A K AHAMED CO,MADURAI vs. ACIT NON CORP CIRCLE 1, MADURAI

This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, in ITBA/NFAC/S/250/2023-24/1062928056(1) dated 19.03.2024. The assessment was framed by the Assistant Commissioner of Income Tax, Non-Corporate Circle 1, Madurai for the assessment year 2017-18 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 26.12.2019.

We have heard rival contentions and gone through facts and circumstances of the case. The assessee has earned the following interests:- 1. Interest from Raymonds Ltd - 25818 2. Interest from OCM Pvt. Ltd. - 6550 3. Others - 1927 The AO treated the same as ‘income from other sources’ and assessed accordingly. The CIT(A) also confirmed the action of the AO. We noted that the assessee has received interest from Raymonds Ltd., amounting to Rs.25,818/-, interest from OCM Pvt. Ltd., amounting to Rs.6,550/- and others amounting to Rs.1,927/-, which are trade debtors. We noted that these trade debtors are directly relatable to business of the assessee and hence, as a direct 3.1 As regards to balance interest on Electricity deposit of Rs.4,39,025/-, interest on fixed deposit with HDFC Bank of Rs.7,71,200/- and interest on fixed deposit with Karur Vysya Bank of Rs.10,66,640/- these interests earned by assessee on FD’s and AO considered these as ‘income from other sources’ and CIT(A) confirmed the same. Now before us, the ld.counsel for the assessee contended that these are inextricably linked to the business of the assessee because the statutory deposit with Electricity Department and deposits with HDFC Bank and KVB was out of compulsion of the assessee to the maintain the FDRs with banks for taking loan. As the assessee could not establish by any documentary evidences that these are inextricably linked with business and these are purely interest income and as such, the same should have been assessed as ‘income from other sources’ and not ‘business income’. The AO and CIT(A) have rightly assessed the same and we confirm the same. However, as alternatively contended by the ld.counsel for the assessee, the netting of interest should be allowed by the AO in case, the assessee is able to prove that any interest is paid by taking FDRs with HDFC Bank or Karur Vysya Bank and also for deposit made with electricity department under compulsion by taking a loan. If the assessee is able to prove direct nexus, the AO will allow netting of. In term of this limited purpose, this issue is remanded back to the file of the AO for verifying and accordingly, this issue is partly- allowed for statistical purposes.

The next issue raised by assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowing excess remuneration u/s.40(b) of the Act. For this, assessee has raised the following Ground No.6 as under:-

We have heard rival contentions and gone through facts and circumstances of the case. We noted that this issue has direct correlation with the interest receipts and we have already held that interest from Raymonds Ltd., interest from OCM Pvt. Ltd., and interest from others are to be assessable as business income, this AO will recompute the remuneration in term of section 40(b) of the Act, after considering these three interest items. As regards to interest on electricity deposit, interest on HDFC bank and interest on KVB, FDRs, the income is to be assessed as ‘income from other sources’, we have already held so, the assessee is not entitled for any remuneration on this u/s.40(b) of the Act. Hence, this issue is partly-allowed to that extent. The AO is directed accordingly.

The next issue in this appeal of assessee is as regards to the disallowance of capital expenditure of Rs.94,500/- disallowed by AO and confirmed by the CIT(A). For this, assessee has raised the following Ground No.7:-

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO has disallowed capital expenditure of Rs.94,500/- which was incurred by assessee for purchase of asset and which was not charged to the books and accounts or the profit & loss account against ‘business income.’ Even this plea was taken before CIT(A) but he simply confirmed the action of the AO vide para 3.2 as under:- “3.2 Ground No.2 is related to the addition of Rs.94,500/- which is not a capital expenditure and is recorded as fixed assets in the books of accounts. Since the addition of Rs.94,500/- is a reasonable cost of fixed assets, I have no reasons to interfere with this addition of AO.”

The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO as regards to addition of Rs.1,91,905/- being expenditure executed in the previous year 2015-16 relevant to assessment year 2016-17 but received bill belatedly and transaction was recorded only in subsequent financial year 2016-17 relevant to this assessment year 2017-18. For this, assessee has raised the following ground No.8:-

The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO and disallowing the expenses for non-deduction of TDS u/s.40a(ia) of the Act. For this, assessee has raised the following ground No.9:-

We have heard rival contentions and gone through facts and circumstances of the case. Before us, the assessee filed the details of nature of expenses, date of credit and details of TDS and stated that on all the transactions, TDS was deducted from Altair HR Management, Neat and Clean Service Squad, Venkateswar Associate, Gaurav Sharma, Girish Textile Agency, Balaji Silk Mills & SGM Prints. When this was confronted to ld.Senior DR, she stated that this can be subject matter of verification by the AO. As both conceded and assessee contended that assessee has already deducted TDS, let this statement be produced before AO by the assessee and assessee will prove that these TDS have been deducted by assessee and paid on respective dates, the AO will consider the same and will decide after verification and in case, TDS is paid, he will allow the expenditure in totality. In term of the above, this issue is also set aside and allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly-allowed for statistical purposes.