditure incurred by the assessee being in the course of business has to be allowed. Besides, assessee undertakes that if any recovery of expenditure is made from Reliance or Simplex, the same would be offered to tax, whenever it is received - Following decision of CIT Vs. Walchand & Co. (P) Ltd. 1967 (3) TMI 2 - SUPREME Court and Sasoon J. David & Co. (P) Ltd. Vs. CIT 1979 (5) TMI 3 - SUPREME Court - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of personal and administration expenses.
2. Disallowance of set off of unabsorbed depreciation and business loss.
3. Non-granting of deduction under section 44C of the Act.

Issue 1: Disallowance of Personal and Administration Expenses:
- The assessing officer disallowed personal expenses and administration expenses debited to the profit and loss account based on an agreement with Reliance Engineering Pvt. Ltd.
- The agreement suggested that the assessee was not supposed to incur any expenditure as it should have been paid/recovered from Reliance.
- The administrative expenses were also disallowed as there was no business compulsion on the assessee to incur them.
- The DRP confirmed the draft assessment order disallowing the expenses.
- The assessee argued that the expenditure was related to its Delhi office operations, not covered by the Reliance agreement, and were necessary for its business activities.
- The Tribunal held that the expenditure incurred for business purposes cannot be disallowed solely based on assumptions by the revenue.
- Citing relevant case laws, the Tribunal allowed the expenses as they were in the course of business and directed the deletion of the disallowance.

Issue 2: Disallowance of Set Off of Unabsorbed Depreciation and Business Loss:
- The assessing officer disallowed the claim of set off of unabsorbed depreciation and business loss pertaining to the previous assessment year while computing the assessed income.
- The Tribunal did not provide a detailed analysis of this issue in the judgment.

Issue 3: Non-Granting of Deduction under Section 44C of the Act:
- Ground number 3 was not pressed by the appellant and hence was dismissed by the Tribunal.
- The judgment did not provide further details or analysis on this issue.

In conclusion, the Tribunal allowed the assessee's appeal against the assessment order disallowing personal and administration expenses, emphasizing that legitimate business expenditures should not be disallowed based on assumptions. The Tribunal directed the deletion of the disallowance and held that if any recovery of expenditure is made from clients, it should be offered for tax. The judgment did not delve into the details of the disallowed set off of unabsorbed depreciation and business loss, and ground number 3 was dismissed as not pressed by the appellant.