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TMI Blog2017 (1) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income were business funds. May be the fund are utilized out of business funds for earning the interest income but that itself would not make the interest income as income from business. The perusal of details of interest income reflects the assessee to have the received interest on Union Bank FDRs of ₹ 3,92,936/-. Further interest received on Union Bank Flex A/c is ₹ 47,048/- and interest on Saving Bank Account was ₹ 378/- and interest on Income Tax Refund was ₹ 2,180/-. In addition the assessee had received interest on advances made to different parties for earning interest. The nature of the interest income received by the assessee clearly establishes that the same is to be assessed under the head “income from other sources”. Where the Assessing Officer in the assessment order has rejected the claim of the assessee and observed that the income declared by the assessee also includes income from other sources of ₹ 11,92,477/-, which has been so assessed by the CIT(A), the claim of the assessee that it is a new source of income is incorrect. The said fact was noted by the Assessing Officer and has been assessed by the CIT(A) does not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating the interest income as income from other sources as against business income claimed by the appellant. The funds utilized for earning interest income are business funds and therefore the same has to be assessed as business income especially in view of the fact that on identical facts in the past the same was accepted as business income. 3. The learned CIT(A) erred in law and on facts in confirming disallowance of ₹ 2,79,161/- u/s 40A(3) without appreciating that the appellant was covered under the provisions of 44AF and no separate disallowance could be made. 4. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing. 3. The issue raised vide ground of appeal No. 1 is against the order of CIT(A) in making an addition of ₹ 11,92,477/- on account of interest income. The assessee is aggrieved by the order of CIT(A) claiming it to be enhancement by assessing a new source of income. Vide ground of appeal No. 2, the assessee has raised the issue on merits. 4. Briefly, in the facts of the case, the assessee was engaged in the business of trading in readymade cloths and clothing material and allied items o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The CIT(A) first addressed the issue raised by the assessee against the order of Assessing Officer in denying application of provisions of section 44AF of the Act. Vide para 5 of the appellate order, the CIT(A) held that on sales of ₹ 37,21,126/-, where the total turnover was less than ₹ 40 lakhs, the income was to be assessed under section 44AF of the Act. He further observed that no further deduction was to be allowed under those sections. The Assessing Officer was directed to compute the business income @ 5% of the turnover i.e. ₹ 37,21,126/-. The second ground raised by the assessee was against the disallowance made under section 40A(2)(a) of the Act which was deleted by the CIT(A). 7. The third issue raised by the assessee before CIT(A) was against the disallowance made under section 40A(3) of the Act. The CIT(A) was of the view that where the opening words in section 44AF of the Act are notwithstanding anything to the contrary contained in section 28 to 43C , and where the provisions of section 40A(3) of the Act start with opening words that the provisions of section shall have effect notwithstanding anything to the contrary contained in any other prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income under the provisions of section 44AF of the Act, wherein the income was declared to be less than ₹ 40 lakhs and as against rate of 5% provided under the section, the assessee had declared the income 11.15%. She further submitted that where the income is assessed in the hands of the assessee under section 44AF of the Act, then no further disallowance is to be made under section 40A(3) of the Act. She further vehemently stressed that the assessment of interest income in the hands of the assessee at ₹ 11,92,477/- as income from other sources was a new source of income by the CIT(A) and the said enhancement was not warranted. In this regard reliance was placed on the ratio laid down by the Pune Bench of the Tribunal in M/s. Vijay Builders Vs. The Income Tax Officer in ITA No. 863/PN/2013, relating to assessment year 2008-09, order dated 25-02-2015. 10. The learned Departmental Representative for the Revenue pointed out that the Assessing Officer had held that the provisions of section 44AF of the Act are not to be applied where the assessee had declared a loss. He had further observed the perusal of profit and loss account would show that the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration were ₹ 37,21,126/- on which the assessee declared gross profit of ₹ 5,95,386/-. Further, it had declared interest income as under : i. Interest Received (Lalwani Bros.) ₹ 4,43,323.00 ii. Interest Received (Pragati) ₹ 1,97,028.00 iii. Interest Received on Income Tax Refund ₹ 2,180.00 iv. Interest Received on Union Bank FDR ₹ 3,92,936.00 v. Interest Received (Sanjaykumar Shivchand) ₹ 1,09,085.00 vi. Interest Received S/B Account ₹ 378.00 vii. Interest Received (Union Bank Flexi) ₹ 47,048.00 13. As against the same the assessee incurred expenditure under different heads including interest expenditure of ₹ 8,35,168/- and the net profit was worked out at ₹ 4,15,016/-. The said figure has been declared by the assessee as profit unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 44AF of the Act are attracted where the total turnover is less than ₹ 40 lakhs. In case the assessee claims that the interest income received by him was income from business, then the total receipts from business would exceed ₹ 40 lakhs i.e. sales of ₹ 37,21,126/- and business/interest income of ₹ 11,92,477/-, then the provisions of section 44AF would not apply. In any case the CIT(A) has held that the turnover is less than ₹ 40 lakhs i.e. only sales of ₹ 37,21,126/- is to be taken as total turnover for the year on which the business income is to be computed @5%. Once, the said order of CIT(A) has been accepted by the assessee, it cannot now claim that the business receipts for application under section 44AF of the Act would also include the interest income, where the funds utilized for earning interest income were business funds. May be the fund are utilized out of business funds for earning the interest income but that itself would not make the interest income as income from business. The perusal of details of interest income reflects the assessee to have the received interest on Union Bank FDRs of ₹ 3,92,936/-. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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