Earning interest income on business-to-business deposits is business income: ITAT


The Income Tax Appeal Tribunal (ITAT), Kolkata Bench, has ruled that the interest income from the intercompany filing is business income.

The assessee, Sunny Rock Estates & Developers Pvt. Ltd is in the business of real estate development. He filed his tax return on 23.11.2013, reporting a total income of Rs.44,30,689/-. During the evaluation, Ld. AO among others noted that the assessee claimed deduction for interest on borrowed funds amounting to Rs.43,57,770/- of which an amount of Rs.2,50,880/- was disallowed u/ s. 14A of the Act and the balance of Rs.41,06,890/- was deemed to relate to the ‘Sunny Fort’ construction project undertaken by the assessee which the Assessing Officer (AO) believed was to be capitalized with the cost of the project.

The AO noted in this regard that the unsecured loans taken out by the assessee were used for capital works in progress and therefore interest thereon cannot be allowed as an expense and had to be capitalized with the cost of the project. The AO also noted that the assessee had earned interest income of Rs.89,73,695/- duly declared in the audited P&L account of Williamson Services Ltd. against the inter-company deposit advance (ICD) to the said company.

The AO held this interest income as income from other sources u/s. 56(2) of the Act and thus completed the assessment at assessed income of Rs.89,73,695/-. The aggrieved person appealed to the CIT(A) which, despite the detailed observations of the person evaluated, confirmed the addition/refusal made by the AO. Injured, the assessed person is appealed to the Tribunal.

The bench made up of Rajpal Yadav, vice-president, and Girish Agarwal, accounting member, considered that “in view of the facts, the observations made by Ld. The lawyer and legal precedent mentioned in the Chhangalal Khimji & Co. Pvt. Ltd, we are inclined to accept the assertions of the assessee that the interest income of the assessee is considered business income. The AO is therefore required to treat the same as business income. »

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Sunny Rock Estates & Developers Pvt. ltd. Deputy Deputy Commissioner of Income Tax

Counsel for the Appellant: Shri Soumitra Choudhury

Counsel for the Respondent: Shri Biswanath Das



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