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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the assessee is directed against order dated 24.02.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short „the Ld. CIT(A)‟] for assessment year 2012-13, raising following grounds:
The Learned CIT(A) erred in passing R the order ex-parte, without giving a proper opportunity of hearing. The learned CIT (A) also erred in passing the impugned order without considering the written submissions filed.
In the facts and circumstances of the case and in law, the learned CIT(A) erred in not holding that the impugned assessment/ re-assessment made u/s 147/148 was bad in law.
3. In the Facts and Circumstances of the Appellant's case and in Law, the Learned CIT (A) erred in confirming the addition/ disallowance of Rs. 2,72,046 as excess remuneration u/s 40 (b)(v) of the Income Tax Act, 1961. 4. It is most respectfully submitted that the learned CIT (A) grossly erred in confirming that the Interest on Fixed Deposit kept for Bank Guarantee purpose should be considered asIncome from Other Sources and not as Income from Business and Profession. 2. Briefly stated facts of the case are that the assessee filed its return of income for the year under consideration on 25.09.2012 declaring total income at Rs.7,41,830/-. The assessment u/s 143(3) of the Income-tax Act, 1961 (in short „the Act‟) was completed on 26.03.2015 at total income of Rs.15,27,690/-. Subsequently, assessment was reopened by way of issue of notice u/s 148 of the Act dated 16.08.2018. In response, the assessee filed return of income and the reassessment was completed on 29.12.2018 wherein the interest income of Rs.23,65,867/- received from fixed deposits kept with Union Bank of India and Syndicate Bank was held to be assessed under the head „income from other sources‟ rather than under the head „profit and gains of business or profession‟. Due to change of head of interest income, there was loss under the head “profit and gains of business”. Accordingly, the admissible remuneration to the partners was reduced to the extent of Rs.1,50,000/- in the view of book loss. Aggrieved, the assessee filed appeal before the Ld. CIT(A) but could not succeed. The submissions filed by the assessee were not considered and the Ld. CIT(A) decided the appeal ex-parte.
We have heard rival submission of the parties and perused the relevant material on record. Before us, the Ld. Counsel of the assessee submitted that interest was received in respect of two fixed deposits made for the purpose of bank guarantee provided for the purpose of the business. The Ld. Counsel of the assessee referred to page No. 5 to 10 of the Paper Book which is copy of the bank guarantee given to the Union Bank of India and submitted that the assessee is a developer of Slum Rehabilitation Project and bank guarantee had to be given to the Slum Rehabilitation Authority (SRA) in terms of SRA project awarded and first fixed deposit of Rs.3,37,12,800/- was made for this Bank Guarantee. The Ld. Counsel referred to anotherbank guarantee submitted to Syndicate Bank copy of which is available page 12 to 17 of the Paper Book and submitted that assessee had set up a CNG station for which it had to give bank guarantee of Rs. 14,70,000/- to „Mahanagar Gas Ltd‟, thus corresponding fixed deposits was made for the purpose of bank guarantee. The Ld. Counsel of the assessee submitted that all these documents were duly filed before the Ld. Assessing Officer but same have not been considered by him.
The issue in dispute in the case is whether the interest received from fixed deposits amounting to Rs.23,65,867/- is liable to be assessed under the head „profit and gains from business or profession or income from other sources. The main test for determining the head of the source of the income is whether those fixed deposits had been made for the purpose of the running of the business of the assessee. In view of the documents in support of bank guarantee filed by the assessee , there is no doubt that those fixed deposits have been made for the purpose of bank guarantee in the course of the business and therefore, the interest income arising from those fixed deposits has to be assessed under the head „profit and gains of the business‟ and not head „income from other sources. Accordingly, we set aside the finding of the Assessing Officer on the issue in dispute and delete the addition. The ground No. 4 of the appeal of the assessee is accordingly allowed. The ground No. 3 is consequential therefore same also stands allowed. The ground No. 1 and 2 of the appeal were not pressed by the assessee and therefore same are dismissed as infructuous.
In the result, the appeal of the assessee is allowed partly.