The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the interest on Fixed Deposit (FD) received during the setting-up of business is not a Business Income but shall be treated as Income from Other Sources.
The assessee M/s. Kadavanthara Builders Private Limited filed a nil return wherein the case was selected for scrutiny to reconcile “large difference in closing stock shown in the balance sheet and profit and loss account as per the return”.
The assessee contended that the interest on FD is to be assessed as its business income.
The contention of assessee was rejected by the Assessing Officer (AO), considering the income as income from other sources.
Aggrieved by the order, assessee filed appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) and it upheld the order of the AO giving direction to re-compute the income.
On appeal before the ITAT, the assessee stated that CIT(A) has erred in concurring with AO in assessing the interest income under the head ‘income from other sources’, as opposed to assessing the same under the head ‘profits and gains of business or profession’ as claimed by the assessee.
The assesse, represented by its counsel Piyush Agarwal, C.A., contended that CIT(A) and AO have erred in making an addition of interest income from fixed deposits as income from other sources, without appreciating that this FD interest is already included in the returned income and income before adjustment of brought forward loss as per the assessment order, thereby resulting in double taxation of interest income.
Ganesh R Ghale, the standing counsel for revenue, contented that the interest income received during the construction period/setting up of business process which has been received from the fixed deposits of the unutilized funds is to be taxed as income from other sources. The single-member tribunal bench of Shri Laxmi Prasad Sahu (Accountant Member) upheld the order of the CIT(Appeals) observing that the interest income received on FD during the construction period/setting up of business process is to be taxed as income from other sources.
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