M/s Electric Investment & Enterprises, Siliguri V. THE DCIT, CIR-1, SILIGURI, Siliguri

ITA 1254/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1625 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 06-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYAJIT MONDAL
• Keywords: Business income
• Section: 143(3); 28; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BE NCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM ] I.T.A NO. 1254/KOL/20 15 ASSESSMENT YEAR : 2010-1 1 M/S ELECTRIC INVESTMENT & ENTERPRISES -VS.- D.C.I.T., CIRCLE-1, SILIGURI SILIGURI [PAN : AAAFE 7115 Q] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SUNIL S URANA, ADVOCATE FOR THE RESPONDENT : SHRI SATYAJIT MONDAL, ADDL. CIT DATE OF HEARING : 30.01.2018. DATE OF PRONOUNCEMENT : 02.02.2018. ORDER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 07.08.2015 OF CIT(A)- SILIGURI RELATING TO A.Y.2010-11. 2. THE ASSESSEE IS A PARTNERSHIP FIRM. THE ASSESSE E FILED RETURN OF INCOME FOR A.Y.2010-11 DECLARING TOTAL INCOME OF RS.16,30,840/ -. THE ENTIRE TOTAL INCOME DECLARED BY THE ASSESSEE COMPRISED OF INCOME UNDER THE HEAD INCOME FROM BUSINESS OF RS.16,30,840/-. THE ASSESSEE ALSO INCLUDED INTEREST INCOME OF RS.3,06,368/- AS PART OF ITS INCOME FROM BUSINESS. AN ORDER OF ASSESSMENT U/ S 143(3) OF THE INCOME TAX ACT, 1961 (ACT) DATED 14.02.2013 WAS PASSED BY THE AO AC CEPTING THE TOTAL INCOME RETURNED BY THE ASSESSEE. 3. THEREAFTER THE AO ISSUED A NOTICE DATED 16.10.2 014 U/S 154 OF THE ACT. ACCORDING TO THE AO THE INTEREST INCOME OF RS.3,06, 368/- OUGHT TO HAVE BEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . ACCORD ING TO THE AO IF THE AFORESAID INTEREST INCOME IS EXCLUDED FROM THE INCOME UNDER THE HEAD INCOME FROM BUSINESS THEN THE SALARY AND REMUNERATION THAT COULD BE ALL OWED TO THE PARTNERS U/S 40(B) R.W. 2 ITA NO.1254/KOL/2015 M/S ELECTRIC INVESTMENT & ENTERPRISES A.YR.2010-11 2 EXPLANATION 3 OF THE ACT WOULD BE AT A LESSER FIGU RE WHICH WOULD RESULT IN AN INCREASE IN TOTAL INCOME OF THE ASSESSEE. THE AO ACCORDINGLY PROPOSED TO RECTIFY THE ORDER OF ASSESSMENT U/S 143(3) OF THE ACT. 4. IN REPLY TO THE SHOW CAUSE NOTICE U/S 154 OF THE ACT THE ASSESSEE POINTED OUT THAT THE INTEREST INCOME IN QUESTION WAS EARNED ON DEPO SIT OF RS.22.40 LAKHS WHICH WAS OFFERED AS SECURITY TO THE GOVERNMENT DEPARTMENT AS PERFORMANCE GUARANTEE MONEY/EARNEST MONEY. THEREFORE THE INTEREST EARNED ON SUCH DEPOSIT HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE VIZ. EXECUTION OF ELECTRICAL CONTRACT JOB AND THEREFORE SUCH INTEREST INCOME HAS TO BE REGARDED AS BUSINESS INCOME. THE ASSESSEE ALSO POINTED OUT THAT ANOTHER SUM OF RS.14.77 LAKHS WAS KEPT AS DEPOSIT WITH THE BANK AND THAT DEPOSIT WAS OFFERED AS SECURITY FOR THE BANK LOAN AVAILED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. INTEREST W AS ALSO EARNED ON LOAN GIVEN TO THE PARTNERS AND SINCE LOAN WAS GIVEN OUT OF THE CAPITA L THE SAID INTEREST WAS ALSO TO BE REGARDED AS BUSINESS INCOME. 5. THE AO HOWEVER WAS NOT CONVINCED WITH THE AFORES AID EXPLANATION OFFERED BY THE ASSESSEE. HE WAS OF THE VIEW THAT INTEREST INCO ME HAD TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND CONSEQUENTLY THERE WOULD BE A REDUCTION IN THE BOOK PROFITS FOR THE PURPOSE OF ALLOWING REMUNERATION TO THE PARTNERS. THE AO ACCORDINGLY WORKED OUT THE TOTAL INCOME OF THE ASSESSE AS FOLLO WS :- IN VIEW OF THE ABOVE DISCUSSION THE ASSESSEES EXP LANATION IS NOT ACCEPTABLE AND THEREFORE, THE BOOK PROFIT OF THE FIRM SHOULD BE CA LCULATED OUT OF BUSINESS PROFITS ONLY AND NOT BY INCLUDING THE INTEREST INCOME. ACCO RDINGLY, THE BOOK PROFIT AND REMUNERATION ALLOWABLE U/S 40(B) OF THE INCOME TAX ACT IS WORKED OUT HEREUNDER : CALCULATION OF BOOK PROFIT AS PER SEC.40(B): NET PROFIT AS PER P/L ACCOUNT EXCLUDING REMUNERATI ON : RS.43,02,095/- LESS : INCOME NOT CHARGEABLE U/S 28 I.E. AGGREGATE AMOUNT OF INTEREST INCOME : RS. 3,06, 368/- BOOK PROFIT : RS.39,95,727/- 3 ITA NO.1254/KOL/2015 M/S ELECTRIC INVESTMENT & ENTERPRISES A.YR.2010-11 3 CALCULATION OF ALLOWABLE REMUNERATION : ON 1 ST 3 LAKHS @ 90% : RS. 2,70,000/- ON BALANCE RS.36,95,727/- @ 60% RS.22,17,436/- REMUNERATION ALLOWABLE U/S 40(B) RS.24,87,436/- FROM THE ABOVE WORKING, IT IS SEEN THAT THE REMUNER ATION ALLOWABLE U/S 40(B) OF THE I.T. ACT COMES TO RS.24,87,436/- AS AGAINST RS.26,7 1,257/- CLAIMED BY THE ASSESSEE. THEREFORE, AN EXCESS REMUNERATION TO THE EXTENT OF RS.1,83,821/- WAS ALLOWED & AVAILED BY THE ASSESEE DUE TO OVERSIGHT. THE INCOME OF THE ASSESSEE THEREFORE, IS RECTIFIED BY AMENDING THE ORDER U/S 143(3) OF THE I .T. ACT AS UNDER :- TOTAL INCOME ASSESSED U/S 143(3) OF THE I.T. ACT : RS.16,30,840/- ADD: EXCESS REMUNERATION ALLOWED NOW ADDED BACK : R S. 1,83,821/- REVISED TOTAL INCOME : RS.18,14,661/- 6. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDER OF AO. HENCE THIS APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. 7. ONE OF THE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE ISSUE AS TO WHETHER INTEREST INCOME HAS TO BE REGAR DED AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES WAS HIGHLY A DEBATABLE IS SUE AND THEREFORE COULD NOT HAVE BEEN DECIDED BY THE AO IN THE PROCEEDINGS U/S 154 O F THE ACT. HE BROUGHT TO OUR NOTICE THE DECISION OF THE HONBLE ITAT BBENCH IN THE CA SE OF DCIT VS M/S MCLEOD RUSSEL INDIA LTD IN ITA NO.288/KOL/2011 ORDER DATED 15.02. 2013. IN THE AFORESAID DECISION THE HONBLE ITAT AFTER CONSIDERING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EVERADY INDUSTRIES (I)LTD.INITA NO.123 OF 2 000 CAME TO THE CONCLUSION THAT INTEREST INCOME EARNED BY INVESTING SURPLUS FUNDS I S TO BE REGARDED AS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. THE LD. DR RELIED ON THE ORDER OF THE AO AND CIT(A). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE O F THE VIEW THAT THE ISSUE AS TO WHETHER INTEREST INCOME HAS TO BE REGARDED AS INCOM E UNDER THE HEAD INCOME FROM 4 ITA NO.1254/KOL/2015 M/S ELECTRIC INVESTMENT & ENTERPRISES A.YR.2010-11 4 BUSINESS OR INCOME FROM OTHER SOURCES WAS A DEBATAB LE ISSUE. IN THE CASE OF EVEREADY INDUSTRIES (I) LTD (SUPRA) THE HONBLE CALCUTTA HIG H COURT TOOK THE FOLLOWING VIEW : 'AS WE HAVE ALREADY NARRATED ABOVE THAT THE ASSESSE E IN THIS CASE PROCURED LOANS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS FOR ITS TEA GROWING AND MANUFACTURING BUSINESS AND PART OF SUCH FUND REMAIN TEMPORARILY U NUTILIZED. THE ASSESSEE, INSTEAD OF KEEPING THE AMOUNT IDLE, INVESTED THE SURPLUS FU ND IN SHORT-TERM INTEREST HEARING FIXED DEPOSITS AND EARNED INTEREST. THE MAIN ACTIVI TY OF THE ASSESSEE IS GROWING, MANUFACTURING AND SELLING OF TEAS AND NOT THAT OF E ARNING INTEREST BY INVESTING IN SHORT-TERM FIXED DEPOSITS. THE ASSESSEE EARNED INTE REST ON SUCH SHORT-TERM FIXED DEPOSITS MADE OUT OF THE BUSINESS FUND AVAILABLE WI TH THE ASSESSEE BEFORE THEY WERE UTILIZED FOR ACTUAL BUSINESS AND, THEREFORE, THE SA ME WAS INCIDENTAL TO THE BUSINESS ACTIVITY OF THE ASSESSEE-COMPANY AND INTEREST ON SU CH SHORT-TERM DEPOSIT MUST BE TREATED AS THE BUSINESS INCOME. THE ASSESSEE, A TEA GROWING AND MANUFACTURING COMPANY, WAS LEFT WITH SURPLUS FUNDS. THE ASSESSEE INVESTED SUCH SURPLUS FUNDS IN SHORT-TERM DEPOSITS TO EXPLOIT THE BUSINESS FUNDS O F THE COMPANY AND EARNED INTEREST. THEREFORE, INTEREST INCOME OF THE ASSESSE E IS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. WE ARE, THEREFORE, OF THE OPINION THAT THE INCOME T AX APPELLATE TRIBUNAL AND THE COMMISSIONER OF INCOME-TAX SUBSTANTIALLY ERRED IN L AW IN DIRECTING THE ASSESSING OFFICER TO REVISE THE ASSESSMENTS OF THE AFOREMENTI ONED ASSESSMENT YEARS BY TREATING THE INCOME EARNED BY THE ASSESSEE FROM SUC H SHORT-TERM INVESTMENTS AS 100% (HUNDRED) PER CENTUM ASSESSABLE TREATING THE S AME AS INCOME FROM THE OTHER SOURCES. M/S. MCLEOD RUSSEL INDIA LTD. :A.Y. : 2007-08 WE HO LD THAT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICE RS WERE RIGHT IN TREATING THE INTEREST INCOME EARNED BY THE ASSESSE BY INVESTING SURPLUS FUND OF THE BUSINESS IN SHORT -TERM DEPOSITS AS BUSINESS INCOME AND RIGHTLY APPLIED THE TESTS AS PROVIDED IN SUB-RULE (1) OF RULE 8 OF THE SAID RULES WHILE MAKI NG THE ASSESSMENTS IN RELATION TO THE INCOME OF THE ASSESSEE. 9. AS WE HAVE ALREADY SEEN THE AO HAS NOT DISPUTED THE NEXUS BETWEEN THE INTEREST INCOME EARNED BY THE ASSESSEE AND THE NEXUS WITH B USINESS OF THE ASSESSEE EARNING INTEREST INCOME. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT INTEREST INCOME OUGHT TO HAVE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOU RCES. I AM OF THE VIEW THAT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE THE AO OU GHT NOT TO HAVE EXERCISED HIS JURISDICTION U/S 154 OF THE ACT AS THE ISSUE WAS DE BATABLE. I ACCORDINGLY DELETE THE ADDITION MADE BY THE AO IN THE PROCEEDINGS U/S 154 OF THE ACT. 5 ITA NO.1254/KOL/2015 M/S ELECTRIC INVESTMENT & ENTERPRISES A.YR.2010-11 5 10. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 02.02.2018. SD/- [ N.V.VASUDEVAN ] JUDICIAL MEMBER DATED : 02.02.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. M/S ELECTRIC INVESTMENT & ENTERPRISES, A/68, BID HAN MARKET, SILIGURI-734001. 2. D.C.I.T., CIRCLE-1, SILIGURI. 3. CIT(A)-SILIGURI 4. C.I.T-SILIGURI. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECR ETARY HEAD OF OFFICE/ D.D.O., ITAT KOLKATA BENCHES