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2017 (9) TMI 654 - AT - Income TaxDisallowance of business expenses u/s 37 - Denial of set-off of business loss incurred against Income from Other Sources for year consideration - Company not doing any business activity - Disallowance u/s 14A - Held That - the assessee company may not carry on business but is in existence. The name of the company was not struck off by the registrar of companies. The company has not been dissolved. Therefore the assessee is allowed to claim such expenses in the P&L A/c in view of the law settled in 1991 (5) TMI 6 - CALCUTTA High Court title as CIT(A) karanpura Collieries Ltd. & 1989 (5) TMI 10 - CALCUTTA High Court , CIT Vs. Ganga Properties Ltd.- Decided in favor of assessee. Disallowance of expenses incurred to earn the exempt income - Held That - Strategic investment is not liable to be included to assess the expenses to earn the dividend income in view of the provision under section 14A read with rule 8D.- Therefore matter remanded back to AO to assess the expenses incurred to earn the exempt income by excluding the strategic investment. - Decided in favor of assessee. Confirmation of disallowance of interest - Held That - The assessee has shown the interest income on FDs. The assessee produced the TDS certificates in which he has received the interest to aggregated to the tune of ₹ 2,60,165/-. The difference to the tune of ₹ 8,245/- was added to the income. Nothing in support is produced before us. The plea of the assessee s that the income was offered in the earlier year but there is no evidence in this regard therefore we uphold the finding of the CIT(A) on this issue.- Decided against the assessee.
Issues Involved:
1. Disallowance of business expenses under Section 37 of the Income-tax Act. 2. Denial of set-off of business loss against Income from Other Sources. 3. Disallowance under Section 14A of the Income-tax Act. 4. Disallowance of custodian fees. 5. Addition of interest income. 6. Denial of set-off of business loss incurred against income from other sources. Issue-wise Detailed Analysis: Issue No. 1 & 2: Disallowance of business expenses under Section 37 and Denial of set-off of business loss against Income from Other Sources The assessee challenged the disallowance of expenses amounting to ?23,67,500 under Section 37 of the Income-tax Act. The assessee argued that the company was in existence and had to fulfill statutory obligations, thereby justifying the expenses. The Tribunal observed that the assessee company, though not actively conducting business, was still operational and had to maintain its status and discharge legal obligations. The expenses were shown in the Profit & Loss Account and were deemed allowable based on precedents set by the Calcutta High Court in CIT(A) Karanpura Collieries Ltd. and CIT Vs. Ganga Properties Ltd. Consequently, the Tribunal set aside the CIT(A)'s findings, allowing the claim of the assessee and deciding the issue in favor of the assessee. Issue No. 3: Disallowance under Section 14A of the Income-tax Act The assessee contested the disallowance of expenses amounting to ?38,36,775 incurred to earn exempt income of ?6,31,579. The assessee contended that the investment in subsidiary companies should not be included while assessing expenses to earn exempt income. The Tribunal noted that strategic investments should not be included in assessing expenses under Section 14A read with Rule 8D, supported by case laws such as Gharware Wall Ropes Ltd. Vs. ACIT and CIT Vs. Srishti Securities Pvt. Ltd. The Tribunal directed the Assessing Officer to exclude strategic investments while assessing the expenses, thus deciding the issue in favor of the assessee. Issue No. 4: Disallowance of custodian fees The assessee argued that custodian fees of ?2,83,708, incurred for maintaining shares in dematerialized form, should not be considered for disallowance under Rule 8D. The Tribunal, referencing the nature of the expense and its indirect relation to earning dividend income, found merit in the assessee's argument and directed the deletion of the disallowance. Issue No. 5: Addition of interest income The assessee challenged the addition of ?8,245 as interest income, arguing that the difference between the TDS certificate and the amount offered to tax was due to pre-maturity of fixed deposits. However, the Tribunal found no supporting evidence for the assessee's claim and upheld the CIT(A)'s finding, deciding the issue against the assessee. Issue No. 6: Denial of set-off of business loss incurred against income from other sources The assessee did not press this issue during the argument, leading the Tribunal to dismiss it as not pressed. Other Appeals (ITA NO.7254/M/2012, ITA NO.6779/M/2013, ITA NO.5135/M/2014): The facts and issues in these appeals were similar to those in ITA No.2273/M/2012. The Tribunal adjudicated these appeals based on the findings and decisions in ITA No.2273/M/2012, allowing the appeals on similar terms. Conclusion: In conclusion, the Tribunal partly allowed all the appeals filed by the assessee, setting aside the CIT(A)'s findings on several issues and directing appropriate adjustments by the Assessing Officer. The order was pronounced in the open court on 31.08.2017.
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