ITAT Delhi: Expenses incurred for retaining status of company are allowable under Income Tax

Fact and Issue of the Case

Brief facts of the case are that the assessee is a company and was engaged in the business of owning and managing the hotels in India at the relevant period. Assessee filed return of income for the assessment year 2012-13 on 27.09.2012 declaring a loss of Rs.71,37,326/-. During the course of assessment, learned Assessing Officer noticed that the assessee claimed expenses amounting to Rs.3,61,28,155/- and when called upon to explain why the same shall not be disallowed in view of the fact that no business activity was carried out during the assessment year, the assessee pleaded that out of expenses of Rs.3,61,28,155/- appearing in Profit & Loss account, the expenses to the tune of Rs.2,90,35,248/- were suo moto added back by the assessee in its computation of income and, therefore, in fact, the assessee claimed expenses only to the tune of Rs.70,92,907/- for retaining its status as a company and for its continuous existence for running the day-to-day affairs of the company. According to the assessee, same includes expenses like salary, payment towards statutory funds, travelling and conveyance, communication, professional fee, vehicles etc. Learned Assessing Officer, however, did not agree with the submissions of the assessee and disallowed the entire expenses of Rs.3,64,03,451/- debited to the profit and loss account and assessed the income of the assessee at nil.

Aggrieved by the same, assessee preferred appeal before the ld. CIT(A) who by order dated 10.03.2017 deleted the disallowance of expenses holding that these expenses were required to be incurred for retaining the status of the company and allowable deduction even though no business activity was carried out in the relevant year. In this process, ld. CIT(A) placed reliance on the decision of Hon’ble jurisdictional High Court in the case of CIT Integrated Technologies Ltd. (ITA No.530/2011 – order dated 16.12.2011) and the view of the ITAT in the case of ITO vs. Mokul Finance Pvt. Ltd., 110 TTJ 445.

Observation of the Tribunal

The Tribunal has gone through the record in the light of the submissions made on either side. It remains an undisputed fact that the assessee was incorporated on 10.09.1987, made investments in V. Hotels Ltd, which had acquired Centaur Hotel in Mumbai from the Government intending to revive the business of such hotels, but in view of legal dispute with regarding to Centaur Hotel and also on account of economic slowdown, the assessee could not start running of hotel, but, however, to keep the status of the company, the assessee had to incur expenses in the shape of salary of few key personnel, payments made towards statutory funds, communications, professional fees etc.

In these circumstance, ld. CIT(A) while following the decision of Hon’ble jurisdictional High Court in the case of Integrated Technology Ltd. (supra) and also order of coordinate Bench of this Tribunal in Mokul Finance Pvt. Ltd. (supra), granted relief on the ground that the expenses incurred for retaining the status of the compare are allowable deduction, even though the assessee did not carry out any business activity during the assessment year. We do not find any illegality or irregularity in the reasoning given or conclusions reached by the ld. CIT(A) and as a matter of fact, the challenge of the Revenue also is non-specific. We, accordingly, uphold the order of the ld. CIT(A) and dismiss the grounds of appeal of the Revenue.