2017 (10) TMI 690 - HC - Income Tax

Disallowance of business expenses - no business activity was carried out during the year - ITAT deleted the addition - Held that - The Tribunal has reached a factual finding that though the assessee did not carry out any actual business activity during the year under consideration, the same was due to litigation for the brand name/trademark, however, the business was not discontinued. In the meantime, the assessee had to incur expenditure towards the statutory charges and for employment. Such being the facts, in our opinion, no question of law arises.

Summary

Issues:
1. Disallowance of business expenses by the Income Tax Appellate Tribunal.

Analysis:
The Revenue appealed against the Income Tax Appellate Tribunal's decision to delete the disallowance of business expenses amounting to ?3,26,75,383, despite no business activity being conducted during the year. The Revenue contended that since the assessee was not engaged in business, the expenses were not related to any business activity. The assessee argued that the business was temporarily suspended due to litigation and that the expenses should be allowed against other income. The Tribunal noted that even though no business activity took place, the expenses incurred were for statutory obligations and employment purposes. The Tribunal emphasized that the business was not voluntarily discontinued, and the expenses were necessary to maintain the corporate status and retain employees. The Tribunal directed the Assessing Officer to allow the claimed expenditure, whether under section 37 or section 57 of the Income Tax Act, setting aside the findings of the CIT(A).

The Tribunal's factual finding was that the absence of business activity was due to ongoing litigation regarding the brand name/trademark, but the business itself was not terminated. The Tribunal concluded that the expenditure towards statutory charges and employment was justified under the circumstances, leading to the dismissal of the Revenue's appeal. The Revenue's counsel highlighted certain observations made by the Tribunal in passing, clarifying that they did not establish any legal principles. Consequently, the tax appeal was ultimately dismissed based on the Tribunal's decision.