2016 (9) TMI 205 - AT - Income Tax

Disallowance of interest payments and other general and administrative expenditure - disallowance as there is no business activity - Held that - The factual matrix of the case supports the plea of the assessee that it is not a case of discontinuation or closure of business, but temporary lull in activity. During this period of lull or interregnum, the assessee is expected to continue maintenance of its business apparatus and for that purpose the expenses of general and administrative nature claimed by the assessee deserve to be allowed. In this context, we find that the ratio of the judgment of the Hon ble Delhi High Court in the case of Anita Jain (2009 (1) TMI 774 - DELHI HIGH COURT ), which was relied upon by the assessee before us, supports the allowability of such expenditure. Therefore, on this count we allow the plea of the assessee. Insofar as the payment of interest is concerned, the dispute raised is similar to what was considered by the Tribunal in assessee s own case for Assessment Year 1998-99. On this aspect, assessee had pointed out before the lower authorities that since the past investments have been made in stock-in-trade of shares and such investments were made out of funds available from Partners Capital and other loan funds, on such loan funds assessee had incurred interest expenditure which has been disallowed. In Assessment Year 1998-99 similar claim for deduction of interest expenditure was disallowed by the Assessing Officer, which was allowed by the Tribunal. Following the said precedent, in the present year also, such a claim of the assessee deserves to be allowed. In fact, in Assessment Year 2002-03, as also in Assessment Years 2007-08 and 2008-09, interest expenditure incurred by the assessee has been allowed. Therefore, considering the aforesaid precedents, we find no reason to deny assessee s claim for deduction on account of interest expenditure in the instant year.

Summary

Issues involved:
Appeal against order denying business loss claim for expenses in Profit & Loss account for Assessment Year 2005-06.

Analysis:
1. The appeals by the assessee for two different Assessment Years were clubbed due to a common issue of business loss denial by the Income-tax authorities. The lead case was for Assessment Year 2005-06.
2. The Assessing Officer disallowed the business loss claim of the assessee amounting to ?24,35,949, stating no business activity was carried out, resulting in taxable income determination at ?17,36,714.
3. The CIT(A) affirmed the Assessing Officer's decision, rejecting the assessee's justification of business activities, including trading in shares, and administrative expenses as genuine.
4. The assessee argued that the business loss was due to a temporary lull, not a discontinuation, supported by past assessments allowing similar expenses and losses, emphasizing the continuity of business operations.
5. The Tribunal considered the factual matrix and precedent judgments, concluding that the business loss claim and interest expenditure were justified, directing the Assessing Officer to recompute the total income accordingly.
6. Consequently, the assessee's appeal for Assessment Year 2005-06 was allowed, and the decision applied mutatis mutandis to the appeal for Assessment Year 2006-07, resulting in the allowance of both appeals.