2018 (4) TMI 318 - AT - Income Tax

Disallowance of expenditure for not carrying out any business activity during the year - Held that - Respectfully following the decision of the Hon ble apex court in Vikram Cotton Mills case (1987 (12) TMI 1 - SUPREME Court), we find that merely because there was a temporary lull in the business for some period, it cannot be said that the assessee abandoned the business requiring them to reset up it again. The assessee s claim of expenditure incurred during the period of temporary suspension of business has to be allowed. However, the quantum of expenditure needs to be verified at the end of the AO. For this purpose of verification of the quantum, we set aside the issue to the file of the AO with a direction that after verification and if the claim is found to be genuine, the AO will allow the same. - Decided against revenue

Summary

Issues:
Disallowance of expenditure for not carrying out any business activity during the year.

Analysis:
The Revenue filed an appeal against the order passed by Ld. CIT(A)-VIII, New Delhi for the Assessment Years 2009-10, challenging the deletion of an addition of Rs. 15,23,58,239 made on account of disallowance of expenditure due to the absence of business activity. The Assessing Officer noted that the assessee had voluntarily disallowed certain expenses and claimed that there was a temporary suspension of business due to extensive renovation work. The AO disallowed the expenses, stating that there was no business activity during the relevant financial year. The CIT(A), however, allowed the expenditure after considering various facts and legal submissions presented by the appellant.

The CIT(A) observed that the appellant company had acquired a hotel property, which required extensive renovation, leading to the temporary suspension of business operations. The completion certificate for the renovated property was obtained during the relevant year, indicating the readiness of the hotel to resume commercial operations. The CIT(A) also noted the increase in personnel costs and other operational details provided by the appellant to support the claim that the hotel was operational during the year in question.

The Tribunal referred to a previous decision for the Assessment Year 2007-08, where a similar issue was considered. In that case, it was established that the temporary suspension of business was for renovation purposes, and the business resumed once the property was ready for commercial operations. Following the precedent set in the earlier decision, the Tribunal upheld the deletion of the disallowance made by the CIT(A) for the current assessment year as well.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the decision of the CIT(A) to allow the expenditure claimed by the appellant. The judgment emphasized the temporary nature of the business suspension for renovation purposes and the subsequent resumption of commercial operations, leading to the allowance of routine business expenses incurred during the renovation period.