2019 (8) TMI 648 - AT - Income Tax

Income from discontinued business - Correct head of income - income of interest received on advances - Income from other sources or business income - HELD THAT - In view of the provision of Sec. 176(3A) it is clear that the interest income on advances is to be assesseed as business income and the lower authority has failed to consider the provision of Sec. 176(3A) which deal with the income from discontinued of business. Accordingly, the aforesaid income is to be assesseed as income from business and profession considering the provisions of Sec. 176(3A) of the Act. - decided in favour of assessee. Disallowing the claim of bad debts u/s 36(2) - fixed deposit made with Sarvoday Co-operative Bank who was now under liquidation - HELD THAT - CIT(A) has given specific finding that assessee has not demonstrated with relevant details that aforesaid deposit was made in the ordinary course of the business and the income earned from such deposit was shown in the preceding year in its total income. With the assistance of the Ld. Representative we have gone through the material on record and observed that assessee has not demonstrated with any supporting evidences that it had shown any income earned from such deposit in the preceding years. In order to facilitate to adjudicate the impugned issue on merit we consider it appropriate to restore this issue to the file of the Ld. CIT(A) for adjudicating afresh after examination and verification of the relevant supporting detail to be furnished by the assessee. - Decided in favour of assessee for statistical purpose.

Summary

Issues:
1. Classification of interest received on advances as income from other sources.
2. Disallowance of bad debts claimed by the assessee.
3. Interpretation of Sec. 176(3A) of the Income Tax Act.

Issue 1: Classification of Interest Received on Advances:
The assessee had filed a return of income declaring total income at Rs. NIL for A.Y. 2014-15. The Assessing Officer treated interest received on advances as income from other sources, contrary to the assessee's claim of it being business income. The assessee argued that the interest income pertained to amounts received from a borrower against its outstanding balance, invoking Sec. 176(3A) of the Act. The ITAT found that the lower authorities failed to consider Sec. 176(3A), which deems income received after business discontinuance as business income. Consequently, the interest income on advances was deemed as income from business and profession. The ITAT allowed the appeal on this issue.

Issue 2: Disallowance of Bad Debts Claimed:
During assessment, the AO noted an investment written off of Rs. 1,35,00,000 by the assessee, related to a fixed deposit with a cooperative bank under liquidation. The AO questioned the justification for writing off the investment, as the banking license of the assessee had been canceled. The CIT(A) upheld the AO's decision. The ITAT observed that the assessee had not provided sufficient evidence to show that the investment was made in the ordinary course of business and that income from it was included in previous years' total income. Citing provisions of Sec. 36(2) of the Act, the ITAT decided to remand the issue back to the CIT(A) for further examination and verification of relevant details furnished by the assessee. The ground of appeal was allowed for statistical purposes.

Issue 3: Interpretation of Sec. 176(3A) of the Act:
Sec. 176(3A) of the Act was crucial in determining the treatment of income received after business discontinuance. The ITAT emphasized the importance of considering this provision to classify income correctly, especially in cases where business activities had ceased. By invoking Sec. 176(3A), the ITAT clarified that income from advances should be treated as business income, aligning with the legislative intent behind the provision. The ITAT's decision highlighted the significance of statutory provisions in determining the tax treatment of specific income sources.

This judgment by the Appellate Tribunal ITAT Ahmedabad addressed key issues related to the classification of income, treatment of bad debts, and interpretation of statutory provisions. The detailed analysis provided insights into the legal reasoning behind the decisions, emphasizing the importance of statutory compliance and evidence-based submissions in tax assessments.