2019 (3) TMI 1945 - AT - Income Tax

Disallowance of business expenses and depreciation and interest - HELD THAT - We find every force in the observation of the learned CIT(A) that till such time the company has to maintain its status as company and also has to be discharged certain legal obligations for which it requires the support of the clerical staff and the secretary or the accountant as the case may be and also to incur certain incidental expenses in that pursuit. It is therefore clear that when the possibility of the revival of the business activities or operation of the assessee are not ruled out once for all it cannot be said that the assessee company had closed down its operations permanently so as to disallow the business expenditure. The temporary lull in the business during the lean period of transaction cannot be mistaken to be the permanent close down of the business. The clear indication is that the assessee has to maintain its status as company till the end comes and it has to perform certain legal obligations by incurring certain expenditure and more particularly to pursue the litigation as a result of which it has to receive 460 crores approximately which shall form part of the income of the assessee in the year in which it will be received. While recording the fact that no manufacturing activity had taken place by the assessee during the year learned CIT(A) disallowed the depreciation on plant and machinery but he rightly thought it fit to allow depreciation on furniture and building. We endorse the same view so also CIT(A) rightly deleted the addition of 3384/- by recording a fact that during the year the assessee had not received any amount by way of income-tax refund. We are of the considered opinion that the impugned order does not suffer any illegality or irregularity and on the other hand the appeal of the revenue is devoid of merit.

Summary

Issues:
- Disallowance of business expenses for Assessment Years 2011-12 and 2012-13
- Disallowance of depreciation
- Disallowance of interest on income-tax refund

Analysis:
1. Disallowed Business Expenses (AY 2011-12): The Assessee, a company, filed a return of income declaring a loss for AY 2011-12. The Assessing Officer disallowed business expenses, depreciation, and interest. The Assessee argued that despite a lull in business, they maintained an establishment, indicating an intention to resume business. The CIT(A) referred to a legal precedent and accepted the Assessee's contentions, deleting the disallowance of business expenses. The Tribunal upheld this decision, emphasizing the temporary nature of the business slowdown and the Assessee's legal obligations.

2. Depreciation Disallowance: The CIT(A) disallowed depreciation on plant and machinery due to no manufacturing activity but allowed it on furniture and building. The Tribunal endorsed this decision, considering the absence of manufacturing activity and the Assessee not receiving any income-tax refund during the year. The Tribunal found no irregularity in the CIT(A)'s decision and dismissed the appeal by the Revenue.

3. Similar Issue in AY 2012-13: The facts for AY 2012-13 were similar to AY 2011-12 regarding disallowance of business expenses and depreciation. The Tribunal, based on the reasoning applied for AY 2011-12, upheld the CIT(A)'s decision to delete the disallowances. Consequently, the appeal for AY 2012-13 was also dismissed.

In conclusion, the Tribunal affirmed the CIT(A)'s decisions to allow business expenses and depreciation based on the Assessee's intention to resume business despite a temporary slowdown. The Tribunal found no merit in the Revenue's appeals and dismissed them for both AYs.