By TIOL News Service

NEW DELHI, APRIL 16, 2018: THE ISSUE BEFORE THE BENCH WAS - Whether assessee is entitled to claim expenses which are necessary to be incurred to keep the status of the company active. YES IS THE VERDICT.

Facts of the case

The assessee company is engaged in the business of manufacturing, assembling, buying, selling, exchanging, converting, importing, altering, exporting or otherwise handling or dealing in vacuum cleaners, washing machines, mixers & juicers. The assessee during the year had claimed expenses of Rs. 43,850/- in its profit and loss account but the same was disallowed by the AO on the ground that there was no business activity carried on by the assessee. Thus, the amount disallowed was added to the total income of the assessee. The assessee submitted that the expenses were incurred towards bank charges, professional charges, audits 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. Therefore, the assessee should be entitled for such expenses. However, CIT(A) disregarded the contention of the assessee and confirmed the order of the AO.

Tribunal held that,

++ the assessee has claimed certain expenses to keep the status of the assessee-company active. These expenses were claimed as business loss under the head "business and profession". It is well settled law that a private limited company being a body corporate has to incur certain expenses to keep its status active. Support and guidance was taken from the judgment of Calcutta High Court in the case of CIT vs. Ganga Properties Ltd. wherein it was held that " A limited company even if it does not carry on business, even if it derives income from other sources, has to maintain its establishment for complying with statutory obligation so long as it is in operation and its name is not struck off the register or unless the company is dissolved. So long as the company is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income was a reasonable conclusion. The Tribunal was, thus, justified in allowing the expenditure claimed by the assessee as deduction." Thus the ground of appeal filed by the assessee is allowed.

(See 2018-TIOL-555-ITAT-DEL)