2013 (5) TMI 919 - AT - Income Tax

Summary

Issues involved:
The primary dispute in this case relates to the nature of interest income earned from bank FDs and the eligibility for deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961.

Issue 1: Nature of interest income and eligibility for deduction under Section 80P(2)(a)(vi) of the Act
The appellant declared interest income from bank FDs as business income eligible for deduction under Section 80P(2)(a)(vi) of the Act. However, the Assessing Officer and CIT(A) treated the interest income as income from other sources, denying the deduction. The appellant argued that the FDs were made to obtain bank guarantees for securing contracts from Government bodies, citing relevant case law. The Tribunal referred to similar cases where interest income on security deposits for securing contracts was treated as business income. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to reevaluate whether the interest income should be assessed as business income or income from other sources based on the purpose of the FDs.

Issue 2: Penalty under Section 271(1)(c) of the Act
The Revenue appealed against the cancellation of penalty imposed under Section 271(1)(c) of the Act due to furnishing inaccurate particulars of income related to the interest income from FDs. The penalty was imposed based on the Assessing Officer's decision that the interest income was assessable as income from other sources. The CIT(A) deleted the penalty following a Tribunal decision in the assessee's favor. However, since the Tribunal recalled the previous order and remanded the issue back to the Assessing Officer, the penalty was deemed unsustainable. The Assessing Officer was given the discretion to initiate penalty proceedings if necessary after reevaluation of the interest income.

In conclusion, the appeal of the assessee regarding the nature of interest income and deduction eligibility was allowed for reconsideration by the Assessing Officer, while the Revenue's appeal against the penalty imposition was dismissed due to the remand of the underlying issue.