2010 (11) TMI 978 - AT - Income Tax

Summary

Issues involved: Validity of revisional order u/s 263 of the Income Tax Act regarding treatment of interest income and truck hire charges.

Ground Nos. 1 to 4 - Interest Income: The assessee contested the revisional order questioning the treatment of interest income as not eligible for calculating remuneration u/s. 40(b). The Tribunal referred to a previous decision where a similar issue was decided in favor of the assessee. It was noted that the interest income was earned on various deposits and the AO had allowed its inclusion for calculating remuneration to partners. The CIT held that there was no direct nexus between the interest income and the business, thus invoking section 263. The Tribunal disagreed, stating that when the issue was debatable and one view was accepted by the AO, invoking section 263 was not justified. Citing relevant case law, the Tribunal allowed Ground No. 1, setting aside the revisional order.

Ground No. 5 - Truck Hire Charges: The CIT disallowed truck hire charges paid by the assessee, invoking section 40(a)(ia) of the Act. The assessee argued that the primary transaction was the purchase of milk, with transportation being incidental. The Tribunal agreed, stating that the purchase of milk was the predominant factor, not the hiring of trucks. The CIT's treatment of the hiring of trucks as a separate work contract under section 194C was deemed unjustified. The Tribunal allowed Ground No. 5, setting aside the revisional order on this issue.

Conclusion: The Tribunal allowed the appeal, setting aside the revisional order on both issues related to interest income and truck hire charges.