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Tribunal overturns CIT(A) decision on NP rate & FDR interest, directs as business income The tribunal allowed the appeal, overturning the CIT(A)'s decision regarding the estimation of NP rate at 7% and directing the treatment of FDR interest ...
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Tribunal overturns CIT(A) decision on NP rate & FDR interest, directs as business income
The tribunal allowed the appeal, overturning the CIT(A)'s decision regarding the estimation of NP rate at 7% and directing the treatment of FDR interest as business income. The tribunal found the NP rate declared by the assessee to be fair and progressive, deleting the addition sustained by the CIT(A) based on past tribunal decisions. Additionally, the tribunal held that the FDR interest had a direct link to securing contracts and business operations, directing the AO to treat it as business income.
Issues: 1. Estimation of NP rate at 7% subject to depreciation and interest to third parties compared to 12.50% applied by AO. 2. Addition of FDR interest as income from other sources.
Issue 1: The appeal was against the CIT(A)'s order sustaining the NP rate at 7% with depreciation and interest to third parties, instead of the 12.50% applied by the AO. The AO rejected the books of accounts under Section 145(3) due to discrepancies in GP rate. The CIT(A) considered the past history of the assessee and comparable cases, concluding that 7% NP rate was fair. The tribunal found the NP rate declared by the assessee to be progressive, with no basis for the estimates by the AO or CIT(A). Citing past tribunal decisions, the tribunal deleted the addition sustained by the CIT(A).
Issue 2: The second issue related to the AO treating FDR interest as income from other sources without discussing it in the assessment order. The CIT(A) affirmed this decision, stating FDR interest was not business income. The tribunal noted that the FDRs were purchased for obtaining contract work, and the interest earned was part of business income. Citing relevant tribunal decisions and the Supreme Court case law, the tribunal held that the interest income had a direct link to securing contracts and business operations. Consequently, the tribunal directed the AO to treat the interest income as business income, overturning the CIT(A)'s decision.
In conclusion, the tribunal allowed the appeal, deleting the addition related to NP rate estimation and directing the treatment of FDR interest as business income.
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