2014 (7) TMI 6 - AT - Income Tax

Business expenses Computation of business profits Declaration of additional income Held that - Following M/s. Shreeshay Engineers Pvt. Ltd. Versus ACIT 10(2), Mumbai 2014 (1) TMI 876 - ITAT MUMBAI - the expenses comprised of expenses incurred during the post survey period under various routine heads including the major amount of interest on unsecured loans for which provision was made by the assessee on estimated basis while computing profit for the purpose of advance tax - all the facts and figures appearing in the relevant financial statements clearly show that the amount expenses were claimed by the assessee as regular business expenses incurred during the post survey period against regular business income which resulted in reduction of its regular business income for advance tax purpose to that extent - the AO and the CIT(A) misconceived the claim of the assessee for the expenses as that of against the additional income declared during the course of survey and made disallowance of the said expenses on the basis of this misconception without considering or examining the claim on merit being the claim for regular business expenses of post survey period against regular business income thus, the matter is to be liable to be remitted back to the AO with a direction to consider and allow the claim of the assessee for the expenses as regular business expenses on merit Decided in favour of Assessee.

Summary

Issues: Disallowance of business expenses, Disallowance under section 14 A r.w. rule 8D

Issue 1: Disallowance of Business Expenses
The appeal was against the disallowance of business expenses amounting to Rs.19,19,182/- after the declaration of additional income of Rs.30 lakhs during a survey. The assessee, engaged in the business of builders & developers, recognized revenue based on the method of accounting under section 145 of the Income-tax Act. The AO disallowed the expenses, alleging they were an afterthought, and the Ld.CIT(A) upheld this decision. However, the Tribunal referred to a previous decision in a similar case and held that the expenses should be allowed after verification. The Tribunal emphasized that the expenses were regular business expenses incurred during the post-survey period against regular business income, not against the additional income declared during the survey. Therefore, the Tribunal set aside the Ld.CIT(A)'s decision and directed the AO to consider and allow the claim of the assessee for the expenses as regular business expenses on merit after necessary verification. The Tribunal allowed the appeal for statistical purposes, following the precedent set in similar cases.

Issue 2: Disallowance under Section 14 A r.w. rule 8D
Ground No. 2 of the revised grounds of appeal, relating to disallowance under section 14 A r.w. rule 8D, was not pressed by the ld. AR of the assessee. As a result, the Tribunal dismissed this ground as not pressed, indicating that the issue was not pursued during the appeal.

In conclusion, the Tribunal allowed the appeal for statistical purposes regarding the disallowance of business expenses, following the precedent set in similar cases. The issue of disallowance under section 14 A r.w. rule 8D was dismissed as it was not pressed during the appeal. The Tribunal's decision emphasized the importance of considering expenses as regular business expenses incurred during the post-survey period against regular business income, highlighting the need for proper verification and merit-based allowance of such expenses.