2012 (11) TMI 1182 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order regarding exemption of interest receipt, set-off of losses, and principle of mutuality.

Exemption of Interest Receipt:
The appellant appealed against CIT(A)'s decision that interest receipt of Rs. 7,43,306/- is not exempt under the principle of mutuality. AO determined total income at Rs. 7,43,310/- u/s. 143(3) of the Income Tax Act, 1961. The AO found interest income from fixed deposits not exempt under mutuality principle. FAA upheld AO's decision, stating interest income was taxable under other sources. The AR argued for adjusting interest paid against received income, but the DR supported AO and FAA's orders. The ITAT found the matter should be sent back to AO for a reasoned decision, as the principle of mutuality application was not adequately explained by AO and FAA. Ground No. 1 was partly allowed in favor of the assessee.

Set-off of Losses:
AO disallowed setting off losses of Rs. 10,79,536/- against interest income of Rs. 7,43,306/-. FAA upheld AO's decision. The AR contended that the assessee was entitled to set off losses, but the DR supported the Revenue Authorities' orders. The ITAT held that the principle of mutuality and set-off of losses operate in different fields. Referring to a judgment by the Hon'ble Madras High Court, the ITAT decided against the assessee on the issue of setting off exempt income/loss against income from other sources. Ground No. 2 was decided against the assessee.

In conclusion, the appeal filed by the assessee was partly allowed, with the matter of exemption of interest receipt being sent back to the AO for a reasoned decision, and the issue of setting off losses being decided against the assessee based on legal precedent.