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Preimus Investment And Finance Ltd. Versus DCIT 3 (2) , Mumbai

2015 (6) TMI 756 - ITAT MUMBAI

Dis-allowance of Interest expenses - Disallowance on ground that RBI not recognised the assessee as NBFC - Disallowance of Carry-forward loss and depreciation - Held that:- Permission/denial by the RBI to register an assessee as NBFC does not decide the issue of carrying of business or make the business illegal. If the assessee had violated any provisions of law under the RBI Act it would be penalised by the appropriate authority. But that does not mean that the systematic organized activity car .....

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the facts of the earlier or subsequent years. We find that the disallowance of the expenses was without any basis. - Claim of interest allowed - Decided in favor of assessee.

Disallowance of Carry-forward loss and depreciation - Issue squarely covered by Judgment delivered in Lavish Apartment Pvt. Ltd. [2012 (7) TMI 666 - DELHI HIGH COURT] in which it was held that income against which brought forward loss is claimed to be set off should represent business income judged by application .....

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lowing the expenses as under: a) Interest on Loans (Rs,98609 1 2-7609404/-) ₹ 22,51,508/- b) Legal and professional charges Rs.71,864/- c) Auditor's remuneration Rs.22,833/- d) General Expenses Rs.52,866/- e) Directors sitting fees Rs.3,500/- ₹ 24,02,571/- 2. The learned Commissioner of Income-tax (A) failed to appreciate that assessee being a corporate entity, it has to incur certain expenditure for the day to day functioning of the company which are allowable expenditure u/s. 3 .....

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t was stated that the ground were purely of legal nature and facts were already on record. We find that the issue raised in the additional ground is about alternative claim for allowability of expenses u/s.57(iii) of the Act. Therefore, we are admitting the additional grounds raised by the assessee and same read as under: 1. Without prejudice and alternatively the learned CIT(A ) failed to appreciated that once the income is tax u/s. 57 as income from other sources any expenditure incurred which .....

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,508/-. 2. During the assessment proceeding, the AO found that the assessee had debited an amount of ₹ 98.60 lacs under the head interest to the income and expenditure account, that out of the interest of ₹ 98.60 lacs it reduced interest of ₹ 22.51lacs, that net amount of ₹ 76,09,404/- was added to the computation of income. The AO issued a notice to the = asking it as to why certain disallowances should not be mad to its income. In its reply, dated 12.10.2008,the assesse .....

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owned funds of the assessee were below the prescribed minimum level, that because of that it could not get registration as NBFC, that it continued to carry on business, that it did not accept public deposits,that since incorporation the business of the assessee remained unchanged, that the assessee was maintaining two portfolio i.e. trading portfolio and investment portfolio. The AO referred to the commented of the auditor wherein it was mentioned that the RBI head rejected the application of th .....

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O, the assessee filed an appeal before the First Appellate Authority(FAA).Before him,it was argued that the assessee suo moto had disallowed interest expenditure of ₹ 76.09 lacs(Rs.98.60 lacs-Rs.22.51 lacs )and ₹ 36082/- out of other expenses, that the AO had disallowed the whole of expenditure on the ground that the RBI had not recognized the assessee as NBFC, that the AO had treated the interest income of ₹ 22.51 lacs as income from other sources without assigning any reason .....

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e disallowance of expenditure amounting to ₹ 213.66 lacs was not justified. Without prejudice to above it was argued that in case the AO held the assessee was carrying on illegal business then the net income of such business was required to be computed under the head profits and gains from business and profession, that by no stretch of imagination such income could be assessed under the residuary type, that AO should have allowed interest expenditure u/s. 57 of the Act. Before the FAA, the .....

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set off against other sources of income which were in the nature of business income. After considering the submission of the assessee and the assessment order, the FAA held that the assessee was not carrying out any business activity during the year, that it could not get itself registered as NBFC with the RBI, that there was no possibility of having any business in future, that the business of the assessee was closed down permanently, that no business expenditure could be allowed to it. Upholdi .....

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enditure form the interest. He also held that no business loss/depreciation could be allowed to be set off against income from other sources. Finally, he dismissed the appeal by the assessee. 4. Before us, Authorised Represetative (AR)contended that the assessee was carrying out business activities, that it had disallowed interest amounting to ₹ 76.09 lacs, that it had incurred the expenses for running business and maintaining the corporate entity, that it had shown the income to the exten .....

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e been allowed, that carry forward of business loss and depreciation had to be set off against any other source of income. He relied upon the case of Gagan Trading Co. Ltd(46 SOT 260) Daljit Exports India Pvt. Ltd. (33 TTJ 564), Rampur Timber & Turnery Co. Ltd.(129 ITR 58),and Lavish Apartment Pvt. Ltd. (23 taxmann.com 414). DR supported the order of FAA. 5. We have heard the rival submissions and perused the material before us. We find that the AO had assessed the interest income under the .....

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as NBFC does not decide the issue of carrying of business or make the business illegal. If the assessee had violated any provisions of law under the RBI Act it would be penalised by the appropriate authority. But that does not mean that the systematic organized activity carried out by the assessee for earning profit would not be treated as business. The explanation to sec.37(1) of the Act is not at all applicable to the case under consideration. In the scrutiny assessment, completed in the earl .....

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nd that the disallowance of the expenses was without any basis. In the case of Rampur Timber & Turnery Co. Ltd.(supra),the Hon ble Allahabad High Court has held that expenditure incurred for retaining the status of the company, namely miscellaneous expenses, salary, legal expenses, travel expenses, expenses would be expenditure wholly and exclusively for the purpose of making and earning income. There is no doubt that the assessee is a corporate entity. Even if it is not carrying on any busi .....

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