BBR PROJECTS PRIVATE LIMITED,HYDERABAD vs. DCIT., CIRCLE-1(1), HYDERABAD

Coming to the addition made on account of the business receipts/Income From House Property, learned AR placed reliance on the decisions reported in the case of Rayala Corporation (P) Ltd vs. ACIT 72 Taxmann.com 149 and Chennai Properties & Investments Ltd vs. CIT 56 Taxmann.com 456 wherein it was held that when the assessee is engaged in the business of letting out of properties, then the income received by it shall be assessed under the head income from business and not under they head Income from House Property and therefore, the authorities are not justified in denying the claim of the assessee. Apart from this, learned AR submitted that in the earlier assessment years also, the assessee offered rental income received as income from business or profession and the same was duly accepted by the learned Assessing Officer himself, and, therefore, is not open for the Revenue now to take a different stand and to deny the contention of the assessee.

On this aspect it could be seen that the learned CIT(A) observed that the assessee did not submit its Memorandum, Articles of Association or the relevant part of the audited annual accounts clarifying that its business/profession was construction and let out of the same. So also, before us, the assessee did not produce the orders of the earlier assessment years to establish that in the earlier assessment years the assessee offered the rental income received as income from business or profession and the same was duly accepted by the learned Assessing Officer. This is a verifiable fact and the impugned order does not show that the learned CIT(A) made any enquiry on this aspect. If it is proved that the business/profession of the assessee is construction and letting out of the same, then in view of the decision of the Hon’ble Apex Court in the cases of Rayala Corporation Pvt. Ltd (supra) and Chennai Properties & Investments Ltd (supra). So also, if the learned Assessing Officer accepted the rental income received by the assessee as the income from Page 3 of 8 business/profession in the earlier assessment years, then it’s not open for the Revenue to take a different stand for this particular assessment year and to treat the receipt as Income from House Property.

On this aspect, since verification is necessary, we deem it just and proper to direct the learned Assessing Officer to verify the Memorandum/Articles of Association/relevant part of the audited annual accounts as to the clarification on the aspect of the business/profession of the assessee and if it is construction and letting out of the property then to allow the claim of the assessee. In the same process the learned Assessing Officer will also verify the stand taken by the Revenue on this aspect in earlier assessment years for the purpose of allowing the claim of the assessee. Since the depreciation depends on the view taken on this aspect, learned Assessing Officer will take note of it.

Insofar as the dividend income of Rs. 51,04,470/-is concerned, no doubt it is exempt under section 10(34) of the Act but, what all the learned CIT(A) did is to direct the learned Assessing Officer to verify the evidences to be submitted by the assessee as to whether the Dividend Distribution Tax was deducted by M/s Vivimed Labs Limited, and if it is so to delete the addition made on this aspect. There is nothing to interfere with the findings of the learned CIT(A) and therefore, we uphold the same.

Coming to the disallowance of interest expense, the assessee pleaded before the learned CIT(A) that advances were made in the course of business and therefore, no interest was charged on them. The specific plea of the assessee before the learned CIT(A) was that the decision to make interest free advances was taken by the assessee in conduct of their business. It falls in the exclusive discretion of the assessee and therefore, the Revenue cannot dictate terms to the assessee as to how the interest- bearing funds have to be utilized.

On this aspect, learned CIT(A) observed that the assessee did not conduct any business activity during the year, nor the assessee earned any income and therefore, it cannot be said that the advances were made during the course of business. Learned CIT(A) further held that the assessee did not explain as to whom the interest free advances were given, its relationship with them, and how the making of interest free advances to such parties benefited the business of the assessee. In the absence of such evidence, learned CIT(A) upheld the findings of the learned Assessing Officer and consequently dismissed the ground.

Learned AR contended before us that during the year the assessee gave the interest free advances to the tune of Rs. 3,36,75,97/- for wholly and exclusively business purposes and due to the commercial expediency only, but the authorities failed to appreciate the same. Apart from this, learned AR submitted that the assessee incurred certain expenses towards employee benefit, administrative expenses etc., for its day-to-day operations and therefore, it’s not open for the authorities to disallow the interest expense as a whole.

Learned DR vehemently supported the findings of the learned CIT(A) on this aspect and submitted that since the assessee failed to furnish the relevant documents, the learned CIT(A) had no option but to uphold the findings of the learned Assessing Officer.

On a careful consideration of this matter we are of the considered opinion that there is a difference between not having any activity during the year and cessation of the business as a whole. Even during the time when there was no active business, to keep as a commercial entity the assessee had to carry out certain activities for revival of the economic activities and therefore, merely because no income was derived by the assessee during a particular year, it cannot be said that there was no commercial expediency for the assessee to advance any interest free loans to others. It is a different matter as to whom the interest free advances

Page 5 of 8 were made and what is the short term or long term benefit the assessee is going to derive from it. It is a verifiable fact to whom the assessee lend such interest free loans and what is the commercial expediency involved in it so as to why the business necessity of the assessee on that aspect. No doubt it is the ratio of the Hon’ble Apex Court in the case of SA builders that commercial expediency has to be decided by the businessman himself and not by the Revenue by sitting in the armchair of the businessman. While verifying the details to be furnished by the assessee on the aspect of the parties to whom the interest free loans were made and the relationship of the assessee with those parties for the purpose of deciding the commercial expediency, the learned Assessing Officer will keep in mind the decision of the Hon’ble Apex Court in the case of SA builders.

Now coming to the last issue relating to the disallowance of the carry forward losses and unabsorbed depreciation to be set off from the assessee’s income for the assessment year 2015-16, the view of the authorities is that the assessee did not carry out any business activity during the year under consideration and that is the reason why the assessee is not entitled to claim the same.

It is the submission on behalf of the assessee that under section 139(3) of the Act, if the company has losses in a particular assessment year, the losses incurred can be carried forward to the subsequent assessment years and shall be set off with the income of the subsequent assessment years, provided the return of income was filed within the due date. Learned AR submitted that for the assessment year 2015-16 the return of income was filed by the assessee on 29/9/2015 which is well within the due date and therefore, the same cannot be disallowed. He submitted that there is a difference between continuance of business, and not having any income during a particular year and not having any perceivable activity in that year.

Learned DR placing reliance on the assessment order as well as the 1st appellate order and submitted that in the absence of conduct of any Page 6 of 8 business the assessee is not entitled to claim the carry forward losses and unabsorbed depreciation to be set off against the income of the current year.

On a careful consideration of the matter, we are of the considered opinion that, there is a difference between deriving income in a particular year and cessation of the business as a whole. It is not the case of the Revenue that the assessee is to conduct any business whatsoever during this particular assessment year. It may be a fact that during a particular assessment year the assessee could not derive any income. That does not entitle the Revenue to say that the assessee is not entitled to claim set off of the brought forward losses and the unabsorbed depreciation. When a loss, a negative income is permissible to be set off in the subsequent assessment years, mere absence of income in a particular year cannot be a ground to deny the set off. We, therefore, direct the learned Assessing Officer to allow the set off of the brought forward losses and the unabsorbed depreciation.

In the result, appeal of the assessee is allowed in part and for statistical purposes.