TMI Blog2015 (4) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... rial facts necessary for assessment. Accordingly, we set aside the order of Ld CIT(Appeals) on the issue of re-opening of assessment for AY 2004-05 and 2005-06 and accordingly quash the assessment orders passed for the above said two years. We further notice that the assessee has received interest income only from M/s South India Investments & Associates during the financial years relevant to the assessment years 2006-07 and 2007-08. Thus, it is seen that the assessee has deposited money with only one company, which happens to be a group company. Hence, on merits also, it is seen that the assessee cannot be considered to be carrying on NBFC business. Hence, in our view, there is no justification for the assessee to claim the interest income as its “business income”. As submitted by Ld D.R, the assessee has set off brought forward loss against the interest income, by offering the interest income as its business income. If the interest income is assessed under the head income from other sources, then the assessee would not be entitled to set off the brought forward business loss against the income declared under the head Income from other sources. In that case, the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y development. The Ld. Counsel appearing for the assessee submitted that it was undertaking financing activities also in the earlier years and was registered as Non-Banking Financial Company (NBFC) with Reserve Bank of India. The assessee has furnished in the paper book the certificate of registration dated 22.09.1998 issued by RBI, permitting the assessee to carry on the business of non-banking financial institution, subject to the conditions prescribed thereon. The Ld. Counsel submitted that the assessee has opted to exit from the NBFC regulations and has accordingly requested cancellation of certificate of registration issued by RBI. Accordingly, the RBI has cancelled the registration, vide its letter dated 07.03.2005. Accordingly, the earlier name of the company, viz., M/s South India House Investment Ltd , was changed into the present name. The Ld. Counsel submitted that the assessee has been advancing funds only to its sister concerns, even when it was registered as NBFC and offered interest income under the head income from business . Accordingly, the assessee has continued to offer the interest income during the years under consideration also as its business income, since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the reopening of assessment for these two years is also bad in law. 9. On merits, he submitted that the assessee has all along been showing the interest income as its business income and the Assessing Officer has decided to assess the same as income from other sources, only on the reasoning that the assessee has surrendered its NBFC certificate. The ld A.R submitted that the NBFC certificate enables the assessee to collect the deposits from public and hence the cancellation of the certificate will not change the character of interest income. Accordingly, he submitted that the Assessing Officer was not justified in changing the head of interest income. 10. On the contrary, the Ld D.R submitted that the assessee has received interest income from its subsidiaries only and not from outsiders. He further submitted that the assessee has surrendered its certificate as NBFC and hence the Ld CIT(Appeals) was justified in confirming the assessment of interest income as income from other sources. With regard to the re-opening of assessment, the Ld D.R submitted that the assessee has adjusted the brought forward losses against interest income, which the assessee was not entitled to. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the Profit Loss account the business income included interest income of `85,77,230/-. The assessee company did not incur any interest expenses in the previous year relevant to assessment year 2004-05. So, as the assessee company was never engaged in the business of money lending, the interest receipts were required to be classified only as income from other sources . After excluding the interest receipt the assessee derived net loss under the head business income . Business Income 77,81,402 LESS Interest receipts 85,77,230 Business Income (-) 7,95,828 Income from other sources 85,77,230 As carry forward business losses cannot be set off against income from other sources, the interest income of`85,77,230/- is required to be taxed separately under income from other sources as per the regular provisions of the Act. The Assessing Officer has recorded identical reasons for AY 2005- 06 and 2006-07 also. However we notice that the NBFC certificate has been cancelled only on 7.3.2005. Hence in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. Hence, in our view, there is no justification for the assessee to claim the interest income as its business income . As submitted by Ld D.R, the assessee has set off brought forward loss against the interest income, by offering the interest income as its business income. If the interest income is assessed under the head income from other sources, then the assessee would not be entitled to set off the brought forward business loss against the income declared under the head Income from other sources. In that case, the total income of the assessee would go up by the amount so set off. Hence, in our view, there was reason with the AO to believe about escapement of income in AY 2006-07. Accordingly we uphold the re-opening of assessment of that year. 15. In the earlier paragraph, we have held that the assessee has received interest from only one company and hence the same cannot be considered as its business income. Hence, we are of the view that the Ld CIT(A) was justified in upholding the order of assessing officer in assessing the interest receipts under the head Income from other sources. Accordingly we uphold the order of Ld CIT(A) passed for AY 2006-07 and 2009-10. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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