Disallowance of exp cannot be made merely due to lack of business activity: ITAT


Disallowance of exp cannot be made merely due to lack of business activity: ITAT 


NCR Business Park Pvt Ltd (ITA No. 6595/Del/2018)



  1. The assessee had engaged in the business of providing infrastructure services. During the assessment proceedings, the AO observed that the assessee had not carried out any business activities during the year and had earned income from other sources only.


  1. The expenditure claimed by the assessee, except bank charges and audit fee, were held to be inadmissible and were disallowed by AO alleging that there was no activity on which income had been earned from income under the head “Profit and gains of business or profession”.


ITAT Delhi held as below:

  1. When expenditure means a cost relating to the operations of an accounting period then it encompasses not only active operations but even dormant operations which may not be generating any revenue or income.


  1. The disallowance on basis of lack of business activity or non-reporting income under Profits and Gains of Business or Profession cannot be the sole ground for disallowing expenditure.


  1. There is no matter on record to suggest that the expenses were examined based on actual expenditure corroborated by evidence.


  1. Therefore, the issue regarding the disallowance of expenses is restored to the files of the AO with a direction to evaluate the genuineness of the expenses on an actual expenditure basis and then pass fresh assessment order