2020 (3) TMI 1362 - AT - Income Tax

Deduction u/s 80IC - treating interest income from bank from customers from security deposit relates to business activities - HELD THAT - Hon ble Apex Court in CIT Vs. Govinda Choudhury 1992 (4) TMI 8 - SUPREME COURT wherein the Hon ble Apex Court held that the interest awarded to the assessee therein in an arbitration proceeding for delayed payment in a contract executed by the assessee was to be recorded as business income and could not be treated as income from other sources and upheld the action of the Tribunal. According to Ld. AR in the present case the assessee had sold the C. R. coil manufactured from its eligible undertaking to customers on credit and when there is a delay in making payment by the customers to assessee then the assessee charged interest upon the customers which have been shown by the assessee as interest income from the customers. Therefore according to Ld. AR since the interest income for delayed payment from the customers for the product manufactured by the assessee are to be treated as Business Income in the light of the Hon ble Supreme Court decision in Govinda Choudhury (supra) the income thus derived by the assessee from the undertaking it is eligible for deduction u/s. 80IC(2) - therefore the AO s action of not allowing deduction is per se erroneous. We are not inclined to decide these grounds since it is noted that the Ld. CIT(A) has not adjudicated the issues relating to two issues i.e. deduction in respect of income from delayed payment from customers and interest on security deposit (electricity) therefore both these issues are set aside back to the file of the Ld. CIT(A) for fresh adjudication with a direction to decide the issues in accordance to law after hearing the assessee and without being influenced by any observation made by us supra.

Summary

Issues:
- Appeal against Ld. CIT(A)'s order allowing relief to assessee under section 80IC
- Disallowance of interest income on fixed deposit, security deposit, and delayed payment from customers

Analysis:
1. The appeal was filed by the revenue against Ld. CIT(A)'s order granting relief to the assessee under section 80IC for the assessment year 2014-15. The assessee, engaged in manufacturing and trading of iron and steel products, claimed deduction under section 80IC. The revenue challenged the allowance of relief amounting to a specific sum related to interest income from various sources.

2. The Assessing Officer disallowed the deduction claimed by the assessee on interest income from fixed deposits, security deposits, and delayed payments from customers under section 80IC. The Ld. CIT(A) upheld the disallowance of interest income from fixed deposits but mistakenly mentioned a different figure. The Tribunal corrected this error and confirmed the disallowance of interest income from fixed deposits. The revenue's appeal on this issue succeeded.

3. Regarding the disallowance of interest earned on security deposits, the Tribunal noted conflicting arguments. The assessee contended that such income was integral to its manufacturing business, while the revenue argued against it. However, the Ld. CIT(A) did not decide on this issue. Consequently, the Tribunal set aside this matter for fresh adjudication by the Ld. CIT(A) to determine the eligibility of the interest earned on security deposits for deduction under section 80IC.

4. Concerning the interest income earned for delayed payment from customers, the assessee argued that such income was directly related to its business operations and should be considered as business income eligible for deduction under section 80IC. The Ld. CIT(A) did not address this issue either. Therefore, the Tribunal remanded this matter back to the Ld. CIT(A) for a fresh decision in accordance with the law after hearing both parties.

5. In conclusion, the revenue's appeal was allowed for statistical purposes, with the Tribunal addressing the correction of figures related to interest income from fixed deposits and remanding the issues of interest earned on security deposits and delayed payment income from customers back to the Ld. CIT(A) for proper adjudication.