2000 (8) TMI 236 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the addition of Rs. 3,10,000 in respect of three cash credits.
2. Assessment of interest income under the head "income from other sources."
3. Deductions under Sections 32AB, 80HHC, and 80-I of the IT Act in respect of interest income.
4. Addition of Rs. 80,000 claimed as agricultural income.

Issue-wise Detailed Analysis:

1. Sustaining the addition of Rs. 3,10,000 in respect of three cash credits:

The AO identified three cash credits totaling Rs. 3,10,000 in the assessee's books, linked to three creditors holding joint accounts with the Karta of the assessee-HUF. The AO noted substantial deposits shortly before these credits and subsequent transfers to entities related to the Karta. The AO's investigation revealed that the cheques for these deposits were drawn from a single bank account. Despite summons, the creditors did not appear before the AO, leading to the conclusion that the credits were non-genuine. The CIT(A) upheld this addition. The assessee argued that the tragic car accident prevented compliance with the summons. The Tribunal decided to remit the matter back to the AO for fresh adjudication, allowing the assessee to produce the creditors for examination and provide explanations for the credits.

2. Assessment of interest income under the head "income from other sources":

The AO assessed interest income of Rs. 1,28,393 from a fixed deposit as "income from other sources," noting that the FD was made from non-business funds. The CIT(A) upheld this assessment. The assessee cited the Gujarat High Court decision in CIT vs. Gujarat Mineral Dev. Corpn., arguing that the FD constituted business capital. The Departmental Representative relied on the Supreme Court's decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT, which held that interest from bank deposits is taxable under "income from other sources." The Tribunal agreed with the AO and CIT(A), emphasizing that the interest income should be assessed under "income from other sources" and not as business income.

3. Deductions under Sections 32AB, 80HHC, and 80-I of the IT Act in respect of interest income:

- Sections 80HHC and 80-I: The Tribunal cited Supreme Court decisions in CIT vs. Sterling Foods, Orissa State Warehousing Corpn & Ors. vs. CIT, and Hindustan Lever Ltd. vs. CIT, which held that the term "derived from" requires a direct nexus between profits and the industrial undertaking. The Tribunal concluded that interest income does not qualify for deductions under Sections 80HHC and 80-I, and the assessee conceded this position.

- Section 32AB: The Tribunal considered arguments from both sides, referencing the Kerala High Court decision in CIT vs. Apolo Tyres Ltd., which supported including interest income for computing deductions under Section 32AB. The Tribunal noted that the Gauhati High Court's decision in CIT vs. Dinjoye Tea Estate (P) Ltd. did not address the computation under Section 32AB(3). The Tribunal decided to follow the Kerala High Court's view, allowing the inclusion of interest income for computing deductions under Section 32AB.

4. Addition of Rs. 80,000 claimed as agricultural income:

The assessee claimed Rs. 80,000 as agricultural income, which the AO did not properly investigate due to time constraints. The Tribunal decided to remit this issue back to the AO for fresh adjudication, allowing the assessee full opportunity to provide evidence supporting the agricultural income claim.

Conclusion:

The appeal was partly allowed. The issues concerning the genuineness of cash credits and agricultural income were remitted back to the AO for fresh adjudication, while the assessment of interest income under "income from other sources" and the denial of deductions under Sections 80HHC and 80-I were upheld. The Tribunal allowed the inclusion of interest income for computing deductions under Section 32AB, following the Kerala High Court's decision in Apolo Tyres.