TMI Blog2019 (1) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the Revenue emanates from the order of the Ld. CIT(Appeals), Pune-5, Pune dated 30.09.2016 for the assessment year 2010-11 as per following grounds of appeal: 1. On the facts and circumstances of the case and in law the learned CIT(A) erred in holding that interest derived by the assessee on surplus advanced to the parties has to be assessed as business income and not as income under the head Income from other sources as had been taken in the assessment. 2. On the facts and circumstances of the case and in law the learned CIT(A) was not justified in holding that the interest expenses against which the interest income adjusted were in the nature of expenses which was paid on the funds raised for business purposes. 2. The brief facts of the case are that the assessee is a firm and filed its return of income on 15.10.2010 declaring income at Rs. Nil. The case was selected for scrutiny and statutory notices duly issued and served on the assessee. The assessee is in the business of Developer and Builders. The Assessing Officer noted that the assessee had given details of other income of ₹ 78,48,881 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Total Income at ₹ 77,12,931/- by charging interest income separately under the head Income From Other Sources (IFOS in brief). 1.6 In response to show-cause notice the assessee outlined the above facts and objected to the AO's proposal to charge interest income of ₹ 77,12,931 separately as Income From Other Sources . 1.7 The AO in para 4 of the assessment order has accepted that borrowed funds have been used in business and that the claim of interest is admissible as a deduction as business expenditure. The AO however has held that interest income of ₹ 77,12,931 is chargeable under the head IFOS relying on the decision of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs. CIT(1997) 227 ITR 172(SC). 1.8 We submit that the facts of Tuticorin (Supra) are different. In the said case the assessee had not commenced business. During construction and establishment of its factory, the company invested in short term deposits funds borrowed for setting up its factory. The assessee claimed that interest income was to be netted off against pre production expenditure which was capitalized. No claim was made u/s 57(iii). The Court held that interest ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds of narrower import in granting deduction under the 'said provision like Laid out or expended for the purpose of making or earning such income . The AO has supported his conclusion by relying on : i) CIT Vs. Amalgamation Ltd. 214 ITR 399 ( Mad.) ii) Consolidated Fibres and Chemicals Ltd. Vs. CIT 195 CTR 605. iii) CIT Vs. Rajendra Prasad Moody 115 ITR 519 ( SC) 2.3 From the assessee's audited accounts it is evident that the assessee had made advances to related parties by diverting funds borrowed from banks. The assessee recovered interest thereon, consequently maintaining, if not maximizing, the profits gains of its business. 2.4 In response to the show cause, the assessee made an alternative claim that if the AO was charging interest income of ₹ 77,12,931 separately under the head IFOS, then the corresponding interest expense on borrowing ₹ 77,12,931 logically ought to be considered and netted off in computing income. 2.5 The relevant portion of Section 57 of the IT Act 1961 reads as under: 57. The income chargeable under the head Income from other sources shall be computed after making the following deductions namely: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn in the shape of income. The plain natural construction of the language of section 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure .. (p.522) Since we have noticed that the language of section 37(1) is wider than that of section 57(iii) of the Income Tax Act, it is apt in such a situation to hold that interest paid on any borrowing for the purpose of discharging the estate duty liability will be expenditure laid out or expended for the purpose of the business of the assessee-company. (ii) In the case of Consolidated Fibres(Supra)the issue before the Court was whether interest expenditure incurred by the appellant was allowable under section 57 of the I.T. Act, 1961 while computing interest income sought to be assessed as Income from Other Sources under Sec.56, as expenditure incurred for earning the income? The Court in para 15 of the order held that the question is dependant on the fact whether the assessee had commented its business. So long the business is not commenced, the interest paid cannot be treated as revenue expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the business income which had been claimed as exempt income by taking recourse to Section 80IB (10). It is also not the case of the AO, that the funds were not used for business as in the Assessment Order Para 4 it is explicitly stated that, the funds were used for business. The interest received cannot fall under the head income from Other Sources. Therefore, the action of the AO is not sustained. The AO is directed to delete the addition made under the head income from Other Sources and accept the computation which showed the interest income under the head Profits and Gains of Business Profession. The Appellant succeeds in Ground No.1. As Ground No.1 is decided in favour of the Appellant, the alternate plea raised in the form of Ground No.2 is therefore infructuous and hence dismissed. 5. We have perused the case record and heard rival contentions. On perusal of the order passed by the Ld. CIT(Appeals), we find that it is observed therein that the Assessing Officer has not controverted the figures of the interest expenses in the assessment order. The Assessing Officer has only generally expressed that the total interest expenses was admissible as a deduction aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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