2017 (8) TMI 1696 - AT - Income Tax

Characterization of income - Interest income - income from other sources or business income - CIT-A treating in interest income as business income - Whether no business activity was carried out during the year? - HELD THAT - We find that the AO has not made any inquiry or verification to arrive at his finding that interest income was to be treated as income from other sources . As mentioned by the Ld. CIT(A) in the assessee s own case for the AY 2006-07, 2007-08 and 2008-09, the AO has accepted the contention of the assessee that the income of investing and financing be assessable as income from business. The need for consistency has been emphasized by the Hon ble Supreme Court in Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT - we uphold the order of the Ld. CIT(A) and dismiss the 1st ground of appeal. Disallowance of Expenses as no business activity was carried out by the assessee during the year - HELD THAT - A company may not obtain, or able to execute, a single business contract for months and yet it may be deemed to carry on its business, if during the period of lull and inactivity it is kept alive and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern, though it may, for some time, be quiet and dormant. The mere fact that a businessman has not been able to obtain a contract and the business has for some time been in that sense dormant would not mean that it has ceased to exist, if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful - Thus we find that the disallowance made by him is not based on any material or reasons. 2nd ground of appeal is dismissed. Addition made of account of interest - as per TDS certificate the interest income pertained to A.Y. 2009-10 - HELD THAT - We find that interest of Rs.20,80,817/- out of Rs.26,90,478/- on account of interest received from Patel Engineering Ltd. was offered to tax in the AY 2008-09. Also M/s Patel Engineering Ltd. was given the interest, net of TDS, of Rs.20,80,817/- on 03.10.2007 vide cheque no. 143318. Therefore, the Ld. CIT(A) has rightly directed the AO to delete the addition to the extent of Rs.20,80,817/- out of Rs.26,90,478/-. Also the Ld. CIT(A) has rightly sustained the addition of the balance amount of Rs.6,09,661/- being the amount of TDS deposited by the payer namely Patel Engineering Ltd. during the AY 2009-10. Thus we uphold the order of the Ld. CIT(A) on the above ground and dismiss the 3rd ground of appeal. Disallowance u/s 40(a)(ia) - submissions made by the assessee at the time of appellate proceedings without giving an opportunity of the assessing officer for verification of the same - CIT(A) has held that perusal of the expenditure claimed as deduction revealed that tax is deductible only on the interest expenditure of Rs.6,18,131/- (Rs.5,95,837 Rs.23,904) as all other expenditure incurred is below threshold for deduction of tax at source and TDS has been made in the case of interest payment to Ace Housing and Construction Ltd., AHCL PEL - HELD THAT - CIT(A) Correctly deleted the disallowance u/s 40(a)(ia) - order of the AO in respect to the above ground of appeal is not based on material evidence - findings of the Ld. CIT(A) based on examination of the documents, we uphold the order of the Ld. CIT(A) and dismiss the 4th ground of appeal.

Summary

Issues:
1. Treatment of interest income as business income without business activity.
2. Disallowance of expenditure claimed as corporate expenses.
3. Taxability of interest receipts and TDS.
4. Disallowance under section 40(a)(ia) for failure to provide TDS details.

1. Treatment of Interest Income:
The Assessing Officer (AO) treated interest income as 'income from other sources' due to lack of evidence of business activity by the assessee. However, the Ld. CIT(A) directed the AO to assess the interest income as business income based on past acceptance of similar income in the assessee's case for previous years. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing the need for consistency and citing relevant legal precedents. The 1st ground of appeal was dismissed.

2. Disallowance of Expenditure:
The AO disallowed a portion of the claimed expenditure as corporate expenses, citing lack of justification for treating it as revenue expenditure. However, the Ld. CIT(A) deleted the disallowance based on assessing the substance of the activities carried out by the assessee. The Tribunal upheld the Ld. CIT(A)'s decision, highlighting that the disallowance made by the AO lacked material or reasons. The 2nd ground of appeal was dismissed.

3. Taxability of Interest Receipts and TDS:
The AO brought certain interest receipts to tax as 'income from other sources' as the assessee failed to explain why they should not be taxed. The Ld. CIT(A) directed the AO to delete a portion of the interest amount already taxed in a previous assessment year and sustain the addition of the remaining balance. The Tribunal upheld the Ld. CIT(A)'s order, dismissing the 3rd ground of appeal.

4. Disallowance under Section 40(a)(ia):
The AO disallowed expenditures, including interest paid, under section 40(a)(ia) due to the assessee's failure to provide TDS details. The Ld. CIT(A) found that tax was deductible only on specific interest expenditure and deleted the disallowance made by the AO. The Tribunal upheld the Ld. CIT(A)'s order, as it was based on an examination of relevant documents. The 4th ground of appeal was dismissed.

In conclusion, the Tribunal dismissed the appeal, upholding the orders of the Ld. CIT(A) on all grounds of appeal, emphasizing consistency, substance of activities, and examination of relevant evidence in making taxability and disallowance decisions.