Case Law Details
DCIT Vs NCR Business Park Pvt. Ltd. (ITAT Delhi)
This bench is of considered view that there are two kinds of provisions under the Act, one in respect of what is allowable and other in respect of what is not allowable, i.e., they override the provisions. The overriding provisions should first be applied and then only one can decide the allowability of expenditure. If any expenditure is not allowable due to any provisions, then that expenditure is not allowable. These are specific and general provisions which do not allow the expenditures. Expenditure means a cost relating to the operations of an accounting period or to the revenue earned during the period or the benefits of which do not extend beyond the period. While determining whether a particular expenditure is deductible or not, the first requirement must be to enquire whether the deduction is expressly prohibited under any other provision of the Income tax Act. If it is not so prohibited, then alone the allowability may be considered under Sec. 37(1). As such Sec. 40 and 40A provides for nondeductible expenses or payments and under Sec. 43B certain deductions are to be allowed only on actual payment. So there cannot be as such no allowance or disallowance of expenditures, beyond these provisions.
When expenditure means a cost relating to the operations of an accounting period then it encompasses not only active operations but even dormant operations which may not be generating any revenue or income. So disallowance on basis of lack of business activity or non reporting income under PGBP cannot be sole ground of disallowing expenditure.
Rajasthan High Court in CIT vs. Udaipur Mineral Development Syndicate AL Ltd [2004] 269 ITR 0263 upheld deduction of power charges and engine hire charges though no business in the was carried on during the year. Further ITAT Amritsar Bench in ITA No. 1394/Kol/2010, Shingar Lamps Ltd V. Additional Commissioner of Income Tax Special Range, Jalanadhar [2006] -(15O)-TAXMAN — 0017, has held that the expenses were allowable which are essential for maintenance of the company even if no business was carried on. Thus it appears that Ld Tax Authorities below have fallen in error in disallowing the expenses on the ground of lack of business activities alone.
However, there is no matter on record to suggest that the expenses were examined on the basis of actual expenditure corroborated by evidence. Therefore the issue in regard to the disallowance of expenses is restored to the files of the ld AO with a direction to evaluate the genuineness of the expenses on actual expenditure basis and then pass fresh assessment order.
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