TMI Blog2019 (1) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is not carrying out the business activity. The registration with RBI as NBFC and business activity of the assessee, both are different aspects and cannot be applied for holding that the assessee is not engaged in the business activity. we also note that the assessee has been carrying on the business of money lending in a systematic manner without having the registration with RBI as NBFC. Merely, the fact that the assessee is not registered with RBI AS NBFC, cannot lead to draw an inference that the assessee is not carrying out the business activity. The registration with RBI as NBFC and business activity of the assessee, both are different aspects and cannot be applied for holding that the assessee is not engaged in the business activity. The genuineness of the expenses claimed by the assessee have not been doubted by the authorities below. Moreover, there is no issue regarding the genuineness/reasonableness of the expenses claimed by the assessee arising from the order of authorities below. Therefore, we are not inclined to adjudicate the same. In view of above, we are of the view that the interest income of the assessee should have been treated as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits including finance of short and long term deposits etc. 4.1 The assessee in the year under consideration has shown income from other sources amounting to ₹ 70,42,709/- as detailed under: Sr. No. Particulars Amount 1. Bank interest 3,10,188/- 2. Other interest 66,17,003/- 3. Dividend income 3,597/- 4. Interest on Income Tax Refund 1,11,921/- Total 70,42,709/- (-) Exempted dividend income (-) 3,597/- Taxable Income 70,39,112/- 4.2 The assessee has not shown any sales/income from operations in the year under consideration but has claimed expenses in its profit and loss account amounting to ₹ 68,34,897/- only. These expenses included the following: Sr No. Particulars Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther sources for the year under consideration as per the provision of Section 71 of the Act. However, the AO disagreed with the submission of the assessee by observing that there was no operation carried out during the year. Therefore, in the absence of any business activity there cannot be any claim of expenses in the profit and loss account. Accordingly, the AO held that the assessee adopted a colorable device to escape from the income tax liability on the interest income. Accordingly, the AO disallowed the sum of ₹ 60,51,522/- and added to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal to ld CIT(A). The assessee before the ld CIT(A) submitted that it was incorporated on 3rd July, 1995 for the purpose of stock broking activities as well as giving loans and advances for the purpose of interest income. Both the activities of the assessee were duly mentioned in the main object of its memorandum of association. 5.1 The assessee up to the A.Y. 2006-07 has been offering interest income under the head business and profession which was also duly accepted by the Revenue either u/s 143(1) or 143(3) of the Act. 5.2 There were scrutiny asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the assessee relied on the Circular issued by CBDT No. 14(XL-35), dated 11-4-1955 and the judgment of Jurisdictional High Court in the case of S.R. Koshti vs. CIT reported in 276 ITR 165. 5.7 The assessee also claimed that merely classifying the interest income under the head income from other sources would not change the character of the interest income which is carried out in a systematic manner therefore the interest income should be treated as business and profession. There is direct nexus between the expenditure claimed by the assessee against such interest income therefore the same should be allowed deduction against such income. 5.8 Once, the income of the assessee has been treated as business income then the assessee is also eligible for deduction on account of bad debts amounting to ₹ 3,87,793/- out of which a sum of ₹ 3,05,642/- was offered to tax in the earlier years. The balance amount of ₹ 82,151/- (3,87,793 3,05,642) will be allowed as deduction arising in the course of the business. However, the ld CIT(A) disregarded the contention of the assessee and confirmed the order of the Assessing Officer by holding that it has not carried out a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be treated as income under the head business and profession. The ld DR vehemently supported the order of authorities below. 8. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has shown interest income under the head income from other sources on the advice of the consultant. As such, it was advised to the assessee that it cannot carry out money lending business in a systematic manner without having approval from the RBI as NBFC. Therefore, the assessee classified interest income as income under the head from other sources. 8.1 It is undisputed fact that the assessee has claimed several expenses for running its money lending activity which were classified under the head business and profession. Consequently, there was income under the head income from other sources but there was loss under the head business and profession. Accordingly, the AO held that the assessee is not entitled to claim the set off of the loss shown under the head business and profession against the income from other sources on the ground that there was no business activity. The view taken by the AO was subsequently confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India in the matter of Radhasoami Satsang v Commissioner of Income Tax reported in 193 ITR 321 (SC) wherein the Hon'ble Supreme Court has inter alia held as under: We are aware of the fact that, strictly speaking, res judi cata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter - and, if there was no change, it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. Parties are not permitted to begin fresh litigations because of new views they may entertain of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its in violation of section 29A of National housing Bank. In view of the above, the assessee company's claim regarding the business of housing finance does not hold good. The receipts need to be treated as Income from other sources . This view is further supported by the fact that the Chartered Accountant himself has concluded that the interest earned on the loans granted in earlier years and the deployment of the same falls as income from fund management . The company has also not prescribed to the norms laid down by National Housing Bank Act. The remark of the Chartered Accountants in this regard is reproduced below to highlight the same. The remarks of the Chartered Accountant and the facts narrated above clearly indicate that the assessee company is not in the business of housing finance. The income received from the advances/loans can only be treated as Income from other sources . Accordingly, the receipts of the assessee company for Income from other sources are worked out as below: Income from other sources (Interest income, Service charges etc.) Rs.62,48,428/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Jurisdictional High Court in the case of S.R. Koshti vs. CIT(Supra) wherein, it was held as under: The supreme court has observed in numerous decisions, including Ramlal V. Rewa Coalfields Ltd. AIR 1962 SC 361, State of West Bengal v. Administrator, Howrah Munisipality AIR 1972 SC 749 and Babutmal Raichand Oswal v. Laxmibai R. Tarte AIR 1975 SC 1297, that the state authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The state authorities cannot adopt the attitude which private litigates might adopt. 8.6 We also note that the genuineness of the expenses claimed by the assessee have not been doubted by the authorities below. Moreover, there is no issue regarding the genuineness/reasonableness of the expenses claimed by the assessee arising from the order of authorities below. Therefore, we are not inclined to adjudicate the same. In view of above, we are of the view that the interest income of the assessee should have been treated as income from business and profession. Therefore, we set aside the order of ld. CIT(A) and direct the AO to treat the interest income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot exceed the exempt income. Hence, we direct the AO to restrict disallowance u/s 14A to the extent of exempt income earned by the assessee. Accordingly we direct the AO to restrict the disallowance u/s 14A r.w.r. 8D of the Act to the extent of Dividend Income. In view of above the ground of appeal of the assessee is partly allowed. In the result the appeal of the assessee is partly allowed. Now coming to ITA No.2433/Ahd/2015 for Asst. Year 2011-12: 9. Revenue has raised following grounds of appeal: 1. On the facts and in the circumstances of the case, and in law, the Ld. C.I.T. (A) erred in holding that balance expenses of ₹ 44,29,921/-are to be allowed as a deduction u/s.57(iii) of the Act in the computation of income of the assessee under the head income from other sources, without appreciating that the assessee has not carried out any business activity and that the assessee did not claim deduction u/s.57(iii) of the Act against income from other sources in the return of income. 2. On the facts and in the circumstances of the case, and in law, the Ld. C.I.T. (A) erred in applying the ratio of Hon'ble Gujarat High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
