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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-1, Amritsar dated 30.11.2018 in respect of Assessment Year 2003-04.
The assessee has raised the following grounds of appeal:
“1. That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of Assessing officer in
2. That the learned Commissioner of Income Tax (Appeals) has erred in law and an facts in confirming the action of Assessing officer in carving out interest earned on FDR’s at Rs. 6,21,372/- and not netting it against the interest paid on borrowing for export business for calculating deduction u/s 80HHC and in ignoring provisions of explanation clause (baa) of sec 80HHC.”
The facts as per records are that the assessee had earned interest income of Rs 621,372/- on FDRs and OCRs with different banks during the year under consideration and inter-alia claimed deduction u/s 80HHC on the same. It was claimed that the said FDRs and OCRs were not purchased out of surplus funds but were made from packing credit limit and other post shipment credit limits and that the assessee had been obtaining over drafts against the said deposits for their day to day export business.
The AO however rejected the contention of the appellant and held that the said interest income cannot be said to have been derived from export business of the assessee in view of the decision of Hon’ble Apex Court in the case of CIT VS Sterling Foods (1999) 237 ITR 579 (SC) and CIT Vs Pandian Chemicals Ltd 262 ITR 278 (SC) where it was held that only the profit of the assessee having direct nexus with the industrial undertaking of the assessee are eligible for deduction. The AO further relied upon the ACIT (2000) 243 ITR 92 and several other cases mentioned in the assessment order and held that the interest earned on fixed deposits for the purpose of availing credit facilities from the bank does not have immediate nexus with the export business and therefore has to be necessarily treated as income from other sources and not business income. Accordingly, the interest income of Rs 621,372/- was treated as income from other sources u/s 56 of the act and no deduction u/s 80HHC of the act was allowed on the said interest income.
In appeal, the Ld. CIT(A) has confirmed the finding of the AO by observing as under:
“Decision- The copy of the decision of hon'ble Apex Court in the case of ACG Associated Capsules P LTd Vs CIT reported in 247 CTR 0372 (SC) relied upon by the appellant was perused. In the said decision it was held that 90% of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profit of business of the assessee as computed under the heads ‘profits and gains of business or profession* is to be deducted under clause (1) of explanation (baa) to section 80HHC for determining the profits of the business. The above decision relied upon by the appellant is not applicable in the case of the appellant as the interest income on PDRs has been held by the AO to be income from other sources and not business income.
By relying on the Hon'ble Apex court decisions in the case of CIT VS Sterling Poods (1999) 237 ITR 579 (SC) and CIT Vs Pandian Chemicals Ltd 262 ITR 278 (SC) where it was held that only the profit of the assessee having direct nexus with the industrial undertaking of the assessee are eligible for deduction. The AO had further relied upon the decision of Hon'ble Kerala High Court in the 4 Mirza Sons Mirza Bagh Nageen v. Asstt. CIT case of Nanji Topanbhai Vs AC IT (2000) 243 ITR 92 and several other cases mentioned in the assessment order and held that the interest earned on fixed deposits for the purpose of availing credit facilities from the bank does not have immediate nexus with the export business and therefore has to be necessarily treated as income from other sources and not business income. Accordingly the assessment of interest income of Rs 621,372/- as income from other sources u/s 56 of the act is upheld and for the same reason the AO was justified in not allowing deduction u/s 80HHC on interest income of Rs 621,372/- which action of the AO is upheld.”
The Ld. AR for the appellant has reiterated the submission made before the authorities below and contended that the assessee has purchased FDRs from State bank of India and earned interest of Rs 621,372/- thereon. The said FDRs were purchased from business funds of the assessee and were pledged with the bank and OD limit was obtained.
The secured loans taken by the assessee include OD loan against FDRs at Rs 65,02,099/-. That there is a direct nexus between the interest received and interest paid by the assessee. The FDRs have been purchased from business funds of the assessee and FDRs funds have again been borrowed in the shape of OD or FDRs and utilize in the business only. The appellant relied on the decision of hon’ble Apex Court in the case of ACG Associated Capsules P. Ltd. Vs CIT reported in 247 CTR 0372 (SC) holding that interest paid and interest received is to be netted where there is nexus and net interest needs to be considered under explanation (baa).
Rs 621,372/-.
Per contra, the Ld. DR stands by the impugned order.
Heard rival contentions, perused the material on record, impugned order, written submissions and case law cited before us. The AO and the LD. CIT (A) has held the interest income on FDRs from bank, to be income from other sources and not business income which has not been controverted or disproved by the Ld. Counsel by way of establishing any direct nexus between the interest received on the FDRs were being purchased from business funds of the assesse. The Ld. CIT(A) has been justified in distinguishing the decision of Hon’ble Apex Court in the case of ACG Associated Capsules P Ltd. Vs CIT (Supra) relied upon by the appellant in support. In our view, the Ld. CIT(A) was justified in holding that the interest earned on fixed deposits for the purpose of availing credit facilities from the bank does not have immediate nexus with the export business and therefore has to be necessarily treated as income from other sources and not business income. In our view, the Ld. CIT(A)’s decision was as per law in upholding the finding of the AO, in restricting deduction grounds of appeals are rejected.
8. In the above view, we find no infirmity in the decision of the Ld. CIT(A) being passed as per judicial discipline. Accordingly, the assessment of interest income of Rs. 6,21,372/- as income from other sources u/s 56 of the act is confirmed.
In the result, the appeal filed by the assesse is dismissed.
Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 31.01.2023.