KALPAK DEVELOPMENT CORPORATION,MUMBAI vs. ACIT 19(3), MUMBAI

The assessee is aggrieved by the decision of the learned CIT(A) in partially sustaining the disallowance of expenses made by the Assessing Officer in all the three years.

We heard the parties and perused the record. The assessee is partnership firm engaged in the business of construction and finance. During the course of assessment proceedings, the Assessing Officer took the view that the assessee has not carried on any business activity and accordingly disallowed the entire expenses claimed by the assessee in construction

The learned CIT(A), however, noticed that the Assessing Officer had made identical disallowance in A.Y. 2008-09 and 2009-10 also and when the matter reached the ITAT, the Tribunal, vide its order dated 17.5.2017, passed in & 58/Mum/2013, has deleted the disallowance by following the decision rendered by the Tribunal in one of the group concerns of the assessee named Kalpak Builders (ITA No. 1919/Mum/2012 dated 22.4.2015). Accordingly, the learned CIT(A) held that the decision rendered by the Tribunal with respect to continuation of business applicable to these years also. He also noticed that the interest receipts were accepted as business income of the assessee. Accordingly he reversed the decision of the AO on the matter of carrying on business in construction division and finance division.

With regard to expenditure claimed by the assessee, the learned CIT(A) noticed that many of the expenditures are required to be allowed as they are essential for conducting a business. However, the learned CIT(A) chose to disallow 20% of the miscellaneous expenditure in all the three years on the reasoning that the assessee did not produce details of miscellaneous expenses claimed by it. The learned CIT(A) also chose to disallow 20% of salary expenditure in all the three years on the reasoning that the assessee did not furnish details of specific duty assigned to the employees and work accomplished by them. Still aggrieved, the assessee has filed these appeals before us.

With regard to miscellaneous expenses claimed by the assessee, we noticed that the learned CIT(A) has sustained disallowance to the extent of 20% in all the three years for the reasoning that the assessee did not furnish details of miscellaneous expenses. Before us also, no fresh material was 3 Kalpak Development Corporation brought on record to contradict the findings given by the learned CIT(A), i.e., the assessee did not furnish the details of miscellaneous expenses. Accordingly, we are of the view that the order passed by Ld CIT(A) on this issue does not call for any interference and accordingly we uphold the order of the learned CIT(A) in sustaining 20% of miscellaneous expenses in all the three years under consideration.

With regard to the disallowance made out of salary expenses, we noticed that the learned CIT(A) has accepted the salary payment to the extent of 80% and chose to allow 20% on the reasoning that the details relating to specific duty assigned to the employees and work accomplished by them are not given. In our view, the said reasoning is not justified. Once it is accepted that the concerned employees have been employed by the assessee and they have performed some duties in connection with the business of the assessee, there is no justification to disallow a part of salary paid to them. There is also no allegation that those employees are non-existents or they are covered by sec. 40A(2)(b) of the Act. Accordingly, we are of the view that the partial disallowance out of salary expenses is not called for. Accordingly we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to allow entire salary expenses claimed by the assessee in all the three years.

In the result, all the three appeals filed by the assessee are partly allowed. Order has been pronounced in the Court on 2.4.2018.