Preimus Investment and Finance Ltd. vs. DCIT ITAT, Mum-C Bench Before I. P. Bansal (J. M.) & Rajendra (A. M.) ITA No 4879/Mum/2012 Assessment Year-2006-07. Decided on 13-05- 2015 Counsel for Assessee / Revenue: Dr. K. Shivaram, & Ajay R. Singh / Premanand J.

Facts:
Assessee-company was engaged in the business of leasing, financing and trading. Its application for registration to Reserve Bank of India to register it as NBFC was rejected as its net owned funds were below the prescribed minimum level. According to the AO the assessee was not authorised to carry on business of financing and thus the business carried on by the assessee was prohibited under the law. Therefore, he held that the interest income earned by the assessee cannot be said to be arising from business activity and he taxed the same as income from other sources. Further, various expenditure claimed by the assessee was also disallowed on the ground that the RBI had not recognised the assessee as NBFC and the claim for set-off of brought forward losses and unabsorbed depreciation was also denied. The first appellate authority, on appeal upheld the order of the AO.

Held:
According to the Tribunal permission/denial by the RBI to register an assessee as NBFC does not decide the issue of carrying on of business or make the business illegal. If the assessee had violated any provisions of law under the RBI Act, it would be penalised by the appropriate authority. But that does not mean that the systematic organized activity carried on by the assessee for earning profit would not be treated as business. The Tribunal further noted that in the scrutiny assessment in the earlier years, the AO had assessed the interest income as business income and had allowed all the expenditure related with the business activity. According to the Tribunal, the rule of consistency demanded that for deviating from the stand taken from the earlier years, the AO should bring on record the distinguishing feature of that particular year. The Tribunal found that the AO or the first appellate authority in their orders had not mentioned as to how the facts of the case were different from the facts in the earlier or subsequent years. As regards disallowance of other expenditure like audit fee, professional fee, general expenses, etc., the tribunal, relying on the decision of the Allahabad High Court in the case of Rampur Timber & Turnery Co. Ltd. (129 ITR 58), held that since the assessee is a corporate entity, even if it is not carrying on any business activity it has to incur some expenditure to keep up its corporate entity. Therefore, the expenditure incurred by it has to be allowed. Accordingly, it was held that the interest income earned by the assessee has to be taxed under the head business income and all the expenses related with it have to be allowed.

As far as the disallowance of carry-forward of loss and depreciation was concerned, the Tribunal relied on the decision of the Delhi high court in the case of Lavish Apartment Pvt. Ltd. vs. ACIT (23 taxmann.com 414) and held that the assessee was entitled to claim set-off.