K.L.MANJUNATH, J. - (1.) THIS appeal is by the Revenue challenging the order passed by the Tribunal, Bangalore Bench, in ITA No. processed under s. 143(1)(a) of the IT Act, 1961, and an addition of Rs. 11,07,36,000 was made under the head "Income from other sources". The case was selected for scrutiny. During the course of scrutiny, the AO noticed that the assessee proposed to start steel plant in Karnataka and production was not commenced so far. It had earned income of Rs. 11.07 crores by way of interest from deposits. The assessee claimed the same as income from the business and also claimed expenditure incurred by it at the central treasury office at Mumbai, registered office at Bangalore and also expenditure incurred at project office situated at Torangallu of Bellary District. According to the assessee, the share amount collected by it was invested in the fixed deposit and it had also purchased shares of other companies by borrowing loan from other banks and has paid interest and similarly it has also refinanced on the loan raised by it from various banking institutions. It was contended by the assessee that the financial business as well as the investment had to be assessed as business of the appellant -company and claimed expenditure thereon. The AO having noticed that the assessee failed to furnish details sought by him held that the assessee has not commenced any business and the income so earned by the company has to be treated as "income from other sources". Accordingly, order of the assessment was made.
(2.) BEING aggrieved by the order passed by the AO, the assessee filed an appeal before the CIT(A), Bangalore. The appeal filed by the assessee came to be dismissed on the ground that the assessee has failed to prove its case. Thereafter second appeal was preferred before the Tribunal, Bangalore, reiterating the same grounds. The Tribunal considering the aim and objects of the company and so also the objects incidental or ancillary to the attaining of the main object held that the investment of shares and finances comes within the ancillary objects of the assessee -company and any income earned from ancillary business has to be treated as business income and further held that the assessee is entitled to claim interest earned and dividend received has to be treated as income from the business relying upon the provisions of s. 2(13) of the IT Act and further held that the expenditure incurred by the central treasury office, Mumbai, has to be treated as revenue expenditure. Accordingly, the appeal was allowed in part and the Tribunal has directed the AO to pass orders accordingly.
(3.) THE legality and correctness of this order is called in question by the Revenue in this appeal raising the following two substantial questions of law : "(i) Whether, on the facts and in the circumstances of the case the interest earned by the assessee before the commencement of the business from the funds mobilised through share capital, borrowings in the form of debentures on private placement, short -term borrowings from the banks for working capital needs and also intercorporate loan from various companies which were kept invested in bill discounting, structured financing on the basis of letter of credit and advanced as loan to various parties, is chargeable to tax under the head 'Income from other sources' or under the head 'Income from business'. (ii) Whether, on the facts and in the circumstances of the case the Tribunal is right in law in directing to allow expenditure incurred by the assessee before the commencement of the business amounting to Rs. 15,43,40,694 and debenture issue expenses of Rs. 10,77,53,775 holding that the business of the assessee has already commenced - We have heard learned counsel for the parties. According to M.V. Seshachala, the Tribunal without any basis and without considering the case pleaded by the parties has allowed the appeal solely relying upon s. 2(13) of the IT Act. According to him, the Tribunal did not notice that when an opportunity was given to the assessee to explain in detail about the process in which the income was earned by the assessee and expenditure incurred by the assessee. When such an opportunity was not made use of by the assessee by not producing relevant documents as called for by the AO, the Tribunal should not have reversed the concurrent findings of the AO and that of the CIT(A). He further contends that the assessee did not produce any additional documents either before the CIT(A) or before the Tribunal. In spite of it, the Tribunal has erroneously allowed the appeal of the assessee without examining the balance sheet and documents. Therefore, he requests the Court to allow the appeal and reverse the finding of the Tribunal.;