Case Law Details
Singhal Builders Vs ACIT (ITAT Jaipur)
Introduction: The case of Singhal Builders Vs ACIT, adjudicated by the Income Tax Appellate Tribunal (ITAT) Jaipur, revolves around the classification of income and its appropriate tax treatment. For the Assessment Year 2017-18, the assessee, Singhal Builders, reported an income of Rs. 4,88,959/- under “other income” in its Profit and Loss Account for the Financial Year 2016-17. The primary contention was whether this income should be classified under “business income” or “income from other sources.”
Background: The dispute arose when the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] determined that the reported income did not qualify as business income but should instead be categorized under “income from other sources.” Specifically, the income in question was the interest on an income tax refund allowed under Section 244A of the Income Tax Act. The assessee, however, had treated and depicted the interest income as business income.
Contention and Findings: The assessee argued that even though the income was reported under business income, there was no loss to the exchequer since the tax was paid at the same rate applicable to both business income and income from other sources. The Departmental Representative (DR) did not dispute the assessee’s factual claims.
The ITAT observed that the classification of interest income from income tax refunds typically falls under “income from other sources” and not business income. However, since the tax rate remained unchanged regardless of the classification, the error was deemed procedural rather than substantive.
Tribunal’s Decision: After reviewing the arguments, the ITAT Jaipur held that the appeal filed by Singhal Builders against the order regarding the addition of income from interest on refund should be allowed. The Tribunal concluded that the addition should be deleted, emphasizing that the classification error did not result in any revenue loss to the government.
Conclusion: The ITAT Jaipur’s decision underscores the importance of accurate income classification in tax filings but also highlights a practical approach where procedural misclassifications, without financial impact on the revenue, are rectified without penal implications. The ruling in favor of Singhal Builders provides clarity on the treatment of interest income from tax refunds and supports the view that intent and impact on tax liability play crucial roles in such determinations.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The appellant is a partnership firm. By way of this appeal, it has challenged order dated 15.02.2024 passed by Learned CIT(A)/NFAC, Delhi.
The impugned order pertains to the A.Y 2017-18, whereby Learned CIT(A) partly allowed the appeal filed by the assessee-appellant, while challenging assessment order dated 16.12.2019 passed by the Assessing Officer.
2. By way of said assessment order, total income of the assessee was computed as under:-
(All amounts in Rupees)
| 1. | Returned income, as declared by the assessee | – | 3148560 |
| 2. | Additions/disallowances | – | 5469243 |
| (a) Excess claim of Depreciation [as discussed in Para-04 above] | 787502 | – | |
| (b) Trading Addition [As discussed in Para-05 above] | 3115121 | – | |
| (c) Interest on Income Tax Refund [as discussed in Para-06 above] | 1566620 | – | |
| 3. | Total Income | – | 8617803 |
| R/o | 8617800 |
Significant to note that the first mentioned two additions have been deleted by ld. CIT(A).
3. As regards the 3rd addition i.e. interest on income tax refund, as observed by Assessing Officer the assessee firm had received total interest u/s 244A on the amount refund, but shown total interest of Rs. 4,88,959/- under the said provision; that the assessee did not report his income to the tune of Rs. 10,77,661/-.
Accordingly, an addition of Rs. 15,66,620/- was made by the Assessing Officer by observing that the interest on amount of refund was to be treated as income from other sources.
4. As regards the abovesaid finding on the point of interest on refund, ld. CIT(A) upheld the same while observing that the interest income was income from other sources. At the same time, ld. CIT(A) held that interest income to the tune of Rs. 4,88,959/- only was the income from other sources. In this manner, the ld. CIT(A) deleted an addition of Rs. 10,77,661/- made by the AO, and upheld the addition and to the extent of Rs. 4,88,959/-.
5. Hence, this appeal
6. Arguments heard. File perused.
7. As noticed above, the appeal filed by the appellant came to be dismissed by ld. CIT(A) in part i.e. on the point of interest income on refund. As per impugned order, such income by interest on refund is actual income other sources, and not a part of business income of the assessee firm.
8. While challenging the above-said finding, ld. AR for the appellant has contended that ld. CIT(A) erred in confirming the addition of a sum of Rs. 4,88,959/-, as said addition made by the Assessing Officer is contrary to the provisions of law. Therefore, it has been urged that the impugned order upholding the addition as regards the income by way of interest on refund, deserves to be set aside.
9. On the other hand, ld. DR for the department has submitted that he stands by the reasons recorded by the Assessing Officer & ld. CIT(A).
10. Admittedly, in the return of income, relating to the Assessment Year 2017-18, the assessee firm depicted income of Rs. 4,88,959/- against column No. 02(x) of Profit and Loss Account for the Financial Year 2016- 17.
In the opinion of the Assessing Officer and ld. CIT(A), said income was not an income from business of the assessee, and rather an income from other sources. The fact remains that the said income of Rs. 4,88,959/- was shown under sub-column “any other income” of main column “other income”, so far as Profit and Loss Account for the Financial Year 2016-17 is concerned.
Learned DR for the department does not dispute this fact.
No doubt, when interest is paid on the income tax refund amount, same is required to be reported under the head ‘income from other sources.’ Here, interest was admittedly allowed u/s 244A of the Act and the assessee firm somehow treated and depicted the said amount as business income, instead of income from other source, but there cannot be said to be any loss to the exchequer, particularly, when the assessee is said to have paid tax on said income at the same rate, even though under a different heading.
11. In view of the above discussion, the appeal filed by the assessee challenging the impugned order as regards the addition due to income by way of interest on refund, deserves to be allowed, and the addition deserves to be deleted.
Result
12. In view of above findings, the only argument raised on behalf of the appellant is accepted, and while allowing the appeal, impugned order confirming the addition of Rs. 4,88,959/- made simply because the same “income from other sources” and not to be treated as a part of “ business income”, is set aside.
Order pronounced in the open court on 15/07/2024.
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