The Delhi ITAT has held that if business is at dormant stage waiting for proper market conditions to develop, expenditure incurred is to be allowed as income tax deduction.
The coram of C. M. Garg (Judicial Member) and M. Balaganesh (Accountant Member) has found that expenses have to have a nexus with earning of income from business.
The assessee company was incorporated on 21.11.2003. The ld AO received an information from ACIT, Circle-27(1), New Delhi vide letter dated 13.12.2012 that assessee has sold property at Plot No. E-441, YK Riko Industrial Area, Chopanki, Tijara, area 4000 sq mtr for sale consideration of Rs. 75 lakhs during the FY 2009-10, the stamp duty value of the said property is Rs. 1,14,06,000/-.
The ld AO show cause the assessee as to why the aforesaid expenses should not be disallowed as during the year under consideration, the assessee has not carried on any business activity which is also evident from the profit and loss account whether sale or gross receipts shows at Rs. Nil. In reply the assessee submitted though as no business carried out during the year still the assessee is incurring certain expenses to repay its business obligation and making certain realization from its sundry debtors for recovery of old dues. The AO further disagreed with the plea of the assessee and proceeded to disallow of expenditure of Rs. 16,08,268/- in the assessment. I believe that expense does not have any nexus with earning of income from business. This action was upheld by the ld CIT(A).
The tribunal held that unless the business is abandoned or closed and even if business is at a dormant stage waiting for proper market conditions to develop, the expenditure incurred in the course of such a business is to be allowed as deduction.
Repro Auto Pvt. Ltd Versus ITO