|CORAM:||I. P. Bansal (JM), Rajendra (AM)|
|CATCH WORDS:||business expenditure, setting up of business|
|COUNSEL:||Dr. K. Shivram|
|DATE:||May 13, 2015 (Date of pronouncement)|
|DATE:||June 10, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 37(1): Even if no business is carried, the expenditure incurred to maintain the corporate entity has to be allowed as a deduction|
Permission/denial by the RBI to register an assessee as NBFC does not decide the issue of carrying of business or make the business illegal. If the assessee had violated any provisions of law under the RBI Act it would be penalised by the appropriate authority. But that does not mean that the systematic organized activity carried out by the assessee for earning profit would not be treated as business. The explanation to sec.37(1) of the Act is not at all applicable to the case under consideration. In the scrutiny assessment, completed in the earlier years, the AO had assessed the interest income as business income and had allowed all the expenditure related with the business activity. The rule of consistency demands that for deviating from the stand taken in the earlier AY, the AO should bring on record the distinguishing feature of that particular year. We find that the AO or the FAA has not mentioned even a single line as to how the facts of the case under appeal were different from the facts of the earlier or subsequent years. We find that the disallowance of the expenses was without any basis. In the case of Rampur Timber & Turnery Co. Ltd.(129 ITR 58), the Hon’ble Allahabad High Court has held that expenditure incurred for retaining the status of the company, namely miscellaneous expenses, salary, legal expenses, travel expenses, expenses would be expenditure wholly and exclusively for the purpose of making and earning income. There is no doubt that the assessee is a corporate entity. Even if it is not carrying on any business activity it has to incur some expenditure to keep up its corporate entity. Therefore expenditure incurred by it has to be allowed.