Expenditure incurred on discontinued business unless shown to be for reviving, not allowable – ITAT

Expenditure incurred on discontinued business unless shown to be incurred for reviving it not allowable under section 37(1) – ITAT  

ABCAUS Case Law Citation:
ABCAUS 2901 (2019) (05) ITAT

The sole issue raised by the assessee was the maintainability of the disallowance of expenditure incurred for maintenance of business premises.

The assessee had returned his income for the year under the heads ‘income from house property’ (for rental income) and ‘income from the other sources’ (for interest income).

He was running a cold storage, since discontinued. It was claimed that the said business stood only suspended, so that all the expenditure incurred for the upkeep of the business premises, as well as to keep it in readiness, so as to able to start his business as when the right opportunity strikes, were deductible.

The same was denied by the Assessing Officer (AO) on the reasoning that it is the only the income of the business carried on by the assessee during the relevant year that is assessable u/s 28 of the Income Tax Act, 1961 (the Act). Whereas, no business was admittedly carried out during the relevant year for the assessee to claim any expenditure.

CIT(A) only partly allowed the appeal. Aggrieved, the assessee challeneged it in the second appeal to the Tribunal.

The Tribunal observed that the assessee’s case was that the cold storage business had been only temporarily suspended. Regular expenditure on salaries, travelling, electricity, telephone, etc., was being incurred, to keep the business in readiness, i.e., so as to be able to restart it as and when ‘right opportunity’ comes. Therefore, the claim for expenditure should not attract any disallowance.

The Tribunal opined that it is not necessary that the expenditure should result in a positive income or some receipt. However, apart from a bald claim, there was nothing on record to support the assessee’s case/version.

The Tribunal noted that several questions were answered, i.e. since when is the business closed or suspended? What was being done, more particularly, the steps taken during the relevant year to start the business, addressing the said, unspecified reasons, causing its’ cessation or suspension in the first place? What was meant by ‘right opportunity’? Did the business eventually start? If so, when and how?

The Tribunal opined that merely incurring expenditure, unless shown to be incurred for reviving the cold storage business, could not countenanced. In fact, there was no expenditure on repairs, which was mentioned as the expenditure was stated to have been incurred for the upkeep of the premises.

The Tribunal stated that a direct nexus of the expenditure being claimed and the assessee’s business, even if it does not result in any receipt – which is in law not relevant, would stand to be established for it to be allowed, i.e., where so shown, and which is not.

The Tribunal pointed out that even in a running business, it is only the expenditure incurred wholly and exclusively for business purposes that is deductible section 37(1).

The Tribunal upheld the impugned disallowance and dismissed the appeal.

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