BLISS COMMERCIAL P.LTD,MUMBAI vs. DCIT 12(1)(2), MUMBAI

Aforesaid appeal by assessee for Assessment Year [AY] 2012-13 contest the order of the Ld. Commissioner of Income Tax (Appeals)-20, Mumbai, [CIT(A)], Appeal No. CIT(A)-20/DCIT.12(1)(2)/IT-179/2014-15 dated 23/09/2016 qua confirmation of disallowance of certain expenses for Rs.10.20 Lacs. The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-Circle 12(1)(2), Mumbai [AO] u/s Bliss Commercial P. Ltd. Assessment Year :2012-13 143(3) of the Income Tax Act, 1961 on 26/02/2015 wherein the loss of the assessee has been determined at Rs.122.56 Lacs after certain disallowances / adjustments as against returned loss of Rs.133.10 Lacs e-filed by the assessee on 27/09/2012.

During assessment proceedings, it transpired that the assessee earned meagre interest & dividend income aggregating to Rs.2.25 Lacs but claimed expenditure of Rs.121.07 Lacs which after taking into account depreciation claim further increased to Rs.135.35 Lacs. The assessee, while filing the details of expenditure, submitted that the expenditure was to keep the plant of the company alive and to keep it in saleable condition. The Ld. AO, after considering the same, opined that expenses other than rent, depreciation and interest, would not be allowable in the absence of any business activity. These other expenses were in the nature of insurance, repairs & maintenance, misc. expenses, conveyance, payment to auditors, legal & professional charges, directors’ remuneration, preliminary expenses written off, telephone, printing stationery and bank charges etc. Therefore, the same were disallowed in the absence of any business activity. The assessee being resident corporate entity was stated to be engaged in manufacturing of fabrics on contract basis.

Aggrieved, the assessee agitated the same before Ld. CIT (A) vide impugned order dated 23/09/2016 wherein Ld. CIT(A), after due consideration of factual matrix, confirmed the stand of Ld. AO by observing as under: - 5.3 I have gone through the assessment order and the submissions made in thus regards. It is seen that during the course of assessment proceedings, the A.O. on perusal of the books of accounts observed that the assessee had not carried out

The Ld. AR, Shri Rajeev Khandelwal, advanced arguments to submit that allowance of legitimate business expenditure would not be dependent upon earnings of income by the assessee. Our attention has been drawn to the fact that majority of the expenditure was already allowed by Ld. AO and there was no reason for disallowance of remaining expenditure. The Ld. DR, Ms. Kavita Kaushik, asserted that the assessee failed to demonstrate that the expenditure was incurred for business purposes and the expenditure would not be allowable in the absence of any business activity.

Upon careful consideration of factual matrix as enumerated hereinabove, it is quite evident that majority of expenditure as claimed by the assessee has been allowed by Ld. AO himself. The only reasoning adduced to make the partial disallowance was that no business activity was being carried out by the assessee. However, the business had not Bliss Commercial P. Ltd. Assessment Year :2012-13 discontinued which is evident from the fact that depreciation allowance has already been granted to the assessee. No doubts have been raised by Ld. AO as to the genuineness of the expenditure. The allowance of legitimate business expenditure would not be dependent upon earning of income by the assessee. Therefore, there would be no justification for disallowance of remaining expenditure. Consequently, we are inclined to delete the disallowance. We order so.

The appeal stands allowed. Order pronounced on 29th September, 2020.