Case Law Details
Icenet. Net Ltd Vs ITO (ITAT Ahmedabad)
ITAT allowed internet expenses and labour charges as business expenses and further held that Section 115BBE not applicable to expenses adequately explained during assessment
Introduction: In the case of Icenet. Net Ltd. vs. ITO, the issue revolved around the disallowance of certain expenses made by the Assessing Officer, which was later confirmed by the CIT(A). The disallowed expenses were related to internet expenses and labour charges, and the assessee appealed before the Income Tax Appellate Tribunal (ITAT) Ahmedabad.
Analysis: The ITAT Ahmedabad examined the grounds of appeal raised by the assessee. The first ground concerned the disallowance of Rs. 10,00,000/- incurred as internet expenses. The Assessing Officer claimed that the liability was a contingent liability and should have been brought into the books of accounts at the time of creation. However, the ITAT allowed the appeal, considering the nature of the performance guarantee given by the Indian Overseas Bank to the Department of Telecommunication. The ITAT held that the guarantee was in the nature of compensatory expenditure and was incurred for the purpose of the assessee’s business, making it allowable under Section 37(1) of the Income Tax Act.
The second ground was related to the disallowance of Rs. 2,00,000/- incurred as labour charges. The Assessing Officer argued that since the business was discontinued, the expenses could not be claimed as business expenditure. However, the ITAT disagreed and allowed the claim, as certain business activities were ongoing during the period, and the expenditure was related to the administration and accounting of the business.
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