Tribunal Upholds Denial of Deduction for Negative Business Income under Section 32AB

The Tribunal upheld the decision of the CIT(A) in dismissing the appeal of the assessee regarding the deduction under section 32AB related to deposits with IDBI. It was ruled that the deposit must be made from income chargeable to tax under the head 'Profits and gains of business or profession', which was not fulfilled as the business income was negative, disqualifying the assessee from claiming the deduction. The Tribunal emphasized that the conditions of sub-section (1) must be met, and rejected the argument that sub-section (3) should apply even with negative income under the specified head.

---

---

Issues:
- Deduction under section 32AB in respect of deposits with IDBI made by the assessee.

Analysis:
1. The appeal concerned the deduction under section 32AB related to deposits with IDBI made by the assessee. The Assessing Officer rejected the claim as the income under the head 'Profits and gains of business or profession' was a negative figure, resulting in a loss. The CIT(A) upheld this decision, stating that for the deduction to apply, there must be income chargeable to tax under the mentioned head. The assessee appealed to the Tribunal challenging this decision.

2. The assessee argued that business profits should be computed according to sub-section (3) of section 32AB, which includes interest on securities in the profit and loss account. They relied on a Tribunal decision supporting this inclusion. However, the departmental representative opposed, citing that the interest on securities should be assessed separately, not as part of business income. The Tribunal noted the conditions for claiming the deduction under section 32AB, emphasizing that the deposit must be out of income chargeable under the head 'Profits and gains of business or profession'.

3. The Tribunal agreed with the departmental representative that the deposit must be made from positive income under the mentioned head. Referring to the legislative intent, they highlighted that the deposit with IDBI must be out of income chargeable to tax under the specified head. As the income from interest on securities was assessed separately, the business income became a negative figure, disqualifying the assessee from the deduction under section 32AB.

4. The Tribunal rejected the assessee's argument that sub-section (3) of section 32AB should apply even if the income under the specified head is negative. They clarified that sub-section (3) is contingent upon fulfilling the conditions of sub-section (1), which were not met in this case due to the absence of positive income for making the deposit. The Tribunal distinguished a previous decision relied upon by the assessee, emphasizing that it did not address a scenario where income under the specified head was a loss figure.

5. Ultimately, the Tribunal upheld the CIT(A)'s order, dismissing the appeal of the assessee. The decision was based on the requirement that the deposit with IDBI must be made from income chargeable to tax under the head 'Profits and gains of business or profession', which was lacking in this case due to the negative business income.

---