2015 (1) TMI 434 - HC - Income Tax

Deduction u/s 80HHC - Income from fixed deposits in Banks - held that - as is evident from the order of the Tribunal, the appellant/assessee did not pursue the matter sincerely before the Tribunal, but remained exparte. The appellant/assessee should have appeared before the Tribunal and explained the above position, which he had done before the CIT (Appeals) as is evident from the reasoning as reflected in the order of the CIT (Appeals). However, inspite of a finding by the CIT (Appeals) in his order about the need for deposit to be made for the purpose of availing credit facility, there is no reference to the above letter of the bank in the proceedings of the original authority or the Tribunal, but a reference about that portion of the findings of the CIT (Appeals) is found in the order of the Tribunal. The Tribunal was not in a position to consider this document, in the absence of the assessee/appellant and, therefore, it fell in error in coming to a conclusion that it is not a business income eligible for benefit under Section 80 HHC of the Act. - Matter remanded back - Decide din favour of assesse.

Summary

Issues:
1. Interpretation of interest income for deduction under Section 80 HHC
2. Treatment of interest income from fixed deposits as business income

Analysis:
1. The appellant, a 100% export-oriented unit, filed an appeal challenging the order of the Income Tax Appellate Tribunal, which excluded interest income from fixed deposits for deduction under Section 80 HHC. The appellant treated the interest earned from the deposits as business income. The Assessing Officer reclassified the interest income under the head 'Income from other sources,' leading to the appeal.

2. The CIT (Appeals) allowed the appeal, directing the Assessing Officer to treat the interest earned from term guaranteed deposits as business income. Dissatisfied, the Department appealed to the Tribunal. The Tribunal, in an ex-parte order, found no evidence supporting the deposits' purpose for availing credit facilities or any compulsion to make them, leading to the exclusion of interest income from business income.

3. In the current appeal, the appellant sought to disprove the Tribunal's findings by presenting a bank letter indicating the deposit's necessity for availing credit facilities. The appellant argued that the deposit was made as collateral security for a term loan, thus qualifying the interest income as business income eligible for deduction under Section 80 HHC.

4. The Court acknowledged the appellant's export-oriented status and the bank's requirement for a term deposit to secure a term loan. The bank's letter specifying the deposit's purpose was crucial in determining the nature of the transaction. However, the Tribunal's oversight of this document due to the appellant's absence led to an erroneous conclusion regarding the eligibility of the interest income for Section 80 HHC benefits.

5. Consequently, the Court allowed the appeal by remanding the matter back to the Tribunal for a fresh consideration. The Tribunal was directed to reevaluate the issue in light of the bank's letter, previously considered by the CIT (Appeals) in favor of the appellant. The Court emphasized the importance of considering all relevant documents and arguments before making a decision, ensuring a fair and comprehensive assessment of the case.