2016 (5) TMI 587 - AT - Income Tax

Claim of business loss - Treatment of business income or income from house property - Held that - CIT(A) was right to hold that the assessee did not carry on any business activity in the nature of rendering professional services to its parent company as claimed and that the entire arrangement between them was with a view to claim expenses which are not otherwise allowable under the head income from house property and interest income. We, therefore, uphold the impugned order of the ld CIT(A) disallowing the assessee s claim of business loss.- Decided against assessee Disallowance of Expenses - assessee did not actually provide any professional services at all, but six persons (General Manager, Manager, Executive, Manager, Asst. Manager, Asst. Manager and a Peon) who were employees of the assessee on paper but actually work for the parent company - Held that - We have upheld the factual findings of the learned CIT(A) that the assessee did not carry out any business activity in the year under consideration and therefore disallowed the assessee s claim of business loss. In this view of the matter, the assessee had income from only two activities/sources, i.e. earns income from house property given on rent and interest income . The authorities below have also observed that the assessee had already availed deduction of ₹ 26,96,445/- which covered all those expenses the assessee required for day to day maintenance of the assessee company, like statutory obligations of filing fees, audit, etc. The assessee has, in our view, failed to controvert the above factual findings by the authorities below. We find that the expenses which are allowable under its two income heads income from house property and income from other sources , have already been allowed and we therefore, uphold the decision of the learned CIT(A) that no further expenses are to be allowed. - Decided against assessee

Summary

Issues Involved:
1. Treatment of business income.
2. Disallowance of expenses of ?19,11,600.
3. TDS credit.
4. Interest under section 234C.
5. Interest under section 244A.

Detailed Analysis:

1. Treatment of Business Income:
The assessee contended that the CIT(A) erred in confirming the AO’s decision to disallow the business loss of ?26,45,091. The CIT(A) held that the employees of the assessee worked for the parent company, Forbes & Company Ltd., and the salary was reimbursed by the parent company, suggesting the arrangement was made to claim otherwise non-allowable expenses under the head income from house property and interest income. The assessee argued that the employees rendered professional services and the income from these services should be considered business income. However, the Tribunal found that the assessee did not provide any professional services and the employees were on the rolls only on paper. There was no agreement for professional services between the assessee and the parent company. The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's claim of business loss.

2. Disallowance of Expenses of ?19,11,600:
The assessee argued that the CIT(A) erred in upholding the AO’s disallowance of expenses amounting to ?19,11,600, which were claimed for day-to-day maintenance. The Tribunal noted that since the assessee did not carry out any business activities during the year, these expenses were not allowable. The expenses related to statutory obligations had already been allowed under income from house property and interest income. The Tribunal upheld the CIT(A)’s decision, dismissing the assessee’s claim for these expenses.

3. TDS Credit:
The assessee claimed that the CIT(A) failed to direct the AO to grant credit for the balance TDS of ?21,93,696. The Tribunal directed the AO to verify and grant the TDS credit if warranted, in accordance with the law. This ground was allowed for statistical purposes.

4. Interest under Section 234C:
The assessee contested the charging of interest under section 234C based on its returned income. The Tribunal noted that the charging of interest under section 234C is consequential and mandatory, and directed the AO to recompute the interest, if any, while giving effect to the order. This ground was allowed for statistical purposes.

5. Interest under Section 244A:
The assessee contended that the CIT(A) erred in not directing the AO to grant interest under section 244A up to the date of refund. The Tribunal directed the AO to examine the claim in accordance with the law while giving effect to the order. This ground was allowed for statistical purposes.

General (Grounds 9 & 10):
These grounds were general in nature and did not require adjudication.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions to the AO on specific issues related to TDS credit, interest under sections 234C and 244A. The Tribunal upheld the CIT(A)’s decisions on the treatment of business income and disallowance of expenses. The order was pronounced on 11th May 2016.