By TIOL News Service

JAIPUR, FEB 19, 2019: THE ISSUE IS - Whether when the assessee has no business income, its allowable business expenditure can be set off against income from other sources. YES IS THE ANSWER.

Facts of the case

THE assessee company engaged in the construction of commercial and residential complexes, filed its return. The assessee, being the highest bidder in an auction for purchase of a commercial land from Jaipur Development Authority, was allotted the land for a consideration of Rs. 12.62 crores. However, a public interest petition was filed before the HC due to which the balance payment to be made by assessee was kept in abeyance. Subject to the decision of the Court, the JDA gave the no objection to the Rajasthan Financial Corporation to finance the assessee's project. Thereafter, the assessee received advance booking amount of Rs. 1.25 cr which it had advanced to various parties & earned interest of around 11.6 lacs for the same. The AO treated the interest as income from other sources and not as business income as claimed by assessee, on the ground that lending activity of the assessee was independent activity. So aggrieved, the assessee appealed to CIT(A) who upheld AO's order. Then, the assessee approached the ITAT.

On appeal, the ITAT held that,

++ after accepting the fact that the assessee has commenced his business, the Assessing Officer treated the lending of money as an independent and unrelated activity and consequently the interest on said lending was treated as income from other sources. Though, the AR has contended that since the money was given on interest as it was not required for business purposes in the immediate future, however, the Tribunal finds that it is not a case of interest income earned by the assessee which is incidental to the business activity of the assessee but the assessee has given the loans in the market for earning the interest and therefore, the interest was earned by the assessee on intentional activity of lending. It is not a simple case of parking the money in the bank but the assessee has deliberately given the advances in the market for earning the interest. Hence, the Tribunal concurs with the view of the Assessing Officer on the point that the interest earned by the assessee from giving loan by the assessee in the market is income from other sources and not the business income. However, since the assessee already commenced the business in the F.Y. 2005-06 and has now incurred expenditure of Rs. 16,39,112 on account of advertisement, exhibition, consultancy charges which are an allowable business expenditure, then the said business expenditure will be business loss for the year under consideration for want of any business income and consequently the interest income assessed as income from other sources would be set off against the business loss as per the provisions of Section 71 of the Act. Therefore, the Tribunal finds merits in the alternative contention of the AR that the business loss can be set off against the interest income. Hence, the Tribunal directs the Assessing Officer to allow the interest income to be set off against the business loss in the shape of the expenditure of Rs. 16,39,112/- subject to the verification of the fact that the said expenditure has not been added to the cost of the project in the subsequent year.

(See 2019-TIOL-449-ITAT-JAIPUR)