2023 (5) TMI 416 - AT - Income Tax

Deduction u/s 80IA - Income derived on FDRs - According to the AO this interest on FDRs is not in the nature of profit and gain from business and it has to be assessed to tax as income from other sources. HELD THAT - As respectfully following the decision in the case of CIT vs. Jagdishprasad M. Joshi 2008 (11) TMI 326 - BOMBAY HIGH COURT , CIT vs. Eltek Sgs (P) Ltd. 2008 (2) TMI 17 - DELHI HIGH COURT and M/s. Tema Exchangers Manufactures Pvt. Ltd. 2018 (7) TMI 1627 - BOMBAY HIGH COURT hold that interest earned by the assessee on the FDRs is an allowable deduction under section 80-IA of the Act. Ground No. 3 of the appeal is accordingly allowed. Disallowance of expenditure u/s 37 and 40(a)(ia) - submission on assessee that insofar as the property tax is concerned, the assessee is filing the property tax receipts for the relevant assessment year and submitted now, whereas the proof of remittance of TDS by way of challan - HELD THAT - We admit the additional evidence in the shape of property tax receipts. In view of the fact that the relevant material is now available on record in respect of the property tax and also the TDS, it would be just and proper, AO to verify the same and take a view. With this view of the matter, restore the issue relating to disallowance under section 37 and 40(a)(ia) to the file of the learned AO to verify the material and take a view. Grounds are accordingly treated as allowed for statistical purposes.

Summary

Issues involved:
The judgment involves issues related to interest income on Fixed Deposit Receipts (FDRs), disallowance of expenditure under section 37 of the Income Tax Act, and disallowance under section 40(a)(ia) of the Act.

Interest on FDRs:
The assessee, engaged in the business of power generation and sale, earned interest income on FDRs during the relevant financial year. The Assessing Officer categorized this interest as 'income from other sources' instead of business income. The CIT(A) upheld this categorization, stating lack of material to interfere with the AO's decision. The AR argued citing precedents that interest on FDRs in a bank should be considered as profits derived from any business of an industrial undertaking. The Bombay High Court's decisions supported this argument, emphasizing the distinction between 'profits and gains derived from an industrial undertaking' and 'profits and gains derived from any business of the industrial undertaking.' Following these precedents, the interest income on FDRs was allowed as a deduction under section 80-IA of the Act.

Disallowance of Expenditure under Section 37 and 40(a)(ia):
The appeal also addressed the disallowance of expenditure under sections 37 and 40(a)(ia) of the Act. The assessee submitted property tax receipts and proof of TDS remittance before the CIT(A), which were not considered in the impugned order. The Tribunal admitted additional evidence of property tax receipts and directed the Assessing Officer to verify the material and take a view on the disallowance issues under sections 37 and 40(a)(ia). The grounds were treated as allowed for statistical purposes, and the appeal was partly allowed.

Conclusion:
The judgment addressed the classification of interest income on FDRs, ruling in favor of the assessee based on precedents establishing such income as business profits. It also dealt with the disallowance of expenditure under sections 37 and 40(a)(ia), directing verification of submitted material by the Assessing Officer. The appeal was partly allowed, with the issues remanded for further assessment.