2011 (8) TMI 1336 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 40(a)(ia) for non-deduction of TDS from payments to subcontractors.
2. Treatment of interest income on FDRs and bank accounts as business income or income from other sources.

For the first issue, the assessee appealed against the disallowance of Rs. 1,01,50,000 u/s 40(a)(ia) for not deducting TDS from payments to subcontractors. The AO disallowed the amount as TDS was not paid by the due date. The assessee argued that the amendment in Section 40(a)(ia) by the Finance Act 2008 and 2010 allowed for deduction if TDS was paid before the due date of filing return. The CIT(A) rejected the contention, stating that TDS should have been deposited before the end of the previous year for deduction. The ITAT held that the amendment was curative and the TDS was paid within the statutory period, thus disallowance was not justified.

Regarding the second issue, the assessee challenged the treatment of interest income on FDRs and bank accounts as income from other sources. The AO had taxed the interest receipts twice, once under business income and again under income from other sources. The ITAT examined the details of interest received and concluded that interest on FDRs pledged as earnest money against performance guarantee should be considered as business income and set off against deduction of interest. The interest from the bank account for temporary funds was also deemed as business income. Therefore, the addition of Rs. 7,55,721 was deleted.

In conclusion, the ITAT Jaipur bench allowed the appeal of the assessee, ruling in favor of both issues.