The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) directed the Assessing officer to assess the interest income under the head “Income from Business,” confirming that interest income is assessable as business income.
The assessee company Kamlakant Chhotalal Exporters was stated to be engaged in the business of textiles trading, money lending and other activities. However, during the year under consideration, the assessee has earned interest income, dividend income and gains/loss on sale of shares/derivatives. The return of income filed by the assessee was taken up for scrutiny.
The Assessing Officer noticed that the assessee has earned exempt dividend income of Rs.1.45 crores and has disallowed a sum of Rs.6, 78,553/- under Section 14A of the Income Tax Act, 1961. The Assessing Officer, however, computed the disallowance as per Rule 8D of Income Tax Rules, 1961 at Rs.8, 60,615/- and disallowed the same as against Rs.6, 78,553/- worked out by the assessee.
The Assessing Officer noticed that the assessee has declared interest income of Rs.6, 42,125/- and loss on derivatives of Rs.1, 38,090/-under the head “Income from business”. The Assessing Officer assessed the interest income under the head ‘income from other sources’ and also held that the loss on derivative transactions is speculative in nature. The assessee had claimed expenses aggregating to around Rs.54 lakhs against the above said interest & derivatives income and accordingly declared loss under the head Income from Business.
Since the Assessing Officer assessed interest income under the head Income from other sources, he took the view that the assessee has not carried out any business activity and accordingly, disallowed the entire expenditure claimed by the assessee after reducing disallowance of Rs.8,60,615/- made under Section 14A of the Income Tax Act. The net disallowance of expenses made by the AO was Rs.45, 45,312/-.
A single member bench of the tribunal comprising B.R. Baskaran (Accountant member) noticed that the business of the assessee consisted of money lending activities also and the interest income has been earned by the assessee out of the money lending activities only. Hence, further do not find any reason for assessing the interest income under the head ‘income from other sources’.
Accordingly, ITAT directed the Assessing Officer to assess the interest income under the head ‘income from business’. Accordingly, appeal filed by the assessee was allowed.
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