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Issues Involved:
1. Chargeability of interest earned on Fixed Deposit Receipts (FDRs). 2. Proper enquiry regarding share capital and share application money. Issue-wise Detailed Analysis: 1. Chargeability of Interest Earned on FDRs: The primary issue was whether the interest earned on FDRs, amounting to Rs. 9,31,572, should be taxed as income. The CIT argued that the interest income was not brought to tax or was wrongly set off. The assessee contended that the interest earned on margin money deposits was non-taxable, citing several Supreme Court decisions, including CIT vs. Bokaro Steel Ltd., Bangaigaon Refinery & Petrochemicals Ltd vs. CIT, and CIT vs. Karnal Co-op. Sugar Mills Ltd. These cases established that interest earned on deposits made as margin money for obtaining letters of credit or bank guarantees, directly linked with the setting up of plant and machinery, is a capital receipt and not taxable income. The Tribunal found that the CIT's reliance on other cases was misplaced as they involved interest on surplus funds, not margin money deposits. The Tribunal concluded that the interest earned by the assessee on FDRs was a capital receipt and could be adjusted against the project cost, aligning with the law laid down by the Supreme Court. Therefore, the AO's action in allowing the set off was neither erroneous nor prejudicial to the interest of the Revenue. 2. Proper Enquiry Regarding Share Capital and Share Application Money: The CIT contended that the AO failed to make due and proper enquiries regarding the share capital and share application money aggregating to Rs. 9,42,89,000. The assessee argued that extensive details were provided during the assessment, including bank statements, lists of shareholders with full addresses, and confirmations from a significant portion of shareholders and share applicants. The AO had examined and test-checked these details, even writing letters to some shareholders who responded. The Tribunal noted that the AO had conducted detailed enquiries and considered all relevant material before passing the assessment order. The Tribunal emphasized that the CIT cannot substitute his opinion for that of the AO, especially when the AO's view was legally possible and based on thorough consideration of the evidence. The Tribunal found no material on record to doubt the identity or investment by the shareholders/share applicants and concluded that the AO's assessment was neither erroneous nor prejudicial to the interest of the Revenue. Conclusion: The Tribunal held that the CIT's revisional order under section 263 of the IT Act, 1961, was not justified. The AO had conducted proper enquiries and applied the relevant legal principles correctly. Therefore, the Tribunal cancelled the CIT's revisional order.
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