2024 (7) TMI 1487 - AT - Income Tax

Correct head of income - interest income on Inter Corporate Deposits (ICD) and Fixed Deposits (FD) - income of the assessee under the head Profits Gains of Business or Profession OR Income from Other Sources - HELD THAT - The assessee is engaged in the business of leasing financing. To substantiate nature of business carried out by the assessee, the assessee has placed on record copy of Memorandum of Association (MOA). A perusal of main objects of MOA shows that one of the main objects of the assessee is to carry business of leasing financing. In the impugned assessment year AO has changed the head of income from profits gains from business profession to income from other sources. Primary reason for changing head of income by the AO is, that the assessee is not a registered non banking finance company. The findings of the AO have been upheld by the CIT(A). We do not find merit in the reasons for changing head of income. The object clause of Memorandum of Association clearly defines the objects of the company for which it is incorporated and the business it intends to carry. Merely, for reason that the company is not a registered NBFC cannot be reason for changing the head of income. It is an admitted fact that in preceding assessment year and succeeding assessment year the Department has accepted interest income as Business Income of the assessee. The assessee has been consistently showing interest income as business income. The rule of consistency demands that the nature of assessee s income should not be disturbed in one of the intervening assessment years when in the past and in the subsequent assessment years, the Revenue has already accepted the nature of income as Business Income. Thus, in the light of above observations, the ground no. 1 of appeal is allowed. Disallowance claimed as business expenditure - disallowance of amortized preliminary expenses - AO disallowed assessee s claim of amortization of expenses in the impugned assessment year only - HELD THAT - In the subsequent assessment years the Department has again accepted amortization of expenditure. We find no valid reason for disallowing amortization of expenditure in the impugned assessment year when the same has been allowed in the preceding and succeeding assessment years. The AO is directed to allow amortization of preliminary expenses in the impugned assessment year as well. Ground of appeal is thus allowed pro tanto.

Summary

Issues Involved:
1. Disallowance of interest income on Inter Corporate Deposits (ICD) and Fixed Deposits (FD) as business income.
2. Disallowance of claimed business expenditure, specifically amortized preliminary expenses.

Analysis:

Issue 1: Disallowance of interest income on ICD and FD as business income
The primary issue in this appeal was the change of head of income by the Assessing Officer (AO) from 'Business Income' to 'Income from Other Sources' regarding the interest income earned by the assessee on Inter Corporate Deposits (ICD) and Fixed Deposits (FD). The assessee, engaged in leasing and finance, consistently treated this interest income as business income and offered it for taxation under the head 'Revenue from operations'. The appellant contended that the Department had accepted this treatment in previous and subsequent assessment years, except for the impugned assessment year. The appellant provided evidence, including the Memorandum of Association (MOA), to support the nature of business carried out. The Tribunal observed that the change in the head of income was not justified solely based on the appellant not being a registered Non-Banking Finance Company (NBFC). The rule of consistency was applied, emphasizing that the nature of income should not be disturbed when consistently treated as business income. Consequently, the Tribunal allowed the appeal on this ground.

Issue 2: Disallowance of claimed business expenditure
The second ground of appeal related to the disallowance of Rs. 31,12,392/- claimed as business expenditure, specifically amortized preliminary expenses. The appellant had amortized certain expenses over a period, and the AO disallowed the claim in the impugned assessment year only, despite allowing it in preceding and succeeding years. The Tribunal found no valid reason for this disallowance and directed the AO to allow the amortization of preliminary expenses in the impugned assessment year as well. Consequently, this ground of appeal was allowed pro tanto, resulting in the partial allowance of the appellant's appeal.

In conclusion, the Tribunal partly allowed the appeal of the assessee, overturning the disallowance of interest income on ICD and FD as business income and directing the allowance of claimed business expenditure related to amortized preliminary expenses.