2021 (11) TMI 76 - AT - Income Tax

Allowable business expenses - Expenses incurred for retaining the status of the company - assessee did not carry out any business activity during the assessment yea - HELD THAT - Assessee was incorporated on 10.09.2087, made investments in V. Hotels Ltd, which had acquired Centaur Hotel in Mumbai from the Government intending to revive the business of such hotels, but in view of legal dispute with regarding to Centaur Hotel and also on account of economic slowdown, the assessee could not start running of hotel, but, however, to keep the status of the company, the assessee had to incur expenses in the shape of salary of few key personnel, payments made towards statutory funds, communications, professional fees etc. CIT(A) while following the decision of Hon ble jurisdictional High Court in the case of Integrated Technology Ltd. 2011 (12) TMI 48 - DELHI HIGH COURT and also order of Mokul Finance Pvt. Ltd 2007 (7) TMI 351 - ITAT DELHI-I granted relief on the ground that the expenses incurred for retaining the status of the compare are allowable deduction, even though the assessee did not carry out any business activity during the assessment year. - Decided against revenue.

Summary

Issues:
Disallowance of expenses for a company with no business activity during the assessment year.

Analysis:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of expenses claimed by the assessee, a company engaged in owning and managing hotels in India. The assessee had filed a return of income for the assessment year 2012-13, declaring a loss. The Assessing Officer disallowed the entire expenses debited to the profit and loss account, resulting in the assessment of the assessee's income at nil. The assessee contended that the expenses were necessary for retaining the company's status and for its continuous existence, even though no business activity was carried out during the relevant year. The Commissioner (Appeals) deleted the disallowance, relying on relevant case law and holding that such expenses were allowable deductions.

The Revenue, aggrieved by the deletion of the disallowance, argued that the expenses were covered under TDS provisions and that the payments made did not constitute a share of profits in the absence of a partnership firm. The Revenue contended that the collaborators were paid for services/premises and that no partnership firm was formed. However, the assessee maintained that the grounds raised by the Revenue were unrelated to the deletion of the disallowance and that the Commissioner (Appeals) correctly followed the legal precedents set by the jurisdictional High Court. The Tribunal examined the facts and submissions, noting that the assessee had incurred expenses to maintain its status as a company, despite not conducting any business activity due to legal disputes and economic slowdown.

The Tribunal upheld the decision of the Commissioner (Appeals), emphasizing that expenses incurred for retaining the company's status were allowable deductions, as established by relevant legal precedents. The Tribunal found no irregularity in the Commissioner's reasoning and concluded that the Revenue's challenge lacked specificity. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the order of the Commissioner (Appeals) in favor of the assessee.