2014 (4) TMI 1281 - AT - Income Tax

ITAT decision: Income additions revised, interest income recognized. Consider past history for accurate income assessment.

The ITAT partially allowed the appeal, deleting the addition in the income from contract business and recognizing the interest income as part of the ... Addition in the income declared from contract business - HELD THAT:- CIT(A) has placed reliance on certain cases belong to contractors but as we have already stated, the factual matrix of comparable cases, definitely differ and have little nuance regarding the nature of business, that is , if they are obtaining contract from government/semi government departments or from private parties and respective turnover disclosed by them. But the contract work done also depends on the place(s) where the parties are executing their contract work. In case the past history of the assessee is not available, then in that eventuality, the history of comparables has been treated as a good guidance by the courts - in the given case, when the history of the assessee itself exists, there is no need to jump the gun and ignore its past history. We hold that the results shown during the year under consideration being better than the results shown in the immediately preceding A.Y., there is no reason to make any further addition on this count. Accordingly, we order to delete the entire addition made in the trading results disclosed by the assessee and more particularly, to delete the impugned addition sustained by the ld. CIT(A) - we allow Ground No. 1 of this appeal. Income from other sources - addition has been made because the assessee has shown interest income on FDRs in its profit and loss account and on that basis alone, the A.O. persuaded himself to treat this interest income as income from other sources - Whether CIT(A) has grossly erred in holding the income from interest liable to be assessed separately even after holding the same as income from business which is not a separate source of income liable to be taxed separately and is to be considered as part of income from contract business? - HELD THAT:- A.O. has ignored the contention of the assessee that FDRs were purchased for taking contract work and therefore, the interest accruing on these FDRs would become its business income. The assessee filed copies of FDRs, which were pledged with various government department. The A.O. or the ld. CIT(A) have not disputed the above mentioned facts. In our considered opinion, his interest income would partake the character of business income only. In such like cases, we have taken numerous decisions in the same lines. Accordingly, after considering this interest income as part of business income as has been claimed by the assessee, we allow Ground No. 2 of this appeal as it has been prayed for. Issues:1. Addition of income from contract business.2. Treatment of interest income as business income.Issue 1: Addition of income from contract businessThe appellant, a civil contractor, filed an appeal against the order of the ld. CIT(A) sustaining an addition of Rs. 44,89,631 in the income declared from contract business for A.Y. 2010-11. The AO rejected the books of account maintained by the appellant and applied a net profit rate of 8.5%, resulting in the addition. The ld. CIT(A) reduced the addition to Rs. 44,89,631 by invoking a net profit rate of 6.5%. The appellant contended that the results for the year under consideration were better than the past year, arguing against any addition. The ITAT, after considering the past history of the appellant and the better results in the current year compared to the past, deleted the entire addition, citing settled legal principles and binding judgments. The ITAT emphasized that the comparative analysis of gross receipts and profit rates supported the appellant's position, leading to the deletion of the addition.Issue 2: Treatment of interest income as business incomeThe appellant had deposited a fixed amount in FDRs as per government department requirements to obtain work contracts, earning interest income of Rs. 12,84,137. The AO and ld. CIT(A) treated this interest income as income from other sources, contrary to the appellant's claim of it being business income. The ITAT noted that the FDRs were purchased for securing contract work, and the interest accruing on them should be considered business income. Relying on similar precedents and considering the interest income as part of business income, the ITAT allowed Ground No. 2 of the appeal, overturning the treatment of interest income as income from other sources.In conclusion, the ITAT partially allowed the appeal, deleting the addition in the income from contract business and recognizing the interest income as part of the appellant's business income. The judgment emphasized the importance of considering past history and better results in the current year while determining additions to income and correctly characterizing sources of income.