Business expediency not a question of law, much less a substantial question of law-High Court. If expected fruits are not reaped from a business proposition, it is no basis to challenge the business expediency.
ABCAUS Case Law Citation:
ABCAUS 2182 (2018) (01) HC
The instant appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) confirming the order of the CIT (Appeals) quashing the order of the Assessing Officer (AO) disallowing the lease rent paid by the assessee.
Brief Facts of the Case:
The Assessing Officer (AO) had passed the assessment under Section 143(3) of the Income Tax Act, 1961 (`the Act’). The AO doubted the payment of lease rent on the ground that the assessee did not submit proof regarding the use of the premises for business purposes and accordingly disallowed the payment of lease rent paid by the assessee.
However, the The CIT (Appeals) allowed the assessee’s appeal.
The Tribunal confirmed the reasonings given by the CIT (Appeals) and dismissed the appeal of the Revenue.
Contention made on behalf of the Appellant Revenue:
The Revenue challeneged that ITAT was not right in deleting the addition made by ignoring the fact that the assessee could not prove the business expediency of expenses when the said premises had not been used for the purpose of business. According to the Revenue, the ITAT had allowed the expenses by holding that if the payment for lease rental had been made by cheque after deducting the due TDS, then genuineness & business expediency of any expenditure stands established.
Observations made by the High Court:
It was observed that the assessee, in order to expand its business took a property on lease. Due to hiccups in starting the new business including the delay in getting electric connection, the business could not be started. Also, partners of the firm who were abroad to look after the business, due to their family problem could not return in time. To set off the losses, the part of the said property taken on lease was given on rent.
The Hon’ble High Court noted that the lease rent was paid through cheque and even TDS as required under the Act was duly deducted. Both the Appellate Authorities below took into consideration all these factors and held that the claim of lease money paid cannot be denied. The conclusion reached was logical.
The Hon’ble High Court noted the questions were framed incorrectly by the Revenue. The question had been worded to suggest that the authorities below held that if the payment of lease rent had been made by cheque and TDS has been deducted, the genuineness of the same and the business expediency stood established.
The Hon’ble High Court opined that no doubt, mere payment by cheque purportedly towards lease rent and the deduction of TDS would not establish a case for deduction. However, the Appellate Authorities have not allowed the claim merely on the basis of payment being made by cheque and TDS having been deducted. The facts in entirety have been considered and thereafter, a conclusion had been arrived at that it was a business expenditure which was genuinely made towards payment of lease rent.
According to the Hon’ble High Court the question challenging the deletion of addition made alleging that the assessee failed to prove the business expediency was not a question of law, much less a substantial question of law.
The Hon’ble High Court opined that merely because there was some difficulty faced by the assessee in commencing the use of the premises it does not follow that the expenses claimed were not for the purpose of the assessee’s business. If the expected fruits are not reaped from a business proposition, it will not be a basis to challenge the business expediency.
According to the Hon’ble High Court even if there was a delay in getting the electricity connection, that may be a result of non-fulfilment of contractual obligations, for which the assessee can claim damages. It would not be open for the department to suggest that in such circumstances, the lease should have been terminated. It was a business decision to be taken by the assessee. It was not the case of the department that the expenses have not been incurred or that they were made under an understanding camouflaged as a lease agreement.
The appeal was dismissed holding that it raises merely questions of fact and not the substantial question of law.