Interest Income on funds Temporarily Parked as loan / Deposit is Business Income

M/s. Merlin Projects Ltd. Vs. DCIT (ITAT Kolkata)

The sole ground of appeal is against the action of the Ld. CIT(A) in confirming the AO’s action in assessing the income from interest amounting to Rs. 11,84,781/- as income from other sources and not treating the same as business income. At the outset itself, it was brought to our notice by the Ld. Counsel that assessee is engaged in the business of construction and development of residential and commercial building and had received advances from property booking from its customers in the ordinary course of construction and the same were used in the business. According to assessee, these advances from the customers which are not utilized temporarily in the business and lying idle with the company was parked for a short duration in fixed deposit or given as unsecured loans which yielded interest income. According to the Ld. AR, the interest income has been offered as business income by the assessee throughout from AY 2005-06 to 2014-15.

In AY 2005-06, the AO has assessed the interest income as income from business and drew our attention to the assessment order of AY 2005-06 wherein we note that there is no income under the head from other sources, so we can presume that interest income was accepted as business income by the AO. Thereafter, the Ld. AR drew our attention to the assessment order passed in AY 2012-13 wherein also the AO has not treated the interest income from other sources.

On a query from the Bench as to how the AO treated the assessee’s interest income in other assessment years, the Ld. AR brought to our knowledge that in AY 2006-07, the AO treated it as income from other sources, but since there was no tax impact the assessee did not contest such a treatment. Likewise, in AY 2007-08, there was 143(1) only and so, there was no grievance for the assessee.

Likewise, in AY 2008-09 though the AO treated the interest income as income from other sources, since there was no tax effect because the assessee claimed deduction u/s. 80IB of the Act which was fully allowed so there was no impact even though the treatment was given differently. Then, the Ld. AR drew our attention to the fact that in AY 2010-11, though the AO treated interest income as income from other sources, however, no tax effect was there because full deduction u/s. 80IB of the Act was allowed.

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