2019 (1) TMI 49 - AT - Income Tax

Disallowance of expenses and depreciation - assessee has not undertaken any business activities during the year or during the previous year thereby not put to use the assets for business - Held that - The company was engaged in the business of execution construction contracts and forming part of the Gammon group. Undoubtedly in the year in question, the assessee did not do any business at all. However, the assessee showed the alienation of the parcel of the land at Baramati. There is nothing on record that the assessee has wound up the business. There is a temporary lull in the business. The CIT(A) has decided the matter of controversy on the basis of numbers of decisions which have been mentioned in the order and is not required to be repeated. But the expenses and the depreciation are not in dispute - Decided in favour of assessee.

Summary

Issues involved:
Revenue's appeal against CIT(A)'s order deleting addition on account of disallowance of expenses and depreciation for A.Y.2010-11.

Detailed Analysis:

1. Disallowance of Expenses and Depreciation:
The Revenue contended that the assessee did not undertake any business activities during the relevant year, thus expenses and depreciation should be disallowed. The CIT(A) allowed the claim, stating a temporary lull in business doesn't warrant disallowance. The CIT(A) relied on various judicial precedents emphasizing that corporate entities incur expenses to stay operational even without active business. The ITAT concurred, noting the company's engagement in construction contracts, absence of business in the year, and sale of land at Baramati. The ITAT upheld the CIT(A)'s decision based on similar cases and found no grounds for interference.

2. Judicial Precedents and Legal Interpretation:
The CIT(A) referenced decisions like Tansy Investments Pyt Ltd. v. ACIT, Arkaaye Builders and Developers Pvt Ltd. v. ITO, and Harsh International Pvt. Ltd. v. OCIT to support the allowance of expenses and depreciation in the absence of active business. These cases highlighted the necessity for companies to incur certain expenses to maintain statutory obligations and operational readiness. The ITAT upheld these principles, emphasizing the statutory basis for expenses and depreciation claims even when business activities are temporarily halted.

3. Applicability of Precedents and Conclusion:
The ITAT found the facts and circumstances akin to previous cases where expenses and depreciation were allowed despite a lack of active business. The ITAT upheld the CIT(A)'s decision, deeming it judicious and correct. The ITAT dismissed the Revenue's appeal, affirming the allowance of expenses and depreciation based on legal precedents and the specific circumstances of the case. The order was pronounced in favor of the assessee against the revenue on 19.12.2018.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the addition of expenses and depreciation, emphasizing the legal principles established in previous judicial precedents and the specific context of the case.