TMI Blog2021 (3) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... f various departments and as per norms of the bank, the assessee has to provide 25% cash margin in the shape of FDRS. FDRs have been prepared as per terms of contract and terms of bank guarantee and these are not investment, but are in the shape of security deposit as per terms and condition of the contract. The assessee accordingly credited investment on FDRs in their books of account as business income. The above receipts are part of contract receipt. Deposit of fixed deposit receipts with the government are essential for providing the contract in favour of the assessee. In the absence of fixed deposits, the assessee would not be able to fulfill the conditions of the contract and the contract could not be awarded to the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2010 -2011 on the following grounds: Grounds of Appeal 1. That reopening of assessment completed u/s 143(3) invoking the provision of sec. 147 is illegal. 2. That powers u/s 147 used by the A.O. to review his own order completed u/s 143(3) is illegal and without jurisdiction. 3. That the addition of ₹ 197809/- being the interest on FDR to secure the contract and extricably linked to business of contract was business income and C.I.T. (A) order treating it to be the income from other sources is illegal and arbitrary. 4. That the income from insurance claim at ₹ 210973/- was already included in profit and loss account an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. DR for the revenue had relied upon the order passed by the lower authorities and submitted that the income earned by the assessee on FDRs are required to be taxed as income from other sources. 6. We have considered the submissions of the ld. DR and perused the material available on record, including the judgments cited at bar during the course of hearing. 7. Admittedly the assessee is a contractor working for the various government department and for the purpose of getting the contract from them it is essential for the assessee to give bank guarantee and the bank guarantee are issued by the banks on the deposit of like amount in the form of fixed deposit. The assessee in the submissions before the lower authority had categori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Equip (supra), in conclusions (v) to (ix) has held as under:- (v) Interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not business income. (vi) Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assessee would be permitted to, in terms of section 37 of the Act, claim as deduction, expenditure laid out for the purposes of earning such business income. (vii) In the second stage, the Assessing Officer will deduct from the profits of the business computed under the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible, in terms of Explanation (baa) of the net interest, i.e., the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle. 12. Referring to the aforesaid conclusions, another Division Bench of this Court in CIT v. Shahi Export House [2010] 195 Taxman 163 (Delhi) has held as under:- 7. A conjoint reading of conclusion Nos.1,4, 5 and 6 and particularly No.5 would clearly demonstrate that only in those cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inless Steel Ind. [2007] 162 Taxman 9 (Delhi) and CIT v. Anand Kumar [2007] 164 Taxman 330 (Delhi). 9. We may also Draw support from the decisions of the Hon'ble High Court in the case of CIT v. Indo Swiss Jewels Ltd. [2006] 284 ITR 389 (Bom.) and CIT v. Lok Holdings [2009] 308 ITR 356/[2010] 189 Taxman 452 (Bom.) and also another decision of the Jurisdictional High Court in the case of CIT v. Paramount Premises (P.) Ltd. [1991] 190 ITR 259 (Bom.) in the light of the above the ground pertaining to chargebility of interest income is allowed. 10. Ground No. 5 of the appeal pertains to the income from insurance claim at ₹ 210973/- , which was already included in profit and loss account and subjected to assessment u/s 143(3) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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