2024 (9) TMI 419 - AT - Income Tax

Addition due to income by way of interest on refund - income other sources OR business income - HELD THAT - Admittedly, in the return of income, relating to the Assessment Year 2017-18, the assessee firm depicted income against column No. 02(x) of Profit and Loss Account for the Financial Year 2016- 17. In the opinion of the AO and ld. CIT(A), said income was not an income from business of the assessee, and rather an income from other sources. The fact remains that the said income was shown under sub-column any other income of main column other income , so far as Profit and Loss Account for the Financial Year 2016-17 is concerned. DR for the department does not dispute this fact. No doubt, when interest is paid on the income tax refund amount, same is required to be reported under the head income from other sources. Here, interest was admittedly allowed u/s 244A of the Act and the assessee firm somehow treated and depicted the said amount as business income, instead of income from other source, but there cannot be said to be any loss to the exchequer, particularly, when the assessee is said to have paid tax on said income at the same rate, even though under a different heading. The appeal filed by the assessee challenging the impugned order as regards the addition due to income by way of interest on refund, deserves to be allowed, and the addition deserves to be deleted.

Summary

Issues:
Challenge to assessment order on additions/disallowances, treatment of interest on income tax refund as income from other sources, appeal against the order of Learned CIT(A) regarding the addition of interest on refund.

Analysis:

1. The appellant, a partnership firm, challenged the order dated 15.02.2024 passed by Learned CIT(A)/NFAC, Delhi for the A.Y 2017-18. The assessment order by the Assessing Officer computed the total income of the assessee, including additions/disallowances. Notably, two additions were deleted by the CIT(A), while the third addition related to interest on income tax refund was disputed.

2. The Assessing Officer observed that the assessee had received interest u/s 244A on the refund but reported a lower amount as income, leading to an addition of Rs. 15,66,620. The CIT(A) upheld that the interest income was from other sources but reduced the addition to Rs. 4,88,959, deleting the remaining amount.

3. The appellant's appeal was dismissed in part by the CIT(A) concerning the interest income on the refund, categorized as income from other sources rather than business income. The appellant contended that the addition of Rs. 4,88,959 was contrary to the law and should be set aside.

4. The department supported the reasons given by the Assessing Officer and CIT(A). The appellant had shown the interest income in the Profit and Loss Account under "any other income," which was not disputed by the department.

5. The Tribunal noted that while the interest on the tax refund should be reported as income from other sources, the appellant had paid tax on it at the same rate as business income. Therefore, there was no loss to the exchequer, and the addition was not justified.

6. Consequently, the Tribunal allowed the appeal, setting aside the addition of Rs. 4,88,959 categorized as income from other sources, as it should be treated as part of the business income. The order was pronounced on 15/07/2024.