SRIRAMI REDDY PALAVALA,KADAPA vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, KADAPA

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ITA 989/HYD/2018Status: DisposedITAT Hyderabad13 March 2019AY 2014-153 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that interest earned on fixed deposits made for bank guarantees should be considered part of business activity and not a separate addition. The matter was remitted back to the AO for verification.

What were the facts?

The assessee reported bank interest income of Rs. 8,22,264/- in his return. The Assessing Officer (AO) rejected the assessee's books of account and estimated income at 8% of gross receipts. The CIT(A) upheld the estimation but treated the bank interest as income from other sources, not part of estimated business income.

What were the issues?

Whether interest earned on fixed deposits made for business purposes (bank guarantee) should be treated as part of estimated business income or income from other sources when books of account are rejected.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD BENCH ‘B, HYDERABAD

Before: SHRI V. DURGA RAO & SHRI S. RIFAUR RAHMAN

For Appellant: Shri K.A. Sai Prasad
For Respondent: Smt. M. Narmada
Hearing: 07/03/2019Pronounced: 13/03/2019

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 989/Hyd/2018 Assessment Year: 2014-15 Srirami Reddy Palavala, vs. Asst. Commissioner of Kadapa. Income-tax, Circle – 1, Kadapa. PAN – ASQPP6319M Appellant Respondent Assessee by: Shri K.A. Sai Prasad Revenue by: Smt. M. Narmada Date of hearing: 07/03/2019 Date of pronouncement: 13/03/2019 O R D E R PER S. RIFAUR RAHMAN, AM:

This appeal filed by the assessee is directed against the order of CIT(A), Kurnool, dated 09/03/2017 for AY 2014-15 wherein the assessee has raised the following grounds of appeal:

2.

Ground Nos. 1 & 2 are not pressed by the ld. AR of the assessee at the time of hearing before us, therefore, the same are dismissed as not pressed.

3.

Ground No. 3 is regarding addition of Rs. 8,22,264/- representing interest from fixed deposits.

4.

Brief facts of the case are that the assessee, an individual filed his return of income for the AY 2014-15 on 30/11/2014 admitting a total income of Rs. 50,45,310/- and

2 I.T.A. No. 989/Hyd/18 Srirami Reddy Palavala, Kadapa bank interest income of Rs. 8,22,264/-. The AO completed the assessment u/s 143(3) of the Act on 31/03/2016 by rejecting books of account of the assessee and estimated the income @ 8% of the gross receipts (net of all allowable expenses).

5.

When the assessee preferred an appeal before the CIT(A), the CIT(A) upheld the estimation of the net profit @ 8% on gross receipts made by the AO.

5.1 With regard to interest from bank, the CIT(A) observed that the same is not a part of contract receipt but is income from other sources, thus, cannot be part of estimated income.

6.

Before us, the ld. AR of the assessee submitted that the amount of Rs. 8,22,264/- representing the interest from fixed deposits, which were deposited for Bank Guarantee, particularly, when the books of accounts were rejected and the fixed deposit made was only for the purpose of business, the interest earned by the assessee is part of the business activity.

7.

Ld. DR, on the other hand, relied on the orders of revenue authorities.

8.

Considered the rival submissions and perused the material on record. As the fixed deposits in the bank made by the assessee for the purpose of Bank Guarantee, there cannot be a separate addition for the interest received on fixed deposits as part of business activities. Since no authorities have verified the claim of the assessee, we remit the matter back to the file of AO with a direction to verify the claim of the assessee in accordance with law after providing reasonable opportunity of being heard to the assessee.

3 I.T.A. No. 989/Hyd/18 Srirami Reddy Palavala, Kadapa

9.

In the result, appeal of the assessee is treated as allowed for statistical purposes. Pronounced in the open court on 13th March, 2019.

Sd/- Sd/- (V. DURGA RAO) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 13th March, 2019. kv Copy forwarded to: 1. Srirami Reddy Palavala, C/o Ch. Parthasarathy & Co., 1-1- 298/2/B/3, 1st Floor, Sowbhagya Avenue, St. No. 1, Ashoknagar, Hyderabad – 500 020. 2. ACIT, Circle - 1, Hyderabad. 3. CIT(A), Kurnool 4. Pr. CIT, Kurnool 5. The DR, ITAT, Hyderabad 6. Guard File

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