INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Assessee doing financial services business - Expenditure towards interest on borrowed capital and salary to directors -

Assessee was engaged in hotel business. However, this business never took till assessment year 2010- 11 and therefore, there was no business activity. In the assessment year 2012-13, assessee started finance activity and offered net taxable income after claiming certain expenditure towards interest on borrowed capital, salary to directors, etc. AO while making the assessment for assessment year 2016-17 disallowed certain expenditure under section 37(1). Held: CIT(A) had taken cognizance of the fact that during the assessment year 2016-17, assessee had changed the main object as business and removed the object of hotel business from the Memorandum of Association. Since business of assessee company during the relevant assessment year was only financial services, income earned during the relevant assessment year ought to be assessed as business income and the entire expenditure incurred by assessee for earning such income had to be allowed as deduction. Needless to mention, nothing on record was there to suggest that assessee-company was indulging in any other business activity during the relevant assessment year. Therefore, expenditure incurred by assessee towards salary had also to be allowed as deduction while computing the business income of assessee for the relevant assessment year. Accordingly, AO was directed to delete the addition.

Relied:Sunstar Hotels v. ACIT [ITA 1242/CHNY/2017, dt. 27-8-2018]

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2016-17

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