2015 (6) TMI 898 - AT - Income Tax

Disallowance of business expenses - CIT(A) allowed claim - Held that - When the assessee company was neither dissolved nor was its business closed, the Revenue Authorities were unjustified to disallow the expenses claimed by the assessee. As per revenue record, the assessee company started its business in the year 1997 and has done its business but in the year 1999-00 and in the current year, it had suffered recession and the company could not procure export orders in the year under consideration, but the company claimed only those expenses which were necessary to maintain the business and assets of the company which were allowable under the Income-tax Act, 1961. Almost similar are the facts of the present case during the years under consideration as it is not the case of the Assessing Officer that the expenditure of the assessee were excessive or unreasonable vis- -vis its legitimate business requirements but the claimed expenditure has been denied by the Assessing Officer on the basis that it had not manufactured any product and not traded in any item and it had only earned income from interest on FDR. Thus CIT(Appeals) was justified in allowing the claimed expenditure which were disallowed by the Assessing Officer based on a wrong view. We are thus not inclined to interfere with the findings of the Learned CIT(Appeals) in this regard. The same is upheld. - Decided against revenue.

Summary

Issues:
- Allowance of claimed expenses in assessment years 2008-09 and 2009-10
- Disallowance of business loss by Assessing Officer
- Justification for disallowance based on lack of business activities
- Applicability of principles of consistency in allowing expenses

Analysis:

In the present case, the main issue revolves around the allowance of claimed expenses by the assessee in the assessment years 2008-09 and 2009-10. The Revenue contended that the Learned CIT(Appeals) erred in law by allowing the claim of the assessee for expenses amounting to specific values in those years. The Revenue argued that since the assessee did not carry out any business activities during the relevant years and had stopped business operations since 1996-97, the claim for expenses should not have been allowed.

The Assessing Officer disallowed the claimed business loss on the basis that no business activities were carried out during the years under consideration, leading to the conclusion that the computation of business income was not applicable. However, the assessee argued that the mere absence of business activities in a particular period does not equate to the closure of business. The assessee cited various legal precedents, including the case of P.C. Bhandari & Co. Ltd. vs. ACIT, to support the argument that even if a business is dormant, waiting for market conditions to develop, the expenses incurred should be allowed as deductions.

The Learned CIT(Appeals) observed that the Assessing Officer had allowed business loss claimed by the assessee in earlier years after due verification, but disallowed the expenses in the years under consideration solely based on the absence of manufacturing or trading activities. The assessee, being a public limited company that had not wound up, argued for consistency in allowing administrative expenses, as done in previous assessment years. The principles of consistency were also supported by the decision in the case of DCIT vs. Fortune Garments Ltd.

Ultimately, the ITAT upheld the decision of the Learned CIT(Appeals) in allowing the claimed expenses, emphasizing that the disallowance by the Assessing Officer was based on a wrong view. The ITAT found no justification to interfere with the findings of the Learned CIT(Appeals) and rejected the Revenue's ground of appeal. The decision was pronounced in the open court on 23.04.2015, dismissing the appeals.

In conclusion, the judgment highlights the importance of considering the specific circumstances of a case, especially regarding the allowance of expenses in the absence of active business activities, and the application of principles of consistency in tax assessments.