2004 (11) TMI 284 - AT - Income Tax

Summary

Issues:
- Disallowance of expenses against interest income and profit on sale of shares
- Validity of expenses claimed in maintaining the establishment
- Applicability of previous decisions on similar cases

Analysis:
1. The appeal was filed against the order of the CIT(A) regarding the disallowance of various expenses against interest income and profit on the sale of shares. The AO held the interest earned as income from other sources due to lack of RBI registration for finance activities. The CIT(A) upheld this decision, leading to the appeal before the Tribunal by the assessee.

2. The Tribunal found that the assessee, engaged in money lending business since 1990, had claimed expenses against income from financing business in the past. Despite RBI's refusal to grant a certificate for financing business during the relevant year, the Tribunal noted the consistent treatment of interest income as business income. Citing a similar case, the Tribunal emphasized the regular engagement in money lending activities to justify the interest income as 'business income.'

3. Considering the minor nature of the expenses claimed in the P&L account necessary for maintaining the establishment, the Tribunal ruled in favor of the assessee for consistency. Referring to precedents, including the Allahabad High Court and Madras High Court decisions, the Tribunal held that expenses incurred to maintain the company's status are allowable. Therefore, the Tribunal directed the AO to rectify the order and allow the deduction of various expenses against interest income and profit on the sale of shares.

4. Ultimately, the Tribunal allowed the appeal of the assessee, emphasizing the legitimacy of the expenses claimed in maintaining the establishment and the applicability of previous decisions supporting the deduction of such expenses against income.