TMI Blog2015 (6) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ner does not agree with, it cannot be treated as erroneous and prejudicial to the interests of the Revenue as held by the decisions (i) CIT vs. Max India Ltd (2007 (11) TMI 12 - Supreme Court of India) and (ii) Malabar Industries Company Ltd (2000 (2) TMI 10 - SUPREME Court). Hence, the revisionary jurisdiction assumed by the CIT (A) is invalid. The facts in the present case was that the assessee borrowed funds on interests, the same was kept in fixed deposit. Out of the interest received from FD’s, assessee paid interests on borrowed funds, which was allowable u/s 57(iii). AO after examining this has allowed the same. It is CIT who wrongly considered the expenditure as business expenditure. See CIT vs. Taj International Jewellers (2010 (12) TMI 451 - Delhi High Court) - Decided in favour of assesse. - ITA No.512/Hyd/2013 - - - Dated:- 25-3-2015 - Shri B. Ramakotaiah and Smt.Asha Vijayaraghavan JJ. For the Appellant : Shri K.C. Devdas, C A For theRespondent : Smt. G. Aparna Rao, (DR) ORDER Per Smt. Asha Vijayaraghavan, J.M. The appeal of the assessee is directed against the order of the CIT (Central), Hyderabad dated, 19.02.2013 passed for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also submitted by the assessee that, they accepted inter corporate deposit from M/s. Maytas Infra Ltd. The purpose of borrowal of funds was not fulfilled. Instead of keeping the money idle, the assessee company placed the same with the banks as fixed deposit and received interest income. Therefore, interest paid to M/s. Maytas is an expenditure incurred to earn the interest income under consideration . 5. The ld DR stated that from the records it was found that during the financial year 2002-03, there was no business operation. Further, the assessee company itself accepted that the purpose for which the borrowal was obtained from M/s Maytas Infra Ltd was not fulfilled. Moreover, the investigations by investigation agencies revealed that the assessee company is one of front companies floated by Sri B. Ramalinga Raju for the purpose of routing the funds and to acquire vast track of lands. As the assessee company has not started business operations, interest income earned by the company has to be treated as income from other sources and no expenditure is allowable against it, in view of the decision of the Apex Court in the case of M/s Tuticorin Alkali Chemicals Fertilizers Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company. It is further observed that monies have originated from the family members and have been transferred in a circuitous and complex manner through the front companies with an intention to prevent the revenue and the regulatory agencies to trace the antecedents and to mask the actual sources of money and 31.3.2008. The assessee took unsecured loans of ₹ 2,98,02,402 from its directors and of ₹ 6,18,61,214 from others who were either family members or close relatives of the Directors. Further, the assessee gave loans and advances which stood at ₹ 70,21,481 as at 31.3.2003. The acquisition of lands in the names of entities such as the assessee company by roughing the monies in a circuitous and complex set of transactions between the group individuals/entities has been revealed during the investigations by the investigating agencies. Further the assessee has shown interest income of ₹ 46,28,979 and has debited business expenditure of ₹ 40,33,413. Since the company is an agricultural company and no business activities have yet started, the interest income earned cannot be treated as income earned from business activities. The interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court (i) CIT vs. Max India Ltd (295 ITR 282) and (ii) Malabar Industries Company Ltd (243 ITR 83). Hence, the revisionary jurisdiction assumed by the CIT (A) is invalid. 10. Further, on merits the order of the CIT setting aside with a direction to re-compute the income of the assessee company after disallowing the expenditure claimed is incorrect. The CIT has observed that as the assessee company has not started its business operations, interest income earned by the company has to be treated as income from other sources and no expenditure is allowable against it in view of the decision of the Apex Court in the case of M/s. Tuticorin Alkali Chemicals Fertilizers Ltd (227 ITR 172). The principles laid down in that case was wrongly applied by CIT. The facts in the present case was that the assessee borrowed funds on interests, the same was kept in fixed deposit. Out of the interest received from FD s, assessee paid interests on borrowed funds, which was allowable u/s 57(iii). AO after examining this has allowed the same. It is CIT who wrongly considered the expenditure as business expenditure. We rely on the decision of the Hon'ble Delhi High Court in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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