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Issues involved:
The issue involves the justification of deleting an amount as an allowable expenditure for the assessment year 1975-76 u/s 256(1) of the Income-tax Act. Summary: The judgment pertains to a case where the assessee, a subsidiary company of Andhra Sugars Ltd., deposited money with the holding company and borrowed a sum from it. The dispute arose regarding the treatment of interest earned on deposits and interest paid on the loan. The Income-tax Officer accepted the return filed by the assessee, but the Commissioner of Income-tax revised the order under section 263, disallowing a certain amount as an expenditure. The Appellate Tribunal held that despite appearing as two transactions for accounting purposes, in reality, it was a single transaction. The Tribunal found the interest income earned by the assessee to be Rs. 21,401, not Rs. 34,865. The Revenue challenged this decision, arguing that the amount cannot be deducted under section 37 as the assessee had not commenced business. The Revenue contended that the income is taxable under section 56 and the deduction claimed is not applicable under section 57(iii). However, the court upheld the Tribunal's finding, stating that section 57(iii) does not apply as the interest income was correctly determined by the Tribunal. The court declined to delve into the real income theory and affirmed the Tribunal's factual finding, ruling in favor of the assessee. Therefore, the court answered the reframed question in the affirmative, in favor of the assessee and against the Revenue, with no costs incurred.
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