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2015 (10) TMI 2712 - AT - Income TaxInterest income from banks - busniss income or income from other sources - Held that - None of the judgments cited by the learned AR of the assessee is rendering any help to the assessee. Hence, respectfully following the judgment of Hon ble Jurisdictional High Court rendered in the case of CIT vs. Indo Gulf Fertilizer & Chemical Corporation Ltd. (2005 (8) TMI 45 - ALLAHABAD High Court) we hold that interest income from bank is taxable as income from other sources except interest income of ₹ 17,70,413/- earned in course of public issue of shares as per Ground No. 5.1 raised by the assessee. In our considered opinion, this income should be set off against public issue expenses because interest earned was inextricably linked with raising of share capital and was thus adjustable towards the expenditures involved for the share issue. We direct the A.O. that to the extent of expenses incurred for public issue of shares, the amount of interest income of ₹ 17,70,413/- earned in course of public issue of shares should be set off against such expenses but if the amount of interest income on share application money is more than the expenses incurred for public issue of shares, then such excess interest income should be taxed as income from other sources. Decided in favour of assessee for statistical purposes. Disallowance of depreciation - Held that - Since business was not in existence, depreciation is not allowable because as per section 32, depreciation is allowable on assets used for business. He has also relied on the judgment of Hon ble apex court rendered in the case of Bokaro Steel Ltd (1998 (12) TMI 4 - SUPREME Court) and held that if the asset is used in construction of project, depreciation has to be capitalized and not allowable as revenue expenditure. As it is noted by CIT (A) that no submission was made on this issue. We find no infirmity in the assessment order on this issue and therefore, this ground is rejected.
Issues Involved:
1. Validity of notice under section 143(2). 2. Legitimacy of the variation between "returned income" and "assessed income." 3. Classification of interest income from fixed deposits and mutual funds. 4. Depreciation on non-factory building. 5. Set-off of interest income against public issue expenses. 6. Interest paid on term loans and its capitalization. 7. Income from mutual funds and its classification. 8. Adjustment of short-term capital loss. 9. Principles of natural justice. Detailed Analysis: 1. Validity of Notice under Section 143(2): The assessee challenged the validity of the notice issued under section 143(2), arguing that the mandatory requirement of recording the requisite satisfaction was not complied with. The tribunal found no merit in this ground and rejected it, upholding the validity of the notice. 2. Legitimacy of Variation Between "Returned Income" and "Assessed Income": The assessee contended that the variation between the "returned income" and "assessed income" was illegal, particularly questioning the authority of the Addl. CIT, Range-IV, Kanpur to act as the Assessing Officer. The tribunal upheld the assessment by Addl. CIT, stating that no valid order under section 127(2) transferring jurisdiction was necessary. The tribunal found no merit in the assessee's arguments and rejected this ground. 3. Classification of Interest Income from Fixed Deposits and Mutual Funds: The tribunal examined whether interest income from fixed deposits and mutual funds should be classified as "Income from Other Sources" or set off against capital work-in-progress. The tribunal, following the judgment of the Hon'ble Jurisdictional High Court in CIT vs. Indo Gulf Fertilizer & Chemical Corporation Ltd., held that such interest income should be classified as "Income from Other Sources" and is taxable accordingly. The tribunal found the assessee's reliance on other judgments unconvincing and upheld the classification as income from other sources. 4. Depreciation on Non-Factory Building: The assessee claimed depreciation on a non-factory building, arguing that the building had been put to use irrespective of the commissioning of the new project. The tribunal upheld the disallowance of depreciation, agreeing with the Assessing Officer's view that depreciation is allowable only on assets used for business as per section 32. The tribunal found no infirmity in the assessment order and rejected this ground. 5. Set-off of Interest Income Against Public Issue Expenses: The tribunal allowed the assessee's claim to set off interest income of Rs. 17,70,413 earned in the course of a public issue of shares against public issue expenses. The tribunal held that the interest earned was inextricably linked with raising share capital and should be adjusted towards the expenditures involved for the share issue. This view was supported by judgments from the Hon'ble Gujarat High Court and the Ahmedabad Bench of the tribunal. 6. Interest Paid on Term Loans and Its Capitalization: The tribunal rejected the assessee's claim to capitalize interest paid on term loans under the head "cost of capital works-in-progress." The tribunal followed the judgment of the Hon'ble Jurisdictional High Court, which held that interest income from unutilized term loans should be treated as "Income from Other Sources." 7. Income from Mutual Funds and Its Classification: The tribunal upheld the classification of income earned from mutual funds as "Income from Other Sources" and rejected the assessee's claim to set off such income against the cost of capital works-in-progress. The tribunal found that the facts of the case did not support the assessee's claim and followed the judgment of the Hon'ble Jurisdictional High Court. 8. Adjustment of Short-Term Capital Loss: The tribunal rejected the assessee's argument that receipts from mutual funds, after being subjected to adjustment from short-term capital loss, should be treated as "short-term capital gain" liable for taxation at a reduced rate. The tribunal found no merit in this ground and upheld the assessment order. 9. Principles of Natural Justice: The assessee argued that the order appealed against was contrary to the facts, law, and principles of natural justice. The tribunal found no merit in this argument and upheld the assessment order, rejecting the ground. Conclusion: For A.Y. 2006-07, the tribunal partly allowed the appeal for statistical purposes, primarily on the ground of setting off interest income against public issue expenses. All other grounds were rejected. For A.Y. 2007-08, the tribunal dismissed the appeal, upholding the classification of interest income as "Income from Other Sources" and rejecting the validity challenge to the notice under section 143(2). The combined result was that the appeal for A.Y. 2006-07 was partly allowed for statistical purposes, and the appeal for A.Y. 2007-08 was dismissed.
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