By TIOL News Service

BANGALORE, JAN 11, 2018: THE issue is - Whether expenditure only related to earning of income from other sources is to be allowed u/s 57(iii). YES is the answer.

Facts of the case:

During the course of search conducted in the case of Shri Priyakant Amin, Shri Pratap Wadhwa, M/s. STI Products India Ltd. and others, it was noticed that the companies, M/s. Amin Manilal & Co. Pvt. Ltd., M/s. Manilal Commodities Pvt. Ltd., M/s. Monarch Commodities Pvt. Ltd. And M/s. Sunisha Impex Pvt. Ltd. have claimed bogus business losses. It was also found that such companies carried out accommodation transactions in respect of bogus trading in textiles and Chana dal. The bogus business losses were found to be set off against the income from properties and interest income. It was also noticed that Shri Hasmukhray Ami was one of the directors of the companies M/s. Amin Manilal & Co. Pvt. Ltd., M/s. Manilal Commodities Pvt. Ltd., M/s. Monarch Commodities Pvt. Ltd. and M/s. Sunisha Impex Pvt. Ltd. These companies own immovable properties and substantial part of the income was derived from these immovable properties. The AO therefore disallowed the claim of business loss.

ITAT held that,

++ during the course of search conducted upon Shri Priyakant Amin, Shri Pradeep Wadhwa and M/s. STI Products Ltd., it has surfaced that the assessee companies were not doing any business and they were claiming bogus business losses. It was also noticed that business loss was claimed to be set off against income from house property and interest income. During the course of hearing, the AR advanced an argument that to keep the corporate structure, assessee is required to incur certain expenses. On this argument, a specific query was raised as to when the assessee has started its business. In response thereto, it was stated that assessee is contemplating to restart it, meaning thereby, the assessee has never undertaken any business of trading in textile and Chana dal. In the earlier years, the assessee claimed bogus business loss and claimed set off of same against income from house property. There is no intention whatsoever to revive its business. Therefore, the expenditure relating to keep corporate entity alive cannot be allowed as there was no intention of assessee to run a business. U/s 57(iii) of the Act, only those expenditure are to be allowed which are related to earning of income from other sources. Since the expenditure claimed by the assessee was not incurred to earn income from other sources, the same cannot be allowed.

(See 2018-TIOL-62-ITAT-BANG)