M/S. AGRAWAL BUSINESS CORPORATION,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME TAX,

आदेश / ORDER आदेश आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This is the appeal filed by the assessee against the order of CIT(A)-1, Nashik, dated 03-11-2016 for the Assessment Year 2013-14.

2 ITA No.164/PUN/2017 M/s. Agrawal Business Corporation

From the above, it is evident that the Ground No.2 is consequential to

Ground No.1 that relates to the proper head of income for taxing the interest

income received by the assessee.

is a firm engaged in the business of Builders/Developers and Estate

Agent. Assessee filed the return of income on 23-09-2013 declaring

total income of Rs.23,30,840/-. During the year under consideration,

the assessee firm earned interest income of Rs.23,61,817/- and

credited the same to the profit and loss account. As a result, the net

profit as per books of account works out to Rs.60,52,097/-. Assessee

treated the same as business income and computed the allowable

remuneration on the said increased profits. In the assessment

proceedings, the AO treated the interest income as taxable u/s.56 of

the Act and therefore, the allowable remuneration is reduced

proportionately. In effect, against the assessee’s claim of deduction on

account of remuneration at Rs.37,21,258/-, the same is reduced by the

AO to Rs.23,22,755/-. It is the claim of the assessee that he is also into

the money lending business and therefore, the interest income

constitutes the business income of the assessee. In this regard, the

assessee relied on various decisions in this regard. Relying on the

judgment of Hon’ble Apex Court in the case of East India Housing and

Land Development Trust Ltd. reported in 42 ITR 49, the AO held that

mere object of formation of a company or a firm does not define the

character of income. He accordingly disallowed the claim of

remuneration to the extent of Rs.13,98,503/- and the same is added to

the income of the assessee. CIT(A) confirmed the same. In para No.5 of

her order, the CIT(A) concluded that the assessee does not possess

3 ITA No.164/PUN/2017 M/s. Agrawal Business Corporation

licence for money lending activity and the transactions of lending are

not substantial. Relying on various decisions mentioned in the said

para, the CIT(A) confirmed the disallowance made by the AO. CIT(A)

also dismissed the contention of the assessee relating to the principle of

consistency stating that the assessee’s claim of said income as business

income was not disturbed in the earlier assessment years.

the above referred grounds.

and submitted that the interest income is taxable as business income

when the assessee earned the same from the fixed deposits. In support

of his case, Ld. Counsel relied on the judgment of Hon’ble Bombay High

Court in the case of CIT Vs. Paramount Premises (P) Ltd. 190 ITR 259

(Bom.). He also relied on certain decisions the copies of which are filed

in the paper book from pages 32 to 34 of the paper book.

interest earned on Fixed Deposits is unrelated to the business activity

of the assessee when the same could not be part of the book profits of

the firm for the purpose of computation of allowable salary, interest

payable to the partners etc. He therefore prayed for affirming the order

of Ld.CIT(A).

income as business income of the assessee and consequently the

inclusion of the same in the business profits for the purpose of

computing deduction u/s.40(b) of the Act. Undisputedly, the facts

4 ITA No.164/PUN/2017 M/s. Agrawal Business Corporation

include that the interest income is reflected by the assessee as business

income of the assessee over the years. It is the claim of the assessee

that the said entries are undisputed by the AO in the past as well as in

the current assessment year. Further, it is the claim of the assessee

that the assessee-firm is into money lending activity and the same is in

accordance with the amended objects of the supplementary partnership

deed of the assessee. Assessee relies on the supplementary deed dated

01-04-2010 (page 3 of the paper book) to substantiate the claim and

stated that this document was not available on 05-02-2016 when the

assessment is made. Therefore, we are of the opinion that there is a

requirement of examining the genuineness of the supplementary deed

of partnership. The availability of surplus funds is the another issue

which requires examination at the end of the AO. Further, the

exclusion of such interest receipts for the purpose of section 40(b) of the

Act was affirmed by the Hon’ble Rajasthan High Court in the case of

CIT Vs. Allen Career Institute reported in 403 ITR 375 (Rajasthan).

Therefore, we are of the view that this issue should be remanded

to the file of AO for fresh adjudication on the correctness of the

returned income for taxing the interest receipts after determining the

facts relating to the availability of excess funds and the scope of the

objects of the assessee if the money lending activity is authorised by the

partnership deed. AO is also required to examine the number of

transactions if they constitute substantial business of the assessee or

otherwise. AO shall grant reasonable opportunity of being heard to the

assessee in accordance with the set principles of natural justice.

Accordingly, the grounds of appeal raised by the assessee are allowed

for statistical purposes.

5 ITA No.164/PUN/2017 M/s. Agrawal Business Corporation

purposes.

Order pronounced on 03rd day of August, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 03rd August, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-1, Nashik 4. The Pr.CIT-1, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC Bench” 5. Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune