Allowed deduction of business loss including amount paid as managerial remuneration on account of it being business expenses

In a recent ruling, the Income Tax Appellate Tribunal (ITAT) allowed a business to deduct managerial remuneration as a business expense when calculating their business loss. The Assessing Officer had argued that the company wasn't genuinely engaged in business and that these payments were not legitimate business expenses. However, the ITAT found in favour of the company, referencing previous tribunal decisions that supported the deduction of managerial remuneration as a business expense.

In M/S. Universal Buildrise Private Limited v. The Income Tax Officer, New Delhi [ITA No. 9296/ Del. /2019 A.Y. 2016-2017 dated September 14, 2021], M/S. Universal Buildrise Private Limited ("the Appellant") filed an appeal against Order dated September 30, 2019 of the Ld. CIT(A)-9, New Delhi, relating to the Assessment Year (AY) 2016-2017.

The Appellant filed its return of income declaring loss and paid taxes on book profit under Minimum Alternate Tax ("MAT") provisions. The case was selected for scrutiny and a notice under Section 143(2) of the Income Tax Act, 1962 ("the IT Act") was issued. During the course of assessment proceedings, the Assessing Officer ("AO") noted that the Appellant claimed to be engaged in the business of supplying books and during the financial year 2016 - 2017, the name of the Appellant has been changed from "M/s. Universal Book Distributors Private Limited" to "M/s. Universal Buildrise Private Limited". The source of income of the Appellant was rental income, but he also claimed to be engaged in the trading of the book etc.

The AO held that the Appellant had not carried out any business activities and the payments made as managerial remuneration and other expenses were not business expenses. The AO alleged that the business loss claimed by the Appellant was just to avoid the tax on income from house property.

The Appellant contented that for the fiscal years 2012-2013 and 2014-2015, the Tribunal ruled in his favor and permitted the managerial remuneration to be deducted as a business expense.

After taking perusal of all the facts and evidences, the Income Tax Appellate Tribunal ("ITAT"), New Delhi held that the Appellant is entitled to the business loss which includes an amount of Rs.39 lakhs paid as managerial remuneration.