TMI Blog2014 (7) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... decided the liability to repay the amounts of advance and interest and also rate of interest on which, advance should be repaid - the question of bringing to tax interest on different amounts as directed by the CIT does not arise - when the very basis of levy is subject matter of appeal, the CIT could not have invoke the jurisdiction u/s 263 in opining that higher amount should have been considered for levy of interest - there is no basis for CIT invoking jurisdiction u/s 263 - thus, the order of the CIT is set aside – Decided in favour of Assessee. - ITA No.753/Hyd/2013 - - - Dated:- 9-7-2014 - B Ranajitauagm And Asha Vijayaraghavan, JJ. For the Appellant : Mr K C Devdas For the Respondent : Mr M Jagdish Babu ORDER:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18% on 50,000/- (being brought forward balance) from 01.04.2007 to 31.03.2008 and on ₹ 4,20,00,000/- w.e.f. 10.08.2007. 2.2. In the course of proceedings, assessee submitted that out of the amount of ₹ 7,80,00,000/-, an amount of ₹ 6,80,00,000/- was repaid on 25.11.2008 and at the time of advance / share application money, there was no demand of interest and therefore, assessee has not charged any interest. However, since the amount of ₹ 1,00,00,000/- was outstanding, assessee filed suit for recovery at 18% and accordingly, A.O. had already considered the amount for bringing to tax interest on accrual basis. With respect to second aspect of difference of ₹ 50,000/- it was the submission by the learned A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective assessees filed along with their returns of income. In the absence of any contract between the assessee companies and M/s. SCSL for charging of interest on the advances, the assessees are not entitled to receive any interest income on such advances. Therefore, merely because the assessee is following mercantile is system of accounting, it cannot be said that the interest has accrued to the assessees. Further, merely because the assessees have claimed interest at the rate of 18% per annum in the suits filed for recovery of advances, it cannot be said that the said rate of interest is applicable as M/s. SCSL has not admitted the liability of even the amounts of advance. As such, we find that there is no certainty with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations above. Further, we hold that if the amounts advanced to M/s. SCSL by the respective assessees are from their own funds, then the interest expenditure cannot be disallowed and brought to tax. Needless to mention that the Assessing Officer shall give fair opportunity of hearing to the assessees before passing any orders in the light of our above observations and in accordance with law . 5. It was the submission that the very basis of accrual of interest was subject matter of appeal. Therefore, CIT(C) could not have been invoked jurisdiction under section 263. Even otherwise, it was submitted that there is no question of levy of interest during the year. Therefore, directions of the CIT(C) are superfluous. 6. Ld. D.R. however, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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