ITAT allows Assessee's appeal on deduction denial for interest income

The ITAT, Kolkata allowed the Assessee's appeal challenging the denial of deduction u/s 80IC on interest income from a fixed deposit. The ITAT directed the Ld. CIT(A) to re-examine the issue of netting the interest income, emphasizing that if the interest income was genuinely related to business activities, it should be treated as a business receipt and allowed for netting as per relevant legal principles. The appeal was allowed for statistical purposes, and the issue of netting interest income was remanded back to the Ld. CIT(A) for further consideration.

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Issues:
Challenge to denial of deduction u/s 80IC on interest income from fixed deposit and the possibility of netting the interest income.

Analysis:
1. The appeal was against the order of the Ld. CIT(A) for Assessment year 2014-15, specifically challenging the denial of deduction u/s 80IC on interest income from a fixed deposit of Rs. 20,37,345.

2. The Assessee argued that even if the interest income from the Fixed Deposit did not qualify for the deduction u/s 80IC, it should be allowed to be netted as it was a business receipt. The Assessee maintained that the interest income was related to maintaining Fixed Deposits for issuing bank guarantees required for purchasing raw material.

3. The Ld. A.R contended that the interest income was business income, supported by documents submitted to the AO and part of the audited accounts. Referring to legal precedents, the Assessee argued that although the interest income might not qualify for deduction u/s 80IC due to lack of nexus with profits, it should be allowed for netting as per the principle established by the Hon'ble Gujrat High Court in certain cases.

4. The ITAT, Kolkata noted that in a previous revenue appeal for the same assessment year, they confirmed the denial of deduction u/s 80IC on interest income. However, a mistake in the figures was corrected, and the appeal was allowed to the extent of the corrected amount. The issue of netting interest income was not addressed in the previous appeal.

5. The ITAT, Kolkata decided that in the interest of justice and fairness, the net interest should be considered for taxation. They directed the Ld. CIT(A) to re-examine the issue of netting the interest income, emphasizing that if the interest income was genuinely related to business activities, it should be treated as a business receipt and allowed for netting as per relevant legal principles.

6. Consequently, the appeal of the Assessee was allowed for statistical purposes, and the issue of netting interest income was remanded back to the Ld. CIT(A) for further consideration in line with the ITAT's order in the Revenue appeal for the same assessment year.

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