2015 (10) TMI 1864 - AT - Income Tax

Disallowance of office rent along with audit fees and filing fee - whether no business activity during the year? - Held that - The submissions made by assessee before the Ld. CIT(A) inter alia, regarding Corporate suit at IFFCO Chowk under construction was valued at the year end at ₹ 1151.02 has not been controverted by the Department. All the expenses directly attributable to the project were charged to the construction work in progress account and only those administrative expenses which were necessary for maintenance of basic infrastructure of the company, were claimed by assessee in profit and loss account. Under such circumstances, I fail to understand as to how a finding has been arrived by authorities below that no business activity was carried out by assessee. The office rent claimed by assessee was a necessary business expenditure and, therefore, could not be denied to assessee. Therefore, set aside the order of Ld. CIT (A) and direct the Assessing Officer to allow the office rent also along with audit fees and filing fee and compute the income accordingly. - Decided in favour of assessee.

Summary

Issues involved:
1. Assessment of business income based on profit and loss account.
2. Rejection of loss declared in profit and loss account by Assessing Officer.
3. Allowance of administrative expenses related to project.
4. Dismissal of appeal by CIT(A) due to perceived lack of business activity.
5. Decision on appeal by ITAT Delhi.

Detailed Analysis:
1. The appeal was filed against the order of CIT(A) XII, New Delhi for Assessment Year 2009-10. The assessee had initially declared a loss of Rs. Nil in the profit and loss account. The Assessing Officer, after a survey, determined that no business income was generated based on the gross receipts shown. Citing relevant case laws, the Assessing Officer concluded that since no business activity was conducted, the computation of business income was not applicable.

2. The Assessing Officer did not accept the declared loss and treated the business income as Nil, allowing only statutory expenses like audit fees and filing fee. The net taxable income was computed accordingly. Before the CIT(A), the assessee argued that it was engaged in the business of builders and developers, maintaining books of accounts, and incurring substantial expenses on a construction project. The assessee contended that administrative expenses were necessary for business maintenance, and the revenue recognition method based on completed projects was valid.

3. The CIT(A) summarily dismissed the appeal, asserting a lack of business activity by the assessee. However, the ITAT Delhi disagreed with this assessment. The ITAT noted that the project under construction had substantial value, and all project-related expenses were appropriately accounted for. The ITAT found that the administrative expenses claimed were essential for business infrastructure maintenance and should have been allowed. Consequently, the ITAT set aside the CIT(A) order and directed the Assessing Officer to include office rent along with audit fees and filing fee in the computation of income.

4. The ITAT's decision was based on the understanding that the assessee was indeed engaged in business activities, as evidenced by the construction project and the necessary administrative expenses incurred. The ITAT emphasized the importance of recognizing legitimate business expenses and upheld the appeal, overturning the CIT(A)'s dismissal. The ITAT's ruling allowed for a more accurate computation of the assessee's income, considering the genuine business operations conducted during the relevant assessment year.

5. Ultimately, the ITAT Delhi allowed the assessee's appeal, highlighting the significance of acknowledging valid business activities and related expenses in determining taxable income. The judgment emphasized the need for a thorough assessment of business operations and expenses to ensure a fair and accurate computation of income.