ITAT Allows Salary and Expense Claims | Business Held Ongoing

Case Details: Rajeev Khanna vs. Deputy Commissioner of Income-tax [2026] 184 taxmann.com 195 (Delhi-Trib.)

Judiciary and Counsel Details

• Anubhav Sharma, Judicial Member & Manish Agarwal, Accountant Member
• Nirbhay Mehta, Adv. for the Appellant.
• Ajay Kumar Arora, Sr. DR for the Respondent.

Facts of the Case

The assessee, a sole proprietor, was engaged in providing assistance, advisory, and commercial information services to Canpotex for the sale of Canadian Muriate of Potash under an exclusive market service agreement, later amended to include delivery of 25,000 MT.

For AY 2023–24, the assessee executed the delivery in April 2022 and received commission in May 2022, as reflected in the bank statement. The return of income, later revised, declared a total income of about Rs. 10.63 crores, and the case was selected for scrutiny under CASS with notice under section 143(2).

During the assessment, the AO held that the assessee’s business had ceased upon expiry of the agreement and, on that basis, treated the employees’ salaries as personal expenditure and disallowed them. The AO also made an ad hoc disallowance of 50% of other expenses and disallowed audit fees, citing the expiry of the agreement on 31-12-2022. The Commissioner (Appeals) upheld the AO’s view, against which the assessee appealed to the Tribunal.

ITAT Held

The Tribunal held that the AO failed to apply the fundamental accounting principle of going concern, under which a business is presumed to continue unless proven otherwise. The assessee had maintained the business setup and continued efforts to generate business, and there was no cogent evidence of closure. It was further observed that expenses had declined compared to earlier years, were under ordinary heads accepted in past assessments, and books were consistently maintained on a cash basis. The auditors’ invoices were disregarded on mere assumptions.

Accordingly, the Tribunal held that the disallowances were based on an erroneous assumption that the business had ceased. The disallowance of salary and other expenses, earlier accepted, was unjustified. The appeal was allowed, and the additions were deleted.