2017 (12) TMI 1045 - AT - Income Tax

Deduction allowable u/s 36 (1)(iii) - non-commencement of business - Held that - As per P&L account available the assessee is showing income on account of interest on FDs and the activity in respect of purchase of shares of various companies is not shown as purchase and closing stock in trade. Specific query was raised by the Bench and in reply it was submitted by the ld AR of the assessee that there is no stock in trade and in my considered opinion in the facts of the present case it cannot be said that the assessee is doing any business activity and any income is to be taxed under the head income from business . Therefore no deduction is allowable u/s 36(1)(iii) in respect of interest paid by the assessee and claimed as allowable expenditure because as per the sec. 36(1)(iii) interest is allowable if it is incurred in respect of capital borrowed for the purpose of business. Since there is no business activity no deduction is allowable u/s 36 (1)(iii). Disallowance of fund raising charges - contentions of the assessee were same that the same is allowable as interest expenditure u/s 36(1)(iii) because as per the provisions of sec. 2(28A) interest includes services fee or other charges in respect of money borrowed or debt incurred or in respect of any credit facility which has not been utilized - Held that - On this issues also the assessee is bound to fail because when it is seen and held that assessee has not commenced any business activity and no deduction is allowable u/s 36 (1) (iii) in respect of interest expenditure because it is not in respect of any business activity the fund raising charges also cannot be allowed for the same reason. Disallowance of business expenditure - Objection of the AO that no sales and Revenue has been generated - Held that - Business of the assessee has not been started because it was not shown that any business activity was undertaken by the assessee.

Summary

Issues:
1. Disallowance of interest on borrowed capital under section 36(1)(iii)
2. Disallowance of fund raising charges as not relatable to business
3. Disallowance of business expenditure for not commencing business activity

Issue 1: Disallowance of interest on borrowed capital under section 36(1)(iii):
The appeal challenged the disallowance of interest on borrowed capital by the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The Appellate Tribunal noted that the assessee's main business was dealing and investing in shares, with significant investments and deposits but no stock in trade. The Tribunal found that as there was no business activity, interest expenditure could not be claimed under section 36(1)(iii) as it must be incurred for the purpose of business. Therefore, the Tribunal rejected the grounds related to this issue.

Issue 2: Disallowance of fund raising charges as not relatable to business:
The Tribunal considered the disallowance of fund raising charges and upheld the decision of the Commissioner of Income Tax (Appeals). The Tribunal reasoned that since the assessee had not commenced any business activity, the fund raising charges could not be allowed as a business expenditure. Therefore, the grounds related to this issue were rejected.

Issue 3: Disallowance of business expenditure for not commencing business activity:
Regarding the disallowance of business expenditure, the Tribunal examined the details provided by the assessee and referred to various judicial pronouncements cited by the assessee. The Tribunal noted that while the assessee had earned some income, there was no substantial business activity undertaken during the year. The Tribunal analyzed each judgment cited by the assessee and concluded that none of them supported the assessee's claim as no business activity was shown to have been initiated. Consequently, the Tribunal dismissed the appeal, stating that the business of the assessee had not commenced, and therefore, there was no reason to interfere with the Commissioner of Income Tax (Appeals) order.

In conclusion, the Appellate Tribunal dismissed the assessee's appeal, upholding the disallowances of interest on borrowed capital, fund raising charges, and business expenditure due to the lack of commencement of business activity. The Tribunal's decision was based on the absence of substantial business operations during the relevant period, leading to the rejection of the grounds raised by the assessee on these issues.