2012 (8) TMI 1152

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.... 2. The common issue involved in these appeals is with regard to the nature of interest income earned on advances received by the assessee from the Government of Uttar Pradesh. Since the facts of both the cases are almost similar except difference in quantum of addition, we extract the facts in ITA No. 344/LKW/2009 in order to adjudicate the impugned issue. 3. The assessee was incorporated with the Registrar of Companies vide certificate of incorporation dated 27.3.1987. It was established for construction and maintenance of residential and non-residential buildings for the Police Department. The assessee received a total advance of `4,46,18,000 for construction of buildings for the Police Department as per Government orders dated 1.8.1....

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....ally mentioned that the interest earned on these advances from the bank would not be the income of the assessee, it was rather to be remitted back to the Government. These directions were reiterated through various letters of the Government, therefore, interest income was shown as liability in the balance sheet of the assessee. In the audited balance sheet, it was also mentioned that the interest earned on the advances is to be paid to the Government. Therefore, the lower authorities have wrongly treated this interest income to be the income of the assessee. He has also filed the copy of the ledger account in support of his contention that the interest income accrued to the assessee was remitted to the Government from time to time. 7. Th....

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....t. Reliance was placed upon the letter dated 12.1.1988 of the Joint Secretary of the Government of U.P. addressed to the D.G. Police through which advances were sanctioned to the assessee for construction of the residential house. In this letter, it has been specifically mentioned that whatever interest income is accrued on the advances from the Bank, it would be remitted to the Government. Our attention was also invited to another letter dated 3.4.1980 available at page 26 of the compilation of the assessee written by the Finance Secretary, Uttar Pradesh in which it has been categorically stated that the income earned from the Bank on these advances would not be the income of the assessee, it would be rather remitted to the Government. Sim....