9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (1) TMI 391 - AT - Income TaxAddition on account of interest income - new source of income - to be taxed as business income or income from other sources - Assessing Officer denying application of provisions of section 44AF - Held that - The provisions of section 44AF of the Act are attracted where the total turnover is less than ₹ 40 lakhs. In case the assessee claims that the interest income received by him was income from business, then the total receipts from business would exceed ₹ 40 lakhs i.e. sales of ₹ 37,21,126/- and business/interest income of ₹ 11,92,477/-, then the provisions of section 44AF would not apply. In any case the CIT(A) has held that the turnover is less than ₹ 40 lakhs i.e. only sales of ₹ 37,21,126/- is to be taken as total turnover for the year on which the business income is to be computed @5%. Once, the said order of CIT(A) has been accepted by the assessee, it cannot now claim that the business receipts for application under section 44AF of the Act would also include the interest income, where the funds utilized for earning interest income were business funds. May be the fund are utilized out of business funds for earning the interest income but that itself would not make the interest income as income from business. The perusal of details of interest income reflects the assessee to have the received interest on Union Bank FDRs of ₹ 3,92,936/-. Further interest received on Union Bank Flex A/c is ₹ 47,048/- and interest on Saving Bank Account was ₹ 378/- and interest on Income Tax Refund was ₹ 2,180/-. In addition the assessee had received interest on advances made to different parties for earning interest. The nature of the interest income received by the assessee clearly establishes that the same is to be assessed under the head income from other sources . Where the Assessing Officer in the assessment order has rejected the claim of the assessee and observed that the income declared by the assessee also includes income from other sources of ₹ 11,92,477/-, which has been so assessed by the CIT(A), the claim of the assessee that it is a new source of income is incorrect. The said fact was noted by the Assessing Officer and has been assessed by the CIT(A) does not establish the case of the assessee that the enhancement carried out by the CIT(A) amounts to assessment of new source of income. The business income was directed by the CIT(A) to be assessed under section 44AF of the Act by taking the turnover at ₹ 37,21,126/-. The balance receipts of ₹ 11,92,477/- were taxed as income from other sources by the CIT(A) and same were also treated as such by the Assessing Officer but no separate addition was made, by the Assessing Officer, where he had denied the claim of the assessee under section 44AF of the Act. In the totality of the facts and circumstances we find no merit in the grounds of appeal Nos. 1 and 2 raised by the assessee. Further the assessee has not satisfied the conditions of section 57(iii) of the Act, so interest expenditure is not to be allowed as deduction.- Decided against assessee Disallowance made under section 40A(3) - Held that - CIT(A) had assessed the income in the hands of the assessee under section 44AF of the Act and after such assessment no disallowance is to be made under section 40A(3) of the Act. Thus find support from ratio laid down in DCIT Vs. Shri Kashmir Singh 2012 (5) TMI 738 - ITAT CHANDIGARH , relating to assessment year 2006- 07, which in turn, relying on the decision in the case of M/s Amrit Sugar Company 2010 (12) TMI 953 - Himachal Pradesh High Court , has also laid down the said proposition. Accordingly, the claim of assessee is allowed.
Issues Involved:
1. Enhancement of income by ?11,92,477/- as interest income and its classification as income from other sources. 2. Treatment of interest income as business income. 3. Disallowance of ?2,79,161/- under section 40A(3). 4. Application of provisions under section 44AF of the Income-tax Act, 1961. Detailed Analysis: 1. Enhancement of Income by ?11,92,477/- as Interest Income: The assessee contended that the CIT(A) erred in enhancing the income by ?11,92,477/- as interest income and classifying it as income from other sources. The CIT(A) issued a show cause notice to the assessee to explain why the interest income should not be treated as income from other sources. After considering various judicial propositions, the CIT(A) concluded that the assessee could not demonstrate the nexus between the interest earned and interest paid. Consequently, the CIT(A) directed that the income earned from interest be assessed as income from other sources. 2. Treatment of Interest Income as Business Income: The assessee argued that the interest income should be treated as business income since the funds utilized for earning the interest were business funds. However, the CIT(A) noted that the assessee was a trader and not involved in the money lending business. The CIT(A) rejected the plea of the assessee, emphasizing that the nature of the interest income received (including interest on FDRs, savings accounts, and advances) clearly established it as income from other sources. The CIT(A) also dismissed the argument for maintaining consistency based on past assessments, citing the Hon'ble Supreme Court's decision in Distributors (Baroda) (P) Ltd., which allows for deviation from past assessments if justified. 3. Disallowance of ?2,79,161/- under Section 40A(3): The CIT(A) upheld the disallowance of ?2,79,161/- made under section 40A(3) of the Act. The CIT(A) reasoned that the provisions of section 40A(3) have overriding effect notwithstanding anything to the contrary contained in any other provisions of the Act. The assessee failed to justify the cash payments in view of Rule 6DD of the Income Tax Rules, 1962. However, the Tribunal found that once the income is assessed under section 44AF, no further disallowance should be made under section 40A(3). The Tribunal relied on the decision of the Chandigarh Bench of the Tribunal and the Himachal Pradesh High Court, which supported this view. Therefore, the Tribunal allowed the assessee's claim on this ground. 4. Application of Provisions under Section 44AF: The CIT(A) addressed the issue of the application of section 44AF, which allows for a presumptive taxation scheme for retail businesses with turnover less than ?40 lakhs. The CIT(A) directed the Assessing Officer to compute the business income at 5% of the turnover of ?37,21,126/-. The Tribunal noted that if the interest income were to be considered as business income, the total receipts would exceed ?40 lakhs, making section 44AF inapplicable. The Tribunal upheld the CIT(A)'s decision to treat the turnover as ?37,21,126/- and the interest income as income from other sources, thereby confirming the application of section 44AF. Conclusion: The Tribunal partly allowed the appeal. It upheld the CIT(A)'s decision to classify the interest income as income from other sources and not as business income. The Tribunal also confirmed that the enhancement by the CIT(A) did not amount to assessing a new source of income. However, the Tribunal allowed the assessee's claim regarding the disallowance under section 40A(3), stating that no further disallowance should be made once the income is assessed under section 44AF.
|
