Interest on Fixed Deposits being Attributable and Incidental to the Trading Business, Exemption Claimable u/s. 10AA: ITAT [Read Order]

The Income Tax Appellate Tribunal(ITAT), Mumbai Bench, has recently held that interest on fixed deposits being attributable and incidental to the trading business, exemption under section 10AA of the Income Tax Act, 1961, is claimable.

The aforesaid observation was made by the Tribunal when cross appeals were preferred before it by the assessee and the Revenue, as directed against the order of the Commissioner of Income Tax (Appeals)-25, Mumbai, (CIT (A)), vide the common order dated 30.01.2014 for the Assessment Year (AY) 2010-11.

The brief facts of the case being that the assessee was a partnership firm, which filed its return of income on 13.10.2010, declaring the total income at Rs. Nil by claiming deduction amounting to Rs. 13,13,66,314/under section 10AA of the Income Tax Act, 1961, a survey action under section 133A of the Act was conducted on 21.09.2010.

Subsequently, the assessee’s case was selected for scrutiny under section 143(2) of the Act, and a show-cause in respect of the rejection of claim of deduction, under section 10AA of the Act, was issued during the assessment proceeding.

The total turnover for the year under consideration being shown at Rs. 239, 83, 80,927/- and Net Profit (NP), at Rs. 13, 13,66,314/- (GP @ 5.47%), the entire NP was claimed to be exempted under section 10AA of the Act.And the assesse achieving a turnover of Rs. 92,33,44,065/- and NP at Rs. 10,13,80,418/- (GP @ 11% and NP @ 10.89%), in the immediately preceding year which was the first year of business,the assesse has now preferred an appeal before ITAT against the order of Ld. CIT (A).

The grounds of the Assessee’s appeal being as to whether on the facts and in the circumstances of the case and in law, the Learned CIT (A) has erred in treating the income from Fixed Deposit as income from other source, wherein the nexus of business transaction was already proved, and as to whether he has erred in not allowing the expenditure from the income which was incurred solely for the purpose of earring the same, the Tribunal observed as follows:

“We have gone through the entire facts and precedents of law on the similar issue, and have found that interest on FDR along with Forward Premium, Bank Charges and Interest paid are inextricable part of the business of the assessee.”

“We rely on the decision of Hon’ble Karnataka High Court (Full Bench) in the case of CIT Vs. Hewlett Packard Global Soft Ltd. (2017) 87 taxmann.com 182, CIT Vs. Motorola India Electronics Pvt. Ltd. (2014) 265 CTR 94 and Rajesh Exports Ltd. Vs. ACIT (2008) TIOL 457 (Bang.). And therefore, on similar lines, since the Interest on Fixed Deposits are attributable and incidental to the trading business carried on by the assessee, the same has rightly been claimed as exempt u/s. 10AA of the I T Act.”, the Bench commented.

Thus, allowing the Assessee’s claim, it ruled:

“In the result, the results declared by the assessee after netting off the FDR Interest with interest paid and Forex loss are eligible to be adjusted against Business Profit”.

To Read the full text of the Order CLICK HERE

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