TaxTMI 
TaxTMI 
2026 (6) TMI 875
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....essee company has taken loan of Rs. 80 Crores from HDFC for purchase of property and paid interest on it, which was treated as project work in progress and capitalized the same as 'WIP'. It is further seen that interest on FDR from Oriental Bank of Commerce has been shown as other income and transferred to Inventories project work in progress. The said interest income of Rs. 1.56 Crore was reduced from the interest expenses on borrowed funds. Since, Investments in fixed deposits out of borrowed funds was not utilized for the business and development of properties, the same is treated as income from 'other sources'. Thus, the AO on the aforesaid analyzations completed the assessment on 22.12.2017 determining total income of Rs. 1,42,25,233/- and raising a demand of Rs. 58,50,890/-. The Assessing Officer further relying on the decision in the case of Tuticorin Alkali Chemicals and Fertilisers Ltd. Vs. CIT (1997) 227 ITR 172 (SC) treated the interest received of Rs. 1,56,56,467/- as Income from Other Sources. Aggrieved by the said order the Assessee went in appeal before first appellate authority. The then Ld. CIT(A) vide Order No. CIT(A), Mumbai- 8....
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....th Section 151 of the Act, the AO reopened the case of the Assessee by issuing a notice dated 31.03.2021 under Section 148 of the Act. 6. The Assessee in response to such notice u/s 148 of the Act, filed its ITR on dated 08.04.2021. 7. Thereafter, the AO issued various statutory notices to the Assessee, who in response, submitted the relevant details, which were considered by the AO. Further, the AO also issued a show cause notice dated 22.03.2022 which read as under: - "As seen from the financial statements, Assessee had taken loan from HDFC bank and the same was lent to other companies on which interest of Rs. 19,74,03,768/- was earned. Further Assessee had debited interest expenses of Rs. 19,74,03,768/- and processing fee for loan of Rs. 5,75,00,000/-." 8. The Assessee in response to said show-cause notice, made its submission on dated 28.03.2022, inter alia, claiming that the Assessee has purchased property at Walkeshwar, Mumbai and is in process of developing the same and purchasing tenancy rights from tenants of Indra Bhuvan building. As the Assessee had started the expenses related to it therefore, the same should be allowed. 9. The AO, though considered....
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....after recording reasons and obtaining necessary sanction under section 151. The basis for reopening was tangible material - interest income earned on intercorporate deposits not properly offered to tax. The appellant has not shown any factual inaccuracy in the reasons recorded. 5.2 The reassessment was initiated after recording reasons and obtaining necessary sanction under section 151. The basis for reopening was tangible material - interest income earned on intercorporate deposits not properly offered to tax. The appellant has not shown any factual inaccuracy in the reasons recorded. 5.2.1 The Hon'ble Supreme Court in Raymond Woollen Mills Ltd. v. IΤΟ (1999) 236 ITR 34 (SC) held that at the stage of reopening, what is required is only a prima facie belief that income has escaped assessment, and sufficiency or correctness of the reasons cannot be gone into at that stage. Accordingly, the reopening of assessment u/s 147 is valid in law. 5.3 Disallowance of loan processing fees: 5.3.1 It is an admitted fact that the Assessee borrowed funds from HDFC Bank and placed the same as inter-corporate deposits (ICDs) with other companies, t....
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....terest income. The funds were not utilized for the construction or development of the project during the year. 5.3.2 The appellant claimed that since it had already purchased property and commenced preliminary activities, the loan was used for business purposes, and the processing fees should be allowed as a revenue expenditure. 5.3.3 However, the evidence on record does not support the claim that any construction activity or development expenditure was carried out during the year. The funds borrowed were entirely diverted to ICDs, and no part of the loan was shown to have been used for project execution. 5.3.4 The Hon'ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) held that where borrowed funds are parked in short-term deposits pending utilization, the interest earned thereon is assessable as "Income from Other Sources", and the corresponding expenses cannot be set off against such income unless they are directly incurred to earn it. 5.3.5 In the present case, the AO found that the Assessee's activity for the year was confined to borrowing and lending funds, and there was no evidence o....
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....o addition on account of other income at Rs. 19,75,09,145/-, as interest earned on intercorporate deposit. However, made the addition of Rs. 5,75,00,000/- only, being an expenditure incurred by the Assessee, as processing fee for loan. Thus, the Assessee before this Court has raised legal issue, inter alia, relying on the judgment by the Hon'ble Jurisdictional High Court in the case of Commissioner of Income Tax-5, Mumbai vs. Jet Airways (i) LTT 331 ITR 236 (Bombay). 16. On the contrary, the ld. D.R. vehemently supported the impugned order by claiming that the impugned order does not suffers from any perversity, impropriety and legality. 17. We have given thoughtful consideration to the peculiar facts and circumstances of the case and rival claims of the parties. As observed above, the case of the Assessee was reopened by issuing a notice dated 31.03.2021 under Section 148 of the Act, mainly on the reason that interest income chargeable to tax has escaped assessment for the AY 2017-18 to the tune of Rs. 19,75,09,145/-. Whereas, it is fact that no addition has been made on the account, but in fact, the AO ultimately made the addition of Rs. 5,75,00,000/- being processing fee f....