Disallowance of expense

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 January 2012 A Project Office was set up during FY 2000-2001 to undertake a project in India. Parent Company is set up in UAE.

The project was completed in FY 2004-2005. There is certain amount which the Project Office has not received from an Indian entity due to which they went into Arbitration. The case is still pending in High Court.

The Income Tax Officer had issued a Notice for FY 2008-2009 and Assessment was completed in FY 2011-2012. The Officer has disallowed all expenses like Telephone Expenses, Rent, Legal Expenses, Electricity etc. since Assessee did not earn any income during FY 2008-2009. These expenses were necessary to be incurred and were purely for Business purpose (since there is case which is filed by Project Office in High Court).

Questions: -

1. Whether the Income Tax Officer disallow such expenses?

2. Under which section these expenses are to be disallowed?

3. Is there any case law for such type of disallowance?

sivadas chettoor

sivadas chettoor (Expert)
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03 January 2012 The query needs a little more elaboration. Please let me know whether the operations were discontinued and when? Whether there were any income from which you claimed deduction of the exp stated to be disallowed? If there is no income how you are immediately aggrieved? Your claim may be under Section 37 on the ground that the said exp is for the purpose of BUSINESS. Please note that courts have taken the view that FOR THE PURPOSE OF BUSINESS is different from FOR THE PURPOSE OF EARNING PROFIT. Section 37 allows exp even if it may not result in income but permits if it is for the purpose of business. Anyway. pl supply more facts.

siva208@yahoo.com

Querist : Anonymous

Querist : Anonymous (Querist)

03 January 2012 Dear Sivadas

A Project Office is given permission to operate in India till the project is completed. The Project was completed in FY 2004-2005.

Income that the Project Office has received in FY 2008-2009 is in the form of Interest on Refund amount received from the Income Tax Department.

Thank you in Advance. Kindly reply to my 3 questions