2016 (3) TMI 239 - AT - Income Tax

Set off of business loss against interest income taxable under the head income from other sources - non existence of business activity - Held that - As assessee has accepted that no business activity has been carried out during the year under appeal and the expenditure claimed in the profit and loss account was a write off of asset which was standing in the books of account. Such write off could have been allowed only if there had been a business activity running during the year. We, therefore, are of the view that as the assessee has not carried out any business activity during the year under appeal, then there remains no possibility of set off of business loss against interest income taxable under the head income from other sources. Therefore, we find no reason to interfere with the order of ld. CIT(A) and uphold the same. - Decided against assessee

Issues:
1. Assessment of income instead of NIL income
2. Disallowance of writing off of advance licenses
3. Consideration of evidence for continuance of business
4. Presumption of licenses not included as income in earlier years
5. Non-consideration of evidence produced before CIT(A)
6. Sustainment of assessment as passed by AO

Analysis:
1. The appeal was against the order of CIT(A) assessing the income of the appellant at Rs. 4,77,610 instead of NIL income for the assessment year 2008-09. The Assessing Officer disallowed the claim of set off of custom duty expenses against income from interest, as the business activities of exporting dyes and chemicals were stopped in the preceding financial year. The CIT(A) upheld the addition made by the AO, stating that the appellant cannot claim deduction on the unutilized balance of import duty entitlement after the business has been closed. The Tribunal found that since no business activity was carried out during the year under appeal, the set off of business loss against interest income was not permissible, and upheld the order of CIT(A).

2. The disallowance of writing off advance licenses was based on the cessation of business activities by the appellant. The appellant claimed that the licenses could not be utilized due to business closure and were written off against interest income. The lower authorities disallowed the claim, stating that the expenses did not pertain to the year under consideration and were not related to the interest income. The Tribunal upheld the decision, emphasizing that the appellant had accepted the absence of business activity during the relevant year, making the set off of business loss against interest income unjustifiable.

3. The appellant argued that the temporary cessation of business due to adverse conditions should not be considered as cessation of business. However, the Tribunal found that the appellant had acknowledged the lack of business activity during the relevant year, leading to the disallowance of set off against interest income. The Tribunal upheld the decision, stating that without business activity during the year, the set off of business loss was not permissible.

4. The appellant contended that the licenses had been included in the income of earlier years, which the CIT(A) did not consider. However, the Tribunal found that since no business activity was conducted during the relevant year, the inclusion of licenses in previous year income was irrelevant. The disallowance of set off against interest income was upheld based on the absence of business activity during the year.

5. The appellant claimed that the evidence produced before CIT(A) regarding the inclusion of licenses in previous year income was not considered. However, the Tribunal reiterated that the absence of business activity during the relevant year rendered the question of inclusion of licenses in previous income immaterial. The disallowance of set off against interest income was upheld due to the lack of business activity during the year.

6. The appellant challenged the sustainment of the assessment as passed by the AO, arguing that the assessment should be held as bad in law. However, the Tribunal found that the disallowance of set off against interest income was justified due to the absence of business activity during the relevant year. The appeal of the assessee was dismissed, upholding the order of CIT(A) and the assessment made by the AO.

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