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2014 (4) TMI 659 - ITAT DELHIAllowability of gross loss incurred in financing activity – Held that:- The activity of borrowing and lending is not representing the assessee’s business, being in fact barred from being so - rather than the activity being income driven (which would require necessary approvals, of which there is no reference at any stage), so that the assessee incurs the necessary expenditure toward the same, i.e., earning income, the assessee has availed of loans for financing working capital of its non-existing business - in fact, even not deciding on it, and which (funds), being surplus for the time being, are lent to sister concerns, with a view to therefore park the same - Would the assessee have done so, if it did not have a whole range of sister concerns, or is it a part of a scheme to act as a conduit for funds for them - Though the borrowings are on secured loan basis, which, bearing a lower risk, attract a lower rate of interest, it yet receives a lower rate of interest on its lending, which is on unsecured basis - No basis or justification for the payment at interest rates, charged ostensibly at prevailing rates by the assessee, in excess of that charged, stands furnished – there is a deficit in the amount of borrowing relent as well – thus, the order of the CIT(A) upheld – Decided against Assessee. Disallowance of stamp duty – Loan from Bank – No business activity carried on during the year - Held that:- The loan advanced by the Bank of America is for funding working capital in the main, while no trading or manufacturing activity stands undertaken, for and toward which the said capital could be said to have been availed of – there was no reason as to why it has been considered as secured, which perhaps is also the reason for it being classified as an unsecured loan by the assessee in its audited balance-sheet, while at the same time claiming expenses on stamp duty, which is only toward the registration of the hypothecation agreement - the assesse to have not carried out any business - No part of the borrowed capital could be said to be availed of for business purposes, so as to validate the assessee’s claim u/s. 37(1) of the Act. The assessee has abysmally failed to show that the same stood incurred toward making or earning any income - the activity to be not income driven at all - No basis or algorithm or model of its operations stood furnished, so that even the direct expenses by way of interest incurred on the corresponding borrowed capital, stood confirmed for disallowance in part, i.e., to the extent of the short fall in the interest realized, in the absence of the requisite details/facts – thus, the disallowance is upheld – Decided against Assessee. Disallowance of 50% of staff expenses – Held that:- The assessee has during the year disposed of almost its entire machinery, besides other fixed assets, save immoveable property - it did not generate any business by way of processing, which would presumably require plant and machinery, nor any explanation toward the same stands furnished at any stage - the expenditure incurred at almost the same level appear to be independent – thus, the disallowance is effected at 50%, and not for the total expense claimed – Decided against Assessee.
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