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2016 (3) TMI 587 - ITAT KOLKATAIncome from profit in future and option transactions - whether assessable u/s.68? - business income v/s income from other sources - setting off the assessed business loss against the income denied - Held that:- The admitted facts are that the Assessee has shown the profit in transactions of futures and options of ₹ 5,51,362/- in his profit and loss account and the resultant income of ₹ 89,200/- was declared in the return of income. The aforesaid income of ₹ 5,51,362/- was treated as income from business. The AO was not satisfied with the explanation with regard to the source of income as one from business. After doing so, the AO has no other option but to classify the income in question under any of the heads of income given in Sec.14 of the Act. Income which does not fall under any other head of income had to be necessary classified under the head “Income from other sources”, if the AO wants to bring the same to tax. This aspect is clear if one reads the decision of the Hon’ble Supreme Court in the case of Nalinikant Ambalal Mody Vs. CIT (1966 (5) TMI 13 - SUPREME Court) wherein it was held that if income cannot be taxed under any of the heads mentioned in Sec.14 of the Act, then it cannot be taxed at all. The AO in coming to the conclusion that the sum of ₹ 5,51,362 had to be taxed separately had not made any reference to any provision of law in the Act under which he is resorting to such a course. Consequently, even assuming the income in question is not treated as income from business, it has to be treated as income from other sources. If so treated, there can be no tax on the said income separately without set off of loss from business u/s.71 of the Act. Thus the levy of tax on the sum of ₹ 5,51,362/- cannot be sustained. Therefore of the view that the addition made by the AO cannot be sustained and the same is directed to be deleted. Decided in favour of assessee Addition for deemed interest income of the appellant - Held that:- The entire basis of addition made by the AO was erroneous. It is not the case of the AO that borrowed funds on which interest was paid were not used for the purpose of business and therefore the interest expenditure cannot be allowed u/s.36(1)(iii) of the Act. Therefore the non-payment of interest on loans borrowed has no relevance whatsoever. As far as interest received by the Assessee is concerned, so long as borrowed funds on which interest is paid and claimed as deduction is not given as interest free loans, the AO cannot compel that the Assessee should earn interest on any lending by it. There is no provision in the Act by which notional income on such lending can be brought to tax. The decision of the Hon’ble Madras High Court in the case of CIT Vs. J Chelladurai (2011 (12) TMI 41 - MADRAS HIGH COURT) clearly supports the stand of the Assessee in this regard. - Decided in favour of assessee
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