2010 (6) TMI 604

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....rned. 3. In this case the Assessing Officer noted that during the year the assessee-company has shown income from interest only. Since the business has not commenced the Assessing Officer asked as to why the interest income should be allowed to be set off against the expenses during the construction period. The Assessing Officer further asked the assessee that since the business had not yet commenced, the expenditure incurred was required to be capitalised till the business activity commences. Hence the expenses cannot be allowed to be set off against the interest received as the same has not been received on account any business activities. He further observed that in view of the various judicial pronouncements, the interest income is t....

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....e above remarks, as indicated above, the income from interest is to be taxed as income from other sources. Since, in the current year the business is yet to be commenced the income of the assessee is assessed at Rs. 6,92,000 as income from other sources." 6. Upon the assessee's appeal the learned Commissioner of Income-tax (Appeals) considered the issue he held as under : "5.5 I have gone through the assessment order, submissions as well as the facts particularly nexus of loan raised and utilized and respective confirmation with the income-tax particulars, of the case, it is clear that two distinct loans for two different purposes- One for earning interest and the second for construction was raised by the appellant and was used acc....

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....st income of Rs. 6,92,000 as 'income from other sources' under section 56 but the appellant is also entitled for deduction of relatable interest expenditure under section 57(iii). Accordingly, the Assessing Officer is directed to allow relatable interest expenditure of Rs. 6,14,992 from the assessed income of Rs. 6,92,000 with net effect of taxable income under 'other sources' of Rs. 77,008 only." 7. Against this order the Revenue is in appeal before us. 8. It has been urged that the learned Commissioner of Income-tax (Appeals) has erred in directing to allow interest expenditure from interest earned on the basis that the relating loan was meant for an utilized for solely earning interest income ignoring that the relevant loan was uti....