Please refer the relevant case law & provide me relevant sug

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

11 August 2011 1)My client is procuring finance from market and transferring the same to the Ltd. Co. in which he's Director & to Firm in which he's Partner.
The AO is holding that assesee is doing business of Financing & hence the Interest receipt is assessable under the Head Business Income.
However, my perception is,
a)My client is just providing finance & making an Investment in a Co. belonging to his family members & in which he's a Director (since the Co. is engaged in Construction Business thereby get loans @ a costly rate plus involving other complicatons too). Thus this activity should not be regarded as a Business Activity.
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2)My Client is charging Interest just to the extent payable to the lenders. NO PROFIT element is there in the Interest amount & even NO MOTIVE to earn profit through the activity.
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3)Further he doesn't hold any Money Lending License nor has advanced money outside.
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The AO is also helding that since Interest Paid or received exceeded 40Lakhs, the assessee should have deducted TDS.
However, my assessee (being an Individual, TDS provision not appliable), had no tax audit either for Asstt.Year 2005-06 or 2006-07, & also the Business Receipt during the concerned year i.e. 2007-08 doesnot exceed 40Lakhs.
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In my opinion,the under mentioned Cases are supportive to my assessee:
* J.K.Holdings vs ITO(2001)70 TTJ (Mum.)649
* Belagode Traders vs. ITO(1996)54 TTJ (Bang.)449
* Ghanshyamdas Gangadhar vs. CIT(1954)25 ITR 318 (Pat.)
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Please provide me your opinions on the above instant as early as possible.
Thank You.

Preety Parik

Preety Parik (Expert)
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11 August 2011 A. It appears that the dispute relates to Year 2007-08. U have said that the business turnover has not crossed Rs.40 Lacs during the year 2006-07. This itself should resolve the issue because tds liability for a individual arises only if the business turnover exceeds 40 Lacs in a financial year immediately preceding FY to which the interest relates.

B. The case laws and u r contentions supports your case. Also it can be contested that loan parties (payable) where shown as unsecured loans and Advances made under Investments in BS and not shown as sundry debtor and creditors.
Also if the activity existed in preceding years and the same was accepted in regular assessment, then for the current year the same cannot be disturbed.