2011 (4) TMI 1361 - AT - Income Tax

Summary

Issues involved: Appeal regarding taxation of interest earned on funds in the bank, validity of enhancement for Assessment Year 2006-07 u/s 251.

Taxation of Interest Earned on Funds:
The appeals by the assessee for AYs 2006-07 and 2007-08 revolved around the interest earned on funds in the bank related to share application money and joint venture for land acquisition. The CIT(A) denied capitalization of interest, taxing it as income from other sources. The assessee argued that the funds were linked to business activities, citing precedents. The Tribunal agreed, noting the lack of surplus funds for interest income, and upheld the capitalization of interest to reduce preoperative expenses.

Validity of Enhancement for AY 2006-07 u/s 251:
For AY 2006-07, the CIT(A) enhanced income without proper notice u/s 251. The assessee contended this enhancement was invalid and should be deliberated as per the IT Act. The Tribunal acknowledged this concern but ultimately ruled in favor of the assessee, allowing the appeals.