AI Drafter 
TaxTMI 
TaxTMI 
2021 (2) TMI 1328
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.... Heard both the parties. Case files perused. 2. The assessee has raised the following substantive grounds in appeal No.141/Hyd/2017 for AY.2012-13: "1. The order of the learned Commissioner of Income-Tax (Appeals) is erroneous both on facts and in law. 2. The learned Commissioner of Income-Tax (Appeals) erred in holding that the appellant did not commence business activity and that the interest on fixed deposits of Rs.9,26,440/- is taxable under the head "Other sources". 3. The learned Commissioner of Income-Tax (Appeals) ought to have seen that the interest of derived in the process of the business activity of the appellant and that the expenditure incurred during the course of business is an allowable deducti....
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....(A)'s identical action in both these assessment years upholding the Assessing Officer's action assessing the impugned interest income as 'income from other sources' vide following detailed discussion: "7. Regarding the second Issue of treating the Interest Income from Fixed Deposits as Income from other sources by the Assessing Officer, the details are as under: The appellant had to deposit the following amounts as a pre-requisite to obtain loan from IDBI Particulars Loan Amount Received (Rs.) FD made as a Pre-requisite (Rs.) 1st disbursement in AY.2012-13 17,27,00,000 4,50,00000 2nd disbursement in AY.2013-14 49,94,23,308 16,10,00,0 On these FDs the appellant received interest as under:....
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.... IDBI dated 28.6.2010, the appellant was compelled to make FDs with the bank to obtain loans, thus the interest was eligible to be set off against the project expenditure incurred. b) In case of Tuticorn Alkali Chemicals and Fertilisers Ltd cited supra the facts were different. In that case the interest was earned on surplus funds deposited with the bank. Whereas in the present case the appellant is compelled to deposit certain amounts with IDBI Bank as pre-requisite to obtain loans, therefore the case of Tuticorn Alkali Chemicals and Fertilisers Ltd cannot be applied. c) In the case of Autokast Ltd, the facts were, the assessee borrowed amounts from IDBI and deposited the same with State Bank of Travancore as he did not r....
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....s with the banks. The interest earned on these FDs were set off against preoperative expenses by assessee. The Hon'ble Tribunal considered the decision of Tuticorn Alkali Chemicals and Fertilisers Ltd ( cited supra) and Indian Oil Panipat Power Consortium Ltd (cited supra ) and various other precedents on this issue held that Interest paid on borrowed funds has no connection with receipt of interest and held that interest payable cannot be allowed as deduction U/s 57(iii). Further in appellants case as verified from IDBI loan sanction letter dated 28.6.2010, the appellant made deposits with the bank as his equity being promoter. Therefore it practically amounts to that the appellant kept his share of capital with the bank on wh....
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....t (18,77,886) Add: Depreciation considered separately 7,82,663 Donation US 37 3,06,782 Interest - Others 3,37,633 Audit fee disallowed u/s. 40(a)(ia) 2,24,720 16,51,798 (2,26,088) Less: Depreciation as per IT Act 5,81,552 Disallowance made in early year paid now 40(a)(ia) 2,24,720 8,06,272 Total taxable income (10,32,360) 6. We have given our thoughtful consideration to the foregoing rival contentions. We find no substance in the assessee's foregoing grievance. Case records indicate in Pg.47 of the paper book that the assessee had to commenc....