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2015 (10) TMI 378 - AT - Income TaxDisallowance u/s 40b(v)(2) - remuneration to partners was determined as per the book profit shown in profit and loss account including interest from bank FDRs and income from other sources - Held that - It is fact that interest on FDRs comes under the head income from other sources and never has been part of book profit as the income computed in Chapter IV-D except that the assessee is in money lending business, interest income has not been made part of item of income taken U/s. 28 of the Act. Following decision of this Bench in case of S.P. Equipments (2009 (9) TMI 637 - ITAT JAIPUR-A ), we direct the Assessing Officer to compute the book profit including interest income on FDRs etc. as claimed. The impugned disallowance made U/s 40(b) of the Act is directed to be deleted. Hence this ground is decided in favour of the assessee.
Issues:
- Appeal against deletion of disallowance under Section 40b(v)(2) of the Income Tax Act, 1961. Analysis: 1. The Revenue filed an appeal against the deletion of a disallowance of Rs. 2,30,00,796 under Section 40b(v)(2) of the Income Tax Act, 1961 for the Assessment Year 2008-09. The Assessing Officer noted that the assessee firm had shown interest from bank FDRs and others totaling Rs. 5,87,58,434, and claimed remuneration to partners amounting to Rs. 7,68,45,920 based on the book profit. The Assessing Officer treated the income from bank FDRs as business income, leading to the claim of excess remuneration by the assessee, which was disallowed. This decision was based on past assessments and legal precedents. 2. The CIT(A) allowed the appeal by observing that the interest income from bank FDRs and other sources should be treated as income from other sources, not part of the business income. The Hon'ble ITAT directed the Assessing Officer to compute the book profit including the interest income on FDRs as claimed, resulting in the deletion of the disallowance under Section 40(b) of the Act. 3. The Revenue contended that interest on FDRs does not constitute business income as defined in Section 40b(v)(1) of the Act. The Departmental Representative argued that interest income was not considered in computing the profit and gain of business as per Chapter IV-D of the Act. The Revenue requested to reverse the CIT(A)'s order and uphold the Assessing Officer's decision. 4. The assessee's representative argued that the issue had been decided in favor of the assessee in previous years and cited relevant legal precedents. The Coordinate Bench's decision in the assessee's own case for A.Y. 2005-06 supported the assessee's position. The representative prayed for confirming the CIT(A)'s order. 5. The ITAT, after considering the arguments from both parties and the available material, upheld the decision of the Coordinate Bench. It was established that interest on FDRs falls under "income from other sources" and is not part of the book profit as per Chapter IV-D. Following the precedent set by the Coordinate Bench, the ITAT dismissed the Revenue's appeal and confirmed the deletion of the disallowance under Section 40(b) of the Act. 6. Ultimately, the ITAT pronounced the order, dismissing the Revenue's appeal on 28.8.2014, based on the established legal principles and precedents cited during the proceedings.
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