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2022 (11) TMI 366 - AT - Income TaxDisallowance of expenses claimed - assessee has not carried on any business activity - assessee is aggrieved by the decision of CIT(A) in upholding assessment of interest income under the head Income from other sources rejecting the claim of the assessee to assess the same under the head Income from business - HELD THAT:- On a perusal of the financial statements, we notice that the securities held as stock in trade has been attached by SEBI, meaning thereby, the assessee could not have carried on trading activities at all, even if the claim of the assessee is accepted on merits. This leads a situation that the assessee could not have carried on trading activities. Further, notice that the assessee has not brought in fresh funds in order to continue to carry on share trading activities. Under these set of facts, we do not find any merit in the contentions of the assessee and accordingly, we hold that the assessee has not carried on any business activity during the financial year relevant to AY 2008-09. CIT(A) has allowed part of expenses, but it is the contention of the assessee that the CIT(A) has not allowed all relevant expenses, particularly depreciation and other relevant expenses. Hence, the expenses required to be incurred in order to maintain the corporate status, legal expenses and other necessary expenses which are required to be incurred invariably to run the company should be allowed as deduction in the hands of the assessee. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to allow all expenses incurred to maintain corporate status, legal expenses and other necessary expense which are required to be incurred invariably in order to run the company. AO may decide the quantum of expenses after affording opportunity to the assessee. Nature of Interest Income - With regard to the issue of the head of income under which the interest income is assessable, restore this issue to the file of AO, since the AO has not made any discussion on the same. The nexus between the deposits and business compulsions should decide the head of income under which the interest income is assessable. Accordingly, the AO may examine this issue afresh after affording adequate opportunity of being heard to the assessee. With regard to the revaluation loss claimed by the assessee, same should be allowed as deduction, since the revaluation of stock as at the yearend was the consistent practice followed by the assessee. Such revaluation will not fall within the scope of ban imposed upon the assessee with regard to share broking and merchant banking activity of the assessee. Accordingly, direct the AO to allow loss arising on revaluation of stock of securities.
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