ACIT, UDAIPUR V. Shri Madhav Lal Jat, RAJSAMAND

ITA 149/JODH/2013

• Counselvise Citation: 14923314 RSA 2013
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N S JOSHI
• Assessee Lawyers: SACHIN CHOWDHARY; VIKAS BALIA
• Keywords: Business income; Depreciation; Question of law
• Section: 44AD; 6

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 149/JODH/2013 (A.Y. 2009-10) THE ASSTT. CIT, VS. SHRI MADHAV LAL JAT, CIRCLE 2, VILL. KHATUKDA, BANDIA, UDAIPUR. RAIL MAGRA, DISTT. RAJSAMAND. PAN NO. ADVPJ1291J ASSESSEE BY : SHRI VIKAS BALIA & SHRI SACHIN CHOWDHARY DEPARTMENT BY : SHRI N.S. JOSHI- D.R. DATE OF HEARING : 21/08/2013. DATE OF PRONOUNCEMENT : 26/08/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 03/12/2012 OF LD. CIT (A), UDAIPUR. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN:- 1. ALLOWING FURTHER DEDUCTION OF INTEREST AND DEPR ECIATION WITHOUT GIVING ANY REASONS AND BASIS OF THE SAME OUT OF NP RATE OF 8% APPLIED BY THE AO. 2 2. DIRECTING THE AO TO ASSESS INTEREST INCOME OF RS . 4,52,164/- AS BUSINESS INCOME IGNORING THE FACT THAT IT MAINLY IN CLUDES INTEREST EARNED ON FDR. 2. THE FIRST ISSUE VIDE GROUND NO.1 RELATES TO THE DEDUCTION OF INTEREST AND DEPRECIATION OUT OF NP RATE OF 8% APPLIED BY TH E AO. 3. BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE WAS DRAWING INCOME FROM EXECUTION OF CIVIL CONTRACT WORK AND SU B-CONTRACT WORK. THE RETURN OF INCOME WAS FILED ON 30/09/2009 DECLARING AN INCOME OF RS. 1,91,710/-. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD DECLARED NET PROFIT (NP) AT THE RATE OF 0.68% F OR THE YEAR UNDER CONSIDERATION IN COMPARISON TO 4.23% IN THE IMMEDIA TE PRECEDING YEAR. THE AO HAS POINTED THAT IF THE INTEREST INCOME IS EXCLU DED FROM THE NP, THEN THE INCOME FROM BUSINESS WILL BE IN NEGATIVE. THE AO HAS ALSO POINTED OUT THAT CERTAIN OTHER DEFECTS IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE AND REJECTED THE BOOKS BY INVOKING THE PROVISIONS OF SE CTION 145(3) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS ACT, FOR SH ORT). THE AO MENTIONED THAT IN THE CASE OF CIT VS. M/S. JAIN CONSTRUCTION CO. & OTHERS (245 IT R 527), THE HON'BLE RAJASTHAN HIGH COURT UPHELD THE NP RAT E OF 12.5% SUBJECT TO FURTHER DEDUCTION ON ACCOUNT OF SALARY AND INTER EST PAID TO THE PARTNERS AND DEPRECIATION ON ASSETS. IN THE CASE OF CIT VS. BHAWAN VA PATH NIRMAN (BOHRA) & CO. (258 ITR 431) , THE NP RATE OF 11% HAD BEEN SUSTAINED SUBJECT TO FURTHER ALLOWANCE OF DEPRECIATION. THE AO ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE PANJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. 3 CHOPRA BROTHERS INDIA PVT. LTD. (252 ITR 412) WHERE APPLICATION OF NP RATE OF 10% HAD BEEN UPHELD SUBJECT TO FURTHER ALLOWANCE OF DEPRECIATION. THE AO APPLIED THE NP RATE OF 8% ON THE CONTRACT BUSINE SS OF RS. 4,29,98,354/- TREATING THE CASE OF THE ASSESSEE, AS CASE OF NO BO OKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 44AD OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER TO LD. CIT (A) A ND THE SUBMISSIONS MADE BEFORE HIM HAS BEEN INCORPORATED IN PARA 3.3 O F THE IMPUGNED ORDER. ON THE COST OF REPETITION, THE SAME ARE NOT REPRODU CED HEREIN. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE HELD THAT AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 44AD OF THE ACT SINCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAD BEEN AUDITED UNDER SECTION 44AB OF THE ACT AND THAT THE TURNOVER OF THE ASSESSEE WAS I N CRORES I.E. MORE THAN 40 LAKHS, WHICH IS THE LIMIT FOR APPLICATION OF THE PROVISION OF SECTION 44AD OF THE ACT. THE LD. CIT(A) SUSTAINED THE NP RATE O F 8% APPLIED BY THE AO SUBJECT TO DEDUCTION OF DEPRECIATION AND INTEREST. THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 3.4 OF THE IMPUGNED ORDER, WHICH READ AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLAN T AS WELL AS THE FINDINGS OF THE AO GIVEN IN THE ASSESSMENT ORDE R UNDER APPEAL. IT IS SEEN THAT THE A.O. HAS POINTED OUT V ARIOUS DEFECTS IN MAINTAINING THE BOOKS OF ACCOUNT I.E UNVERIFIABL E NATURE OF WAGES PAYMENTS, NOT DISCLOSING THE CONTRACT PAYMENT S OF RS. 3,52,895/- ETC. DURING THE APPEAL, THE APPELLANT H AS ADMITTED THAT THOUGH THE WAGES PAYMENT IS GENUINE, BUT THE A PPELLANT UNABLE TO PRODUCE COMPLETE DETAILS OF THESE PAYMENT S I.E. CONFIRMATIONS FROM THE LABOURS TO WHOM PAYMENTS HAV E BEEN MADE AS MOST OF THE LABOURS ARE NOT PRESENT IN THE WORK OF THE APPELLANT. THE NON-DISCLOSURE OF CONTRACT INCOME O F RS. 3,52,895/- IN THE TOTAL CONTRACT PAYMENTS HAS ALSO BEEN 4 ADMITTED BY THE APPELLANT AS A MISTAKE. IN VIEW OF ABOVE DEFECTS, THE PROVISIONS OF SECTION 145(3) IS HELD T O BE APPLICABLE IN THE CASE OF THE APPELLANT. HOWEVER, THE ACTION OF THE A.O. TREATING THE CASE OF THE APPELLANT AS OF NO BOOKS OF ACCOUNT CASE AND DETERM INING THE TOTAL INCOME BY APPLICABLE OF PROVISIONS OF SECTION 44AD OF THE ACT IS NOT SUSTAINABLE AS THE SAID PROVISIONS ARE A PPLICABLE ONLY IN THE CASE OF THE BUSINESS MEN WHOSE TURNOVER IS B ELOW 40 LAKHS. ADMITTEDLY, THE TURNOVER IN THE CASE OF THE APPELLANT IS MUCH ABOVE THE SAID LIMIT I.E. IN CRORES. FURTHER, THE BOOKS OF THE APPELLANT HAS BEEN AUDITED U/S. 44AB OF THE ACT . THEREFORE THE SAID PROVISIONS CANNOT BE MADE APPLICABLE MEREL Y ON THE GROUND THAT THERE IS SOME DEFECTS IN MAINTAINING TH E BOOK OF ACCOUNT. THEREFORE, THE ACTION OF THE A.O. IN DETE RMINING THE NET PROFIT OF THE APPELLANT BY INVOKING PROVISION O F SECTION 44AD IS HELD TO BE UNJUSTIFIED. HOWEVER, CONSIDERING THE VARIOUS DEFECTS POINTED OUT BY THE A.O. AND THE DECREASE IN NET PROFIT BEFORE DEPR ECIATION WHICH IS DUE TO THE INCREASE IN COST OF MATERIAL CO NSUMED AND OVER DECREASE IN CONTRACT TRADE THE APPLICATION OF NET PROFIT RATE AT 8% IS HELD TO BE JUSTIFIED SUBJECT TO FURTH ER DEDUCTION OF DEPRECIATION AND INTEREST FROM THE NET PROFIT SO DE TERMINED. THE A.O. IS DIRECTED TO DETERMINE THE INCOME ASSESS ABLE FROM THE CONTRACT BUSINESS ACCORDINGLY. THIS GROUND OF APPEAL IS PARTLY ALLOWED . NOW THE DEPARTMENT IS IN APPEAL. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THOUGH THE MATERIAL AVAILABLE ON RECORD. IN TH E PRESENT CASE, THE ONLY GRIEVANCE OF THE DEPARTMENT IS FOR DEDUCTION OF DEP RECIATION AND INTEREST FROM THE PROFIT DETERMINED BY APPLYING NP RATE OF 8 % FROM THE CONTRACT RECEIPTS RECEIVED BY THE ASSESSEE, IT IS NOTICED TH AT THE AO ALTHOUGH RELIED ON THE JUDGMENT OF HON'BLE JURISDICTION OF THE HIGH COURT IN THE CASE OF CIT VS. M/S. JAIN CONSTRUCTION CO. OTHERS (245 ITR 527) , HOWEVER, HE DID NOT 5 ALLOW THE BENEFIT OF SALARY AND INTEREST TO THE PAR TNERS AND DEPRECIATION WHICH HAS BEEN ALLOWED IN THE SAID CASE, WHEREIN IT HAS BEEN HELD AS UNDER:- (I) THAT, IN THE INSTANT CASE, THE PREVIOUS YEAR WAS 1992-93 AND THE ASSESSMENT YEAR 1993-94. SECTION 40(B) AS AMENDED WITH EFFECT FROM APRIL 1, 1993, WAS THEREFO RE APPLICABLE. THE TRIBUNAL AFTER EXAMINING THE PARTN ERSHIP DEED IN ALL INDIVIDUAL CASES FOUND THAT THE CLAIM O F THE ASSESSEES FOR INTEREST ON CAPITAL CONTRIBUTION BY T HE PARTNERS AND SALARY TO WORKING PARTNERS WERE ALLOWA BLE DEDUCTIONS TO THE EXTENT OF THE LIMIT PROVIDED UNDE R SECTION 40(B) OF THE ACT. THE TRIBUNAL WAS JUSTIFI ED IN DOING SO. THE FINDING OF FACT DID NOT GIVE RISE TO A QUESTION OF LAW. (II) THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION AS ADMISSIBLE UNDER THE RULES ON THE ASSETS USED IN TH E BUSINESS AS CLAIMED IN THE RETURN. IN A CASE OF RE JECTION OF ACCOUNTS AND ESTIMATE OF NET PROFIT, DEPRECIATION I S REQUIRED TO BE WORKED OUT SEPARATELY. THE TRIBUNAL HAD DIRECTED THE ASSESSING AUTHORITY TO RECOMPUTE THE T OTAL INCOME AS ESTIMATED BY HIM AND ALLOW RELIEF ON ACCO UNT OF PAYMENT OF INTEREST AND CLAIM OF DEPRECIATION. THE FINDING RECORDED BY THE TRIBUNAL WAS PURELY A FINDI NG OF FACTS, BASED ON PROPER APPRECIATION OF MATERIAL ON RECORD AND THE EVIDENCE PRODUCED BY THE ASSESSEE. NO QUES TION OF LAW AROSE OUT OF THE ORDER OF THE TRIBUNAL. 5. IN THE PRESENT CASE, SINCE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS INCONSONANCE WITH THE JUDGMENT OF HON'BLE JURISDICT ION OF HIGH COURT ON THE ISSUE OF ALLOWING THE DEPRECIATION AND INTEREST OUT OF THE INCOME DETERMINED BY APPLYING THE NP RATE AFTER REJECTING THE BOOKS OF ACCOUNTS. WE, THEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTS APPEAL. 6 6. THE SECOND ISSUE VIDE GROUND NO.2 RELATES TO INT EREST INCOME OF RS. 4,52,164/- DIRECTED TO BE CONSIDERED AS BUSINES S INCOME. 7. THE FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS. 4,52,164/- IN THE PROF IT AND LOSS ACCOUNT. THE AO WAS OF THE VIEW THAT IT WAS SEPARATELY ASSESSABL E AS INCOME FROM OTHER SOURCES AS INTEREST PAID HAD BEEN CONSIDERED IN CA LCULATING THE NP BY APPLYING THE RATE OF 8%. 8. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND THE SUBMISSIONS MADE AS INCORPORATED IN PARA 4.2 OF THE IMPUGNED ORDER, WHICH ARE REPRODUCED VERBATIM AS UNDER:- '4.0 THE ASSESSING OFFICER ALSO ERRED IN THE LAW AS WELL ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN TREATING THE INTEREST INCOME OF RS. 452,164/- AS INCOME FROM OTHER SOURCE S. 4.1 THE ASSESSING OFFICER HAS SEPARATELY MADE THE ADDITION OF RS. 452.164/- IN THE HEAD OF INCOME FROM OTHER S OURCES ON ACCOUNT OF INTEREST RECEIVED BY THE APPELLANT OVER FDR DEPOSITS. 4.2 THE APPELLANT SUBMITS THAT THE INTEREST I NCOME WAS EARNED OVER THE FDR DEPOSITS FROM BANKS, THESE FDRS WERE PURCHASED TO ARRANGE THE BANK GUARANTEE TO FURNISH TO THE CONTRACT AWARDING AGENCIES. THUS, THE FDR PURCHASED WERE THE NECESSITY TO TOOK THE CONTRACT AND PERFORMANCE OF T HE SAME. SO, THIS INTEREST WAS NOT EARNED BY THE DEPOSITS MADE O UT OF THE SURPLUS FUNDS AVAILABLE IN THE BUSINESS RATHER IT W AS NECESSARY DEPOSITS TO CONTINUE AND SURVIVAL OF THE BUSINESS. 4.3 THE ASSESSING OFFICER HAS OVERLOOKED THE FACT THAT THE APPELLANT HAS PAID AN INTEREST OF RS. 935,859/- WHI CH IS MORE THAN TWICE OF THE RECEIPT OF THE INTEREST FROM FDRS WITH BANKS. 4.4 THE DEPOSITS WERE INDEED INEXTRICABLY LIN KED TO THE BUSINESS AND ANY INCOME EARNED OVER THAT SHOULD HAV E BEEN TAXED IN THE HEAD OF INCOME FROM BUSINESS AND PROFE SSION. OUR CASE IS COVERED BY THE DECISIONS OF THE SUPREME COU RT IN THE 7 BOKARO STEEL LTD. [1999] 236 ITR 315 AND KARNAL CO- OPERATIVE SUGAR MILLS' LTD. [2000] 243 ITR 2. BOTH THESE DECI SIONS ARE SUFFICIENT AUTHORITY FOR THE PROPOSITION THAT WHERE THE INCOME IN THE NATURE OF INTEREST FLOWS FROM DEPOSITS MADE BY THE ASSESSEE WHICH DEPOSITS ARE IN TURN INEXTRICABLY LI NKED TO THE BUSINESS OF THE ASSESSEE, THE INCOME DERIVED ON SUC H DEPOSITS CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. THE VIEWS ARE FURTHER SUPPORTED BY THE HIGH COURT O F DELHI IN CASE OF COMMISSIONER OF INCOME-TAX V. KOSHIKA TE LECOM LTD. [2006] 287 ITR 479 4.5 NEEDLESS TO MENTION HERE THAT IF THE APPE LLANT WAS HAVING ANY SURPLUS FUNDS FOR THE FDRS HE WOULD NOT HAVE BORROWED THE FUNDS FROM THE BANK AND MARKET AND PAI D INTEREST OVER THEM. 4.6 LOOKING TO THE EXCESSIVE INTEREST EXPENSE S OVER INTEREST INCOME, THE ID ASSESSING OFFICER SHOULD HAVE NOT MA DE SEPARATE ADDITION OF INTEREST INCOME IN THE HEAD OF INCOME F ROM OTHER SOURCES. 4.7 THUS THE INTEREST INCOME IS PART AND PARCEL OF THE BUSINESS ACTIVITIES AND HAVING VERY MUCH DIRECT NEXUS WITH T HE CONTRACT BUSINESS, SO, IT CANNOT BE SEGREGATED FROM THE REGU LAR BUSINESS ACTIVITIES. SUCH FIXED DEPOSITS HAD TO BE KEPT WITH THE BANK AS MARGIN MONEY TO AVAIL OF CREDIT FACILITIES. THEY AR E INSEPARABLE PART OF THE UNDERTAKING. 4.7 UNDER THE CIRCUMSTANCES, THE SEPARATE ADDITION OF INTEREST OF RS. 452,164/- IN THE HEAD OF INCOME FRO M OTHER SOURCES IS UNJUSTIFIED, NOT WARRANTED AND LIABLE TO DELETE.' IN ADDITION TO ABOVE, THE APPELLANT HAS MADE THE FO LLOWING SUBMISSIONS IN SUPPORT OF HIS CLAIM. IT IS VERY RESPECTFULLY SUBMITTED THAT THE APPELLAN T HAS EARNED INTEREST INCOME OF RS. 452,164/- FROM VARIOUS DEPOS ITS KEPT WITH THE BANKS ETC AND ALSO PAID INTEREST OF RS. 93 5,859/- DURING THE YEAR UNDER APPEAL. THE APPELLANT RATHER NETTING OFF THE INTEREST, HE HAD SHOWN SEPARATELY BOTH INCOME AND E XPENSES IN THE PROFIT AND LOSS ACCOUNT. THE ID ASSESSING OFFICER HAS WRONGLY TREATED SAID I NTEREST INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF CORR ECTLY SHOWN BY THE APPELLANT IN HIS PROFIT AND LOSS ACCOUNT. THE INTEREST WAS MAINLY EARNED FROM BANK FDRS WHICH WERE 8 NECESSARILY KEPT WITH THE BANKS AGAINST THE MARGIN MONEY ETC TO ARRANGE BANK GUARANTEES. THAT THE BANK GUARANTEE WAS FURNISHED AS A CONDITIO N PRECEDENT TO ENTERING THE WORKS CONTRACT AND FURTHERS IT WAS TO BE KEPT ALIVE TO FULFILL THE OBLIGATIONS. QUITE APART FROM THE ABOVE, THE RELEASE OF THE SAME WAS DEPENDENT ON THE SATISFACTI ON OF CERTAIN CONDITIONS ON COMPLETION OF WORKS CONTRACT. THUS, THE PRESENT CASE IS NOT ONE WHERE THE APPELLANT HAD MAD E THE FDRS OF SURPLUS MONEY LYING IDLE WITH IT IN ORDER TO EAR N INTEREST; ON THE CONTRARY, THE AMOUNT OF INTEREST WAS EARNED FRO M FIXED DEPOSITS WHICH WERE KEPT IN THE BANK FOR FURNISHING THE BANK GUARANTEE. IT HAD AN INEXTRICABLE NEXUS WITH SECURI NG THE WORKS CONTRACT AND BUSINESS. THAT THE INTEREST ON MARGIN MONEY AGAINST THE SAID BANK GUARANTEE IS INEXTRICABLY LINKED AND INTRINSICALLY CONNECTED WITH THE EXECUTION OF THE CONTRACT AWARDED TO THE APPELL ANT AND HENCE, THE INTEREST SO RECEIVED IS ONLY INCIDENTAL TO THE VERY EXECUTION OF THE WORKS CONTRACTS. THE BANK GUARANTE E WAS AN OPERATIONAL AND COMPELLING REQUIREMENT ON THE PART OF THE APPELLANT AND, THEREFORE, THE INTEREST EARNED ON TH E MARGIN SUM WAS AN INCIDENT DIRECTLY CONNECTED WITH THE WOR KS CONTRACTS PERFORMED BY THE APPELLANT. MOREOVER, IT IS NOT A CASE WHERE SURPLUS FUNDS HAVE BEEN UTILIZED TO EARN THE INTEREST INCOME; AND THAT IT W AS NOT THE UNUTILIZED AND SURPLUS MONEY WHICH WAS DEPOSITED BY THE APPELLANT TO EARN INTEREST BUT ON THE CONTRARY, THE ACTIVITY OF DEPOSITING MONEY WAS INCIDENTAL TO THE BUSINESS OF THE APPELLANT AS FDRS WERE REQUIRED TO BE KEPT TO ENTER INTO THE AGREEMENT FOR WORKS CONTRACT AND, HENCE, FDRS WITH THE BANK WERE MADE WITH THE DEFINITE PURPOSE AND THE INTERES T EARNED BY THE APPELLANT ON THE FDRS MUST GO TO HEAD OF BUSINE SS INCOME. THUS, THE INTEREST EARNED BY THE APPELLANT ON THE F DRS HAS INTRINSIC AND INSEGGREGABLE FROM BUSINESS ACTIVITIE S. WE HAVE NOTICED THAT THE INVESTMENT OF AMOUNT IN FI XED DEPOSITS BY THE APPELLANT WAS ONLY TO SECURE A BANK GUARANTEE TO BE OFFERED TO AWARDERS IN ORDER TO ACQUIRE A CON TRACT WORK. THEREFORE, IT CANNOT BE TREATED AS AN INCOME FROM O THER SOURCES AND INTEREST ACCRUED ON SUCH FIXED DEPOSITS HAS TO BE TREATED AS BUSINESS INCOME. OUR VIEW IS ALSO SUPPOR TED BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CITV. GOVINDA CHOUDHURY & SONS [1993] 203 ITR 881. 9 THIS WAS FURTHER ACCEPTED BY THE SPECIAL BENCH OF T HE TRIBUNAL IN RAJEEV ENTERPRISES V. ASSESSING OFFICER 261 ITR (AT) 34 / [2004] 2 SOT 347 (JP.)(SB) THAT INVESTMENT OF SURPL US FUNDS MAY NOT BE BUSINESS INCOME IN SOME CASES, BUT WHERE MON EY NECESSARILY HAS TO BE INVESTED FOR THE SAKE OF CARR YING ON THE BUSINESS, INCOME IF EARNED WOULD BE BUSINESS INCOME . IT IS FURTHER HELD THAT SINCE EXPENDITURE OF INTEREST HAD BEEN TREATED AS PART OF BUSINESS, RECEIPTS HAD ALSO TO B E HELD AS 'BUSINESS RECEIPT', AND AS SUCH, RECEIPT OF INTERES T WAS LIABLE TO BE INCLUDED IN BUSINESS PROFIT. FURTHER RELIANCE IS PLACED ON CIT V. MADRAS MOTORS LTD, 257 ITR 60 (MAD), CIT V. COCA NADA RADHASWAMI BANK LTD. 57 ITR 306 (SC). A FURTHER ARGUMENT THAT ARISES IN THESE CASES IS TH AT WHERE ON ACCOUNT OF THE CONDITIONALITIES IMPOSED BY THE BANK ER, THE ASSESSEE, FOR THE PURPOSES OF OBTAINING BANK GUARAN TEES FOR THE PURPOSES OF ITS CONTRACT BUSINESS IS CONSTRAINED TO KEEP MONIES IN FIXED DEPOSIT, THEREFORE, THE NEXUS BETWEEN THE PLACING OF SUCH FIXED DEPOSIT AND THE CONTRACT BUSINESS IS CLE ARLY ESTABLISHED. HENCE THERE IS NO JUSTIFICATION TO TRE AT THE INTEREST INCOME TAXABLE UNDER THE HEAD OF 'INCOME FROM OTHER SOURCES' BY THE ID ASSESSING OFFICER. IN SNAM PROGETTI S.P.A, V. ADDITIONAL COMMISSIONER OF INCOME- TAX, NEW DELHI-LL AND OTHERS, [1981] 132 ITR 70 (DE LHI), IT WAS ALSO HELD THAT NEXUS WITH THE ACTIVITIES CANNOT BE OVERLOOKED. IN THE APPELLANTS CASE, IT IS ESTABLISHED NEXUS OF INTEREST INCOME WITH THE CONTRACT BUSINESS. IT IS FURTHER STATED THAT BALANCE OF DEPOSITS AND N SC WAS RS, 75,04,120/- AS ON 31ST MARCH, 2009 IN COMPARISON TO THE AVAILABLE CAPITAL OF RS. 25,29,357/-. THEREFORE, TH E APPELLANT WAS NOT HAVING ANY SURPLUS FUND OR CAPITAL TO MAKE AN INVESTMENT IN THE BANK DEPOSITS. IN VIEW OF FORGOING ARGUMENTS, JUDICIAL PRONOUNCEME NTS AND FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT VERY HUMBLY PRAYS TO ALLOW THE GROUND OF APPEAL AND TREAT THE I NTEREST INCOME AS BUSINESS INCOME RECEIPTS. 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT AO HAD NOT BEEN GIVEN ANY SPECIFIC FI NDING FOR NOT TREATING THE INTEREST AS PART AND PARCEL OF THE BUSINESS INC OME EXCEPT THAT IT BEING 10 INTEREST ON FDR, WHICH WAS ASSESSABLE AS INCOME FRO M OTHER SOURCES. THE LD. CIT(A) POINTED OUT THAT ASSESSEE HAD PURCHASED THE FDRS FROM THE BANKS IN ORDER TO OBTAIN THE BANK GUARANTEE FOR GETTING C ONTRACT WORK ALLOWED TO THE ASSESSEE AND WITHOUT GIVING SUCH BANK GUARANTEE TO THE CONCERNED AUTHORITIES, THE ASSESSEE WOULD NOT GET THE CONTRAC T WORK. THEREFORE, IT COULD BE SAID THAT THE INVESTMENT IN FDR WAS A CAPI TAL INVESTMENT TO START THE CONTRACT WORK AND ANY INCOME FROM SUCH INVESTME NT WAS BUSINESS INCOME AND THEREFORE, THE INTEREST EARNED ON SUCH F DRS COULD NOT BE ASSESSED AS INCOME FROM OTHER SOURCES. THE LD. CIT (A) DIRECTED THE AO TO ASSESS THE INTEREST EARNED ON FDRS PURCHASED FOR GE TTING BANK GUARANTEE AS INCOME FROM BUSINESS. NOW, THE DEPARTMENT IS IN AP PEAL. 10. THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF AO AND FURTHER SUBMITTED THAT INTEREST EARNED ON FDRS WAS NOT BUSINESS INCOM E. THEREFORE, THE AO RIGHTLY HELD THAT THE SAME WAS TO BE ASSESSED AS IN COME FROM OTHER SOURCES AND THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING T HE AO TO TREAT THE INTEREST AMOUNT AS INCOME FROM BUSINESS. 11. IN HIS RIVAL SUBMISSIONS, LD. COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S TRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). RELIANCE WAS ALSO PLACED ON THE DECISION OF THIS BENCH OF THE TRIBUNAL DATED 07/03/ 2013 IN ITA NO. 191/JU/2012 FOR THE A.Y. 2008-09 IN THE CASE OF SHRI LAL CHAND CHOUDHARY VS. ACIT, CIRCLE-1 JAISALMER. COPY OF WHICH IS PLACED AT PAGE NOS. 26 TO 29 11 OF THE ASSESSEES PAPER BOOK. ANOTHER RELIANCE IS ALSO PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KARNAL CO- OPERATIVE SUGAR MILLS LTD. [2000] 243 ITR 2(SC). 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. 13. IN THE PRESENT CASE, IT APPEARS THAT ASSESSEE P URCHASED THE FDRS TO GET BANK GUARANTEE, WHICH WAS ESSENTIAL FOR GETTING THE CONTRACT. FDRS PURCHASED BY THE ASSESSEE TO GET CONTRACT AND WITHO UT FDR, BANK GUARANTEE COULD NOT HAVE BEEN ISSUED TO HIM. THESE FDRS WERE NOT MADE OUT OF THE SURPLUS MONEY LYING IDLE WITH THE ASSESSEE IN ORDER TO EARN INTEREST. ON THE CONTRARY, THE AMOUNT OF INTEREST WAS EARNED FROM TH E FIXED DEPOSIT, WHICH WAS KEPT IN THE BANK FOR OBTAINING THE BANK GUARANT EE. IT HAD AN INEXTRICABLE NEXUS WITH SECURING THE WORKS CONTRACT AND BUSINESS. IN OTHER WORDS, THE INTEREST ON MARGIN MONEY AGAINST THE SAI D BANK GUARANTEE WAS INEXTRICABLY LINKED AND INTRINSICALLY CONNECTED WIT H THE EXECUTION OF THE CONTRACT AWARDED TO THE ASSESSEE. ON A SIMILAR ISS UE, THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KARNAL COOPERATIVE SUGAR MILLS LTD . HELD AS UNDER:- IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERMS OF THE A SSESSEES AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAS BEEN EARNED. THIS IS, THEREF ORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF E ARNING INTEREST. THE DEPOSIT OF MONEY IN THE PRESENT CASE IS DIRECTLY 12 LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCIDENTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLANT AND MACHI NERY. 14. IN THE PRESENT CASE ALSO, IT IS NOT THE CASE OF THE DEPARTMENT THAT THE FDRS WERE PURCHASED BY THE ASSESSEE FROM SURPLUS MO NEY, WHICH WAS LYING IDLE AND HAD BEEN DEPOSITED IN THE BANK FOR THE PUR POSE OF EARNING INTEREST. ON THE CONTRARY, THE FDRS WERE PURCHASED OUT OF MON EY, WHICH WERE NECESSARY TO GET BANK GUARANTEE WHICH WAS ESSENTIAL TO GET THE CONTRACT AND THERE WAS A DIRECT LINK WITH THE PURCHASE OF FD RS AND THE CONTRACT AWARDED TO THE ASSESSEE. THEREFORE, LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO TREAT THE INTEREST INCOME AS BUSINESS INC OME. WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2013) (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 26 TH AUGUST, 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT BY ORDER 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR.