In a recent ruling, the Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) held that Income Tax addition is not applicable on the interest income from government project funds deposited as the interest was entirely remitted back to the central/ state government and remanded the issue back to the Assessing Officer ( AO ).
The revenue has filed two appeals against separate orders dated 21.07.2023 and 15.07.2023 by the CIT (Appeals), National Faceless Appeal Centre, Delhi ( NFAC ), concerning the assessment years 2017-18 and 2018-19. An affidavit was filed by the revenue stating that there was a delay of 48 and 54 days in filing these appeals due to the need to gather essential documents, including the assessee company’s Memorandum and Articles of Association, as the revenue office in Davangere is located over 250 km from the Pr. CIT’s office in Bengaluru. The ITAT, by considering these reasons and following the judgment in Collector, Land Acquisition vs. MST. Katiji and Others (1987) 167 ITR 471, has decided to condone the delay.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
In this case, the assessee, Davanagere Smart City, is a company established by the Govt. of India for implementation of Smart City under the Planning Commission.
In the financial year ( FY ) 2016-17, the assessee earned an interest income of Rs. 13,90,47,536 but initially declared a total income of Rs. 11,44,890. Later, the assessee filed revised returns showing a loss of Rs. 23,50,104 and claimed a refund of Rs. 4,92,53,130, with another revision on 26.10.2018. During scrutiny, the assessing officer ( AO )noted discrepancies that the original return showed income of Rs. 13,11,44,889, while the revised return claimed a loss, excluding interest on FD ( Rs. 13,20,64,775 ) and SB account ( Rs. 69,82,761 ). The AO rejected the assessee’s explanation that interest income is out of money given by the Government of India for the purpose of implementation of the Smart City scheme.
The AO allowed expenses claimed as per P&L account of Rs. 23,00,829 and assessed income at Rs.13,67,46,710.
The assessee, who was aggrieved by the above order, appealed before the First Appellate Authority ( FAA ) and the appeal was allowed.
Aggrieved by the above order, the revenue appealed before the ITAT.
The counsel on behalf of the department contended that the assessee had received interest from the idle funds that were received as grant from the government, which was deposited in the bank and thus the interest is taxable as income from other sources under Section 56 of the Income Tax Act, 1961.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The ITAT bench consisting of Mr. Keshav Dubey ( Judicial Member ) and Laxmi Prasad Sahu ( Accountant Member ) partly allowed the appeal filed by the revenue for statistical purposes.
The bench remanded the case back to the AO to check whether the interest income has been remitted back either to the Central Govt. and/or State Govt according to the interest received on the fund following the necessary guidelines.
The bench held that after verifying if it is found that the entire interest income has been remitted back to the Central Govt./ State Govt., then there should be no addition on both the interest income earned on its deposits ( FD and SB A/c ).
The appellant was represented by Mr. Sridhar E and the respondent by Mr. V. Srinivasan.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
