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TMI Blog2015 (6) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... he return was processed u/s 143(1) of the Act on 10.02.2006 determining a tax refund of Rs. 8,64,130. The case was selected for scrutiny and the assessment u/s 143(3) of the Act was completed on 27.03.2006 accepting income of Rs. 5,91,630 as returned by the assessee. 3. The CIT (Central) assumed jurisdiction u/s 263 on the ground that he observed from the P&L account, that interest income of Rs. 46,28,979 was credited to P&L a/c. The said interest income were earned on fixed deposits. The CIT held that during financial year 2002-03 relevant to the A.Y 2003-04, the assessee earned no income from the business of agricultural operations. However, expenditure of Rs. 40,33,313 has been debited to P&L a/c which includes interest paid to others o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of borrowal of funds was not fulfilled. Instead of keeping the money idle, the assessee company placed the same with the banks as fixed deposit and received interest income. Therefore, interest paid to M/s. Maytas is an expenditure incurred to earn the interest income under consideration". 5. The ld DR stated that from the records it was found that during the financial year 2002-03, there was no business operation. Further, the assessee company itself accepted that the purpose for which the borrowal was obtained from M/s Maytas Infra Ltd was not fulfilled. Moreover, the investigations by investigation agencies revealed that the assessee company is one of front companies floated by Sri B. Ramalinga Raju for the purpose of routing the fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us front companies for the purpose of routing the funds and to acquire vast tracts of lands in and around Hyderabad in the names of entities like the assessee company. The control and management of these companies was with Shri B. Ramalinga Raju and in particular through Shri B. Suryanarayana Raju his brother. The controlling directors or share holders of these front companies are the family members of Shri B.Ramalinga Raju. In almost all these companies the other directors are the employees of concerns of Shri B. Ramalinga Raju. Sworn statement of Sri B. Ramalinga Raju was recorded u/s 131 of the I.T. Act, 1961 on 20.12.2009 in the Central Prison, Chanchalguda, Hyderabad. In his statement, he has confirmed and reiterated the facts and fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no business activities have yet started, the interest income earned cannot be treated as income earned from business activities. The interest income has to be treated as income earned from other sources and consequentially no business expenditure is allowable against it, in view of Apex Court decision in the case of M/s. Tuticorin Alkali Chemicals & Fertilizers Ltd, reported in 227 ITR 172. I have thus, reason to believe that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for A.Y 2003-04 and also that it resulted in escapement of income chargeable to tax to the tune of at least Rs. 40,37,349 given the volume of the transactions as stated above, within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. 9. Further, when two views are possible and when the AO takes one of the two views permissible in law to which the Commissioner does not agree with, it cannot be treated as erroneous and prejudicial to the interests of the Revenue as held by the decisions of the Hon'ble Supreme Court (i) CIT vs. Max India Ltd (295 ITR 282) and (ii) Malabar Industries Company Ltd (243 ITR 83). Hence, the revisionary jurisdiction assumed by the CIT (A) is invalid. 10. Further, on merits the order of the CIT setting aside with a direction to re-compute the income of the assessee company after disallowing the expenditure claimed is incorrect. The CIT has observed that as the assessee company has not started its business operations, interest income earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit receipts. The AO however, disallowed the interest paid by the assessee to the bank on the borrowed amount on the ground that the loan was borrowed for business purpose and interest paid thereon should not be allowed as deduction while computing the income under the head "income from business". The assessee filed an appeal against the order before the CIT (A) who deleted the addition and allowed the deduction of interest paid by the assessee to the bank on the borrowed funds u/s 57(iii) of the Income Tax Act, 1961. This order of the Commissioner (Appeals) was affirmed by the Tribunal. On appeal to the High Court: Held, dismissing the appeals, that the interest paid had to be allowed under the provisions of section 57(iii)". 11. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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