2015 (1) TMI 1061 - AT - Income Tax

Interest Income and miscellaneous income - Income from other sources v/s Business Income - Held that - In absence of any supporting material, we are unable to accept the submission of learned Authorised Representative that the nature of income earned by the assessee as interest on FDRs, is in the nature of business. Similar is the position with other miscellaneous income, which is in the nature of providing copy of building plan, Memorandum of Articles of Association, car stickers and miscellaneous facilities etc. Thus we reject the principal argument of learned Authorised Representative that nature of this income is business income . However, to examine the alternative claim of the assessee i.e. for considering the set off of these incomes against brought forward business losses, the matter is required to be restored back to the file of learned CIT(A) or the Assessing Officer, we accept such submission of the assessee and this matter is restored to the file of the Assessing Officer with the direction to examine this claim of the assessee as per provisions of law after giving the assessee a reasonable opportunity of hearing. - Decided partly in favour of assessee for statistical purposes. Calculation u/s. 115JB - ITAT confirmed the order of CIT(A) in deleting the addition of ₹ 1.98 crores made by the Assessing Officer while computing the book profit under section 115JB - when the assessee has submitted audit report in Form No. 29B certifying that the profit and loss account has been prepared as per Parts II & III of Schedule VI of the Companies Act then, whether the Assessing Officer has power to contend that the profit and loss account has not been prepared in accordance with the Provisions of Companies Act, 1956? - Held that - The question been clearly answered in the decision in the case of Adbhut Trading Co. (P). Ltd. (011 (7) TMI 716 - Bombay High Court ), wherein it has been held that in such a situation, it is not open to the Assessing Officer to contend that the profit and loss account has not been prepared in accordance with the provisions of Companies Act, 1956. Therefore we reverse the order of learned CIT(A) in respect of ground No. 2 for A.Y. 2007-08 and allow this ground of appeal of the assessee.

Issues Involved:
1. Classification of Interest and Miscellaneous Income
2. Addition of Depreciation while Computing Book Profit under Section 115JB
3. Disallowance under Section 14A (for A.Y. 2008-09)
4. Set-off of Brought Forward Business Losses

Issue-wise Detailed Analysis:

1. Classification of Interest and Miscellaneous Income:
The primary issue revolves around whether the interest income from Fixed Deposits (FDRs) and miscellaneous income should be classified as "Business Income" or "Income from Other Sources." The assessee argued that these incomes were part of its regular business activities, as the funds were temporarily parked in FDRs to manage cash flow. The Assessing Officer (AO) and CIT(A) classified them as "Income from Other Sources," noting that the assessee is not a financial company and the interest income does not arise from its core business activities. The Tribunal upheld this classification but remanded the case to the AO to consider the set-off of these incomes against brought forward business losses as per the decisions in CIT vs. Cocanada Radhaswami Bank Ltd. and Lavish Apartment (P) Ltd.

2. Addition of Depreciation while Computing Book Profit under Section 115JB:
The AO added back Rs. 68,41,555 of depreciation to the book profit under Section 115JB, arguing that the accounts were not prepared as per Parts II and III of Schedule VI of the Companies Act, 1956, since the depreciation related to previous years. The CIT(A) upheld this addition. However, the Tribunal reversed this decision, citing the Bombay High Court's ruling in Adbhut Trading Co. (P) Ltd., which stated that once accounts are certified under the Companies Act, the AO cannot contend they are not prepared in accordance with the Act. Therefore, the Tribunal allowed this ground of appeal for the assessee.

3. Disallowance under Section 14A (for A.Y. 2008-09):
The AO disallowed Rs. 53,500 under Section 14A, which was confirmed by the CIT(A). The assessee argued that the AO did not record reasons for not being satisfied with the correctness of the claim, as required by the judgment in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT. However, during the hearing, the assessee did not press this ground due to the smallness of the amount, leading to its dismissal.

4. Set-off of Brought Forward Business Losses:
The assessee contended that even if the interest and miscellaneous incomes are considered as "Income from Other Sources," they should be allowed to be set off against brought forward business losses. The CIT(A) did not provide a speaking order on this issue. The Tribunal remanded this matter to the AO for proper consideration, directing the AO to examine the claim in light of relevant judicial precedents.

Conclusion:
The appeals were partly allowed. The Tribunal upheld the classification of interest and miscellaneous income as "Income from Other Sources" but remanded the issue of set-off against brought forward business losses to the AO. The addition of depreciation while computing book profit under Section 115JB was reversed, providing relief to the assessee. The disallowance under Section 14A for A.Y. 2008-09 was dismissed due to the smallness of the amount.

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