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TMI Blog2024 (12) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the fact that he did not have any NBFC license, mere absence of licence does not affect the character of income earned by the assessee. The licence only makes the activity carried out by the assessee to be legal activity. In the absence of the licence, may be the activity is illegally carried out but that does not take away the fact that the assessee carried out the activity as its business. The absence of license has no effect on the character of the income. The fact that the assessee has been returning identical income as business income from year-to-year, strengthens the case of the assessee. We, therefore, for the assessee that the interest income earned by it to be treated as business income and all the claim of expenses be allowed against the same. Appeal of the assessee is allowed. - Smt.Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri Dhinal Shah, AR For the Revenue : Shri Sanjay Kumar, Sr.DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The above appeal has been filed by the assessee against the order dated 21/02/2024 passed by the Ld. Commissioner of Income- Tax(Appeals), National Faceless Appeal Centre (NFAC), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on the registered mail ID of the appellant company on the income tax portal. However, the appellant company came to know about such an order when the accountant of the company logged in on the portal for some other work. As soon as the appellant company came to know about the order it immediately filed an appeal. As there is no service of the order, the delay is on account of reasonable cause. As the delay of 20 days (assuming the date of order as the date of service of order) is on account of a reasonable cause, your honours are prayed to condone the delay in filing of such appeal and admit the appeal and oblige. The nature of business is such that I am not required to access the email id on regular basis. I tender my apology for the same. Whatever stated above is true and correct to the best of my knowledge and belief. Keeping in view the reason given by the assessee in its application for condonation of delay, we are satisfied that there was a sufficient cause for the delay of 26 days on the part of the assessee in filing the appeal before the Tribunal and even learned DR has not raised any material objection in this regard. We, therefore, condone the said delay and proceed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true character of the interest income earned by the assessee as being from its business activity. He pointed out that, besides, the fact that the assessee s NBFC registration was not there, the other reason given by the Revenue authorities to disbelieve the claim of the assessee that the interest income was earned from its business activity was the fact that it had earned huge losses in the same, having earned interest income of Rs. 9.96 lakhs and incurred expenses of Rs. 10.05 crores, and the claim of the Revenue was that no prudent business man would run its business in this manner. The ld.counsel for the assessee contended that the assessee had given an explanation which was duly substantiated as to why it had not made profits during the year. He contended that it had been pointed out to the Revenue authorities that one of the advances/loans made by it had turned bad for recovery and the assessee was, therefore, not accounting the interest earned on it in its books of accounts. This advance involved substantial amount of interest, which was forgone by the assessee since the principal itself had turned bad for recovery. He contended that the Ld.CIT(A) completely ignored this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23rd September, 2013 issued by RBI and its reply dated 9th October, 2013 3 are enclosed. The copy of MOA is enclosed. 3. The AO has treated the interest of Rs. 9,96,855 as income from other sources instead of income from business as claimed by the assessee on the ground that the company is not registered as NBFC with RBI. 3.1 In this connection, it may please be noted that the assessee company is carrying on business of financing and investment activities. It has already made application to RBI for obtaining the registration. The assessee company has not accepted any public deposits. So, the assessee company is not at default for obtaining the registration. Moreover, even if the assessee has made default, the assessee has not made any violation of Income tax act which results into disallowance of expenditure incurred for the purpose of business. Under IT Act, the income from business activity of financing and investment is a business income since it is only business of the company. 3.2 The interest income is business income as assessee company is carrying on financing and investment activities. What is relevant for income tax is source of income for business activity. As per MOA, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving taxable income from other sources. Thus, in the garb of business the assessee is creating business losses and setting off the same against taxable income from other source. Hence, this way the assessee is artificially reducing the taxable income. Therefore, notice u/s. 142(1) of the Act on 25.07.2018 was issued to the assessee. Vide this notice the assessee was requested to furnish the information/details and justify the huge business expenses. From the above, it may please be seen that the AO himself accepts that this practice is followed by the assessee since long. In other words, the interest income is considered as business income since long. There cannot be any motive or planning to avoid tax. This allegation is baseless. The AO has not seen the balance sheet as on 31-03-2016 as per Schedule - 9 Long term Loans and Advances are Rs. 20,81,37,998 which includes the advance of Rs. 17,09,74,123 which is considered as doubtful. The interest is not received from such advances that is why there is interest income which is less. If the interest should have been received 12% than the interest on Rs. 17,09,74,123 would be Rs. 2.40 Crore. The company is in financial difficulty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was accepted and consistently applied and followed, the Department was bound by it. The basis for the change in practice should have been mentioned by the department, if it had wanted to change the practice without any change in law or facts therein, either in its order or pointed out when the tribunal passed the order. Therefore, the tribunal's allowing the assessee's appeal on the principle of consistency could not be faulted as it was in accord with the supreme court decision . 4.2 It may please be noted that there is no change in any facts or in any law. The facts are that the assessee is carrying on business activity of financing and investment since long. There is no change in this fact. It is true that the interest received is less but just because income received is less, there is no change in business activity. Similarly, there is no change in law. Therefore, the assessee is squarely covered by SC judgement and Bombay High Court judgement. The disallowance may please be deleted. Further, the ld.counsel for the assessee contended that the order passed by the Ld.CIT(A) needed to be set aside and the assessee s claim of treating the interest income as its business inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only basis we find by the Revenue for rejecting the assessee s contention is that the assessee s explanation for incurring such huge losses is not plausible and that it does not have a NBFC licence. Both these reasons, we do not find impinge in any way on the character of income earned by the assessee and we find that the reasoning that the assessee has no plausible reasons for incurring loss is incorrect. As noted above, the assessee did give an explanation for the same. As for the fact that he did not have any NBFC license, mere absence of licence does not affect the character of income earned by the assessee. The licence only makes the activity carried out by the assessee to be legal activity. In the absence of the licence, may be the activity is illegally carried out but that does not take away the fact that the assessee carried out the activity as its business. The absence of license has no effect on the character of the income. The fact that the assessee has been returning identical income as business income from year-to-year, strengthens the case of the assessee. We, therefore, agree with the ld.counsel for the assessee that the interest income earned by it to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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