2019 (6) TMI 342 - AT - Income Tax

Deduction u/s. 24 - disallowance of business loss - assessee is not entitled to any further deduction other than those provided u/s. 24 - allowability of certain fixed expenditure to maintain its existence and run business operations and therefore has set off thus minimum bare expenses as business expenses - HELD THAT - There is no complete cessession of business of the assessee and in order to maintain the establishment the assessee has incurred expenditure which has been claimed to be set off. We are of the considered view that the assessee has incurred genuine business expenditure, during the year under consideration deduction whereof ought to have been allowed u/s. 24. In that view of the matter the expenditure claimed by the assessee company of ₹ 8,75,403/- as business loss is hereby allowed. The addition on this ground as made by the authorities below is thus deleted. - Assessee s appeal is allowed.

Summary

Issues:
Challenge of disallowance of business loss claimed by the assessee.

Detailed Analysis:

1. Issue of Disallowance of Business Loss:
The assessee challenged the disallowance of business loss amounting to &8377; 8,75,403/- on the grounds that the company had not undertaken any business activity during the relevant year. The appellant had acquired a business building and other vehicles in the past, and had subsequently rented out the business property to different companies, earning rental income. The appellant claimed various expenses including remuneration, depreciation, maintenance expenses, and administrative expenses, among others. The Assessing Officer disallowed the claimed expenses under section 24(a) of the Income Tax Act, stating that the appellant had not carried out any business activity during the year. The appellant contended that the expenses were incurred to maintain the establishment and should be allowed as business expenses. The appellant cited various judgments in support of their claim, emphasizing that the expenses were necessary for the continued existence of the business.

2. Judicial Precedents and Arguments:
During the hearing, the appellant's counsel argued that the expenses incurred were essential for maintaining the business establishment, even though the nature of the business had changed. The counsel relied on judgments such as Income Tax Appeal vs. Mukul Finance Pvt. Ltd., Mukti Properties Pvt. Ltd. vs. CIT, and CIT vs. New India Industries Ltd. to support the claim that business and profession expenses could be set off against income from house property. The Departmental Representative, however, supported the orders passed by the authorities below.

3. Analysis and Decision:
After considering the arguments and relevant materials, the Tribunal referred to the judgment in the matter of Mokul Finance (P.) Ltd. vs. ITO, emphasizing that business expenses should be allowed for the continued existence of the company, even if it is not actively engaged in business activities. The Tribunal noted that the cessation of business should not be equated with the absence of business transactions in a particular year. The Tribunal also referred to the judgment in the matter of Mukti Properties, highlighting that income from real estate business could also be considered income from house property. Additionally, the Tribunal cited the judgment in the case of CIT vs. New India Industries Ltd., which emphasized that income from a commercial asset remains business income, whether the asset is used personally or rented out. Based on these precedents and the facts of the case, the Tribunal concluded that the appellant had not completely ceased its business and had incurred genuine business expenditure. Therefore, the disallowance of business loss claimed by the appellant was deleted, and the appeal was allowed.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning the disallowance of business loss claimed by the appellant, based on the precedents cited and the genuine nature of the business expenditure incurred by the appellant.