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I-T - Temporary suspension of business should not be construed as permanent closure, and hence will not debar owner from claiming routine commercial expenses: ITAT

 

By TIOL News Service

NEW DELHI, APRIL 23, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether temporary suspension of business activity for purpose of renovation or repairs, should not prevent the owner from claiming genuine expenses incurred for operation of such business. YES IS THE VERDICT.

Facts of the case:

During the course of assessment proceedings, the AO noted that assessee had claimed various expenses to the tune of Rs.15,55,92,521/-, out of which it had voluntarily disallowed donation expenses, penalty charges, belated employees contribution fund and expenses to be disallowed u/s 43B to extent of Rs.29,34,282/-. The AO further noted that assessee had not shown any receipt from the business and in response to the show cause notice, assessee submitted that there was temporarily suspension of its business, because the assessee had acquired a running business pursuant to a scheme of arrangement of India Tourism Development Corporation by which all the property, assets, liabilities, profits, employees, funds and business of the Lodhi Hotel Unit were demerged from ITDC and merged with the assessee as a 'going concern basis'. Though the physical possession and the operation of Lodhi Hotel were received, but the hotel building was in a dilapidated condition and therefore, huge renovation worked had started. Due to this fact there was a temporarily suspension and closure of the hotel business. However, the AO disallowed the expenditure of Rs.15,26,58,239/-. On appeal, the FAA however allowed the expenditure after observing that the details and documents on record show that the hotel property was in a position to receive the clients and had also received the guests. Further, the built up of inventory by the assessee, details of sundry creditors for supply of hotel essentials, returns of VAT and details of luxury tax collection and payment thereof show that the business of hotel commenced during the year and therefore, there was no reason as to why the routine business expenses should not be allowed.

Tribunal held that,

++ this precise issue has come up for consideration before this Tribunal for the A.Y 2007-08 wherein the Tribunal after recording the entire facts and material on record, allowed the expenditure after observing and holding that: "....there is temporary suspension of the business between November 2002 and it actually resumed commercial operations in April 2009. Admittedly, assessee resumed business in April 2009. It is not the case of the revenue that the assessee has now been doing a different business and they had abandoned the hotel business. The assessee is accounting the period of suspension by stating that the contract for the building work was given to the contractor on May 07, 2005, construction was completed during the FY 2006-07, small changes took place till June 2007, hotel property was operational in June 2007, application for completion certificate was made in July 2007, completion certificate was issued in January 2009 and ultimately commercial operations of the hotel resumed in April 2009. It, therefore, makes the things amply clear that the intention of the assessee was to temporarily suspend the business and not to bring the business to a close. Therefore, the assessee's claim of expenditure incurred during the period of temporary suspension of business has to be allowed. However, the quantum of expenditure needs to be verified at the end of the AO...." Thus respectfully following the earlier order precedence, which is applicable mutatis mutandis for this year also, the deletion of disallowance made by FAA is upheld.

(See 2018-TIOL-591-ITAT-DEL)


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