TMI Blog2012 (5) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... URT, DELHI) the Hon'ble High Court held that where the assessee is paying interest expenditure and also in receipt of interest income, net interest income is to be arrived at after excluding the interest expenditure incurred for earning such interest income. - matter remanded back to CIT(A). - IT APPEAL NO. 348 (IND.) OF 2006 - - - Dated:- 29-3-2012 - JOGINDER SInGH, R. C. SHARMA, JJ. Sumit Nema for the Appellant. Keshav Saxena for the Respondent. ORDER R. C. Sharma, Accountant Member This is an appeal filed by the assessee against the order of CIT(A), Bhopal, dated 27.2.2006 for the assessment year 2003-04. 2. Following grounds have been taken by the assessee : 1. "That on the facts and in the circumstances of the case and in law, ld. CIT(A) erred in law by not admitting/adjudicating following additional grounds of appeal. 1.1 That on the facts and in the circumstances of the case, ld. Assessing officer erred in law by not allowing expenditure of Rs. 2,84,64,114.02 on account of interest paid on unsecured loans raised from Financial Institutions and Bank under section 36(1)(iii) of the Income-tax Act, 1961. 1.2 That on the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany received the notice u/s 143(2) on 25.11.2004. M/s. L.K. Maheshwari Company was duly authorised by the appellant Corporation to represent before the Income-tax authorities" is of no consequence from the appellant. Corporations point of view and therefore, it be held that notice u/s 143(2) dated 25.11.2004 has never been served on the appellant Corporation and therefore, assessment order is without jurisdiction and the same be quashed/cancelled being invalid. 7. That on the facts and in the circumstances of the case law, the authorities lower erred in law by treating interest accrued on FDRs as Income from other sources instead of profits and gains of appellant's business. 8. That on the facts and in the circumstances of the case, the Ld. authorities lower erred in law by not allowing set off of carried forward unabsorbed business loss of Rs. 1,90,87,590 and unabsorbed carried forward depreciation of Rs. 30,05,234 against current year income of Rs. 2,20,92,824 u/s 72 and u/s 32(2) of respectively of the I.T. Act, 1961. 9. That on the facts and in the circumstances of the case and in law, the ld. AO erred in law by levying interest of Rs. 19,58,001/- u/s 234B. 10. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72 ITR 448/144 Taxman 629 (Kar.). Accordingly, we do not find any merit in the ground raised by the assessee with regard to validity of service of notice u/s 143(2) of the Act. 5. With regard to the treatment of interest income, the contention of the learned CIT DR was that the assessee himself has shown the interest income as income from other sources in its return of income and moreover the issue for treatment of interest is covered by various decisions including the decision of the Supreme Court in the case of Tuticorin Alkali Chemical Fertilizers Ltd. v. CIT [1997] 93 Taxman 502 (SC). 6. It was submitted by ld. Authorized Representative that the entries for capitalizing the interest expenditure in books of account are not determinative of the allowability of expenditure. Reliance is placed on following judgments : (1) CIT v. Asahi India Safety Glass Ltd. [2011] 203 Taxman 277/15 taxmann.com 382 (Delhi). (2) Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). (3) Sutlej Cotton Mills Ltd. v. CIT , [1979] 116 ITR 1 (SC). 7. We have considered the rival contentions and found that the assessee has paid interest to the Bank and financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession", since it is not a surplus fund but are the advances for construction, which have been kept in F. D. It was also brought to our notice that a revised computation was filed before the Assessing Officer claiming expenses of interest paid to HUDCO other financial institutions and banks and this deduction was claimed out of business income. 9. We have considered rival contentions and find from record that M.P. Police Housing Corporation is a company wholly owned by the Government of Madhya Pradesh and is registered under the Companies Act, 1956. The Corporation was incorporated on 31st March, 1981. The main objects of the company as mentioned in the Memorandum and Articles of Association are as below :- ( i ) To formulate and execute housing schemes for the benefit of serving employees of the Government of Madhya Pradesh. ( ii ) To undertake construction either directly or through contractors or other agency of buildings and provision of common facilities as are required by a colony, for example, community hall, hospital, water tank, electricity, sanitary facilities or other conveniences, whatsoever, for housing police employees of the Government of Madhya P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that only the net interest could be deducted (subject to nexus between the expenditure and income being approved). On appeal by the department, the High Court reversed the order of the Tribunal and held that gross interest received had to be excluded. On further appeal by the assessee, the Hon'ble Supreme court reversed the order of the High Court and held that only net of interest income is to be excluded and approved the decision of Hon'ble Delhi High Court in the case of Shriram Honda Power Equip ( supra ) and ITAT Special Bench in case of Lalsons Enterprises ( supra ). 13. In the case of Shriram Honda Power Equip ( supra ) the Hon'ble High Court held that where the assessee is paying interest expenditure and also in receipt of interest income, net interest income is to be arrived at after excluding the interest expenditure incurred for earning such interest income. Thus, while computing deduction u/s 80HHC, only the net interest income is to be excluded. 14. In view of the above decision, the matter is restored to the file of the AO for deciding it afresh keeping in view the proposition of law laid down by the Hon'ble Supreme Court in the case of ACG Associa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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