2008 (9) TMI 981

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....tion of ₹ 15,66,172 being the interest paid by the assessee during the year. 3. The assessee company is engaged in the business of land developers. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had debited the expenses of ₹ 15,66,172 in the profit and loss account, which was disallowed by the Assessing Officer by treating the same to be the prior period expenses. The Assessing Officer had made a reference to the decision in the case of K. Sankarnarayana Iyer & Sons v. CIT [1977] 110 ITR 571 (Mad.). 4. On an appeal the CIT(A) has confirmed the Assessing Officer's action. The CIT(A) has observed that no doubt, the case law relied on by the Assessing Officer is not applicab....

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....m of deduction of interest has been made in accordance with the provisions of section 145 on the basis of mercantile system of accounting being followed by the assessee. She, therefore, submitted that the assessee's claim of deduction of interest paid to the parties was justified. 7. The Ld. DR, on the other hand, reiterated the reasons and the basis given by the Assessing Officer as well as by the CIT(A) in rejecting the assessee's claim. 8. We have considered rival contentions of both the parties and have carefully gone through the orders of the authorities below. 9. In the present case, the assessee company had accepted money by certain educational societies or trusts in pursuance of the memorandum of understanding for construction of....

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.... that the assessee company is obliged to refund the entire amount with interest at the rate of 7 per cent in the event the approval is declined by the Director T & CA and or the second party has not been able to obtain the same. Accordingly, the assessee company had taken a resolution in the Board of Directors meeting to pay interest on earnest money deposited by the educational society/trusts whose agreements were cancelled due to not getting the required approval. The aforesaid resolution was taken on 8-9-2002. Unless and until the memorandum of understanding is cancelled and the earnest money is not found to be refundable to the educational societies/trusts, the question of paying interest at the rate of 7 per cent per annum in every yea....