2021 (9) TMI 649 - AT - Income Tax

Tribunal upholds interest income classification, allows set-off of losses, and permits interest expenditure deduction. Consistency emphasized.

The Tribunal dismissed the revenue's appeal, upholding the classification of interest income as 'Income from business,' allowing the set-off of brought ... Correct head of income - interest income received on loan advanced to be assessed as “Income from business' or “Income from other sources” - HELD THAT:- It would be relevant to observe, in assessee’s own case in assessment year 2013-14 [2020 (1) TMI 162 - ITAT MUMBAI] while completing the assessment under section 143(3) of the Act, the assessing officer treated the interest income received on loans advanced as “Income from business” and also allowed the corresponding expenditure. However, the revisionary authority in exercise of powers conferred under section 263 of the Act revised the assessment order and directed the assessing officer to treat the interest income as “Income from other sources”. While deciding assessee’s appeal against revisionary order passed under section 263 of the Act, the Tribunal not only quashed the order passed under section 263 of the Act, but also restored the assessment order passed by the assessing officer treating the interest income earned on loans advanced as business income and also allowing corresponding expenditure. - Decided against revenue. Issues Involved:1. Classification of interest income as 'Income from business' vs. 'Income from other sources.'2. Eligibility of set-off of brought forward business losses against interest income.3. Allowability of interest expenditure against interest income.4. Consistency in assessment across different assessment years.Issue-wise Detailed Analysis:1. Classification of Interest Income:The primary issue was whether the interest income received on loans advanced by the assessee should be classified as 'Income from business' or 'Income from other sources.' The assessing officer initially treated the interest income as 'Income from other sources' on the grounds that the assessee was not engaged in the money lending business. However, the learned Commissioner (Appeals) followed the precedent set in the assessee's own case for the assessment year 2011-12 and held that the interest income should be treated as 'Income from business.' This decision was supported by the Tribunal's previous rulings in the assessee's sister concern cases, where similar interest income was classified as 'Income from business.'2. Eligibility of Set-off of Brought Forward Business Losses:The revenue challenged the set-off of brought forward business losses against the interest income, arguing that the interest on idle funds borrowed for a business that had not commenced should not be eligible for such set-off. However, the learned Commissioner (Appeals) and the Tribunal upheld the assessee's claim, allowing the set-off by treating the interest income as 'Income from business.'3. Allowability of Interest Expenditure:The assessing officer disallowed the corresponding interest expenditure on the grounds that it was not incurred wholly and exclusively for earning the interest income. The learned Commissioner (Appeals) deleted this disallowance, reasoning that there was a direct nexus between the borrowed funds and the interest income. The Tribunal supported this view, noting that the assessee had borrowed funds for business purposes and advanced them to reduce overall interest costs due to market slowdown. The Tribunal emphasized that the interest expenditure having a direct nexus with the interest income was an allowable deduction.4. Consistency in Assessment:The Tribunal highlighted the importance of consistency in assessment, noting that in the assessee's own case for the assessment year 2013-14, the assessing officer had treated the interest income as 'Income from business' and allowed the corresponding expenditure. This consistency was further supported by the Tribunal's decision to quash the revisionary order passed under section 263 of the Act, which had directed the assessing officer to treat the interest income as 'Income from other sources.' The Tribunal emphasized that the rule of consistency favored the assessee's stand, as similar interest income had been consistently accepted as business income in scrutiny assessment proceedings for several years.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the decision of the learned Commissioner (Appeals) to classify the interest income as 'Income from business,' allow the set-off of brought forward business losses, and permit the deduction of corresponding interest expenditure. The Tribunal emphasized the importance of consistency in assessment and found no infirmity in the decision of the learned Commissioner (Appeals). The appeal was dismissed, and the order was pronounced in the open court on 14.09.2021.