2017 (10) TMI 1251 - AT - Income Tax

Disallowance of expenses - assessee has failed to establish that it had carried out the business activities - Held that - We do not find any evidence on record which establishes the assessee had carried out the business activities relating to the projects Hindon River Mills Project and Hydro Project, during the financial year relevant to the assessment year under consideration. The AO has specifically mentioned that from the notes to accounts and the WIP expenditure break up it is amply clear the expenses incurred on the projects are not on account of any factual constructions related activities and the same indicates that the project is in the preliminary stage and since the assessee has entered into a construction contract the entire expenditure is relatable to the work in progress. The Ld. CIT (A) has confirmed the disallowance made by the AO after considering the entire factual matrix of the case. The assessee did not produce any evidence even during the appellate proceedings to establish that business activities had commenced during the financial year relevant to the assessment year under consideration. - Decided in favour of assessee Allowable business expenses - travelling expenses - Held that - Since, the assessee has failed to justify that the travelling expenses was incurred wholly and exclusively for the business purposes before the authorities below and since no material was brought before us to substantiate its claim. We do not find merit in the appeal of the assessee. We therefore, uphold the findings of the Ld. CIT (A) and dismissed this ground of appeal of the assessee.

Summary

Issues Involved:
1. Disallowance of revenue expenses debited to the Profit & Loss Account.
2. Addition of exempt income earned on account of Share of Profit from a Partnership Firm.
3. Disallowance of expenses related to chartered flights and travelling expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Revenue Expenses Debited to the Profit & Loss Account:
The assessee, engaged in the business of building, developing, and contracting, filed its return of income for the assessment year 2010-11 declaring a total income of ?7,08,798/-. The Assessing Officer (AO) observed that the assessee had two ongoing projects and had added back Work In Progress (WIP) amounts to these projects. The AO questioned the debiting of expenses to the profit and loss account despite no business activities being carried out during the year. The assessee contended that the business was ongoing and expenses were capitalized in the WIP. However, the AO disallowed the entire expenses of ?12,98,670/- and added it to the income, holding that no business activities were carried out. The First Appellate Authority upheld the AO's findings, leading to the assessee's appeal to the Tribunal. The Tribunal, after reviewing the records, found no evidence of business activities during the relevant year and upheld the disallowance, agreeing with the AO and the CIT (A)'s reliance on Supreme Court judgments in Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT and Bengal and Assam Investors Ltd.

2. Addition of Exempt Income Earned on Account of Share of Profit from a Partnership Firm:
The assessee claimed that the AO erroneously added exempt income of ?34,331/- earned as a share of profit from a partnership firm to the total income. The Tribunal did not provide a separate detailed analysis for this issue but upheld the findings of the lower authorities, indicating no merit in the assessee's appeal.

3. Disallowance of Expenses Related to Chartered Flights and Travelling Expenses:
For the assessment year 2011-12, the assessee filed a return declaring a total income of ?30,87,552/-. The AO received information that the assessee had used chartered flights for personal purposes and questioned the business expediency of these expenses. The assessee capitalized the expenses in the Hydro Project but failed to establish their business purpose. Consequently, the AO disallowed 15% of the total travelling expenses of ?66,47,036/- and added ?9,97,055/- to the income. The First Appellate Authority upheld the AO's findings, leading to the assessee's appeal to the Tribunal. The Tribunal found that the assessee failed to justify that the expenses were incurred wholly and exclusively for business purposes. The Tribunal upheld the disallowance of ?53,60,400/- related to chartered flights and the 15% disallowance of travelling expenses, agreeing with the lower authorities' findings.

Conclusion:
The Tribunal dismissed the appeals for both assessment years 2010-11 and 2011-12, upholding the disallowances and additions made by the AO and confirmed by the CIT (A). The Tribunal found no merit in the assessee's claims and concluded that the expenses were not substantiated as being incurred wholly and exclusively for business purposes.