Generation of Business Income Not Necessary to Claim Business Expenditure: ITAT [Read Order]

Generation of Business Income - Business Income - Business Expenditure - ITAT - taxscan

The Delhi bench of Income Tax Appellate Tribunal (ITAT) recently held that the generation of business income is not necessary to claim business expenditure.

 Assesse Zhilmil Electronics Pvt. Ltd. filed return of income for Assessment Year 2015-16 declaring an Income of Rs. 1, 89,480/- .After Assessing Officer (AO) initiated scrutiny assessment and found that assessee issued equity shares to four different entities but the identity and creditworthiness of the investors are suspicious and the submission of the assessee was not accepted.  AO held that the investors are bogus and not genuine and their creditworthiness and identity are also fake beyond doubt. Further the AO treated the income of assessee earned from these investors under section 68 of the Income Tax Act 1961 and further expenditure claimed by the assessee has been disallowed. Against the order AO assessee filed appeal before the ITAT.

Rajiv Saxena, Counsel for assessee submit that assessee has already set up his business and the same was in operation, the expenditure claimed under section 37 of the Income Tax Act 1961, to claim the business expenditure, the assessee has to be set up the business and it was not mandatory that there should be actual income generated from the business.

Vivek Vardhan, counsel for revenue contented that the assessee did not carry on business in the year under consideration. It was the reason for disallowing the expenses.

After considering the contentions of the both parties the division bench of ITAT comprising Yogesh Kumar U.S. (Judicial Member) and BRR Kumar (Accountant Member) allow the appeal filed by the assessee and observed that “once the business of the assessee is set up and the expenditure incurred thereafter deserves to be allowed as business expenditure under section 30 to 38 of the Income Tax Act 1961. There is no requirement of generation of income from such business activities. The business activity is a continuous process and it cannot be said that as soon as setting up the business, the income will be generated and should yield income in all years.”

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