2018 (9) TMI 237 - AT - Income Tax

Addition of interest income on FDs u/s.56 - Held that - As decided in assessee s own case 2018 (2) TMI 1152 - ITAT CUTTACK the interest on fixed deposits are not taxable under income from other sources and, accordingly, we uphold the findings of the CIT(A) and dismiss the ground of appeal taken by the revenue for both the assessment years. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition of interest income by CIT(A) for the assessment years 2011-2012 and 2013-2014.
2. Confirmation of penalty under Section 271(1)(b) of the Income Tax Act for the assessment year 2012-2013.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Interest Income by CIT(A):
The Revenue appealed against the CIT(A)'s decision to delete the addition of interest income of ?1,14,46,578/- for the assessment year 2011-2012 and ?24,60,63,081/- for the assessment year 2013-2014, which was initially taxed under Section 56 of the Income Tax Act by the Assessing Officer (AO). The AO had referred to various judicial pronouncements and observed that the inextricable link with the process of setting up the project with deposits in banks was not explained by the assessee. The AO followed the Supreme Court decision in Tuticorin Alkali, 227 ITR 172 (SC), and taxed the interest income under Section 56.

On appeal, the CIT(A) followed the Tribunal's decision in the assessee's own case for the assessment year 2008-09, where it was held that the interest income on Fixed Deposits (FDs) cannot be taxed as it is a capital receipt. The CIT(A) also noted that in the assessment year 2009-2010, the CIT(A)-II had deleted the addition on account of interest on FDs following the Tribunal's order. Consequently, the CIT(A) deleted the AO's addition for both assessment years under appeal.

The Tribunal, upon hearing the submissions of the Departmental Representative (DR) and perusing the lower authorities' orders, found that the issue had already been decided in the assessee's favor in previous assessment years (ITA Nos. 155 & 122/CTK/2017, order dated 15.02.2018). The Tribunal noted that the interest earned on funds brought for infusion in the business could not be classified as 'income from other sources' since the income was earned before the commencement of business and was in the nature of a capital receipt, required to be set off against pre-operative expenses. The Tribunal upheld the CIT(A)'s findings and dismissed the Revenue's appeals.

2. Confirmation of Penalty under Section 271(1)(b):
The assessee appealed against the CIT(A)'s order confirming the penalty under Section 271(1)(b) of the Income Tax Act for the assessment year 2012-2013. The penalty was levied by the AO for non-compliance with a statutory notice of hearing.

The Tribunal noted that the assessment for the year 2012-2013 was made under Section 143(3) of the Act, which was not disputed. Given that the assessment order was passed under Section 143(3), the Tribunal found that the penalty under Section 271(1)(b) could not be sustained. Consequently, the Tribunal directed the AO to delete the penalty and allowed the assessee's appeal.

Conclusion:
The appeals filed by the Revenue (ITA Nos. 403 & 344/CTK/2017) and the cross objections by the assessee (CONos. 19 & 20/CTK/2018) were dismissed, while the appeal of the assessee (ITA No. 401/CTK/2017) was allowed. The order was pronounced in the open court on 27/07/2018.