2021 (3) TMI 1248 - AT - Income Tax

Deduction u/s 80IC - interest income from fixed deposit - According to the assessee even if the interest income from Fixed Deposit does not qualify for the deduction u/s 80IC still it being a business receipt should be given the benefit of netting - HELD THAT - We note that in the revenue appeal for the same assessment year i.e. AY 2014-15 2020 (3) TMI 1362 - ITAT KOLKATA we have confirmed the action of Ld. CIT(A) in respect of claim of the assessee in respect of interest income as not eligible for deduction u/s 80IC. Netting of interest income was not before us because the revenue appeal came up without this assessee s cross-appeal. And since this issue has come to our notice only in this appeal in the interest of justice and fair play and as per settled principle of law we are of the opinion that the net interest should only be brought to tax. Needless to say the assessee in this case has claimed to have made the FDs for the purpose of procuring bank guarantee which was a condition precedent for procurement of raw material from M/s SAIL. And therefore according to us the interest income even if it does not qualify for deduction u/s 80IC of the Act being not having first degree nexus still the nature of the receipt since being business in nature and not from other sources refer CIT vs. Nirma Ltd. 2014 (10) TMI 388 - GUJARAT HIGH COURT needs to be treated as business receipt if the facts are correct which may be verified by the CIT(A) since we have restored certain issues back to him while adjudicating the Revenue Appeal for this assessment year. And if the contention of the assessee is found to be correct then netting should be allowed to their interest receipt as held by the Hon ble Gujrat High Court in the case of CIT vs. Nirma Ltd. 2014 (10) TMI 388 - GUJARAT HIGH COURT . Therefore we restore this issue back to the file of the Ld. CIT(A). Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Challenge to denial of deduction u/s 80IC on interest income from fixed deposit and the possibility of netting the interest income.

Analysis:
1. The appeal was against the order of the Ld. CIT(A) for Assessment year 2014-15, specifically challenging the denial of deduction u/s 80IC on interest income from a fixed deposit of Rs. 20,37,345.

2. The Assessee argued that even if the interest income from the Fixed Deposit did not qualify for the deduction u/s 80IC, it should be allowed to be netted as it was a business receipt. The Assessee maintained that the interest income was related to maintaining Fixed Deposits for issuing bank guarantees required for purchasing raw material.

3. The Ld. A.R contended that the interest income was business income, supported by documents submitted to the AO and part of the audited accounts. Referring to legal precedents, the Assessee argued that although the interest income might not qualify for deduction u/s 80IC due to lack of nexus with profits, it should be allowed for netting as per the principle established by the Hon'ble Gujrat High Court in certain cases.

4. The ITAT, Kolkata noted that in a previous revenue appeal for the same assessment year, they confirmed the denial of deduction u/s 80IC on interest income. However, a mistake in the figures was corrected, and the appeal was allowed to the extent of the corrected amount. The issue of netting interest income was not addressed in the previous appeal.

5. The ITAT, Kolkata decided that in the interest of justice and fairness, the net interest should be considered for taxation. They directed the Ld. CIT(A) to re-examine the issue of netting the interest income, emphasizing that if the interest income was genuinely related to business activities, it should be treated as a business receipt and allowed for netting as per relevant legal principles.

6. Consequently, the appeal of the Assessee was allowed for statistical purposes, and the issue of netting interest income was remanded back to the Ld. CIT(A) for further consideration in line with the ITAT's order in the Revenue appeal for the same assessment year.