2010 (8) TMI 995 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from interest and lease rent.
2. Disallowance of expenses due to no business activity.
3. Set off of accumulated unabsorbed business losses.

Summary:

Issue 1: Classification of Income from Interest and Lease Rent

The appellant contested the classification of lease rent and interest as "income from other sources" instead of "income from business." The tribunal noted that in previous years, the interest income was consistently assessed as business income except for the Assessment Year 1995-96, where it was assessed as income from other sources but later corrected by CIT(A). The principle of consistency was argued by the appellant, citing various judicial pronouncements. However, the tribunal held that the principle of res-judicata does not apply in income tax proceedings and emphasized that the principle of consistency is only applicable if the previous view was legally tenable. Since the appellant was not in the business of money lending, the interest income could not be classified as business income. Consequently, the tribunal upheld the CIT(A)'s order, rejecting Ground No. 2 of the appeal.

Issue 2: Disallowance of Expenses Due to No Business Activity

The appellant argued that expenses should be allowed as deductions either as business expenses or u/s 57 of the I.T. Act, even though no business was carried out during the year. The tribunal referred to the judgment of the Hon'ble High Court of Calcutta in CIT Vs New Savan Sugar & Gur Refining Co. Ltd., which allows deduction of expenses incurred to maintain establishment and comply with statutory obligations. The tribunal remanded the matter back to the A.O. to determine the extent of expenses incurred for maintaining the establishment and complying with statutory obligations, and to verify if the business faced a temporary lull or was discontinued. Grounds Nos. 3 & 5 were allowed for statistical purposes.

Issue 3: Set Off of Accumulated Unabsorbed Business Losses

The appellant sought to set off brought forward unabsorbed business losses against the current year's income. The tribunal noted that u/s 72(1), such set off is permissible only against business income. Since there was no business income in the current year, the tribunal upheld the CIT(A)'s decision to disallow the set off of brought forward unabsorbed business losses. Ground No. 4 of the appeal was rejected.

Conclusion:

The appeal was partly allowed for statistical purposes, with specific directions for fresh examination of certain expenses by the A.O.