Gujarat High Court: PCIT 3, Ahmedabad v. Gujarat State Road Development Corporation Ltd. [Tax Appeal No.277 of 2024]
The assessee, engaged in building road infrastructure projects, filed its return for A.Y. 2011-12, and the Assessing Officer disallowed amount of project expenses on the ground that no corresponding income had been booked against them. The addition deleted was by the CIT(A) and the appellate order was upheld by the Tribunal following its own earlier ruling for A.Y. 2010-11 on identical facts, raising the issue of whether business expenses can be disallowed under Section 37(1) merely because no income was booked against the projects on which they were incurred. The Court held that the sole test under Section 37(1) is whether expenditure was incurred wholly and exclusively for business purposes, which was undisputed since the expenses related to road/bridge construction, was the assessee’s core business (including public-benefit projects like railway over-bridges undertaken without government grants), and that absence of booked income does not invalidate the expense claim. The Court further held that the proper remedy for the Revenue is to bring any suppressed income to tax rather than disallow genuine expenditure; the Court also noted that income had in fact been booked for the Rajkot-Jamnagar project, undermining the AO’s basis for disallowance. The appeal was dismissed, upholding the Tribunal’s order.
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