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2018 (3) TMI 66 - AT - Income TaxDisallowance of expenses on temporary suspension of the business - Held that:- As during the financial year 2006-07 the assessee was unable to cater the needs of the customers, the business was not yet commenced. We also do not agree with the theory of estoppel proposed by the learned CIT(A) that since the assessee did not claim the expenses relatable to AY 2002-03 for the period subsequent to 31.10.2002, by their own conduct they are estopped from claiming the same for any period subsequent thereto. The assessee purchased the business that had already been commenced and conducted business operations till 31.10.2002, from which date the assessee suspended the business operations till April 2009 for renovation of the hotel building. The period between November 2002 and April 2009 is only the temporary suspension of the Lodhi Hotel business of the assessee, but as a matter of fact, as a business entity, the assessee did not cease to exist or permanently shut down the business. Allowability of interest expense - it is the case of the assessee that in order to expand their business in hospitality in NCR region, it was necessary for them to invest in GGGRL, which was owning and operating a premium 18 hole golf course - Held that:- The reasons for disallowance of the expense by the learned AO is that during the relevant previous year the assessee did not carry on any business and that is the reason why such an expense cannot allowed - Held that:- where there is nexus between expenditure and purpose of business, interest on borrowed capital whether it is for investment of acquire controlling interest in a subsidiary or towards loan in view of the business expediency, interest on the borrowed capital cannot be disallowed, we hold that the investment in GGGRL and to lend amounts to them for the purpose of strengthening the hospitality business, mere non conduct of hotel business in the previous year due to the temporary suspension thereof by the assessee cannot be a ground to deny the deduction of the interest expense on the borrowed capital - Decided in favour of assessee.
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