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2018 (1) TMI 233 - AT - Income TaxRevision u/s 263 - Treating interest income under the head business income and setting of losses of earlier years - Held that - Tribunal considered the facts along with the treatment given in the assessment order and the observation made by the Ld. Commissioner. The Tribunal also considered the reply of the assessee with its basic objectives along with other facts and that too in the light of various judicial pronouncements including from Hon ble Apex Court and from Hon ble various High Courts and thereafter held that the interest income earned from fixed deposits with the bank and held that the Assessing Officer framed the assessment with application of mind. Commissioner of Income Tax (Appeal) directed the Assessing Officer to follow the order of the Tribunal in which, we find no infirmity. Thus, we find no merit in the appeal of the Revenue. Even otherwise, the subordinate authorities are expected to follow the directions of the high forum unless and until contrary facts are brought to the notice. We affirm the order of the Ld. Commissioner of Income Tax (Appeal), resulting into dismissal of appeal of the Revenue.
Issues Involved:
1. Classification of interest income from fixed deposits: 'Business Income' vs. 'Income from Other Sources'. 2. Validity of the order passed under Section 263 of the Income Tax Act, 1961. 3. Application of mind by the Assessing Officer (AO) during the assessment proceedings. 4. Authority of the Commissioner of Income Tax (CIT) to revise the AO's order under Section 263. Issue-wise Detailed Analysis: 1. Classification of Interest Income: The primary issue was whether the interest income earned from fixed deposits should be classified under 'Business Income' or 'Income from Other Sources'. The assessee argued that the interest income from fixed deposits, which were created from liquidated stock-in-trade (government securities and treasury bills), should be treated as 'Business Income'. The CIT, however, contended that this interest income should be assessed under 'Income from Other Sources' as it was derived from surplus funds. 2. Validity of the Order Passed Under Section 263: The CIT invoked Section 263, arguing that the AO's assessment order was erroneous and prejudicial to the interests of the Revenue because the AO did not properly examine whether the interest income from fixed deposits should be classified as 'Business Income' or 'Income from Other Sources'. The Tribunal, however, found that the AO had applied his mind and taken one of the possible views, which was a plausible view, and hence the order could not be considered erroneous or prejudicial to the Revenue. 3. Application of Mind by the AO: The Tribunal noted that the AO had issued a notice under Section 142(1) and received detailed replies from the assessee, including the audited balance sheet and tax audit report. The AO had considered the interest income from fixed deposits as part of the business income, which was a possible view. The Tribunal held that merely because the AO did not elaborate on this in the assessment order, it did not mean that the order was erroneous or prejudicial to the Revenue. 4. Authority of the CIT to Revise the AO's Order: The Tribunal emphasized that if two views are possible, the view that favors the taxpayer should prevail. It was established that the AO had taken a possible view, and it was impermissible for the CIT to substitute his view in the proceedings under Section 263. The Tribunal also noted that the CIT's reliance on various judicial decisions was distinguishable based on the facts of the case. Conclusion: The Tribunal concluded that the AO had applied his mind and taken a plausible view by treating the interest income from fixed deposits as 'Business Income'. The Tribunal found no infirmity in the order of the Commissioner of Income Tax (Appeal), who directed the AO to follow the Tribunal's earlier order. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the order of the Commissioner of Income Tax (Appeal). Final Decision: The appeal of the Revenue was dismissed, and the AO's assessment order dated 08th October 2010 was restored. The Tribunal's order was pronounced in the open court on 07/12/2017.
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