2017 (9) TMI 310 - AT - Income Tax

Allowable business expenditure u/s 37 - Whether expenses incurred in connection of business activity treated as revenue and charged to P&L A/c or treated as capital in nature - proof of business activity - Held that - In the order of FAA, the findings have been recorded that there were no business activity from the sale and purchases and the activities shown by the assessee does not appear genuine as the sales bills were dated prior to the purchase bills. We also after hearing either sides and after examining the record, are in agreement with the conclusion drawn by the ld.FAA that the sales and purchase were shown in order to claim expenses which are not incurred wholly and exclusively for the purposes of business. At the most the said expenses could be capitalized. Accordingly, we affirm the order of the ld.CIT(A) on this issue.- Decided against assessee. Disallowance of interest expenditure - loan was not used wholly and exclusively for the purposes of business - Held that - . At the time of hearing the ld. AR filed statements and contentions that the amount of loan is raised for further advancing to its director for business purposes but the same was finally returned by the Director of the company as the said loan was not used for the business purpose. The ld.AR raised the plea that since the money was received back and not used for business purposes, no disallowance was attracted. Thus as the statement produced before us contains the details of advances given on different dates and said statement was not before the authorities below restore this issue to the file of the AO as the matter requires verification and the AO is directed that in case money has not used by the director for any personal purposes and returned to the company as it is,the claim of the assessee is allowed and otherwise decide the allowance as per law and facts. - Decided in favor of assessee for statistical purposes.

Summary

Issues involved:
1. Disallowance of business losses claimed by the assessee.
2. Disallowance of interest expenditure claimed by the assessee.

Detailed Analysis:

1. Disallowance of Business Losses:
The appeal pertained to the assessment year 2011-12, challenging the non-granting of business losses amounting to ?34,34,738 by the Assessing Officer (AO). The AO disallowed the expenses claimed by the assessee on the grounds that they were not incurred in connection with the business activity related to the Hydro Electric Power Project and were deemed capital in nature. The AO emphasized the need for a motive of profit to classify an activity as a business. The CIT(A) confirmed the disallowance, stating that the expenses claimed were not wholly and exclusively for the purpose of the business, as the appellant failed to provide convincing documentary evidence to support the claim. The Appellate Tribunal agreed with the CIT(A) that the expenses claimed were not genuinely related to the business activity and dismissed the appeal on this issue.

2. Disallowance of Interest Expenditure:
The second ground of appeal concerned the disallowance of interest expenditure by the CIT(A) as per the AO's decision, regarding a loan of ?650 lakhs sanctioned to the assessee. The loan amount was advanced to a director of the company, and the AO contended that the loan was not used for business purposes, leading to the disallowance of interest amounting to ?22,57,656. The CIT(A) upheld the AO's decision, stating that the appellant failed to prove that the loan was utilized wholly and exclusively for genuine business activity. However, during the appellate proceedings, the appellant submitted additional details and contentions regarding the loan, which were not presented before the lower authorities. The Appellate Tribunal found it necessary to verify these details and directed the AO to re-examine the issue, allowing the claim if the loan was returned unused for business purposes. The Tribunal partially allowed the appeal on this ground for statistical purposes.

In conclusion, the Appellate Tribunal upheld the disallowance of business losses but directed a re-examination of the interest expenditure disallowance issue based on new evidence presented during the appeal.