The Kolkata bench of the Income Tax Appellate Tribunal (ITAT), recently held that the interest income from FDRs can be treated as business income if the assessee proves that the same is essential/necessary for obtaining the contract.
The assessee claimed that FDR was used as security for obtaining the contract and was an essential condition for bagging the contract and claimed that the interest income from the same should be treated as business income. The department rejected the fact that the assessee has not bothered to give any material/evidence to show that the interest accrued on the FDRs/deposit was incidental and that the main purpose of FDR’s was it was a condition for getting the contractor to avail the bank guarantee/security deposit/ E-money/tender money etc.
The Tribunal observed that the assessee only made these contentions, but failed to produce any material to substantiate his contention that the interest accrued from FDR should be treated as income from the business.
In the absence of any documentary evidence, the Tribunal observed that “I set aside the impugned order of the Ld. CIT(A) and remand the matter back to the AO with a direction to examine the matter afresh regarding the characterization/nature of receipt in the light of the above-mentioned case laws as well as the facts which the assessee bring to the notice of the AO. And if the assessee brings the notice of AO the terms of contract etc and is able to show that the FDR’s in question was essential/necessary for obtaining the contract, then the interest income from these FDRs to be treated as business income and if the assessee fails to do so, then AO is at liberty to treat it as income from Other Sources and assessment may be framed in accordance to the law. The assessee is at liberty to file/produce necessary contracts/documents/evidence and case laws, if so advised, to substantiate that the FDR was to secure/avail directly or indirectly the contract work as discussed supra.”