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2018 (2) TMI 665 - AT - Income TaxNature of income - Treatment to interest income - busniss income or income from other sources - Held that:- we find that the assessee was engaged in the business of manufacturing of fragrance and flavours. During the year, the assessee has discontinued its business operations. The assessee has earned interest income from inter corporate deposits and treated the same as other income in its financial statements - No merit in the arguments of the assessee for the reason that all along the assessee has treated interest income under the head ‘Income from other sources’ and without any change in material facts, the same has been brought under the head ‘Income from business’ without any justification - the assessee itself has treated interest income as ‘other income’ in its financial statements which clearly implies that the same is not from its business operations. Though the assessee claims that its activity is in accordance with its object clause in memorandum of association, on perusal of the memorandum of association we find that the assessee’s main object is to manufacture fragrance and flavours. Though the assessee has financial service as an ancillary object to its main object, such activity is not the main business activity of the assessee. Therefore, there is no justification for treating interest income under the head ‘Income from business’. AO was right in treating interest income under the head ‘Income from other sources’. Disallowance of expenditure claimed against interest income - Held that:- We do not find any merit in the findings of the AO for the reason that whether the assessee has income under the head ‘business’or not, expenditure incurred to maintain the corporate status of the assessee needs to be allowed. In this case, on perusal of the details of expenditure we find that the assessee has incurred office rent, auditor’s remuneration and other small miscellaneous expenses which are mainly incurred to keep the corporate status of the assessee. Therefore, we are of the considered view that the AO was erred in disallowing expenditure incurred by the assessee. We direct the AO to allow expenditure claimed by the assessee u/s 37(1) of the Income-tax Act, 1961. Allowability of bad debts written off - Held that:- Hon’ble Supreme Court in the case of TRF Ltd vs CIT (2010 (2) TMI 211 - SUPREME COURT ) has held that once bad debt is written off in the books of account, then the assessee is not required to prove whether debt has really become bad or not; but the facts are not clear. The assessee has taken this plea by way of additional ground before the Tribunal for the first time. The AO did not have an occasion to examine the claim of the assessee in the light of provisions of section 36(1)(vii) and the decision of Hon’ble Supreme Court in the case of TRF Ltd vs CIT(supra). Therefore, we are of the considered view that the issue needs to be examined by the AO.
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