Facts of the Case

The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals), Gorakhpur for Assessment Year 2014-15. The dispute primarily related to disallowance of godown rent paid for business purposes, despite the assessee maintaining audited books of accounts under Section 44AB and recording the expenditure in the profit and loss account.

The rent of ₹15,000 per month (₹1,80,000 annually) was paid to a specified individual and claimed as a business expense.

 Issues Involved

  1. Whether disallowance of godown rent was justified when the expenditure was recorded in audited books of accounts.
  2. Whether expenses accepted in earlier years could be disallowed in the current year without proper justification.
  3. Whether the CIT(A) was correct in restricting allowable expenditure without reasonable basis.

Petitioner’s Arguments (Assessee)

  • Books of accounts were duly audited under Section 44AB.
  • Godown rent was paid wholly and exclusively for business purposes.
  • The same expenditure pattern had been accepted by the department in earlier assessment years.
  • The expense was duly reflected in audited financial statements.

 Court Order / Findings (ITAT)

The Tribunal examined whether the disallowance was based on valid grounds. It noted that acceptance of similar expenses in earlier years is a relevant factor and that restriction without reasonable criteria is not justified.

Where business expenditure is duly recorded in audited books and incurred for business purposes, disallowance requires proper reasoning and evidence.

Important Clarification

Acceptance of an expense in earlier years does not automatically guarantee allowance in subsequent years; however, any deviation must be supported by cogent reasons and objective criteria.

Link to download the order –https://itat.gov.in/public/files/upload/1606481328-prahalad.pdf

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