2020 (7) TMI 596 - AT - Income Tax

Interest income on FDR s - FDR's pledged for security purposes in obtaining the contract business - whether business income or income from other sources? - HELD THAT - Undisputedly, the documents now admitted are required to be examined by the Tribunal or by the lower authorities. Since the documents are running into more than 64 pages and we have heard the matter on virtual platform, therefore, the detailed examination of the documents at the stage of Tribunal is not possible. Hence, considering the limitations, we deem it appropriate to remand the matters to the file of CIT(A), pertaining to the issue involved with the direction to examine these documents (1 to 64) filed on 11.07.2019 before the Tribunal in both the appeals , in accordance with law and to find out whether the interest earned by the assessee on FDRs was intrinsically related to the business of the assessee or not. If it is found on examination that the interest income is related to the business of the assessee, the same may be considered as business income and accordingly the income of the assessee is computed by applying the NP rate. CIT(A) is duty bound to grant personal hearing and opportunity to the assessee as well as Assessing Officer, from whom CIT(A) may also seek remand report from Assessing Officer, if required. The ld. CIT(A) shall also consider various decisions relied upon by the assessee including the decision of Tribunal in the assessee s case for earlier years. Computation of taxable income - HELD THAT - We direct the Assessing Officer to compute the taxable income of the assessee after giving benefit of interest to partners ,remuneration to the partners and depreciation. The taxable income of the assessee would be subject to outcome on the issue of interest on FDRs. NP rate @ 8% - HELD THAT - In the present case, the assessee relied upon his own cases for the subsequent years .Though found that the assessee has not challenged the NP rate of 8% applied for assessment year 2012-13 and 2013-14 in which the turnover of the assessee was 17.17 crores and 22 crore respectively, whereas the turnover in the present year was 19.27 crores. However considering the peculiar facts and circumstance of the case we restrict the net profit rate to 7.75% instead of 8% as held by the lower authorities. In the result the relevant ground of appeal of assessee is, accordingly, partly allowed.

Summary

Issues involved:
1. Treatment of interest income on FDRs as business income or income from other sources.
2. Allowance of depreciation.
3. Net profit rate applied by the Assessing Officer for the assessment year 2014-15.

Issue 1: Treatment of interest income on FDRs:
The appeals raised concerns regarding the classification of interest income on FDRs as business income or income from other sources. The Appellate Tribunal admitted additional evidence, including FDRs and bank guarantees, to support the claim that the interest income was related to the business activities of the assessee. The Tribunal directed the CIT(A) to examine these documents and determine whether the interest income was intrinsically linked to the business, emphasizing the need for a thorough evaluation. The Tribunal highlighted the importance of assessing the connection between the interest income and the business operations before categorizing it as business income.

Issue 2: Allowance of depreciation:
The appeals also addressed the allowance of depreciation claimed by the assessee. The Tribunal referred to a Supreme Court decision in favor of the assessee regarding the allowance of depreciation. It directed the Assessing Officer to compute the taxable income after considering depreciation, interest to partners, and remuneration to partners. The Tribunal emphasized the need to give clarity on the treatment of depreciation and instructed the Assessing Officer to calculate the taxable income accordingly. The Tribunal allowed the grounds related to the allowance of depreciation for the assessment year 2012-13.

Issue 3: Net profit rate for the assessment year 2014-15:
Regarding the net profit rate applied by the Assessing Officer for the assessment year 2014-15, the Tribunal considered the arguments presented by both parties. The assessee contended that the 8% net profit rate was excessive, citing turnover figures and requesting a reduction to 7%. The Tribunal acknowledged the assessee's previous acceptance of the 8% net profit rate but decided to adjust it to 7.75% for the current assessment year. The Tribunal emphasized the need to maintain parity and considered the peculiar facts and circumstances of the case before partially allowing the appeal on this ground.

In conclusion, the Appellate Tribunal's judgment addressed the issues of interest income on FDRs, allowance of depreciation, and the net profit rate for the assessment year 2014-15. The Tribunal admitted additional evidence for the interest income issue, directed a detailed examination by the CIT(A), instructed the computation of taxable income considering depreciation, and adjusted the net profit rate for the relevant assessment year. The appeals were partly allowed for statistical purposes, with the Tribunal providing detailed reasoning and instructions for further proceedings.