M/S PROMAIN LTD.,,NEW DELHI vs. DCIT, NEW DELHI

This appeal of the assessee was earlier disposed of by the Tribunal vide order dated 12.10.2012, whereby the appeal was dismissed. The assessee, thereafter filed a miscellaneous petition No. 06/Del./2013 for seeking rectification in the order dated 12.10.2012, which too stood rejected vide order dated 19.12.2014. The assessee challenged this order, passed in miscellaneous application of assessee, before the Hon’ble High Court, who vide order dated 15.02.2016 set aside the order of Tribunal dated 19.12.2014 and restored the appeal in ITA No. 427/Del./2010 of the assessee with the following directions given in para 15 & 16 of the decision : “15. In that view of the matter the impugned order dated 19th December, 2014 passed by the ITAT is set aside and the application for rectification filed by the assessee before the ITAT under section 254(2) of the Act is treated as disposed of. However, this would require the restoration of the appeal ITA No. 427/Del./2010 to the file of the ITAT to examine the grounds urged by the assessee on the rule of consistency as far as treatment of the interest income earned by the assessee.

Accordingly ITAT peremptorily on 14th March, 2016 for a fresh decision on the limited ground of treatment of the interest income earned by the petitioner during A.Y. 2006-07.”

The brief facts of the case are that during the course of assessment proceedings, it was noticed that the assessee had claimed business loss of Rs.10,66,545/- which was disallowed by the Assessing Officer on the reason that the assessee has not carried out any business activity during the year under consideration. The first appeal against this assessment order stood dismissed. In appeal before the Tribunal, it was submitted on behalf of the assessee that the main objects of the company as provided in the MOA are investment, finance and other incidental activities. It was also submitted that non-showing of business income during this year does not warrant to disallow the expenses and therefore, the loss occurred in connection with business was allowable to the assessee. It was also brought to the notice of Tribunal that similar expenditures have been allowed by the Revenue authorities in assessment order for A.Y. 2008-09 in the identical facts and circumstances of the case. However, the Tribunal dismissed the appeal of the assessee stating that the assessee could not bring any evidence that it was doing any business activity to allow the business expenditure of the assessee. It was also opined by the Tribunal that the assessee could not demonstrate how the rental income, interest income or dividend income of the assessee is to be assessed as a business income. The assessee tried to seek rectification in the above findings of the Tribunal given vide order dated 12.10.2012 by way of miscellaneous petition, inter alia on the averments that the assessee has never claimed rental income and dividend income as business income; that the Hon’ble Tribunal in assessee’s own case for A.Y. 2001-02 has allowed such expenditures holding that the assessee company is carrying on business activity which has been accepted throughout in past and in succeeding assessment years and therefore, in absence of any change in circumstances, the same needs to be followed in the impugned assessment years as well; that in assessment year 2008-09 also, similar claim of the assessee had been accepted by the department itself in the identical circumstances. It was, therefore, submitted that consistent view should have been followed in the matter. The Tribunal, However, rejected the misc. application of the assessee on the ground that in assessment order for AY 2008-09, there is no finding that the assessee carried on any business activity and what was the business activity if any carried on. The AO simply accepted the income disclosed by the assessee by making disallowance u/s. 14A. It was also observed that order of ITAT for A.Y. 2001-02 was not referred to at the time of hearing of appeal by the ITAT for disputed year. However, on perusal of copy of order for A.Y. 2001-02 placed in miscellaneous proceedings, the Tribunal observed that, the Tribunal had recorded a finding that in that year the assessee was carrying on business of Vyaj Badla financing as well as earning of interest income and admittedly in this year, the assessee did not carry on the business of Vyaj Badla. It was also held that mere earning of interest income of a meager sum of Rs.48,312/- that too by investing own funds, cannot be said to be carrying on of the business. The Tribunal accordingly rejected the application of assessee vide order dated 19.12.2014 as noted above. Against this order, the assessee approached the Hon’ble High Court for redress and therefore, in view of the aforesaid directions of Hon’ble High Court, the present appeal is being disposed of as follows.

We have heard the submissions of both the parties and have carefully gone through the entire material available on record. As per directions of Hon’ble High Court quoted above, the Tribunal has to decide the appeal on the limited issue of treatment of interest income of Rs.48,312/- earned by assessee – whether business income or otherwise, with reference to rule of consistency so as to decide the business loss claimed by the assessee. As far as the adoption of consistent view is concerned, the assessee has cited the tribunal order in its own case for A.Y. 2001-02 and assessment order for A.Y. 2008-09. Now in order to follow the rule of consistency, it has to be examined whether similar claim of assessee stood accepted in previous and subsequent years in the identical facts and circumstances or not. In our opinion, such an investigation is possible from the assessment records of the previous and subsequent years at the stage of Assessing Officer, as complete records of these years are not available before us to examine as to from which sources, the assessee earned interest in those previous and subsequent years. The facts and circumstances prevailing over the disputed year, as emerged from the record before us, are that during this year, the assessee has not shown any business income but has declared business loss; that during this year, the assessee has not shown any business of Vyaj Badla; that during this year, the AO has noticed that the assessee has not carried out any business activity and that the interest income earned by assessee is declared on own funds. Besides this, schedule -5 of the balance sheet of assessee as at 31st March, 2006 filed before us shows that the assessee has shown a sum of Rs.17,94,28,895/- under the head ‘Investments’. The balance sheet further shows that as per schedule-6, under the current assets, loans and advances, three items are appearing, the breakup of which is as under : Cash and bank balance 69,75,244/- Other current assets 854/- Loans & Advances 56,66,956/- It is, however, not clear from the balance sheet and profit and loss account filed before us, as to from which heads of above current assets, the assessee has earned interest income of Rs.48,812/- so as to decide the correct nature of interest income. So, proper examination is required on this count at the stage of Assessing Officer. If the impugned interest is found to have been earned by assessee from investments as per schedule-5 of the balance sheet, such interest income cannot be treated as business income as per Generally accepted Accounting Principles (GAAP) and if it is found that the said interest income was earned by assessee out of their current assets, loans and advances as per schedule 6 of the balance sheet then the Assessing Officer has to examine whether such loans and advances were the part of prominent/auxiliary nature of business. If the same are found to be the part of prominent/auxiliary nature of business, the interest income earned therefrom, shall be qualified to be treated as business income, irrespective of the fact that the assessee has not done any business of Vyaj Badla during the disputed year. It is also to note that in case all the facts and circumstances emerged during the investigation by AO, are found prevailing over the previous and subsequent years, as contended by assessee, the assessee’s claim will be eligible for allowance by applying the rule of consistency, as per directions of Hon’ble High Court and if found otherwise, or if there is any change in the circumstances, the issue shall be decided in accordance with law whether the interest income earned by the assessee should be treated as business income or not. Accordingly, the limited issue is restored to the file of AO for deciding the same afresh in the light of observations made in the body of this judgment.