Expenses incurred by the assessee to maintain its corporate entity are allowable

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH “D”, NEW DELHI

BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER

AND

SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

I.T.A. No. 3873/Del/2011

A.Y.: 2008-09

ACIT, CIRCLE 4(1),

NEW DELHI

ROOM NO. 407,

CR BUILDING, I.P.

ESTATE, NEW DELHI

(APPELLANT)

VS.

M/S JNG BUILDERS

PVT. LTD.,

B-8, JANGPURA,

MATHURA ROAD,

NEW DELHI

(PAN: AAACJ 0598B)

(RESPONDENT)

Assessee by: SH. RAJ KUMAR, CA

Department by: S h. K.K. JAISWAL, D.R.

ORDER

PER SHAMIM YAHYA: AM

This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-VII, New Delhi dated 24.6.2011 pertaining to assessment year 2008-09.

2. The issue raised in the appeal is that Ld. Commissioner of Income Tax (A) erred in deleting the addition of Rs. 14,74,375/-.

3. In this case it was observed by the Assessing Officer that assessee had shown two kinds of receipts viz. rental income an misc. income. Assessing Officer further observed that assessee has shown misc. receipt of Rs. 42,700/-. The Assessee company has claimed expenses amounting to Rs. 14,74,375/- against this misc. receipt of Rs. 42,700 and setting off of these expenses against the misc. income has shown a loss Rs. 14,31,675/- under the head income from business or profession.

3.1 Assessing Officer observed that assessee has not produced any evidence in support of misc. income. Hence, he observed that it was no possible to decide the nature of receipt and in what head the income should be classified. Assessing Officer further opined that assessee was not carrying out the business or profession during the year. Hence, the Assessing Officer held that the amount of Rs. 14,74,375/- was disallowed and added back to the total income of

the assessee.

4. Upon assessee’s appeal Ld. Commissioner of Income Tax (A) noted that Assessing Officer has not brought anything on record that assessee company closed its business. Ld. Commissioner of Income Tax (A) opined that if the assessee did not carry out business activity during the year under consideration, at best that could be case of temporarily suspension of activities, but in no case, the Assessing Officer could form an opinion that assessee has closed its business. Ld. Commissioner of Income Tax (A) further noted that it was the contention of the assessee that expenses incurred by the assessee have to be allowed as the same were essential to keep up the corporate entity. Assessee further contended before the Ld. Commissioner of Income Tax (A) that in the alternate the expenditure was also to be allowed, as per the provisions of section 57(iii) of the Act. Ld. Commissioner of Income Tax (A) accepted the contention of the assessee that expenditure was incurred for maintaining the corporate entity. Ld. Commissioner of Income Tax (A) further noted that on perusal of the accounts for succeeding assessment years 2009-10 & 2010-11 also revealed that assessee has derived income from business activity. Hence, Ld. Commissioner of Income Tax (A) held that addition of Rs. 14,74,375/- was liable to be deleted.

5. Against the above order the Revenue is in appeal before us.

6. We have heard both the counsel and perused the records. Ld. Departmental Representative submitted that assessee has not done any business during the year. The expenditure claimed are not allowable as they do not relate any business. Ld. Departmental Representative further placed reliance upon the order of the Assessing Officer. Ld. Counsel of the assessee on the other hand submitted that there was only a temporary lull in the business of the assessee. In subsequent years, the business has picked up and the claim of business expenditure in this regard have been allowed by the Assessing Officer. Ld. Counsel of the assessee further submitted that in the preceding assessment year, Assessing Officer has made similar disallowances. However, the Ld. Commissioner of Income Tax (A) had deleted the addition. Revenue has not agitated the decision of the Ld. Commissioner of Income Tax (A) before the ITAT.

In these circumstances, ld. Counsel of the assessee pleaded that Ld. Commissioner of Income Tax (A)’s order be upheld.

6.1 We have carefully considered the submissions. We find that the nature of expenses claimed in this regard related to items such as audit fees, salaries, professional charges, insurance, printing and stationery, bank charges, housekeeping expenses, repair and maintenance expenses. These expenses in our considered opinion, are necessary to maintain the corporate entity. It is also noted that in the preceding year similar disallowance was deleted by the Ld. Commissioner of Income Tax (A) and the Revenue has accepted the same. Furthermore, in subsequent assessment years, assessee’s business has picked up and the claim of business expenditure in those years have been allowed. Thus, we accept the contention of the assessee that there was a temporarily lull in the business of the assessee. This resulted in assessee not earning any worthwhile business income. In these circumstances, in our considered opinion, assessee’s contention has considerable cogency. In this regard, we refer to the decision of ITAT, Delhi Bench in 38 TTJ 564 in the case of Daljit Exports (Ind.) P. Ltd. vs. ITO. In this case it was held that assessee was a corporate entity and did not carry any business during assessment year under consideration. It was held that expenses incurred by the assessee to keep its corporate entity are allowable. In the background of the aforesaid discussion and precedent, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same.

7. In the result, the appeal filed by the Revenue stands dismissed.

Order pronounced in the Open Court on 02/8/2013.

Sd/- Sd/-

[R.P. TOLANI] [SHAMIM YAHYA]

JUDICIAL MEMBER ACCOUNTANT MEMBER

Date 02/8/2013

“SRBHATNAGAR”

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

TRUE COPY

By Order,

Assistant Registrar,

ITAT, Delhi Benches