ITAT rules on taxability of interest income from fixed deposits, emphasizes project link

The appeals were partly allowed by the Appellate Tribunal ITAT Guwahati, favoring the assessee on the taxability of interest income from fixed deposits. The Tribunal emphasized the importance of considering the link between interest income and project commencement before taxing the net amount. The decision set aside the previous orders, directing that only the net interest amount should be taxed in accordance with the law.

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Issues:
1. Taxability of interest income received from fixed deposits.

Analysis:
The appeals were filed by the assessee against the orders of the Ld. CIT(A)- Guwahati for assessment years 2012-13 to 2014-15. The primary issue raised by the assessee was the taxability of interest income received from fixed deposits. The Ld. Advocate for the assessee clarified that only this issue was being contested, while other directions given by the Ld. CIT(A) were not pressed. The AO had observed that the assessee had not shown interest income from fixed deposits in the total income computation. The AO taxed the interest income, leading to the appeal. The Ld. CIT(A) upheld the AO's decision, stating that the interest income was required to be taxed as the business had commenced, and there was no link between the interest income and the interest claimed. The Ld. CIT(A) dismissed the grounds of appeal raised by the assessee.

The assessee contended that the interest income was linked to the project that had commenced, and the interest expenditure should be netted against the interest received before taxing the net amount. The Ld. Advocate argued that due to local disputes, the project had stalled, leading to recurring borrowing costs. The assessee had deposited the loan amount in banks, generating interest income, while also incurring interest expenses to NEDFI. The net amount was capitalized as work in progress. The Ld. CIT(A) agreed that since the project had started, the interest expenditure should be allowed under section 36(1)(iii) of the Income Tax Act, and only the net interest amount should be taxed. Consequently, the impugned orders were set aside, directing that only the net interest amount should be taxed in accordance with the law.

In conclusion, the appeals were partly allowed, with the decision on the taxability of interest income from fixed deposits favoring the assessee. The judgment emphasized the need to consider the link between interest income and project commencement before taxing the net amount. The order was pronounced on 15th January 2021 by the Appellate Tribunal ITAT Guwahati.

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