2021 (9) TMI 1137 - AT - Income Tax

Disallowance of expenditure - Addition on the ground that assessee has not carried out any business activity and no business income has been declared and the assessee failed to produce the complete books of account, bills and vouchers etc. - HELD THAT - Since the facts of the instant case are identical to the facts of the case decided in the case of Commissioner of Income Tax vs., Integrated Technologies Ltd. 2011 (12) TMI 48 - DELHI HIGH COURT thus hold that merely because assessee has not earned any business income during the year, but, has every intention to revive the same, therefore, the various expenses debited to the P L A/c cannot be disallowed especially when the assessee is maintaining its Office and kept its infrastructure ready for future business. In this view of the matter, set aside the order of the Ld. CIT(A) and direct the A.O. to allow the expenses claimed - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under Section 143(3) of the Income Tax Act.
2. Disallowance of business expenses incurred by the assessee during the assessment year.
3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act.
4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under Section 143(3) of the Income Tax Act:
The assessee challenged the jurisdiction of the AO, asserting that the Deputy Commissioner of Income Tax, Circle 7(2), New Delhi, assumed jurisdiction without an order of transfer from the Income Tax Officer, Ward -7(3), New Delhi. However, the assessee did not press this ground during the appeal, and it was dismissed as not pressed.

2. Disallowance of business expenses incurred by the assessee during the assessment year:
The AO disallowed business expenses amounting to ?9,94,872/- on the grounds that the assessee did not carry out any business activity during the year and failed to produce complete books of account, bills, and vouchers. The AO noted that the assessee's income was derived from interest on investment and not from business operations. The CIT(A) upheld this disallowance, stating that the expenses claimed did not have any nexus with business operations, which had ceased in earlier years.

The assessee contended that the expenses were incurred for maintaining the corporate entity and exploring future business opportunities. The Tribunal considered the assessee's arguments and referenced the decision of the Hon'ble Delhi High Court in the case of CIT vs. Integrated Technologies Ltd., where it was held that expenses incurred to keep the business ready for revival are allowable. The Tribunal found that the assessee had not stopped its business and was maintaining its office, thus the expenses were necessary to keep the business alive. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to allow the claimed expenses of ?9,94,872/-.

3. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act:
The assessee challenged the levy of interest under Sections 234A, 234B, and 234C. The Tribunal dismissed this ground as the levy of interest is mandatory and consequential in nature.

4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act:
The assessee also contested the initiation of penalty proceedings under Section 271(1)(c). The Tribunal dismissed this ground as premature at this juncture.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal directed the AO to allow the business expenses claimed by the assessee, amounting to ?9,94,872/-. Other grounds related to jurisdiction, levy of interest, and penalty proceedings were dismissed. The order was pronounced in the open court on 24.09.2021.