Expenses incurred during lull business period can not be denied to assessee when he was not able to generate any income.
ABCAUS Case Law Citation:
ABCAUS 3297 (2020) (04) ITAT
In this case appeals had been filed at the instance of the Assessee against the separate orders of the Commissioner of Income Tax (Appeals) in sustaining the disallowances of business expenses holding that there was no business activity during the relevant assessment year.
During the assessment proceedings, the AO observed that the assessee for the year under consideration claimed business expenses against NIL business income.
The assessee claimed that due to lull in the market, there was no business transaction carried out during the year. But he incurred the expenses in order to sustain his business.
However, the AO held that assessee had not carried business activity during the year and the incomes disclosed by the assessee were related to other sources. Therefore, the business expenses as claimed by the assessee were not eligible for deduction.
Accordingly, the AO disallowed the entire business expenses claimed and added to the total income of the assessee.
Aggrieved assessee, preferred an appeal before CIT (A) who held that the assessee had not submitted anything with regard that the business was not closed. Therefore in absence of any detail such as when he started business and when slowdown came in market and when he restarted the business after lull in market. Accordingly, he confirmed the order of the AO.
The Tribunal noted that there was no dispute that there was business activities during the immediately preceding assessment year as evident from the assessment order u/s 143(3) of the Income Tax Act 1961 (the Act) and also in following assessment year except intervening three assessment years.
The Tribunal opined that a temporary lull / closure in the business activities does not amount to closure of the business. It is because there can be a situation when the assessee is not able to generate any business but it has to incur the expenses to keep its business setup in existence. Thus in such a situation the assessee cannot be denied the claim of expenses incurred during the period when he was not able to generate the business.
The Tribnal further pointed out that the business is governed by the market forces which are beyond the control of the assessee. Thus in the instant case, merely lull in the business activities did not mean that the assessee had closed down its business activities.
Accordingly, the ITAT held that the assessee could not be deprived from the benefit of claiming the deduction for the expenses incurred to keep the setup of the business in existence.
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