NEW INDIA EXPORTS PRIVATE LIMITED ,MUMBAI V. INCOME TAX OFFICER WARD 7(1)(1), MUMBAI

ITA 2655/MUM/2025

AI Insights

New India Exports Pvt. Ltd. appealed against the orders of the CIT(A) for the Assessment Years 2016-17 and 2020-21, which confirmed the disallowances made by the Assessing Officer. The disallowances included interest expenses, establishment expenses, and administrative expenses. The Tribunal heard both appeals together due to the common issues involved. The main contention was whether the expenses claimed were incurred for the purpose of business. The Tribunal found that the assessee failed to substantiate that the borrowed funds were used for business purposes and that the expenses claimed were necessary for business operations, leading to the dismissal of the appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 782512 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 17-04-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LEYAQAT ALI AAFAQUI
• Assessee Lawyers: J.P. BAIRAGRA
• Keywords: Business expenditure; Depreciation; Commercial expediency; Earning of tax free income
• Section: 143(3); 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI NARENDER KUMAR CHOUDHRY (JUDICIAL MEMBER) ITA No. 2655 & 2656/MUM/2025 Assessment Year: 2016-17 & 2020-21 New India Exports Pvt. Ltd., 401/405, Jolly Bhavan No. 1, 10 New Marine Lines, Marine Lines S.O. Mumbai-400020. Vs. ITO-7(1)(1), Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN NO. AAACN 1945 Q Appellant Respondent Assessee by : Mr. J.P. Bairagra Revenue by : Mr. Leyaqat Ali Aafaqui, Sr. DR Date of Hearing : 03/09/2025 Date of pronouncement : 27/10/2025 ORDER PER OM PRAKASH KANT, AM These two appeals by the assessee are directed against two separate orders, both dated 19.02.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17 and 2020-21 respectively. Printed from counselvise.com 2. As common issue in dispute are involved in both these appeals and therefore, same were heard together and disposed off by way of this consolidated order for the sake of convenience. 3. Firstly, we take up the appeal of the assessee year 2016-17. The grounds raised by the assessee are reproduced as under: 1. The Ld. CIT(A) erred in confirming the disallowance of interest expenses of Rs.69,73,933/ 2. The Ld. CIT(A) further erred in holding that interest expenses are more than interest income by not accepting the fact that the Appellant is partner in MG New India Furnitures Café LLP and is required to contribute fixed capital of Rs. 2,25,00,000/ 3. The Ld. CIT(A) further erred in confirming the disallowance of establishment expenses under the various heads amounting to Rs.31,82,243/ existence of the company and are incurred for the purpose of the business of the company, deta under: Advertisement Expenses Rs.97,071/ Miscellaneous Expenses 1,23,564/ call charges License and Filing fees 1,46,803/ Maintenance Rs.15,95,877l Rs.71,082/ 5. The Ld. CIT(A) further erred in confirming the disallowance of administrative expenses of by holding that there were no business operations and no business revenue, therefore, claiming the the pretext that it was incurred for conducting business is far from truth. 6. The Ld. CIT(A) further erred in not appreciating the fact that there is a temporary lull in the business, which does not amount to non Considering the nature of expenses, the same are allowable New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 As common issue in dispute are involved in both these appeals and therefore, same were heard together and disposed off by way of this consolidated order for the sake of convenience. , we take up the appeal of the assessee 17. The grounds raised by the assessee are reproduced The Ld. CIT(A) erred in confirming the disallowance of interest expenses of Rs.69,73,933/- The Ld. CIT(A) further erred in holding that interest expenses are more than interest income by not accepting the fact that the Appellant is partner in MG New India Furnitures Café LLP and is required to contribute fixed capital of Rs. 2,25,00,000/-. Ld. CIT(A) further erred in confirming the disallowance of establishment expenses under the various heads amounting to Rs.31,82,243/- which are necessary for the existence of the company and are incurred for the purpose of the business of the company, details of which are as under: Advertisement Expenses - Rs.15,000/ Rs.97,071/-, Travelling & Conveyance- Rs.9,91,660/ Miscellaneous Expenses - Rs. 2,738/-, Service Tax 1,23,564/-, Audit Fees - Rs. 34,350/-,Telephone and Trunk call charges - Rs. 61,587/-, Profession Tax License and Filing fees - Rs.10,482/-, Sales Promotion 1,46,803/-, Printing and Stationery - Rs.1,040/ Maintenance - Rs.28,489/-, Motor Car Expenses Rs.15,95,877l-, Repairs and Maintenance to Othe Rs.71,082/-, Total - Rs. 31,82,243/-. 5. The Ld. CIT(A) further erred in confirming the disallowance of administrative expenses of Rs.31,82,243/ by holding that there were no business operations and no business revenue, therefore, claiming the expenses under the pretext that it was incurred for conducting business is far from truth. 6. The Ld. CIT(A) further erred in not appreciating the fact that there is a temporary lull in the business, which does not amount to non-carrying out business activ Considering the nature of expenses, the same are allowable New India Exports Pvt. Ltd 2 ITA No. 2655 & 2656/MUM/2025 As common issue in dispute are involved in both these appeals and therefore, same were heard together and disposed off by way of for assessment 17. The grounds raised by the assessee are reproduced The Ld. CIT(A) erred in confirming the disallowance of The Ld. CIT(A) further erred in holding that interest expenses are more than interest income by not accepting the fact that the Appellant is partner in MG New India Furnitures Café LLP and is required to contribute fixed Ld. CIT(A) further erred in confirming the disallowance of establishment expenses under the various heads which are necessary for the existence of the company and are incurred for the purpose ils of which are as Rs.15,000/-, Insurance Rs.9,91,660/-, , Service Tax - Rs. ,Telephone and Trunk , Profession Tax -Rs.2,500/-, , Sales Promotion-Rs. Rs.1,040/-, General , Motor Car Expenses - , Repairs and Maintenance to Other Assets - 5. The Ld. CIT(A) further erred in confirming the Rs.31,82,243/- by holding that there were no business operations and no expenses under the pretext that it was incurred for conducting business is 6. The Ld. CIT(A) further erred in not appreciating the fact that there is a temporary lull in the business, which does carrying out business activities. Considering the nature of expenses, the same are allowable Printed from counselvise.com expenses since these were incurred by the Appellant essentially on a day the business i.e. Renting of premises, Partner in MG New India Furnitures Caf Rs.15,23,32,392l 7. The Ld. CIT(A) further erred in holding that the Appellant has not submitted any documentary proof to substantiate that they are running the business and intend to do it. 8. The Appellant craves leave ground before or at the time 4. Briefly stated, the material facts of the case are that the assessee-company is engaged in the business of export trading and allied activities. For the year under consideration, the assessee filed its return of income on 10th October, 2016 declaring a tot ₹94,11,873/-. The return was duly processed and selected for scrutiny assessment. Statutory notices under the provisions of the Income-tax Act, 1961 (hereinafter referred to as issued and duly complied with. 4.1 During the course Officer observed that no active business operations had been carried out by the assessee during the relevant previous year. The assessee had disclosed only passive or incidental receipts such as rental income, leave balances written back, and profit on investments in mutual funds. No revenue from operations was credited in the profit and loss account. The Assessing Officer further noticed that in the preceding assessment year also, the assessee had declared income only under New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 expenses since these were incurred by the Appellant essentially on a day-to-day basis to maintain the running of the business i.e. Renting of premises, Partner in MG New India Furnitures Café LLP and investment in shares of Rs.15,23,32,392l-. The Ld. CIT(A) further erred in holding that the Appellant has not submitted any documentary proof to substantiate that they are running the business and intend to do it. The Appellant craves leave to add to, alter or amend any ground before or at the time of hearing. Briefly stated, the material facts of the case are that the company is engaged in the business of export trading and allied activities. For the year under consideration, the assessee filed its return of income on 10th October, 2016 declaring a tot . The return was duly processed and selected for scrutiny assessment. Statutory notices under the provisions of the tax Act, 1961 (hereinafter referred to as issued and duly complied with. During the course of scrutiny proceedings, the Assessing Officer observed that no active business operations had been carried out by the assessee during the relevant previous year. The assessee had disclosed only passive or incidental receipts such as rental income, leave and licence fees, interest, dividend, sundry balances written back, and profit on investments in mutual funds. No revenue from operations was credited in the profit and loss account. The Assessing Officer further noticed that in the preceding ar also, the assessee had declared income only under New India Exports Pvt. Ltd 3 ITA No. 2655 & 2656/MUM/2025 expenses since these were incurred by the Appellant day basis to maintain the running of the business i.e. Renting of premises, Partner in MG New é LLP and investment in shares of The Ld. CIT(A) further erred in holding that the Appellant has not submitted any documentary proof to substantiate that they are running the business and intend to do it. to add to, alter or amend any Briefly stated, the material facts of the case are that the company is engaged in the business of export trading and allied activities. For the year under consideration, the assessee filed its return of income on 10th October, 2016 declaring a total loss of . The return was duly processed and selected for scrutiny assessment. Statutory notices under the provisions of the tax Act, 1961 (hereinafter referred to as “the Act”) were of scrutiny proceedings, the Assessing Officer observed that no active business operations had been carried out by the assessee during the relevant previous year. The assessee had disclosed only passive or incidental receipts such as and licence fees, interest, dividend, sundry balances written back, and profit on investments in mutual funds. No revenue from operations was credited in the profit and loss account. The Assessing Officer further noticed that in the preceding ar also, the assessee had declared income only under Printed from counselvise.com the head “Income from Other Sources” Property”. The dividend income was claimed as exempt 4.2 Upon perusal of the balance sheet, the Assessing Officer found that the assessee had b to related concerns without charging any interest thereon. Being of the view that the borrowed capital was not utilised for the purposes of business, the Assessing Officer disallowed a sum of under section 36(1)(iii) of the Act. 4.3 Further, observing that the assessee had claimed administrative and establishment expenses aggregating to ₹31,82,243/- despite having no business activity, the Assessing Officer disallowed the said expenditure under section Act. The assessment was accordingly completed under section 143(3) of the Act by order dated 23rd December, 2018. 5. Aggrieved, the assessee preferred an appeal before the Learned Commissioner of Income consideration, upheld the disallowances made by the Assessing Officer. The assessee, being further aggrieved, has now carried the matter in appeal before this Tribunal. 6. At the outset, the Learned Counsel for the assessee placed before us a Paper Boo submissions and evidences tendered before the lower authorities. New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 “Income from Other Sources” and “Income from House . The dividend income was claimed as exempt Upon perusal of the balance sheet, the Assessing Officer found that the assessee had borrowed certain funds which were diverted to related concerns without charging any interest thereon. Being of the view that the borrowed capital was not utilised for the purposes of business, the Assessing Officer disallowed a sum of tion 36(1)(iii) of the Act. Further, observing that the assessee had claimed administrative and establishment expenses aggregating to despite having no business activity, the Assessing Officer disallowed the said expenditure under section Act. The assessment was accordingly completed under section 143(3) of the Act by order dated 23rd December, 2018. Aggrieved, the assessee preferred an appeal before the Learned Commissioner of Income-tax (Appeals) [Ld. CIT(A)], who, after d consideration, upheld the disallowances made by the Assessing Officer. The assessee, being further aggrieved, has now carried the matter in appeal before this Tribunal. At the outset, the Learned Counsel for the assessee placed before us a Paper Book running from pages 1 to 269, containing the submissions and evidences tendered before the lower authorities. New India Exports Pvt. Ltd 4 ITA No. 2655 & 2656/MUM/2025 “Income from House . The dividend income was claimed as exempt Upon perusal of the balance sheet, the Assessing Officer found orrowed certain funds which were diverted to related concerns without charging any interest thereon. Being of the view that the borrowed capital was not utilised for the purposes of business, the Assessing Officer disallowed a sum of ₹69,73,933/- Further, observing that the assessee had claimed administrative and establishment expenses aggregating to despite having no business activity, the Assessing Officer disallowed the said expenditure under section 37(1) of the Act. The assessment was accordingly completed under section 143(3) of the Act by order dated 23rd December, 2018. Aggrieved, the assessee preferred an appeal before the Learned ], who, after due consideration, upheld the disallowances made by the Assessing Officer. The assessee, being further aggrieved, has now carried the At the outset, the Learned Counsel for the assessee placed k running from pages 1 to 269, containing the submissions and evidences tendered before the lower authorities. Printed from counselvise.com The Learned Departmental Representative ( order of the authorities below. 7. We have carefully heard the rival submissions and perused the record. As far as ground Nos. 1 and 2 of the appeal concerning the disallowance of Rs.69,73,933/ disallowance of ₹69,73,933/ debited interest of ₹ ₹22,48,687/-. It was found that borrowed funds amounting to crores had been advanced to a related concern, Furnitures Café LLP, without deriving any commensurate business benefit. The plea of commercial expediency advanced by the assessee was found unsubstantiated inasmuch as no business operations were carried on during the year. Ld. CIT(A) is reproduced “4(a). I have considered the facts & have also considered the assessee's submissions. From the facts of the case, it is seen that the assessee declared interest income of Rs. 22,48,687/ charges of Rs. 97,82,036/ analyse the details of borrowed funds and investments thereof. From the analysis of financials, it is known that the assessee utilised borrowed funds of Rs. 2,25,00,000/ the group concerns by name MG New India Furn In this regard, the assessee further contended that the above investment was done as a part of commercial expediency. However, during the current AY, the assessee did not show any revenue from business operations, which clearly indicates t except diversion of borrowed funds to group concerns, there was no real income generated out of business operations. Thus, since the capital borrowed was not utilized for the purpose of current business but only invested in group concerns, therefore, the disallowance made by the AO on account of relatable New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 The Learned Departmental Representative (Ld. DR) supported the order of the authorities below. We have carefully heard the rival submissions and perused the As far as ground Nos. 1 and 2 of the appeal concerning the disallowance of Rs.69,73,933/- , the Ld. CIT(A) upheld the 69,73,933/- observing that the assessee had ₹97,82,036/- while earning interest income of . It was found that borrowed funds amounting to crores had been advanced to a related concern, M/s. MG New India , without deriving any commensurate business nefit. The plea of commercial expediency advanced by the assessee was found unsubstantiated inasmuch as no business operations were carried on during the year. The relevant finding of is reproduced as under: 4(a). I have considered the facts & circumstances of the case. I have also considered the assessee's submissions. From the facts of the case, it is seen that the assessee declared interest income of Rs. 22,48,687/- and the assessee debited interest charges of Rs. 97,82,036/-. In this regard, the AO proceeded to analyse the details of borrowed funds and investments thereof. From the analysis of financials, it is known that the assessee utilised borrowed funds of Rs. 2,25,00,000/- to invest in one of the group concerns by name MG New India Furnitures Café LLP. In this regard, the assessee further contended that the above investment was done as a part of commercial expediency. However, during the current AY, the assessee did not show any revenue from business operations, which clearly indicates t except diversion of borrowed funds to group concerns, there was no real income generated out of business operations. Thus, since the capital borrowed was not utilized for the purpose of current business but only invested in group concerns, therefore, he disallowance made by the AO on account of relatable New India Exports Pvt. Ltd 5 ITA No. 2655 & 2656/MUM/2025 Ld. DR) supported the We have carefully heard the rival submissions and perused the As far as ground Nos. 1 and 2 of the appeal concerning the he Ld. CIT(A) upheld the observing that the assessee had while earning interest income of . It was found that borrowed funds amounting to ₹2.25 M/s. MG New India , without deriving any commensurate business nefit. The plea of commercial expediency advanced by the assessee was found unsubstantiated inasmuch as no business The relevant finding of circumstances of the case. I have also considered the assessee's submissions. From the facts of the case, it is seen that the assessee declared interest and the assessee debited interest the AO proceeded to analyse the details of borrowed funds and investments thereof. From the analysis of financials, it is known that the assessee to invest in one of itures Café LLP. In this regard, the assessee further contended that the above investment was done as a part of commercial expediency. However, during the current AY, the assessee did not show any revenue from business operations, which clearly indicates that except diversion of borrowed funds to group concerns, there was no real income generated out of business operations. Thus, since the capital borrowed was not utilized for the purpose of current business but only invested in group concerns, therefore, he disallowance made by the AO on account of relatable Printed from counselvise.com interest expenses amounting to Rs. 69,73,933/ under the provisions of section 36(1) (iii) of the IT Act. Further, there was no revenue from business operations in the current year. Financials, clearly reveals that the assessee company was only having other income such as interest income, dividend income, purchase & sale of investments. Thus, the proportionate disallowance of interest made by the AO is found to be in order and the same is appeal raised by the assessee in this regard is hereby dismissed.” 7.1 The Ld. Departmental Representative (DR) submitted that the assessee has failed to explain the commercial expediency of extending the loan to Furnitures Care LLP. 7.2 Before us, also, the assessee has failed to adduce any credible material to justify that the advances were made out of business exigency or that they yielded any direct or indirect commercial advantage. The mere assertion of business relationship does not ipso facto establish business purpose within the meaning of section 36(1)(iii) of the Act. In these circumstances, we find no infirmity in the finding of the Ld. CIT(A) sustaining the disallowa accordingly uphold the same, and Ground Nos. 1 and 2 of the assessee’s appeal stand dismissed. 8. We next advert to disallowance of ₹31,82,243/ administrative expenses under various heads, such as advertisement, travelling, insurance, audit fee, and motor expenses. The authorities below were of the view that since no New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 interest expenses amounting to Rs. 69,73,933/- clearly falls under the provisions of section 36(1) (iii) of the IT Act. Further, there was no revenue from business operations in the current cials, clearly reveals that the assessee company was only having other income such as interest income, dividend income, purchase & sale of investments. Thus, the proportionate disallowance of interest made by the AO is found to be in order and the same is hereby upheld. Accordingly, the grounds of appeal raised by the assessee in this regard is hereby The Ld. Departmental Representative (DR) submitted that the assessee has failed to explain the commercial expediency of extending the loan to partnership concern M/s MG New India Furnitures Care LLP. Before us, also, the assessee has failed to adduce any credible material to justify that the advances were made out of business exigency or that they yielded any direct or indirect commercial dvantage. The mere assertion of business relationship does not ipso facto establish business purpose within the meaning of section 36(1)(iii) of the Act. In these circumstances, we find no infirmity in the finding of the Ld. CIT(A) sustaining the disallowa accordingly uphold the same, and Ground Nos. 1 and 2 of the assessee’s appeal stand dismissed. We next advert to ground Nos. 3 to 7 of the appeal 31,82,243/- representing establishment and administrative expenses under various heads, such as advertisement, travelling, insurance, audit fee, and motor expenses. The authorities below were of the view that since no New India Exports Pvt. Ltd 6 ITA No. 2655 & 2656/MUM/2025 clearly falls under the provisions of section 36(1) (iii) of the IT Act. Further, there was no revenue from business operations in the current cials, clearly reveals that the assessee company was only having other income such as interest income, dividend income, purchase & sale of investments. Thus, the proportionate disallowance of interest made by the AO is found to be in order hereby upheld. Accordingly, the grounds of appeal raised by the assessee in this regard is hereby The Ld. Departmental Representative (DR) submitted that the assessee has failed to explain the commercial expediency of partnership concern M/s MG New India Before us, also, the assessee has failed to adduce any credible material to justify that the advances were made out of business exigency or that they yielded any direct or indirect commercial dvantage. The mere assertion of business relationship does not ipso facto establish business purpose within the meaning of section 36(1)(iii) of the Act. In these circumstances, we find no infirmity in the finding of the Ld. CIT(A) sustaining the disallowance. We accordingly uphold the same, and Ground Nos. 1 and 2 of the 3 to 7 of the appeal concerning representing establishment and administrative expenses under various heads, such as advertisement, travelling, insurance, audit fee, and motor-car expenses. The authorities below were of the view that since no Printed from counselvise.com business operations were carried o expenditures could not be said to have been incurred exclusively for the purpose of business. Ld. CIT(A) on the issue in dispute is reproduced as under: “5(b). I have considered the facts & have also considered the assessee's submissions. From the facts of the case, it is known that the assessee debited establishment expenses of RS. 31,82,243/ heads such as advertisement expenses, insurance, tra and conveyance etc which are as under: Particulars Advertisement Expenses Insurance Travelling & Conveyance Miscellaneous Expenses Service Tax Audit Fees Telephone 8s Trunk call Profession Tax License & Filing fees Sales Promotion Expenses Printing & Stationery General Maintenance New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 business operations were carried out during the year, these expenditures could not be said to have been incurred for the purpose of business. The relevant finding of the Ld. CIT(A) on the issue in dispute is reproduced as under: 5(b). I have considered the facts & circumstances of the case. I have also considered the assessee's submissions. From the facts of the case, it is known that the assessee debited establishment expenses of RS. 31,82,243/- under the heads such as advertisement expenses, insurance, tra and conveyance etc which are as under:- Particulars Amount Advertisement Expenses 15,000 Insurance 97,071 Travelling & Conveyance : 9,91,660 Miscellaneous Expenses 2,738 Service Tax 1,23,564 Audit Fees 34,350 Telephone 8s Trunk call charges 61,587 Profession Tax 2,500 License & Filing fees 10,482 Sales Promotion Expenses 1,46,803 Printing & Stationery 1,040 General Maintenance 28,489 New India Exports Pvt. Ltd 7 ITA No. 2655 & 2656/MUM/2025 ut during the year, these expenditures could not be said to have been incurred wholly and he relevant finding of the Ld. CIT(A) on the issue in dispute is reproduced as under: circumstances of the case. I have also considered the assessee's submissions. From the facts of the case, it is known that the assessee debited the various heads such as advertisement expenses, insurance, travelling Printed from counselvise.com Motor Car Expenses Repair & Maintenance to Other Assets Total From the perusal of financials, it is seen that the assessee has not shown any business revenue during the year but debited the above expenses which is not correct. As mentioned in section 37(1) of the IT Act, business expenditure is only allowable if it w of business operations. However, during the year, there was no business operations and there was no business revenue, therefore, debiting the expenses under the pretext that it was incurred for conducting bu since the above expenses were not spent for the business purposes, the same was disallowed by the AO. I concur with the action of the AO and the same is hereby upheld. Accordingly, the assessee's grounds are hereby 8.1 Before us, the Learned Counsel for the assessee has contended that the expenses were minimal and were incurred for maintaining the corporate existence of the assessee. It was urged that there was merely a temporary lull in the business due to adverse market conditions, and such a lull does not amount to cessation of business. Reliance was placed upon the principle that even where business operations are temporarily suspended, expenses incurred to preserve the business structure are allowable. The Ld. counsel submitted that similar expenses earlier years and there is no change in the nature of expenses incurred. New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 Motor Car Expenses 15,95,877 Repair & Maintenance to Other Assets 71,082 31,82,243 From the perusal of financials, it is seen that the assessee has not shown any business revenue during the year but debited the above expenses which is not correct. As mentioned in section 37(1) of the IT Act, business expenditure is only allowable if it was incurred wholly & exclusively for the purpose of business operations. However, during the year, there was no business operations and there was no business revenue, therefore, debiting the expenses under the pretext that it was incurred for conducting business is far from truth. Therefore, since the above expenses were not spent for the business purposes, the same was disallowed by the AO. I concur with the action of the AO and the same is hereby upheld. Accordingly, the assessee's grounds are hereby dismissed. Before us, the Learned Counsel for the assessee has contended that the expenses were minimal and were incurred for maintaining the corporate existence of the assessee. It was urged that there was merely a temporary lull in the business due to dverse market conditions, and such a lull does not amount to cessation of business. Reliance was placed upon the principle that even where business operations are temporarily suspended, expenses incurred to preserve the business structure are allowable. e Ld. counsel submitted that similar expenses were allowed in earlier years and there is no change in the nature of expenses New India Exports Pvt. Ltd 8 ITA No. 2655 & 2656/MUM/2025 From the perusal of financials, it is seen that the assessee has not shown any business revenue during the year but debited the above expenses which is not correct. As mentioned in section 37(1) of the IT Act, business expenditure is only as incurred wholly & exclusively for the purpose of business operations. However, during the year, there was no business operations and there was no business revenue, therefore, debiting the expenses under the pretext that it was siness is far from truth. Therefore, since the above expenses were not spent for the business purposes, the same was disallowed by the AO. I concur with the action of the AO and the same is hereby upheld. issed.” Before us, the Learned Counsel for the assessee has contended that the expenses were minimal and were incurred for maintaining the corporate existence of the assessee. It was urged that there was merely a temporary lull in the business due to dverse market conditions, and such a lull does not amount to cessation of business. Reliance was placed upon the principle that even where business operations are temporarily suspended, expenses incurred to preserve the business structure are allowable. were allowed in earlier years and there is no change in the nature of expenses Printed from counselvise.com 9. We partly find merit, in the submission of the assessee. The continuity of a corporate entity requires certain statut administrative, and maintenance expenses to be borne irrespective of operational income. The true test is whether the expenditure was incurred for maintaining the corporate structure and enabling the assessee to recommence business when circumstances 9.1 In the interests of justice, therefore, we restore this issue to the file of the Assessing Officer with a direction to verify, on the basis of documentary evidence and vouchers, whether each of the claimed expenses was genuinely required for corporate structure of the assessee. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and decide the issue afresh in accordance with law. Grounds Nos. 3 to 7 are, therefore, allowed for statistical purpo 10. We now turn to the appeal for Assessment Year 2020 grounds raised therein are substantially similar to those adjudicated in the assessee’s appeal for A.Y. 2016 disallowance of interest, administrative expenses, depreciati other allied items. reproduced as under: 1. The Ld. CIT(A) erred confirming the disallowance of business expenses as mentioned below amounting of Rs.3,78,91,348 Purchases Rs. 57,97,154l Rs. 53,988 New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 find merit, in the submission of the assessee. The continuity of a corporate entity requires certain statut administrative, and maintenance expenses to be borne irrespective of operational income. The true test is whether the expenditure was incurred for maintaining the corporate structure and enabling the assessee to recommence business when circumstances In the interests of justice, therefore, we restore this issue to the file of the Assessing Officer with a direction to verify, on the basis of documentary evidence and vouchers, whether each of the claimed expenses was genuinely required for maintaining the corporate structure of the assessee. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and decide the issue afresh in accordance with law. Grounds Nos. 3 to 7 are, therefore, allowed for statistical purposes. We now turn to the appeal for Assessment Year 2020 grounds raised therein are substantially similar to those adjudicated in the assessee’s appeal for A.Y. 2016-17, pertaining to disallowance of interest, administrative expenses, depreciati . The grounds raised by the assessee are reproduced as under: The Ld. CIT(A) erred confirming the disallowance of business expenses as mentioned below amounting of Rs.3,78,91,348-. Details of Expenses disallowed: Purchases - Rs. 70,172l-, Employee Benefit Expenses Rs. 57,97,154l-, Interest - Rs. 2,33,94,844/-, Insu Rs. 53,988-, Rent - Rs. 2,76,000, Travelling & New India Exports Pvt. Ltd 9 ITA No. 2655 & 2656/MUM/2025 find merit, in the submission of the assessee. The continuity of a corporate entity requires certain statutory, administrative, and maintenance expenses to be borne irrespective of operational income. The true test is whether the expenditure was incurred for maintaining the corporate structure and enabling the assessee to recommence business when circumstances so permit. In the interests of justice, therefore, we restore this issue to the file of the Assessing Officer with a direction to verify, on the basis of documentary evidence and vouchers, whether each of the maintaining the corporate structure of the assessee. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and decide the issue afresh in accordance with law. Grounds Nos. 3 to 7 are, We now turn to the appeal for Assessment Year 2020-21. The grounds raised therein are substantially similar to those 17, pertaining to disallowance of interest, administrative expenses, depreciation, and The grounds raised by the assessee are The Ld. CIT(A) erred confirming the disallowance of business expenses as mentioned below amounting of . Details of Expenses disallowed: , Employee Benefit Expenses - , Insurance - Rs. 2,76,000, Travelling & Printed from counselvise.com Conveyance Charges 91,576/ 7,55,219/ 7,85,730/ Income under other heads 3,78,91,348 2. The Ld. CIT(A) further erred confirming the disallowance of the depreciation of Rs. 7,85,730 without even verifying that depreciation of total income and in income tax return in Sr. no. A of Schedule BP profession. 3. The Ld. CIT(A) further erred confirming the disallowance of the Expenses considered under House property of Rs. 32,77,732 without even verifying that expenses are already disallowed in the statement of total income and in income tax return in Sr. no. A Schedule BP profession. 4. The Ld. CIT(A) further erred confirming the addition of income considered under other heads Rs. 48,405 without even verifying that the same has been already offered in the statement of total income and in income tax return in Sr. no. 2 and 4 of Schedule E 5. The Ld. CIT(A) failed to appreciate and ought to have held that: a. there was a temporary lull in the business and that does not amount to non activities; b. considering the nature of expenses, the same are by the Appellant essentially on a day order to run 10.1 As the facts and issues are findings for A.Y. 2016 Assessing Officer with identical directions. Accordingly, the grounds for this year also stand allowed for statistical purposes. 11. In the result, the appeal for Assessment Year 2016 partly allowed for statistical purposes New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 Conveyance- Rs. 30,72,345/-, Legal & Professional Charges - Rs.3,90,900/-, Sales Promotion Expenses 91,576/-, Repairs & Maintenance Building 7,55,219/-, Loss on shares -Rs. 360/-, Depreciat 7,85,730/-, Expenses considered under other heads, Income under other heads- Rs. (74,672l-), Total 3,78,91,348-. The Ld. CIT(A) further erred confirming the disallowance of the depreciation of Rs. 7,85,730 without even verifying that depreciation is already disallowed in the statement of total income and in income tax return in Sr. no. A of Schedule BP - Computation of income from business or profession. The Ld. CIT(A) further erred confirming the disallowance of the Expenses considered under the head Income from House property of Rs. 32,77,732 without even verifying that expenses are already disallowed in the statement of total income and in income tax return in Sr. no. A Schedule BP - Computation of income from business or profession. The Ld. CIT(A) further erred confirming the addition of income considered under other heads Rs. 48,405 without even verifying that the same has been already offered in the statement of total income and in income tax return in Sr. no. 2 and 4 of Schedule EI-Details of Exempt Income. The Ld. CIT(A) failed to appreciate and ought to have held that: a. there was a temporary lull in the business and that does not amount to non-carrying of business activities; b. considering the nature of expenses, the same are allowable expenses since these were incurred by the Appellant essentially on a day-to-day basis in order to run the business. As the facts and issues are pari materia, we, following our findings for A.Y. 2016-17, restore the matter to the file of the Assessing Officer with identical directions. Accordingly, the grounds for this year also stand allowed for statistical purposes. In the result, the appeal for Assessment Year 2016 partly allowed for statistical purposes, and the appeal for New India Exports Pvt. Ltd 10 ITA No. 2655 & 2656/MUM/2025 , Legal & Professional , Sales Promotion Expenses - Rs. , Repairs & Maintenance Building - Rs. , Depreciation- , Expenses considered under other heads, ), Total - Rs. The Ld. CIT(A) further erred confirming the disallowance of the depreciation of Rs. 7,85,730 without even verifying is already disallowed in the statement of total income and in income tax return in Sr. no. A - 11 Computation of income from business or The Ld. CIT(A) further erred confirming the disallowance the head Income from House property of Rs. 32,77,732 without even verifying that expenses are already disallowed in the statement of total income and in income tax return in Sr. no. A - 7 of Computation of income from business or The Ld. CIT(A) further erred confirming the addition of income considered under other heads Rs. 48,405 without even verifying that the same has been already offered in the statement of total income and in income tax return in Details of Exempt Income. The Ld. CIT(A) failed to appreciate and ought to have held that: a. there was a temporary lull in the business carrying of business activities; b. considering the nature of expenses, the allowable expenses since these were incurred day basis in , we, following our 17, restore the matter to the file of the Assessing Officer with identical directions. Accordingly, the grounds for this year also stand allowed for statistical purposes. In the result, the appeal for Assessment Year 2016-17 is , and the appeal for Printed from counselvise.com Assessment Year 2020 terms of our aforesaid observations. Order pronounced in the open Court on Sd/ (NARENDER KUMAR CHOUDHRY JUDICIAL MEMBER Mumbai; Dated: 27/10/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// New India Exports Pvt. Ltd ITA No. 2655 & 2656/MUM/2025 sment Year 2020-21 is allowed for statistical purposes terms of our aforesaid observations. ounced in the open Court on 27/10/2025. Sd/- Sd/ (NARENDER KUMAR CHOUDHRY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai New India Exports Pvt. Ltd 11 ITA No. 2655 & 2656/MUM/2025 allowed for statistical purposes in /10/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Printed from counselvise.com "