2015 (7) TMI 354 - AT - Income Tax

Disallowance of expenses claimed u/s 43B, deposit of sales tax and legal expenses - CIT(A) allowed the claim - the business of the assessee was closed down on 28.02.1998, a finding of fact recorded by the ITAT in its own case for A.Y. 2003-04 - Held that - It is an admitted fact that the assessee made the payment of the sales tax during the year under consideration and also pointed out to the AO that the assessee company was contesting sales tax cases before the Sales Tax Authorities. In the present case nothing was brought on record to substantiate that the assessee did not make the payment of the sales tax liabilities which were outstanding and were disallowed in the earlier years u/s 43B of the Act and since the assessee furnished the evidences for making the payments during the year under consideration which were duly verified by the ld. CIT(A) and no adverse comments were given by the AO in the remand proceedings, therefore, the disallowances were rightly deleted by the ld. CIT(A). As regards to the disallowance out of legal and professional expenses, it is noticed that the AO disallowed the total claim of the assessee on the grounds that the assessee did not file any evidence and that the business operation were discontinued by the assessee. In the present case, the assessee furnished the evidences for making the payments to the various legal firms, the bills relating to those expenses were verified by the ld. CIT(A) and no adverse comment was given by the AO in his remand report except that the business of the assessee discontinued. In our opinion the ld. CIT(A) rightly directed the AO to allow the claim to the extent of ₹ 1,12,500/- for which the assessee produced the evidences and since these expenses were related to the sales tax litigation and for maintaining corporate status it can be said that those were related to the business of the assessee and were rightly allowed. We, therefore, do not see any valid ground to interfere with the findings of the ld. CIT(A) on this issue. - Decided against revenue.

Summary

Issues involved:
- Disallowance of expenses claimed as allowable business expenses despite business closure
- Disallowance of legal and professional expenses

Analysis:

Issue 1: Disallowance of expenses claimed as allowable business expenses despite business closure
The appellant department challenged the order of the ld. CIT(A) regarding the deletion of disallowance of expenses amounting to Rs. 12,04,401 claimed as allowable business expenses despite the closure of the assessee's business. The AO disallowed the amount as the business was not in operation, and expenses relatable to past business activities were not allowable against income from other sources. The appellant argued that the expenses should only be allowed if the business is being carried out during the year under consideration. However, the ld. CIT(A) allowed the claim after considering that the sales tax liability was paid during the year under consideration and pertained to the business carried out by the assessee in earlier years. The ld. CIT(A) also noted that the assessee provided evidence for the payment of sales tax liability, which was duly verified. The ITAT upheld the ld. CIT(A)'s decision, stating that the expenses were rightly allowed as they were related to the business activities of the assessee.

Issue 2: Disallowance of legal and professional expenses
The AO disallowed legal and professional expenses of Rs. 3,47,570, citing that the business was not in operation and no specific reasons or evidence were provided by the assessee. The ld. CIT(A) directed the AO to allow Rs. 1,12,500 out of the disallowance, as evidenced by bills related to legal firms. The ITAT supported the ld. CIT(A)'s decision, stating that the expenses were related to sales tax litigation and maintaining corporate status, thus being allowable business expenses. The ITAT found no valid ground to interfere with the ld. CIT(A)'s findings on this issue.

In conclusion, the ITAT dismissed the appeal filed by the department, upholding the decision of the ld. CIT(A) regarding the disallowance of expenses claimed as allowable business expenses and legal and professional expenses. The ITAT found that the expenses were justified and related to the business activities of the assessee, leading to the dismissal of the appeal.