The Income Tax Appellate Tribunal (ITAT), Kolkata bench held that earning interest income from Inter-corporate Deposit is business income.
The assessee, Sunny Rock Estates & Developers Pvt. Ltd is in the business of developing property. It filed its return of income on 23.11.2013 reporting a total income of Rs.44,30,689/-. During the course of assessment, Ld. AO, inter alia, noted that the assessee has claimed a deduction in respect of interest on borrowed funds amounting to Rs.43,57,770/- out of which a sum of Rs.2,50,880/- was disallowed u/s. 14A of the Act and the balance of Rs.41,06,890/- was considered to be in respect of ‘Sunny Fort’ construction project undertaken by the assessee which according to the Assessing Officer (AO) had to be capitalized with the cost of the project.
The AO noted in this respect that the unsecured loans taken by the assessee were utilized towards the capital work in progress and, therefore, the interest thereon cannot be allowed as an expense and had to be capitalized with the cost of the project. The AO also noted that the assessee had earned an interest income of Rs.89,73,695/- duly reported in the audited P&L Account from Williamson Services Ltd. against the Inter-corporate Deposit (ICD) advance to the said company.
The AO held this interest income as income from other sources u/s. 56(2) of the Act and thus completed the assessment at the assessed income of Rs.89,73,695/-. Aggrieved, the assessee went to appeal before the CIT(A), who despite detailed submissions made by the assessee, confirmed the addition/disallowance made by the AO. Aggrieved, the assessee is in appeal before the Tribunal.
The Bench consisting of Rajpal Yadav, Vice President, and Girish Agarwal, Accountant Member held that “Considering the facts, submissions made by the Ld. Counsel and the judicial precedent referred in the case of Chhangalal Khimji & Co. Pvt. Ltd, we are inclined to accept the contentions of the assessee to hold the interest income of the assessee as business income. The AO is accordingly, directed to treat the same as business income.”
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