ASSISTANT COMMISSIONER OF INCOME TAX, NEW DELHI V. VIREET INVESTMENTS PRIVATE LIMITED, DELHI

ITA 1842/DEL/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0547 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 17-07-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 18-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI BEFORE PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA No.1842/Del/2024 (Assessment Year : 2018-19) Assistant Commissioner of Income Tax Room No.192A, 3 rd Floor, C.R. Building IP Estate, New Delhi-110 002 PAN No. AAACV 2033 M Vs. Vireet Investments Pvt. Ltd. 21D friends Colony West New Delhi-110 065 (APPELLANT) (RESPONDENT) Assessee by Shri Manish Jain, C.A. Revenue by Shri Amit Katoch, Sr. D.R. Date of hearing: 18.07.2024 Date of Pronouncement: 31.07.2024 ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal has been filed by the Revenue against the first appellate order of the Ld. Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre (NFAC), Delhi dated 06.03.2024 arising from the assessment order dated 29.04.2021 passed by the National e-Assessment Centre, Delhi under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (the Act) concerning Assessment Year 2018-19. 2. The grounds of appeal raised by the Revenue reads as under: ITA No.1842/Del/2024 ACIT vs. Vireet Investments Pvt. Ltd. A.Y. 2018-19 2 “1. Whether, on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in treating the interest income under the head Business Income and allowing the expenses claimed by the appellant company of amounting to Rs.5,66,35,173/-. 2. The appellant craves leave to add, alter, amend, append or delete any of the above grounds of appeal.” 3. Briefly stated, the assessee is a Non-Banking Finance Company (NBFC) registered with Reserve Bank of India (RBI). In the course of assessment proceedings under Section 143(3) of the Act, the Assessing Officer inter alia treated interest income of Rs.5,66,35,173/- as income from other sources instead of income from business as declared by the assessee in its return of income. 4. The CIT(A) in first appeal reversed the action of AO based on several decisions of the Co-ordinate Bench. The relevant operative para is reproduced hereunder: “4.1 I have carefully considered the appellant submissions, judicial pronouncement quoted by the Appellant and Assessment Order. It is a fact on the record that the Ld. Assessing Officer has treated interest income of Rs.5,66,35,173/- as income from other sources instead of Income from Business as declared by the appellant in his return. In this connection, in Para 5.1 and 5.2 of the Assessment Order, the Ld. Assessing Officer has contended that the assessee has not carried out any business activity and not held any amount as stock in trade and not carried on any purchases and sales as shown in ITR, further the AO held that the interest earned from investment in securities out of its surplus funds falls under "Income from other sources" Therefore, the assessee is not eligible for claiming business expenses 4.2 In this regard, the appellant company has contended that every company is required to prepare its balance sheet as per the provisions of schedule III of the Companies Act 2013 following the applicable Accounting Standards as prescribed by the Institute of the Chartered Accountants of India and accordingly the assessee company had disclosed the assets in the balance sheet as per the requirement of the Companies Act and applicable Accounting Standard. The appellant company further contended that it is important to note that as per the schedule III only those assets wherein the company intends to trade has to be ITA No.1842/Del/2024 ACIT vs. Vireet Investments Pvt. Ltd. A.Y. 2018-19 3 shown in stock in trade. Accordingly, the assessee company has made disclosure of bonds and debentures under investment while loans and advance under the head loans and advances 4.3 In this case, the appellant company is a Non-Banking Financial Company (NBFC) registered with RBI having NBFC Ne-B-14.03512 and in Para 4 of the Assessment Order, Ld. Assessing Officer has also mentioned that the assessee is Non-Banking Financial Company (NBFC) and the primary activity of the company are "To acquire and hold shares, stocks, debentures, debenture stocks, bonds, securities issued or guaranteed, to lend and advance money with or without interest, to purchase, sell, develop, take in exchange or on lease, hire or otherwise acquire, whether for investment or sale any real or personal estate including lands, houses, cottages. warehouses, machinery, plant etc.. 4.4 Further, the appellant company has contended thatin the following case laws wherein the various authorities have held that interest income of an NBFC has to be treated as income from business or profession: a) The Hon'ble ITAT Delhi in the case of Utkal Investments Ltd ITA No 2558/Del./2011; ITA No 2894/Del./2011; ITA No 2662/Del./2012 wherein it was held "The assessee is a registered Non Banking Financial Company in which public is substantially interested. The assessee company carries out the activities of investment in shares. securities, units of mutual funds and advancing loans. The assessee was dealing in shares and securities and also carrying on business of generation and distribution of electricity In the ground no.2 of the cross objection filed by the assessee, the issue is that the Id. CIT (A) has erred in holding that interest earned by the assessee company is income from other sources and not income from business. We have heard both the sides on this issue. The CIT (A) has dismissed the assessee's ground without going into the details regarding business of granting the loans as the assessee was registered as NBFC. There is no clear cut finding regarding this aspect in the order of the authorities below. CIT (A) has rather based his order on the fact that assessee is claiming capital gain on sale of shares, hence, no business income. This reliance is not justified as assessee is a NBFC and doing business of granting loan. Hence, we allow this ground of assessee's cross objection." ITA No.1842/Del/2024 ACIT vs. Vireet Investments Pvt. Ltd. A.Y. 2018-19 4 (b) The Hon'ble ITAT Ahmedabad in case of Soham Securities Ltd. in ITA no. 2433/Ahd/2015 dt 02/11/2018 has held "Para 8.4, In addition to the above, we also note that the assessee has been carrying on the business of money lending in a systematic manner without having the registration with RBI as NBFC. Merely, the fact that the assessee is not registered with RBI AS NBFC, cannot lead to draw an inference that the assessee is not carrying out the business activity. The registration with RBI as NBFC and business activity of the assessee, both are different aspects and cannot be applied for holding that the assessee is not engaged in the business activity. In this regard, we also find support and guidance from the order of ITAT Ahmedabad Benches in the case of International Housing Finance Corporation Ltd. in ITA No.868/Ahd/2004 vide order dated 05.08.2011 wherein it was held as under: "5....In our opinion, whether theassessee company is registered as a housing finance company or not isirrelevant for determining whether the assessee is carrying on the business of financing or not. If the assessee is carrying on the business of finance, despite not being registered, as a housing finance company, its income is to be assessed under the head "Income from business". It is not disputed by the Revenue that the assessee was actually carrying on the business of financing, despite refusal of registration by the NHB. Once the business of finance was carried out by the assessee, it has to be assessed under the head "Income from business". "Para 8.6..... In view of above, we are of the view that the interest income of the assesseeshould have been treated as income from business and profession. Therefore, we set aside the order of Id. CIT(A) and direct the AO to treat the interest income of the assessee as income under the head business and profession." (c) The Hon'Ble ITAT Delhi in the case of M/s Vashulinga Finance Pvt. Ltd ITA No- 5464/Del/2011 had even held interest from Fixed deposit as business income of the assessee as it is an NBFC. 4.5 The above three judgements of the Hon'ble ITAT including jurisdictional ITAT, New Delhi was carefully gone through and considered and it was found that: In case of the order of the Hon'ble ITAT Delhi in the case of Utkal Investments Ltdheld that since the assessee is a NBFC and doing business of granting loan, in this case, CIT (A) has wrongly taken the reliance that ITA No.1842/Del/2024 ACIT vs. Vireet Investments Pvt. Ltd. A.Y. 2018-19 5 assessee is claiming capital gain on sale of shares, hence, no business income and the Hon'ble ITAT Delhi has allowed the ground of the assessee. Since, in the instant case, the appellant company is a NBFC and doing the business of granting loan, Debenture and bond therefore, ratio of the said judgement is squarely applicable in this case Further, the Hon'ble ITAT Ahmedabad in case of Soham Securities Ltdhas held that the assessee has been carrying on the business of money lending in a systematic manner without having the registration with RBI as NBFC. Merely, the fact that the assessee is not registered with RBI as NBFC, cannot lead to draw an inference that the assessee is not carrying out the business activity. The registration with RBI as NBFC and business activity of the assessee, both are different aspects and cannot be applied for holding that the assessee is not engaged in the business activity. However, in the instant case there is no dispute that the appellant company is a NBFC and registered with RBI as well therefore the income will certainly be assessed as business income as is the sprit and intention of the ratio of the judgement. Further, the Hon'ble ITAT Delhi in the case of M/s Vashulinga Finance Pvt. Ltd in the case held interest from Fixed deposit as business income of the assessee as it is an NBFC. Since, in the instant case, the appellant company is a NBFC and doing the business of granting loan, Debenture and bond therefore, the income will certainly be assessed as business income as is the sprit and intention of the ratio of the judgement.” 5. The Revenue is in appeal against the action of the CIT(A) re-characterizing the assessed income on this count from income from other sources to business income. 6. We have heard the rival submissions on the issue and also perused the orders of the lower authorities. In our view the CIT(A) has rightly held that the interest income derived by the assessee company registered as Non-Banking Finance Company required to be treated as business income earned in the ordinary course its core business activity. The re-characterization of income from business income as declared by the assessee to income from other sources by the Assessing Officer on the rationale that interest earned from investment in securities out of surplus fund falls under the ITA No.1842/Del/2024 ACIT vs. Vireet Investments Pvt. Ltd. A.Y. 2018-19 6 head income from other sources is totally misplaced having regard to the fact that money lending and income from investment are the core business activities of the assessee company. It is thus far fetched to characterize the income derived from main business activity as ‘Income From Other Sources’. We see no error in the process of reasoning adopted by the CIT(A) and thus, decline to interfere therewith. 7. In the result, appeal of the Revenue is dismissed. Order was pronounced in the open court on 31.07.2024 Sd/- Sd/- (SUDHIR PAREEK) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 31.07.2024 Priti Yadav, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI