In a recent ruling, the Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT )has held that expenses incurred for business are allowable as a deduction until the actual liquidation of firm.
Shri Bandish Soparkar & Parin Jain appeared for the appellant and Shri Mukesh Jain appeared for the respondent.
Annapurna Polymers Pvt. Ltd, the Assessee challenged the order passed by the Pr. Commissioner of Income Tax (Appeals)-1, Ahmedabad, (CIT(A)), dated 30-08-2016, u/s. 250(6) of the Income Tax Act, 1961(“Act”) about Assessment Year (A.Y) 2012-2013.
The appellant company is in voluntary liquidation by a resolution passed in its general meeting dated 25.03.2014. The assessee company has claimed a deduction of the expenses on municipal taxes and security charges of Rs. 13,98,8737- and Rs. 5,54,4647- respectively. The expenditure claimed by the assessee was not allowed by the AO as an allowable expenditure under the Income Tax Act.
The AO has held that as the assessee company has not carried on any business activity during the previous year and therefore, income earned is taxable under Section 56 under the head ‘Income from other sources. The expenditures incurred by the appellant company have not been incurred to earn the interest and the assessee’s claim for expenditure was disallowed.
The Commissioner of Income Tax (Appeals) noted that the assessee company was in voluntary liquidation by resolution passed in its general meeting dated 25.03.2014 and held that the case of the assessee was squarely covered by the decision of in the Vijaylaxmi Sugar Mills Ltd. Vs. CIT [1991] 191 ITR 641 wherein it had been categorically held that expenses incurred when the assessee was in liquidation had nothing to do with the business of the assessee.
It was submitted that the Company is continuing in its name and the name of the company is not struck off from the Register of Companies. The Profit and Loss account shows Revenue from Operations earned during the impugned year of Rs. 17,23,77,975/- which includes the sale of products alone and other operating Revenue. The statement also reflects expenses claimed against the said Revenue totalling in all Rs.15,98,83,984/- including the material cost of Rs.14.94 crores and employee, finance and depreciation cost also.
The ITAT bench consists of Ms Annapurna Gupta, Accountant Member and Ms Madhumita Roy, Judicial Member observed that the assessee was carrying on business during the year. Also as noted above by us, the assessee has incurred several expenses during the year. Further observed that the CIT(A) disallowed based on the fact noted by him that the assessee company went into voluntary liquidation vide Board resolution passed on 25-03-2014.
The assessee company was not into liquidation in the impugned year but in a later year, thereby the ITAT bench held that the disallowance of municipal expenses and security charges of Rs.13,98,873/- and Rs. 5,54,464/- is not sustainable and directed to delete. The appeal filed by the assesseewas allowed.
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