2009 (5) TMI 22 - HC - Income Tax

In ascertaining the question of interest income from other sources the vital point is to be considered whether the amount is in circulation with the business or the same is kept in the Fixed Deposit of the Bank to earn interest - Difference of opinion of the two High Courts - having different opinion we require reconsideration of the case - So far as non-service of notice is concerned revenue send notice on the same address on which notice was issued by CIT (A) in other appeal and assessee appeared - Therefore the ground of non-service of notice upon the assessee is fictitious in nature

Summary

Issues:
1. Non-service of notice leading to an ex-parte order.
2. Reconsideration of the order in light of a judgment from the Bombay High Court regarding interest income.

Analysis:
1. The appellant challenged the ex-parte order passed by the Income Tax Appellate Tribunal, Delhi Bench "I", Delhi, citing incorrect service of notice. The appellant argued that the notice was served at the wrong address, leading to the failure to attend the proceedings. The tribunal's decision was influenced by a judgment of the Delhi High Court regarding interest income earned on surplus funds. The appellant contended that the non-service of notice was a crucial issue, pointing out the discrepancy in the address mentioned in the notice and the actual address. The appellant sought to correct this irregularity and requested a reconsideration of the case based on merit.

2. The respondent, representing the revenue, argued against the appellant's claim of non-service of notice, stating that the address discrepancy was not substantial as the appellant had participated in other appeals despite the same address issue. The respondent supported the tribunal's decision, which was based on the judgment of Sriram Honda Power Equipment, categorizing the interest income as income from other sources. The respondent highlighted that the interest income was considered incidental to the appellant's export business, based on the utilization of funds as security for credit limits. The respondent emphasized the nexus between the fixed deposits and the export business, asserting that the interest income should be treated as business income.

3. The court acknowledged the address discrepancy but deemed it insufficient to invalidate the tribunal's order. However, the court agreed with the appellant's argument regarding the necessity of reconsideration based on the Bombay High Court's judgment concerning interest income. The court emphasized the importance of determining whether the funds were actively involved in the business or kept in fixed deposits for earning interest. The court referred to the Bombay High Court's decision, stating that the Income Tax Act's Section 80HHC applies to 100 percent exporters, allowing for the deduction of interest income along with business profits. Consequently, the court ordered a stay on the tribunal's decision, providing the appellant with an opportunity to present their case on merit, independent of previous observations, within a specified timeframe for a fresh decision.