TaxTMI 
TaxTMI 
2018 (1) TMI 233
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....allowed the appeal of the assessee on identical issue though u/s 263of the Income Tax Act, 1961 (hereinafter the Act). 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 28/10/2015 for ready reference and analysis:- "This appeal has been filed by the assessee company against the order dated 19th March 2013 passed by the Commissioner of Income Tax-2 Mumbai,(Hereinafter called "the CIT") u/s 263 of The Income Tax Act,1961 (Hereinafter called "the Act") for the assessment year 2008-09. 2. The effective grounds of appeal raised in this appeal by the assessee company in the memo of appeal filed are with respect to order dated 19th March 2013 passed by the CIT setting aside the assessment order dated 8th October 2010 u/s 143(3) of the Act passed by the assessing officer(Hereinafter called "the AO") for assessment year 2008-09 treating it to be erroneous and prejudicial to the interest of Revenue for re-deciding the issue as to whether the interest earned from fixed deposit was to be assessed under the head "Income from other....
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....ee company in reply to afore-stated show cause notice replied that the assessee company is a subsidiary company of Canara Bank with the basic objective of dealing in Government Securities and its business was flourishing till 2004 . Due to change in direction of interest rates, the assessee company like other similar dealers in Government Securities floated by other Public Sector Banks suffered heavy losses and it did not made sense to continue as standalone entity burdened with such heavy losses. The Reserve Bank of India allowed parent companies of all such subsidiaries companies to take over the business of Primary Dealership. In the case of the assessee company, the Parent Bank i.e. Canara Bank took over the business of Primary Dealership from it w.e.f. 20.02.2007. Thereafter, the assessee company started liquidating its stock-in-trade of government securities and treasury bills which generated heavy liquid money. The assessee company stated that it also liquidated 'stock-in-trade' of equity shares and booked profits . These securities were continuously liquidated over a year i.e. financial year 2007-08 which created generation of liquid money, which was temporarily parked into....
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....d be assessed under the head 'Income from other sources' and perusal of assessment records reveals that the AO has not applied his mind to this issue and has not examined this issue during assessment proceedings. Thus , the CIT held vide orders dated 19th March 2013 passed u/s 263 of the Act that the assessment completed in this case is without application of mind by the AO and hence , the order of the AO is held to be erroneous and prejudicial to the interest of revenue and same is set aside to the file of the AO to re-decide the issue as to whether the interest income earned from fixed deposit with bank is to be assessed under the head 'Income from other sources' or as 'Business income'. The CIT relied upon the following decisions : (i) CIT v. Jagdish Chand Walia & Sons. 234 ITR 595(P&H) (ii) CIT v. Emery Stone Manufacturing Co. 213 ITR 843 (Raj.) (iii) Mofussil Warehouse & Trading Co. Ltd. v. CIT 238 ITR 867(Mad.) (iv) Malabar Industrial Co. Ltd. v. CIT 243 ITR 83 (SC) 7. Aggrieved by the orders dated 19th March 2013 passed u/s 263 of the Act by the CIT, the assessee company is in appeal before us. 8. The assessee company submitted before us that the CIT has is....
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....he interest of Revenue. The assessee company referred to notice dated 09th July 2010 u/s 142(1) of the Act issued by the AO along with questionnaire whereby the AO has enquired, inter-alia, about the computation of income earned by the assessing company during the impugned assessment year with direction to submit audited Balance Sheet along with notes and annexures, nature of business of the assessee company, details of carry forward losses, details of other income earned by the assessee company and the detailed reply submitted by the assessee company before AO vide letter dated 28th July 2010. The assessee company submitted that it has given detailed reply on all queries made by the AO vide letter dated 28th July 2010 and also as per Audited Balance Sheet of the assessee company , the interest income from FDR with bank is included in Profit and Loss A/c under schedule '11' titled 'Interest and Financial Income' whereby it is clearly reflected and included as Interest on Bank Deposits amounting to Rs. 15,18,20,478.73 and it is incomprehensible that the AO has allowed the same amount which is substantial amount to be treated as 'Business Income' and allowed set off of brought forwar....
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.... setting aside the assessment orders dated 08th October 2010 u/s 143(3) of the Act of the AO is correct and needs to be upheld. The Ld. DR also submitted that that the contentions of the assessee company that the CIT has issued notice on one ground u/s 263 of the Act while orders are passed by the CIT u/s 263 of the Act on another ground cannot be accepted as the CIT has not deviated from the main issue of treatment of the interest income from FDR with bank on deployment of surplus funds to be treated as 'Income from Business' or to be assessed under the head 'Income from other sources' and hence the Ld. DR submitted that totality of the situation is to be seen. The Ld. DR also submitted that the assessment order dated 08th October 2010 passed by the AO u/s 143(3) of the Act is a two page order accepting returned income as assessed income where-in there is no discussion about treatment of this income from interest on FDR with bank on deployment of surplus funds and hence it clearly shows that the AO has not applied his mind to the treatment of interest income from FDR on deployment of surplus funds to be treated as 'income from business' or 'income from other sources' before passin....
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....m liquidation of government securities and treasury bills on cessation of PD business in the interim period and before the deployment of the funds in stock broking business shall constitute the 'Income from business' to be assessed as Business Income as contended by the assessee company or shall be assessed to tax under the head 'Income from other sources' as contended by the CIT. We have observed that Government Securities and treasury Bills which were liquidated by the assessee company was 'stock-intrade' of the assessee company and was part of its circulating capital and these funds arising from liquidation of government securities and treasury bills which are part of circulating capital of the assessee company , is due to cessation of PD business of the assessee company as the same is taken over by its Parent Bank and before deployment of these funds into stock broking business is intrixiably linked to circulating capital of the assessee company and in-fact funds so generated on liquidation of government securities and treasury bills in the interim period before deployment in stock broking business itself is circulating capital being arisen from business itself and cannot be ca....
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....ing decisions which are clearly distinguishable as under: (i) Krishna Polyster Ltd v. DCIT, 274 ITR 21(Bom.)- In this case the tax payer made public issue and got surplus funds which were placed in FDR and the Tribunal found that the tax payer is engaged in the business of manufacture of synthetic yarn and is not in the business of money lending and it was held that the surplus funds were not acquired from business activities and that the interest thereon is to be assessed as income from other sources while in the instant case the assessee company has liquidated its 'stock-in-trade' being government securities and treasury bills which are part of circulating capital on cessation of PD business before being deployed into its new venture of stock broking and hence the funds so deployed are intrixiably linked to circulating capital and are in fact themselves circulating capital of the assessee company being arisen from the business activity of the assessee company which is deployment of funds/money. (ii) Ferro Concrete Construction (India) Pvt. Ltd. v. CIT, 290 ITR 713 (MP) - The tax payer in this case was engaged in the business of civil work contract and the object clause of M....
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.... submit audited Balance Sheet along with notes and annexures, nature of business of the assessee company, details of carry forward losses, details of other income earned by the assessee company and the detailed reply submitted by the assessee company before AO vide letter dated 28th July 2010 along with Audited Balance Sheet along with notes and annexures and Tax Audit Report u/s 44AB of the Act. The assessee company submitted that it has given detailed reply on all queries made by the AO and also as per Audited Balance Sheet of the assessee company , the interest income from FDR with bank is included in Profit and Loss A/c under schedule '11' titled 'Interest and Financial Income' whereby it is clearly reflected and included as Interest on Bank Deposits amounting to Rs. 15,18,20,478.73 and it is incomprehensible that the AO has allowed the same amount which is substantial amount to be treated as 'Business Income' and allowed set off of brought forward business loss against this income from interest on FDR without application of mind and hence we hold that the order of the AO is neither erroneous nor prejudicial to the interest of Revenue as the AO has taken one view which is a pos....
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....ITR 843(Raj.) , Mofussil Warehouse and Trading Co. Ltd. v. CIT 238 ITR 867 (Mad.) and Hon'ble Supreme Court decision in Malabar Industrial Co. Ltd v. CIT 243 ITR 83(SC) is also not correct and in view of discussions above , it cannot be said that the AO has passed assessment order dated 08th October 2010 u/s 143(3) of the Act without any application of mind. We in view of the discussions above are of considered view and hold that the order of CIT dated 19th March 2013 u/s 263 of the Act holding assessment order dated 08th October 2010 passed u/s 143(3) of the Act of the AO to be erroneous and prejudicial to the interest of revenue and directing the same to be set aside to the file of the AO to re-decide the issue as to whether the interest income earned from fixed deposit with bank is to be assessed under the head 'Income from other sources' or as 'Business income' is unsustainable in law and is set aside and the assessment order of the AO dated 08th October 2010 passed u/s 143(3) of the Act is restored . We order accordingly. 11. Thus, the appeal of the assessee company is allowed for reasons indicated above. 12. This Order is pronounced in the open court on this day of 28th....