Expenses Incurred to keep the Status of Company Active is Eligible for Deduction: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal recently proclaimed that expenses incurred in order to keep the status of company activities are eligible for deduction.

The Tribunal bench comprising of Judicial Member H.S. Sidhu and Accountant Member Waseem Ahmed was hearing the appeal of M/s Kesha Appliances Pvt. Limited versus ITO Ward-14(3).

In instant case, it was alleged that AO disallowed the expense claim in the profit and loss account since there was no business activity carried on by the assessee. Accordingly, AO disallowed the expense and added the same to the income of Assessee.

Aggrieved Assessee approached the CIT (A) therein Assessee contended that said expenses were incurred towards bank charges, professional charges audit remuneration and general expenses including depreciation. As per the assessee, these expenses were necessary to be incurred to keep the status of the company active.

Being not satisfied with the contention of Assessee, CIT (A) held that AO has correctly come to the conclusion that it is a case of no business activity and there is also no possibility of the business being revived. Further aggrieved by the order of CIT (A) assessee is in the second appeal before this tribunal.

The bench heard both the parties’ recitals and observed the well-settled law that a private limited company is a body corporate has to incur certain expenses to keep its status active. In support of this statement, bench pressed the decision of Calcutta High Court in the case of CIT vs. Ganga Properties Ltd, where it has been held that the expenses incurred were wholly and exclusively for the activities to earn income was a reasonable conclusion to claim the deduction.

Accordingly, the tribunal bench held that the decision of CIT (A) is bad in law such expenses are eligible for the deduction to maintain the status of company Active.