2018 (2) TMI 1459 - AT - Income Tax

Disallowance of excess claim of remuneration to the partners claimed - nature of income - interest on FDR - Held that - There is not dispute that the business of the assessee dealing in food grains, oil seeds and pulses etc is a seasonal business depending upon crop seasons. Therefore, during the non harvesting season the assessee is not having much business activity and accordingly the funds which are otherwise required for the business activity has to be kept in the bank. Further, it is also not disputed by the AO that some of the FDRs were taken by the assessee to avail overdraft facility from the Bank for the purpose of business activity during the pick season of crops. Thus, the funds which could not be utilized during the slack season and therefore was not immediately needed were kept in bank deposits including FDR - the interest on the FDR has direct nexus with the business activity of the assessee. As relying on case of CIT vs. Lok Holding 2008 (1) TMI 365 - BOMBAY HIGH COURT CIT-A as not erred deleting the disallowance - Decided against revenue

Summary

Issues: Disallowance of excess claim of remuneration to partners based on interest income from FDRs

Detailed Analysis:
1. The Revenue challenged the deletion of disallowance made by the AO regarding excess claim of remuneration to partners due to interest income from FDRs.
2. The AO contended that interest from FDRs is not business income, leading to excess remuneration to partners, resulting in a disallowance of ?1,37,629.
3. The assessee argued that the business, dealing in food grains, oil seeds, and pulses, is seasonal, necessitating funds to be parked in FDRs during slack seasons and for availing overdraft facilities.
4. The ld. CIT(A) allowed the claim, citing the business nature of the interest earned on FDRs for overdraft facilities.
5. The Tribunal considered the seasonal nature of the business, the purpose of FDRs, and the direct nexus of interest income with business activities.
6. Referring to the Bombay High Court judgment in CIT vs. Lok Holding, the Tribunal upheld the deletion of the disallowance, emphasizing the business-related nature of the interest income from FDRs.
7. The Tribunal differentiated this case from others, emphasizing the utilization of interest income for business purposes, in line with precedents like CIT v. Paramount Premises (P.) Ltd. and CIT v. Bokaro Steel Ltd.
8. Considering the facts and precedents, the Tribunal found no error in the ld. CIT(A)'s decision, dismissing the Revenue's appeal.

This comprehensive analysis highlights the grounds, arguments, and judicial reasoning leading to the dismissal of the Revenue's appeal regarding the disallowance of excess remuneration claim based on interest income from FDRs.