2009 (2) TMI 248 - AT - Income Tax

Tribunal rules on business income assessment under Income-tax Act

The Tribunal determined that balances written back of Rs.34,01,644/- should be assessed as business income under section 41(1) of the Income-tax Act. ... - Issues Involved:1. Nature of Income of Rs.34,68,126/-2. Allowability of Expenses3. Set-off of Brought Forward Loss and Depreciation4. Levy of Interest u/s.234BSummary:1. Nature of Income of Rs.34,68,126/-:The primary issue was whether the amount of Rs.34,68,126/-, which included balances written back of Rs.34,01,644/-, should be assessed as 'income from other sources' or 'business income'. The Tribunal held that the balances written back are assessable as business income u/s.41(1) of the Income-tax Act, irrespective of whether the business was in existence during the year or not. Therefore, the amount of Rs.34,01,644/- was rightly assessable as business income.2. Allowability of Expenses:The assessee claimed various expenses aggregating to Rs.2,61,60,225/- as business expenditure. The Tribunal held that since the assessee did not carry on any business during the relevant previous year, no expenditure could be allowed as business expenditure. The Commissioner of Income-tax (Appeals) had allowed certain expenses like travelling, legal and professional expenses, repairs, and maintenance, but the Tribunal reversed this decision, holding that these expenses could not be allowed in the absence of any business activity.3. Set-off of Brought Forward Loss and Depreciation:The Tribunal examined whether the brought forward business loss and depreciation could be set off against the income assessed for the year. It was held that since the assessee did not carry on any business during the relevant year, the brought forward business loss and depreciation could not be set off against the profits assessed u/s.41(1). The Tribunal clarified that the brought forward depreciation could only be allowed if there was some business in which the assets were used, which was not the case here.4. Levy of Interest u/s.234B:The assessee contested the levy of interest u/s.234B, but this ground was not argued. The Tribunal noted that the assessee would be entitled to consequential relief, if any.Conclusion:The assessee's appeal was partly allowed, and the department's appeal was allowed. The Tribunal directed the Assessing Officer to rework the allowable expenditure against the interest income and to give effect to the order accordingly. The set-off of brought forward loss and depreciation against the income assessed for the year was disallowed. The order was pronounced in the open court on February 6, 2009.