2015 (7) TMI 115 - AT - Income Tax

Tribunal partially allows appeal, deletes interest income, upholds unexplained sales income addition. Decision on 24/6/2015.

CLC TEXTILE PARK PRIVATE LIMITED Versus INCOME TAX OFFICER, WARD 3 (2), NEW DELHI

CLC TEXTILE PARK PRIVATE LIMITED Versus INCOME TAX OFFICER, WARD 3 (2), NEW DELHI - TMI Issues Involved:1. Confirmation of addition of Rs. 5,91,850/- on account of interest income treated as capital receipt.2. Confirmation of addition of Rs. 49,28,006/- on account of sale consideration treated as unexplained income under section 68 of the I.T. Act.Issue-wise Detailed Analysis:1. Confirmation of Addition of Rs. 5,91,850/- on Account of Interest Income Treated as Capital Receipt:The assessee argued that the interest income of Rs. 5,91,850/- from fixed deposits should be treated as a capital receipt because it was earned from a grant sanctioned by the Central Government. The grant was intended for infrastructure development in the textile sector, and the interest earned was to be either adjusted in the next release or refunded to the Government. The assessee contended that the interest should not be treated as income from other sources, citing decisions from the Delhi High Court and Gujarat High Court where interest earned on funds meant for specific projects was treated as capital receipts.The Revenue authorities, however, relied on the Supreme Court's decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT, which held that interest income is of a revenue nature unless received as damages or compensation. They argued that the interest income was not inextricably linked to the setting up of the business and should be taxed under the head 'Income from Other Sources.'After considering both sides, the Tribunal found merit in the assessee's argument, noting that the interest earned was indeed linked to the grant and should be treated as a capital receipt. The Tribunal distinguished the case from Tuticorin Alkali Chemicals and Fertilizers Ltd., citing relevant High Court decisions and concluded that the interest income of Rs. 5,91,850/- should not be taxed as income from other sources. Thus, the addition was deleted.2. Confirmation of Addition of Rs. 49,28,006/- on Account of Sale Consideration Treated as Unexplained Income Under Section 68:The assessee had shown sales and purchases of Rs. 49,28,006/- in its trading account. The AO found discrepancies, such as the lack of details in the sales invoices, absence of customer names and addresses, and no transportation details, leading to the conclusion that the transactions were unproved. The AO added the amount as unexplained income under section 68, suspecting that the transactions were fabricated to generate cash for purchasing land in Madhya Pradesh.The assessee argued that the transactions were genuine, supported by account payee cheques for purchases, and that the sales were made in cash due to the immediate need for funds. The assessee cited a case from the Kolkata Bench of ITAT, arguing that if sales were unproved, the amount would remain in closing stock.The Tribunal noted the AO's detailed findings, including the timing of payments and the lack of evidence for the transactions. The Tribunal agreed with the CIT(A) that both the sales and purchases were unproved, leading to the conclusion that the transactions were fabricated. Consequently, the addition of Rs. 49,28,006/- as unexplained income under section 68 was upheld.Conclusion:The appeal was partly allowed. The addition of Rs. 5,91,850/- on account of interest income was deleted, while the addition of Rs. 49,28,006/- on account of unexplained income was upheld. The Tribunal's decision was pronounced in the Open Court on 24/6/2015.