TaxTMI 
TaxTMI 
2020 (12) TMI 661
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.... declared u/s. 28 and not allowing netting off of interest- Rs. 60,51,743/- (i) The ld. CIT(A) erred in not treating the interest earned, on fixed deposit out of business funds kept as security/margin money for availing O/D facility, as business income u/s. 28 with failure to appreciate the business nexus vis-a-vis utilization of business funds and further erred in not allowing the netting-off of interest which had all the elements of mutuality towards the common business; therefore, the addition of interest u/s. 56 is uncalled for and the same may resultantly be treated as income u/s. 28 and netting-off may consequently be allowed. (ii) Without prejudice to the above, maintaining F/D which was purely out of business funds....
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....ment, if any, recorded was not confronted with the appellant, the addition made may be deleted. 3. Levy of Penal Interests The Appellant, on merits, denies her liability to penal interest. Apropos the issue of treatment of interest received as income from other sources. 3. Brief facts of the issue are as under: During the course of assessment proceedings, it was seen by the A.O. that the assessee had received interest on FD at Rs. 60,51,743/-. The closing WIP shown by the assessee was at Rs. 13,65,05,000/- after claiming expenditure under various heads. It was also seen by the A.O. from the statement of total income of the assessee that eh interest on FD had not been offered to tax under the head 'Income from other S....
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....fore the A.O. reads as under: "We would like to state in continuation with our letter dt. 22.01.2016 ft 03/02/2016 that we have invested in business surplus funds its Fixed Deposits and also availed the OVERDRAFT in earlier years. Further in requirement of Funds for the operation of business we had availed loan after pledging the said FD for which we have to pay 2% extra interst to the Banker after netting off the FD Interest Received. The funds availed from OVERDRAFT was used exclusively for the purpose of business only since the capital credit balance of Proprietor as of 31.03.2013 was Rs. 67,28,676/-. This clarifies that the funds were not diverted out of the business, therefore, the net interes charged on OVERDRAFT ACCOUNT in e....
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....rpose of business. These facts have not been disputed by the authorities below. However on the premise that the fixed deposit was done out of surplus funds available at that time which was much earlier than the present assessment year the authorities below have treated the interest as income from other sources this year. The said fixed deposit was pledged for obtaining loan for the purpose of the business. It is common knowledge that loan obtained on the pledge of fixed deposit for the purpose of business, the rate of interest charged by the bank slightly higher than the interest being paid on the fixed deposit. Why this aspect is not accepted by the authorities is not understood. The assessee has duly explained that by way of pledging t....
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....e year under consideration tha the assessee had shown loan of Rs. 15,00,000/- from Shri Amit Ruparel. During the course of assessment proceedings, a notice u/s.133(6) dated 16.2.2016 was issued to the said party asking for confirmation of transaction. In response to notice u/s. 133(6), Shri Amit Ruparel submitted his reply before the A.O. on 04.03.2016 and that the amount of Rs. 15,00,000/- has been paid to the assessee for acquiring her share in the firm. In view of the above the assessee was asked by the A.O. to explain as to why the same should not be treated as assessee's income and added to the total income. In response to the above mentioned show cause letter of the A.O., the AR of the assessee made written submission before A.O. vide....
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....firmed the same by observing as under: 5.2.3 I have considered the facts of the case, the assessment order passed by the A.O., the submissions made by the AR of the appellant. It is seen from the A.O.'s order and assessee's aforesaid submissions that the assessee has failed to establish that the amount of Rs. 15 lakhs shown as loan from Mr. Amit Ruparel was indeed a loan. In fact, it is found to be consideration received by the assessee from Mr. Amit Ruparel for acquiring assessee's share in the firm and therefore, it constitutes income in the hands of the assessee. In this view of the matter, I see no reason to take a view in the matter different from the one taken by the A.O. The action of the A.O. in disallowing the loan amount ....