The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has declared the disallowance made under Section 37 of the Income Tax Act 1961 as arbitrarily as business maintenance not allowable under Section 24 of the Income Tax Act 1961.
Assessment in this case was completed on a total income as against returned income of assessee, Giri Buildwell Pvt. Ltd. While doing so the assessing officer made addition. The AO observed that the entire activity of the assessee company revolved around earning of income from income from house property along with income under the head income from capital gain, there was no business activity, therefore, business expenses claimed by the assessee were disallowed and added back to the income of the assessee.
Rakesh Gupta, on behalf of the assessee submitted that the main activity of the company was sale/purchase and construction of the property and not the rental income. Apart from that the company was maintaining the Inventory but due to adverse market conditions no sale/ purchase of property could be made during the year under considerations.
However, the company was to maintain the office to carry on its main business activity and to incurred the expenses wholly and inclusively for business purposes.These expenses were mandatory in nature to meet out any business opportunity to sell the inventory and should be allowed as business expenses.
He further submitted that the assessee was not carrying out business activity due to adverse market conditions, but the assessee being an artificial juridical person, had to incur expenditure for maintaining its existence and for carrying out whatever little activities that the assessee was involved in.
Vivek Vardhan, who appeared for the revenue, supported the findings of the tax authorities.
The two-member Bench of N.K.Billaiya, (Accountant Member) and SH.Anubhav Sharma, (Judicial Member) observed from the order of Tax Authorities below that the 10% deduction from the income under the head, “income from house property” under Section 24 of the Income Tax Act had been considered by them to take care of all expenses. On the contrary, the assessee had made a claim that apart from the income made by way of renting of properties, there were other inventories and the assessee was making certain expenses for preservation of that inventory.
It was also a settled proposition of law that merely because the business stands abandoned or closed or dormant due to market conditions, a corporate assessee still needed to incur certain expenditure to keep itself floated.
The Bench allowed the appeal filed by the assessee holding that the 30% standard deduction from the income under the head, “income from house properties” would not take care of all such expenses, which had an explanation of business expediency attached to them beyond the repair and maintenance and such like expenses, against the rental properties. Tax Authorities had erred in declining expenses claim in the P & L account which had no direct concern with the rented properties but were for keeping the business entity functional as a running concern. Non-examination of the same for the purpose of Section 37 of the Income Tax Act would make disallowance absolutely arbitrarily.
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