TMI Blog1997 (1) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... h with reference to page 1 of the paper-book read as under : " To: The General Manager (F A), UPCOM Cables Ltd., C- 15, Indra Nagar, Lucknow. Dear Sir, Subject : Assessment proceedings for assessment year 1986-87 particulars regarding. In connection with the above, it is revealed that VERIFICATION portion of the return has not been duly filled in as prescribed, you are requested to rectify the defect within fifteen days from the receipt of this letter otherwise the return will not be treated as valid return under section 139 of the Income-tax Act, 1961. Further you are also requested to furnish Articles and Memorandum of Association along with audited balance sheet, profit and loss account and details, etc., within the period as specified above. Yours faithfully, Sd. Income-tax Officer Company Circle, Lucknow." 4. The appellant, as a sequel to the aforesaid notice, filed a fresh return on the 19th of October, 1987, wherein once again income was declared by them Nil. This return was treated as 'non est' by the Assessing Officer on 31-3-1989 and a communication to this effect was sent to the assessee, copy of which is available at page 2 of the paper-book. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laneous income earned during the construction period against the cost of construction of the assets created. Further no new facts came to light which could have formed the basis for the reassessment sought to be made. 8. The learned CIT(Appeals) did not agree with the assessee took the view that the return having been treated as 'non est' meant that the same had ever been furnished and in a situation where no return had been furnished and the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment he would be justified in invoking the provisions of section 147. He held the applicability of the amended provisions of section 147, inter alia, by taking recourse to a Board Circular dated 31st October, 1989. On merits also, he did not agree with the assessee's stand substantially which aspect we would come little later. 9. Before us, Shri S.K. Garg, learned C.A. vehemently argued that in the first instance after a defect was pointed out by the Assessing Officer in relation to the return filed by the assessee on 19-1-1987 and such defect was removed, the same could not have been treated as 'non est'. In his submission, the return filed by him afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied period as also asked the assessee to furnish certain documents. It is nobody's case that there was any non-compliance on the part of the assessee which filed a fresh return after removing the defects pointed out on the 19th of October, 1987. The Assessing Officer admittedly did not take any action thereon and woke up from slumber only on the 31st of March, 1989, the last day of limitation as prescribed by section 153 of the Act informing the assessee that the same would be treated as non est in accordance with the provisions of section 139(10) of the Act. 12. Sub-section (10) of section 139 of the Act since omitted by the Finance (No. 2) Act, 1991 w.e.f. 1-4-1991 when live on the statute book read as under : "(10) Notwithstanding anything contained in any other provision of this Act, a return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished;" The provision thereafter provides certain exceptions as to its non-applicability but there being no dispute that none such is applicable to the facts of the case, we are skipping them to avoid bulk to the order. 13. Patently in view of the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that directive to this effect coming through the circular was binding on the income-tax authorities on the principle that CBDT's Circulars were binding on them. We will now take up the objection of the assessee about the applicability of the amended provisions of section 147 of the Act. 16. Section 147 before substituted by Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989 reads as under :---- " If--- (a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes of the Tribunal in the case of Indo-Gulf Fertilisers Chemicals Corpn. Ltd. [IT Appeal No. 2306 (All.) 1990 dated 26-6-1992] copy available at pages 8 to 26 of the assessee's paper-book. Besides this, reliance was also placed by the learned counsel for the assessee on a Supreme Court decision in the case of Keshavji Ravji Co. v. CIT [1990] 183 ITR 1/49 Taxman 87 and a decision of the Bombay High Court in the case of CIT v. Maharashtra Electrosmelt Ltd. [1995] 214 ITR 489. 20. Learned D.R., on the other hand, relied on the view taken by the learned CIT(Appeals) and placed reliance on a decision of the Patna High Court in the case of CIT v. Bihar Alloy Steels Ltd. [1994] 206 ITR 350/76 Taxman 571. 21. We have considered the matter carefully. 22. To recapitulate the facts, it may be stated that the assessee-company though incorporated on 19-7-1983, its business did not commence during any part of the accounting period relevant to the assessment year 1986-87. Assessee earned the disputed amount as interest from surplus funds kept in banks. The Assessing Officer treated it as 'income from other sources'. The assessee's plea is that this interest received should be set off aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of obtaining the finance and its temporary utilisation formed one composite transaction and, as such, the interest received by the assessee on account of temporary utilisation of the loans could not be considered in isolation. The assessee did not derive any income by temporary utilisation of the loans and since no income was derived by the assessee, the question of assessing the sum of Rs. 3,14,366 in the hands of the assessee as 'income from other sources' did not arise (see pp. 493H, 494C) :" 25. It is in the wake of this decision in particular that the learned counsel for the assessee strenuously contended that the issue before us was covered whole hog in their favour. 26. We would now deal with the ratio of Patna High Court in the case of Bihar Alloys Steel Ltd. Their the assessee had offered shares for public subscription which were over-subscribed. The amount of oversubscription was deposited by them with banks on short-term deposits and the interest received by the assessee was adjusted against expenditure on "capital work in progress". Further the assessee was paying interest on loans obtained for purpose of construction. On these facts, it was held that the short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans. According to the Id. CIT(Appeals), there was no such condition/stipulation or binding clause from the lending institution in the present case. On the other hand, the loan agreement with IFCI in the case in hand permitted that assessee to make call deposits with bank with the prior approval of the lender, i.e., IFCI. Learned counsel for the assessee assailing this view submitted that in their case also it was specifically laid down by the IFCI that loan will be disbursed subject to the borrower complying with the conditions laid down by the lenders and one such condition stipulated that the drawals from the loan would be kept in a special bank account to be approved by the bankers. In this respect, reference was made to clause 2.6 of the loan agreement filed before us, which reads as under : "2.6 Terms of Disbursement The loans will be disbursed to the Borrower in one or more instalment(s) as may be decided by the lenders subject to the Borrower complying with the provisions of this Agreement and the disbursement procedure stipulated by the lenders and the financing of the expenditure incurred in the project being in consonance with the details mentioned in Schedule II h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short-term deposits, the interest earned on such short-term deposits should be set off against interest paid by the assessee on the loans obtained by it and the balance of the interest amount should be kept alive. Interest received on such short-term deposits is not assessable as revenue receipts." Reliance placed on the ratio of Bihar Alloys Steels Ltd.'s case decided by the Patna High Court does not help the department as much as the decision in favour of the assessee, as in Bihar Alloys Steels' case, the interest had been earned by the assessee from the over-subscription and had sought to be adjusted against expenditure incurred on "capital work-in-progress". In the case in hand, the interest was earned by the assessee on the very amounts which they took on loan [Emphasis supplied] and which could not be utilised immediately and it necessarily had to be kept in a bank as per the stipulations referred to supra. 29. We are, therefore, of the view that the assessee by his prudent manner of running business only tried to reduce the liability of the cost and by no stretch of imagination, it could be said that they made any earning 'from other sources'. The pith and substance fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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