2001 (6) TMI 183 - AT - Income Tax

Summary

Issues involved:
- Appeal by Revenue and assessee for asst. yr. 1996-97 against CIT(A) order
- Appeal by Revenue and assessee for asst. yr. 1995-96 against CIT(A) order
- Treatment of bank interest as income from other sources instead of business income
- Dispute over deduction for depreciation and interest paid to third parties
- Interest income arising from security deposits and lending funds to third parties

Analysis:

1. ITA No. 469/Jd/1999 - Revenue's Appeal:
The Revenue disputed the CIT(A)'s order allowing deduction for depreciation and interest paid to third parties from the profit determined by applying net profit rate. The Revenue's argument was refuted based on the decision of the Hon'ble Rajasthan High Court and Amendment proviso to s. 44AD(2). The ITAT upheld the CIT(A)'s decision, allowing depreciation separately after applying net profit rate and permitting deduction for interest paid to third parties, citing relevant precedents. The appeal by Revenue was dismissed.

2. ITA No. 521/Jd/1999 - Assessee's Appeal:
The assessee contested the treatment of bank interest as income from other sources instead of business income. The ITAT considered the nature of the interest earned on security deposits made for business purposes and funds temporarily lent to third parties. Relying on judicial pronouncements, the ITAT concluded that the interest income from security deposits and lending funds should be treated as business income, not income from other sources. The appeal by the assessee was partly allowed.

3. CO No. 03/Jd/2000 - Assessee's Cross-Objection:
The cross-objection by the assessee was dismissed as the authorized representative did not press the same during arguments.

4. ITA No. 455/Jd/1999 - Revenue's Appeal:
Similar to ITA No. 469/Jd/1999, the Revenue appealed against the CIT(A)'s decision on depreciation deduction. The ITAT, following its earlier decision, allowed depreciation separately after determining net profit, in line with the Rajasthan High Court's ruling. The appeal by Revenue was dismissed.

5. CO No. 28/Jd/1999 - Assessee's Cross-Objection:
The cross-objection by the assessee was dismissed as the authorized representative did not press the same during arguments.

6. ITA No. 447/Jd/1999 - Assessee's Appeal:
The assessee challenged the assessment of interest as income from other sources. The ITAT analyzed the components of interest income and concluded that interest earned on security deposits and funds lent to third parties for business purposes should be treated as business income, not income from other sources. The appeal by the assessee was allowed in part.

In summary, the ITAT upheld the CIT(A)'s decisions on depreciation and interest deductions, emphasizing the distinction between income from business activities and other sources. The judgments were based on relevant legal precedents and factual considerations, resulting in the dismissal of Revenue's appeals and partial allowance of the assessee's appeals.