2024 (7) TMI 1487 - AT - Income Tax

ITAT allows income classification appeal - interest from deposits remains business income despite lack of NBFC registration

Malbros Holdings Pvt. Ltd., (Successor Company) (Before amalgamation M/s. Sunkalp Portfolio Investments Pvt. Ltd.) Versus Income Tax Officer, Ward 24 (3), New Delhi

Malbros Holdings Pvt. Ltd., (Successor Company) (Before amalgamation M/s. Sunkalp Portfolio Investments Pvt. Ltd.) Versus Income Tax Officer, Ward 24 (3), ... Issues Involved:1. Disallowance of interest income on Inter Corporate Deposits (ICD) and Fixed Deposits (FD) as business income.2. Disallowance of claimed business expenditure, specifically amortized preliminary expenses.Analysis:Issue 1: Disallowance of interest income on ICD and FD as business incomeThe primary issue in this appeal was the change of head of income by the Assessing Officer (AO) from 'Business Income' to 'Income from Other Sources' regarding the interest income earned by the assessee on Inter Corporate Deposits (ICD) and Fixed Deposits (FD). The assessee, engaged in leasing and finance, consistently treated this interest income as business income and offered it for taxation under the head 'Revenue from operations'. The appellant contended that the Department had accepted this treatment in previous and subsequent assessment years, except for the impugned assessment year. The appellant provided evidence, including the Memorandum of Association (MOA), to support the nature of business carried out. The Tribunal observed that the change in the head of income was not justified solely based on the appellant not being a registered Non-Banking Finance Company (NBFC). The rule of consistency was applied, emphasizing that the nature of income should not be disturbed when consistently treated as business income. Consequently, the Tribunal allowed the appeal on this ground.Issue 2: Disallowance of claimed business expenditureThe second ground of appeal related to the disallowance of Rs. 31,12,392/- claimed as business expenditure, specifically amortized preliminary expenses. The appellant had amortized certain expenses over a period, and the AO disallowed the claim in the impugned assessment year only, despite allowing it in preceding and succeeding years. The Tribunal found no valid reason for this disallowance and directed the AO to allow the amortization of preliminary expenses in the impugned assessment year as well. Consequently, this ground of appeal was allowed pro tanto, resulting in the partial allowance of the appellant's appeal.In conclusion, the Tribunal partly allowed the appeal of the assessee, overturning the disallowance of interest income on ICD and FD as business income and directing the allowance of claimed business expenditure related to amortized preliminary expenses.