Tribunal limits expense disallowance to 10%

The Tribunal partly allowed the appeal, setting aside the CIT(A)'s order and directing the AO to restrict the disallowance to 10% of the expenses claimed by the assessee. The Tribunal found the expenses genuine, incurred through banking channels, and essential to keep the business operational during the strike-induced inactive period. The decision was influenced by the precedent that expenses to sustain a business during downturns should not be disallowed entirely.

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Issues:
Challenge to order dated 2.6.2022 passed by National Faceless Appeal Centre, Delhi for A.Y. 2014-15. The only issue contested is the decision of the learned CIT(A) in partially sustaining the disallowance of expenses made by the Assessing Officer.

Analysis:
The assessee, engaged in manufacturing machineries, faced a labor strike leading to the stoppage of production during the relevant year. The Assessing Officer disallowed business loss of Rs. 21,33,618/- due to lack of expense details provided by the assessee. In the appellate proceedings, the CIT(A) directed the AO to allow 50% of the expenses claimed. The amicus curie argued that the expenses were regular business expenses, incurred in the hope of production revival, and most were paid through banking channels. The Director stated the expenses were genuine but faced difficulties providing evidence due to strikes. The DR supported the CIT(A)'s decision.

The Tribunal noted the temporary lull in business due to the strike and the genuine nature of expenses incurred. Citing a previous case, the Tribunal emphasized that expenses to keep a business alive during inactive periods cannot be disallowed. The Tribunal found the CIT(A) granting partial relief reasonable but deemed the 50% disallowance for lack of evidence on the higher side. Considering the circumstances, the Tribunal settled the issue by restricting the disallowance to 10% of the claimed expenses, as most expenses were genuine, incurred through banking channels, and similar expenses were allowed in earlier years.

The Tribunal appreciated the amicus curie's assistance and partly allowed the appeal, setting aside the CIT(A)'s order and directing the AO to restrict the disallowance to 10% of the expenses claimed by the assessee.

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