2016 (7) TMI 138 - HC - Income Tax

Rectification of mistake - Chargebility of Bank interest on Fixed Deposit - Held that - Admittedly where the Bank interest on Fixed Deposit which are pledged for Performance Guarantee is chargeable under the head business income is supported by the decision of High Court in the case of CIT vs. Jaypee DSC Ventures Ltd. (2011 (3) TMI 309 - Delhi High Court). There are other contrary decisions also available and therefore the issue becomes debatable with respect to the taxation of such interest income. When the issue is debatable the provisions of Section 154 cannot be invoked. The provisions of Section 154 can be invoked when there is apparent mistake which is glaring and patent. In the present case we do not find any such apparent mistake and therefore the Ld. CIT(A) has erred in upholding the provisions of section 154 invoked by the AO - Decided in favour of assessee

Summary

Issues:
1. Closure of business and disallowance of expenses.
2. Treatment of interest income as income from other sources.
3. Rectification of mistake regarding set off of carry forward business loss.

Issue 1: Closure of business and disallowance of expenses:
The Assessee filed appeals against Orders of Ld. CIT(A) regarding closure of business and disallowance of expenses for assessment year 2007-08. The ITAT had set aside the issues to the AO for fresh adjudication after considering the facts and evidence presented by the Assessee. The Tribunal observed that there was no presumption of business closure solely due to lack of business receipts. The Assessee, a partnership firm engaged in lotteries, had ongoing business operations despite disputes with authorities. The Tribunal directed the AO to re-examine the issue considering the Assessee's submissions and evidence. The High Court upheld the Tribunal's decision, setting aside the issues for fresh adjudication by the AO.

Issue 2: Treatment of interest income as income from other sources:
In another appeal, the Assessee challenged the order disallowing the set off of carry forward business loss due to interest income earned on margin money against Bank Guarantee. The Assessee argued that such interest income should be treated as business income, not income from other sources. The Jurisdictional High Court's decision supported this view. The High Court noted that the taxation of such interest income was debatable, as there were conflicting decisions. Since Section 154 can only be invoked in case of apparent mistakes, and no such mistake was found, the High Court reversed the Ld. CIT(A)'s decision and canceled the order passed under Section 154. Consequently, the Assessee's appeal was allowed.

Conclusion:
The High Court, in separate appeals, upheld the Tribunal's decision to remit the issues of business closure and disallowance of expenses back to the AO for fresh adjudication. Additionally, the High Court reversed the decision regarding the treatment of interest income, allowing the Assessee's appeal against the disallowance of set off of carry forward business loss. The orders were pronounced on 01/07/2016.