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TMI Blog2012 (11) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that the assessee has discontinue the business or close down the business activity - then the income on account of written back of the sundry creditors falls under the head ‘business and profession’ and not as ‘income from other sources’. Electricity expenditure – Held that:- In absence of documentary evidence, expenses were disallowed. Bank charges expenses and staff welfare expenses are allowable as business expenditure against the business income. Therefore, once the amount of sundry creditors is treated as business income consequently the claim of bank charges and staff welfare are allowed. Interest on capital of partners - Once the interest @ 12% p.a on partners capital is allowable, then to the extent of the amount which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income Tax [A]. erred in confirming a sum of Rs.42,21,502/- by disregarding the fact that sundry creditor written back amounts to business income u/s 41(1) and REC bond interest is also business income, as follows: Head Amount in Rs Bad debt 1703609/- Bank charges 1008/- Electricity Charges 40000/- Indian News REEL 1100/- interest on Capital 2444633/- Staff Welfare 31152/- Total 4221502/- b) In the facts and the circumstances of the case and also in law, the learned Commissioner of Income Tax [A] erred in rejecting additional ground of allowing interest either u/s 40(b) or 57(iii). 2) Bad debt of Rs 170 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso disallowed on the ground that there is no business income earned during the year. 3.2 On appeal, the Commissioner of Income Tax(Appeals) has confirmed the disallowance made by the Assessing Officer. 4 Before us, the ld AR of the assessee has submitted that the interest on REC bond is to be otherwise included in the book profit as per the provisions of sec. 40(b) for the purpose of allowing the interest on partner s capital. In support of his contention, the ld AR has relied upon the following decisions: i) SP Equipment Services vs ACIT 128 TTJ 68(JB) ii) ACIT vs Sheth Brothers 99 TTJ 189 (Rajkot) iii) Allen Career Institute vs ACIT 141 TTJ 492 (JB) 4.1 He has further submitted that the assessee has written back the sundry c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I T Act. 5 We have considered the rival contention as well as the relevant material on record. From the careful perusal of the relevant facts of the case, we find that the REC Bonds were not purchased by the assessee in the ordinary course of business because the purchase and sale of bonds is not a regular business activity of the assessee. Rather, the bonds were purchased by the assessee firm for availing the exemption on capital gain in the earlier years. Thus, it is clear that the REC bonds were purchased by the assessee for specific purpose of availing the exemption on capital gain and not as business activity of the assessee. This, being the fact, then the interest earned on the REC bonds cannot partake the character of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the order of the CIT(A) on this issue. 6.2 Bank charges expenses and staff welfare expenses are allowable as business expenditure against the business income. Therefore, once the amount of sundry creditors is treated as business income consequently the claim of bank charges and staff welfare are allowed. 7 Next items of expenditure are interest on capital of partners. 7.1 The ld AR has heavily relied upon the provisions of sec. 40(b) as well as the decision of the Tribunal. It is to be noted that section 40(b) talks about the restriction of deduction allowable towards the interest to the partners upto 12% and therefore, book profit, which is relevant only for the purpose of payment of remuneration to the partners is not required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowability of the same u/s 40(b)(iv) is only restricted to the percentage as provided therein. Once the interest @ 12% p.a on partners capital is allowable, then to the extent of the amount which could not be set off against the business income would be setting off against the income from other heads and carry forward business loss as provided u/s 71 72 of the I T Act. Accordingly, the Assessing Officer is directed to take appropriate steps in this regard. Hence, grounds no.1 3 are partly allowed. 8 Ground no.2 is regarding bad debts of Rs. 17,03,609/-. 8.1 The Assessing Officer has disallowed the claim of bad debts on the ground that the assessee has shown no business income. On appeal, the CIT(A) noted that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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