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2017 (9) TMI 635 - AT - Income TaxInterest income treated as business profit - Held that - As decided in CIT vs. Bhawal Synthetics 2017 (5) TMI 540 - RAJASTHAN HIGH COURT it is not in dispute that the assessee had income of interest through FDRs and while setting off that the Assessing Officer as well as the ITAT did not examine the aspect as to under which provision the assessee claimed deduction or set off of his income from other sources against interest payable on the borrowed fund. The reason given is that the amount pertaining to FDR was not surplus amount but part of amount that was kept to obtain letter of credit for purchase of machinery. While accepting the fact that the FDR was for obtaining letter of credit to purchase machinery but so far as interest earned thereon is concerned, that is nothing but income through other sources, as such, the Commissioner of Income Tax rightly treated the same as income taxable. Discount from the cost of material instead of treating the same as part of the income - Held that - The assessee received discount from the various suppliers against the purchases made by it. He submitted that the AO wrongly treated the same as income other sources ignoring that when such discount is received from the suppliers, it needs to be reduced from the cost of the raw material consumed in contract work. We find merit in the contention of the assessee as the discount is nothing but reduction in the value of the material so supplied. Therefore, same was required to be reduced from the cost of raw material consumed in contract work. Therefore, we do not see any infirmity in the order of ld. CIT (A), the same is affirmed. This ground of the revenue is rejected.
Issues Involved:
1. Reduction of GP rate u/s 145(3) from 13% to 11.50% for A.Y. 2011-12 and from 13% to 11.75% for A.Y. 2012-13. 2. Treatment of interest income from FDR & NSC as business income instead of income from other sources. 3. Treatment of discount income from suppliers as reduction from the cost of material instead of other income. Issue-wise Detailed Analysis: 1. Reduction of GP rate u/s 145(3): The Revenue challenged the CIT (A)'s decision to reduce the GP rate from 13% to 11.50% for A.Y. 2011-12 and from 13% to 11.75% for A.Y. 2012-13. The CIT (A) had confirmed the rejection of the books of account but reduced the estimation of Net Profit based on the past history of the assessee and previous decisions for A.Y. 2007-08. The Tribunal upheld the CIT (A)'s decision, noting that the past history of the assessee is the best guide for estimating income once the books are rejected. The Tribunal referenced several cases where the past history was used to determine the GP rate, including CIT vs. Sh. Sindhuja Foods Pvt. Ltd. and CIT vs. Vaibhav Gems Ltd. The Tribunal found no infirmity in the CIT (A)'s order and affirmed it, rejecting the Revenue's ground. 2. Treatment of Interest Income from FDR & NSC: The Revenue argued that the CIT (A) erred in treating interest income from FDR & NSC as business income. The assessee contended that the FDRs were made for business purposes, such as obtaining bank guarantees for contracts, and the interest earned should be considered business income. The Tribunal, however, followed the judgment of the Hon'ble Rajasthan High Court in CIT vs. Bhawal Synthetics (India), which held that interest earned on FDRs should be treated as income from other sources. Consequently, the Tribunal set aside the CIT (A)'s order on this issue and restored the AO's finding, allowing the Revenue's ground. 3. Treatment of Discount Income from Suppliers: The Revenue contested the CIT (A)'s direction to reduce discount income from the cost of material instead of treating it as other income. The assessee argued that discounts received from suppliers should reduce the cost of raw materials consumed in contract work. The Tribunal agreed with the assessee, stating that discounts are essentially reductions in the value of materials supplied and should be deducted from the cost of raw materials. The Tribunal found no infirmity in the CIT (A)'s order and affirmed it, rejecting the Revenue's ground. Cross Objections by the Assessee: The assessee's cross objections for both assessment years pertained to the confirmation of additions by applying NP rates of 11.5% and 11.75% instead of the declared NP rates of 10.78% and 11.52%, respectively. The Tribunal dismissed the cross objections, noting that the issue was already decided in the Revenue's appeal by affirming the CIT (A)'s order based on the past history and the decision of the Coordinate Bench for A.Y. 2007-08. Conclusion: The Tribunal partly allowed the Revenue's appeals by restoring the AO's finding on the treatment of interest income and upheld the CIT (A)'s decisions on the GP rate and discount income. The cross objections by the assessee were dismissed. The order was pronounced in the open court on 24.07.2017.
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