2014 (7) TMI 796

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....nder section 143(3) of the I.T. Act and in the course of assessment considered an amount of Rs. 22,00,00,000/- as an advance made to M/s. Satyam Computer Services Limited on which assessee claimed 18% interest by filing a suit before the City Civil Court, Secunderabad. Accordingly, A.O. worked out interest on the advance amount of Rs. 22,00,00,000/- and brought to tax an amount of interest of Rs. 14,35,068/- in the assessment made. The Ld. CIT(C) noticed that the total advances made by the assessee was at Rs. 30,00,00,000/- as against Rs. 22,00,00,000/- taken by the A.O. and as there was an omission of calculation of interest at 18% on the balance of Rs. 8,00,00,000/-. Ld. CIT(C) invoked jurisdiction under section 263 of the I.T. Act. 2.1.....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s of the cases before us, we find that the assessees have stated before the CIT(A) that the amounts advanced are from out of the share application monies and temporary advances. It is so stated on the basis of entries in the Balance Sheet and the Profit & Loss Accounts of the respective assessees filed along with their returns of income. In the absence of any contract between the assessee companies and M/s. SCSL for charging of interest on the advances, the assessees are not entitled to receive any interest income on such advances. Therefore, merely because the assessee is following mercantile is system of accounting, it cannot be said that the interest has accrued to the assessees. Further, merely because the assessees have claimed interes....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... nor the CIT(A) has examined the issue from this angle. Therefore, the orders of the CIT(A) and the Assessing Officers are set aside and the issue is remitted to the file of the Assessing Officer of the respective assessees for de novo consideration in the light of our observations above. Further, we hold that if the amounts advanced to M/s. SCSL by the respective assessees are from their own funds, then the interest expenditure cannot be disallowed and brought to tax. Needless to mention that the Assessing Officer shall give fair opportunity of hearing to the assessees before passing any orders in the light of our above observations and in accordance with law". 5. It was the submission that the very basis of accrual of interest was subjec....