2023 (10) TMI 1266 - AT - Income Tax

Calculation of deduction u/s 36(1)(viii) - quantum of total revenue from the operations denominator - reduction of interest on income tax refund from numerator (i.e. business income) as well as denominator (i.e. total revenue from operations) while calculating deduction - HELD THAT - According to the assessee the amount of interest on income tax refund should be reduced from the total revenue from the operations also as same is not derived from the operations of the assessee bank. We agree with the arguments of assessee because interest on income-tax refund is not part of the business activity of the assessee and therefore, same cannot be form part of the total revenue from the operations also therefore, same should be excluded for the purpose of quantum of total revenue from the operations. We find that the Tribunal 2020 (4) TMI 13 - ITAT MUMBAI has also directed the Assessing Officer to exclude the interest on income tax refund both from the profits and gains of the business as well as total revenue from the operations. We accordingly set aside the finding of the lower authorities and direct the AO to reduce the quantum of interest of income-tax refund from the total revenue from operations and thereafter compute the deduction u/s 36(1)(viii) of the Act accordingly. The grounds of appeal of the assessee are accordingly allowed.

Summary

Issues:
The judgment involves issues related to the disallowance of deduction under section 36(1)(viii) of the Income Tax Act, 1961, specifically concerning the reduction of interest on income tax refund while calculating the deduction.

Issue 1: Disallowance of Deduction under Section 36(1)(viii)
The appeal was against the order confirming the disallowance of the claim for deduction under section 36(1)(viii) by a specific amount, with the contention that the assessing officer erred in not considering the facts and circumstances of the case. The case involved the allowance of deduction towards provisions for restructuring of asset written back and bad and doubtful debt written back, along with the issue of reducing interest on income tax refund while computing the deduction under section 36(1)(viii).

Details:
The assessment under section 143(3) of the Income-tax Act was completed, and subsequently, the Principal Commissioner of Income tax set aside the assessment order and directed a fresh assessment on specific issues. The assessing officer computed the deduction under section 36(1)(viii) by reducing the interest on income tax refund from the profits and gains of business. However, the appellant contested that the interest on income tax refund should be excluded from both profits and gains of business and total revenue from operations. The Commissioner upheld the assessing officer's view that the interest on income tax refund is part of the total revenue from operations.

Issue 2: Computation of Deduction under Section 36(1)(viii)
The dispute revolved around the correct computation of the deduction under section 36(1)(viii) concerning long-term finance. The disagreement was regarding whether the interest on income tax refund should be excluded from both the profits and gains of the business and the total revenue from operations.

Details:
The Tribunal directed the assessing officer to exclude the interest on income tax refund not only from the profits and gains of the business but also from the total revenue from operations. It was argued that since the interest on income tax refund is not derived from the operations of the assessee bank, it should be excluded from the total revenue from operations. The Tribunal agreed with this argument and directed the assessing officer to compute the deduction under section 36(1)(viii) accordingly, excluding the interest on income tax refund from the total revenue from operations.

Conclusion:
The appeal of the assessee was allowed, and the lower authorities' findings were set aside. The assessing officer was directed to reduce the quantum of interest on income tax refund from the total revenue from operations and compute the deduction under section 36(1)(viii) accordingly.