Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that interest income earned by an assessee should be treated under the head business income, even if its application for Non-Banking Financial Company (NBFC) was rejected by Reserve Bank of India (RBI).
Assessee in the instant case, is a company engaged in the business activity of investment into financial instruments, mutual funds etc. During the year under consideration, the assessee received interest income from its investments and treated the same under the head business income.
During the assessment period the Assessing Officer (AO) noticed that the assessee’s application for getting status of NBFC was rejected by the RBI, therefore, the assessee company cannot be considered as a NBFC. And also observed that actually the assessee’s objective was to make investments in financial instruments and he was of the view that the deposits made with banks/corporates cannot be treated as business activity of the assessee and interest income earned from the same cannot treated as business income. Accordingly, he assessed the same income under the head income from other sources.
Before the tribunal, the Assessee argued that the AO has accepted that the assessee has carried out the same business activity in the preceding years also and there is no necessity for the AO to take a different view in this year alone and the same has violated the principles of consistency. In this regard the interest income can be treated under the head business income.
After hearing the submissions of both the parties, the division bench comprising of Judicial Member Ram Lal Negi and Accountant Member B.R.Baskaran held that the application for getting the status NBFC of the assessee was rejected by RBI, but it does not fall in the meaning that the assessee does not carrying a business activity.
The bench further noted that the assessee carried out the same activity in previous years also, and interest income received from investments was treated as business income in the preceding year. “If we take the same in a different view then it will become violation of the consistency principle,” the bench said.
The consistency principle states that once you adopt an accounting principle or method continue to follow it consistently in future accounting periods. And the tribunal bench also opinioned that the assessee can treat the aforementioned interest income under the head business income instead of income from other sources.
Subscribe Taxscan Premium to view the Judgment
