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

ITAT Delhi allowed the appeal regarding correct head of income classification. The assessee, engaged in leasing and financing business, had interest income from Inter Corporate Deposits and Fixed Deposits reclassified by AO from "Profits and Gains of Business or Profession" to "Income from Other Sources" solely because assessee was not a registered NBFC. ITAT held that MOA clearly defined business objects and lack of NBFC registration cannot justify reclassification. Consistency principle applied as Department accepted business income classification in preceding and succeeding years. ITAT also allowed amortization of preliminary expenses, noting Department's acceptance in other assessment years without valid reason for disallowance in impugned year.

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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 income
The 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 expenditure
The 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.

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