What constitutes ‘income from business’ and ‘income from other sources’?

This tribunal case clarifies the distinction between 'income from business' and 'income from other sources' for tax purposes. The assessee, Haldia Petrochemicals Ltd (HPL), appealed against an addition of over £11 million to its income. The core issue was a discrepancy between the facilitation charges declared by the assessee and the amount indicated by tax deducted at source (TDS). The tribunal noted that the Assessing Officer incorrectly stated the assessee failed to provide reconciliation, as evidence suggested otherwise.

IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA ‘B’ BENCH, KOLKATA

 (Before Sri J. Sudhakar Reddy, Accountant Member & Sri Aby T. Varkey, Judicial Member)

I.T.A. No. 2349/Kol/2019
Assessment Year: 2007-08

DCIT, Circle-7(1), Kolkata…………………….Appellant

Vs.

M/s. Haldia Petrochemicals Ltd………………………..Respondent
[PAN: AAACH 7360 R]

I.T.A. No. 2281/Kol/2019
Assessment Year: 2007-08

M/s. Haldia Petrochemicals Ltd....................................Appellant
[PAN: AAACH 7360 R]

Vs.

ACIT, Circle-7(1), Kolkata....................................Respondent
Appearances by:

Sh. Imokaba Jamir, CIT, appeared on behalf of the Revenue.
Sh. Harakamal Chakravorty, A/R, appeared on behalf of the Assessee.

Date of concluding the hearing : February 18th, 2021
Date of pronouncing the order : April 21st, 2021

ORDER

Per J. Sudhakar Reddy, AM:

These are cross appeals directed against the order of the Learned Commissioner of Income Tax (Appeals)-11, Kolkata [hereinafter the “CIT(A)”], passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dated 31.07.2019 for the Assessment Year 2007-08.

2. The assessee is a public sector undertaking M/s. HPL Cogeneration Ltd. (hereinafter ‘HPLCL’). It filed its return of income u/s 139 of the Act for the AY 2007-08 on 30.10.2007. It declared book profit u/s 115JB of the Act.

2.1. HPLCL was amalgamated with Haldia Petrochemicals Limited (hereinafter ‘HPL”) with effect from 01.04.2008 vide order dated 22.09.2009. This appeal is filed by HPL. 

3. We shall now take up the assessee’s appeal.

ITA No. 2281/Kol/2019

 The grounds of the appeal read as follows:

“1(a) That the Ld. CIT(A) erred in law and facts in upholding addition of Rs 11,40,60,203/- out of Rs 34,55,60,203/ as additional income of the Appellant under the normal provision of the income Tax Act and also under section 115JB.

1(b) The Ld.CIT(A) further erred in failing to appreciate that even otherwise no addition could have been made u/s 115JB when the accounts have been audited and approved in the AGM.

2. That the Ld. CIT(A) erred in law and facts in disallowing expense of Rs. 23,57,810/- under the normal provision of the Income Tax Act in respect of payment to Nuovo Pignone on purported ground of prior period expenses.”

4. After hearing rival contentions, perusing the papers on record and the orders of the authorities below as well as the case law cited we hold as follows.

4.1. On ground nos. 1 & 2 the ld. CIT(A) from para-5.2 to 5.5 held as follows:

“5.2. I have carefully considered the issue at hand. The appellant has declared to have earned an amount of Rs.1,37,86,20,277/- as facilitation charges from HPL. At that time, the appellant was known as HPCL Later it got merged with HPL and is now known as HPL or Haldia Petrochemicals Ltd. The TD5 deducted by HPL on payments made to the appellant, i.e. HPCL, indicated that the appellant had earned Rs.1,72,41,80,480 from HPL. Thus, there was a difference of Rs.34,55,60,203 between the income declared by the appellant and that which was apparent from TDS deducted. The Id. AO called for the appellant’s explanation and reconciliation and, stating that the appellant failed to do so, he added back the differential amount of Rs. 34,55,60,203. The Id. AR, during the appellate proceedings challenged the AO's act stating that the appellant had submitted the reconciliation before the Id. AO but he has simply ignored it. Necessary evidence in the form of the office stamp of the Id. AO dated 15.12.2009, on the copy of letter submitted by the appellant on this issue was also produced. Further, during the remand proceedings the present AO accepted that a reconciliation submitted by the appellant was on record. Thus, it is noted that the Id. AO made an incorrect statement that the appellant had failed to explain the difference. 

To know more in details find the attachment file