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TMI Blog2020 (4) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... r by way of security towards performance of contract obligations. Following the ratio laid down in case of M/s Choudhary Brothers [ 2018 (10) TMI 1226 - RAJASTHAN HIGH COURT] obtaining and pledging the FDR for the purposes of obtaining bank guarantee for the purposes of its business, the assessee has thus established the necessary nexus with his business and interest earned from such FDRs cannot be treated as income from other sources and would rather be treated an income earned from business. - Decided in favour of assessee. - ITA. No. 322 And 323/JP/2018 - - - Dated:- 7-2-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Nikhilesh Kataria (C.A.) For the Revenue : Smt. Roonipal (JCIT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for government and semi-government Departments and also for private concerns. During the course of assessment proceedings, the Assessing Officer observed that the assessee has shown interest income of ₹ 16,16,898/- in M/s Navbharat Nirman Company and ₹ 2,61,550/- in M/s Ajay Bakliwal Associates which are two proprietorship concerns of the assessee and a show cause was issued to the assessee as to why the interest income may not be assessed under the head income from other sources . 5. In response, the assessee submitted that in the past assessment years where the matter was scrutinized by the Assessing Officer, the interest income on FDR was not considered U/s 56 of the Act and the interest expenditure on OD/cash credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor and therefore, the interest received by the assessee was brought to tax under the head income from other source U/s 56 of the Act. 6. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and the ld. CIT(A) has sustained the addition holding that it has never been held by the higher authority that the interest income is business income in the assessee case. It has also not been proved by the assessee that the deposits were intrinsically linked to earning the contract income. Against the said findings, the assessee is in appeal before us. 7. During the course of hearing, referring to the assessment years passed for A.Ys. 2010-11 to 2013-14, the ld. AR submitted that since last many years, the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank guarantee is of a certain percentage of the contract value which is to be submitted to the awarder of contract and such Bank Guarantee are mostly given as performance security without which the contract cannot be awarded to the assessee. It is also notable that in case of contract business, this is a very regular feature whereby Bank Guarantees are made and released after sometime. It is notable that these Bank Guarantees are issued by the Bank on the basis of pledging of FDRs by the assessee and therefore, for this purpose only, the FDRs are made which works as lien for the issuance of Bank Guarantees by the Bank and in support, various letters issued by the awarder of the contract for submission of performance security was placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee or inability to keep them alive would have resulted in termination of the contract awarded to him and in that event, the concerned departments/employer could encash the security. Release of such performance guarantee is dependent on fulfillment of certain conditions. It is not that the appellant had invested surplus money lying idle with him only in FDRs/NSCs with a view to earning interest. Obtaining of FDRs/NSCs and furnishing of the same against the performance guarantee by the appellant, therefore, had an inextricable nexus with his business of securing civil contracts and integral to his working as civil contractor. The income of interest earned from the interest such FDRs/NSCs by the appellant therefore, in our consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld AR and the ground of appeal is allowed. 10. In the result, the appeal of the assessee is partly allowed. ITA No. 322/JP/2018 11. In ITA No. 322/JP/2018 for A.Y 2011-12, both the parties fairly submitted that facts and circumstances of the case are exactly identical and thus, similar contentions have been advanced by them. Therefore, following our findings and directions in ITA No. 323/JP/2018, interest earned from such FDRs cannot be treated as income from other sources and would rather be treated an income earned from business and ground no. 2 of assessee s appeal is allowed. 12. In ground No. 1, the assessee has challenged the reopening of the proceedings by issuance of notice U/s 148 of the Act. In view of our finding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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