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2021 (10) TMI 107 - AT - Income TaxCharacterization of interest income - income from other sources or business income - Principle of consistency - HELD THAT - As per the principle of consistency the department in the absence of any change in the facts could not be permitted be take inconsistent stands. Our aforesaid view is fortified by the judgment of the Hon‟ble Supreme Court in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT - we are unable to persuade ourselves to subscribe to the view taken by the lower authorities that the interest income was liable to be brought to tax under the head Other sources‟. We, thus, set-aside the order of the CIT(A) and direct the A.O to assess the interest income under the head Profits and gains of business or profession . Disallowance of the Employee Benefit Expenses - in absence of the requisite details which would prove to the hilt that the expenses claimed by the assessee were incurred wholly and exclusively for the purpose of its business the A.O disallowed the same - HELD THAT - CIT-A had declined the assessee's claim for deduction of the aforesaid expenses, for the reason, that the same pertained to salaries that were paid to certain employees who were engaged in financial and marketing activities, which as were him was not the nature of business of the assessee company. At this stage, we may herein observe that as the assessee was apart from the business of rendering consultancy services and trading in cotton liner, foam insole and gel insole was also carrying on the business of finance, therefore, we are unable to persuade ourselves to subscribe to the view taken by the CIT(A) that the aforesaid employee benefit expenses could not be related to its business activities. We, thus, in the backdrop of our aforesaid deliberations vacate the disallowance of the assessee‟s claim for deduction of employee benefit expenses - we herein set-aside the order of the CIT(A) and vacate the disallowance of the employee benefit expenses. Disallowance of legal and professional fees - HELD THAT - As we have held that the interest income was rightly reflected by the assessee as its business income, therefore, its claim for deduction of the legal and professional fees incurred in respect of the said business activity was rightly claimed by it as a deduction. Accordingly, we set-aside the order of the CIT(A) and direct the A.O to allow the assessee‟s claim for deduction of legal and professional fees.
Issues Involved:
1. Re-characterization of Business Income as "Income from Other Sources". 2. Disallowance of Employee Benefit Expenses. 3. Disallowance of Legal and Professional Fees. 4. Calculation of Income Tax and Interest under Sections 234B and 234C. Detailed Analysis: 1. Re-characterization of Business Income as "Income from Other Sources": The primary issue was whether the interest income of ?97,48,764/- should be treated as "Income from Other Sources" or "Business Income". The Assessing Officer (A.O.) argued that since the assessee was neither a Non-Banking Financial Company (NBFC) nor a licensed money lender, the interest income should be taxed under "Other Sources". The assessee contended that it was engaged in the business of finance and consultancy, and had been consistently reporting interest income as business income in previous years, which was accepted by the department. The Tribunal found that the assessee was regularly engaged in a systematic and organized activity of lending money. Citing precedents from ITAT Mumbai and Bombay High Court, it was held that the absence of a money-lending license does not preclude the interest income from being assessed as business income. The principle of consistency was emphasized, noting that the department had accepted the interest income as business income in the preceding years. Thus, the Tribunal directed the A.O. to assess the interest income under "Profits and Gains of Business or Profession". 2. Disallowance of Employee Benefit Expenses: The A.O. disallowed the employee benefit expenses of ?10,71,000/- on the grounds that the assessee failed to substantiate that these expenses were incurred wholly and exclusively for business purposes. The CIT(A) upheld this disallowance, noting a significant increase in these expenses compared to the previous year and questioning the relevance of the employees' roles to the assessee's business. The Tribunal disagreed with the lower authorities, noting that the assessee had provided details such as names, assigned jobs, PAN numbers, and amounts paid to employees. It was observed that the employees were engaged in finance and marketing activities, which were part of the assessee's business. The Tribunal vacated the disallowance, directing the A.O. to allow the employee benefit expenses. 3. Disallowance of Legal and Professional Fees: The A.O. disallowed the legal and professional fees of ?5,84,745/- due to insufficient evidence that these expenses were incurred for business purposes. The CIT(A) upheld this disallowance, linking it to the interest income which was not recognized as business income. The Tribunal, having already determined that the interest income should be treated as business income, found that the legal and professional fees were rightly claimed as a business expense. The Tribunal set aside the CIT(A)'s order and directed the A.O. to allow the deduction for legal and professional fees. 4. Calculation of Income Tax and Interest under Sections 234B and 234C: The assessee requested directions to the A.O. for the calculation of income tax and interest under sections 234B and 234C. This ground was dismissed as general and not pressed. Conclusion: The appeal was allowed in favor of the assessee. The Tribunal directed the A.O. to: - Assess the interest income under "Profits and Gains of Business or Profession". - Allow the employee benefit expenses of ?10,71,000/-. - Allow the deduction for legal and professional fees of ?5,84,745/-. The general grounds of appeal were dismissed as not pressed.
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