THE COMMISSIONER OF INCOME TAX vs. M/S CRANE SOFTWARE INTERNATIONAL LTD.,

THE COMMISSINER OF INCOME-TAX

THE DEPUTY COMMISSIONER OF

The first substantial question of law reads thus: 1. Whether the Appellate Authorities were correct in holding that interest income earned from fixed deposits which was to fall within the head ‘Income from Business’ or ‘Income from Other Sources’ and consequently the same would affect the computation of deduction u/s 80HHE of the Act, was held to be a debatable issue, which cannot be rectified u/s 154 of the Act?

This appeal is filed by the revenue and the matter is for the Assessment Year 2003-04. The assessee

According to the revenue, on verification of records, it was found that the assessee - company was in receipt of interest on Fixed Deposits at Rs.2,28,80,959/- and TDS was also deducted. Hence, the revenue was of the impression that this being the income from other sources, needs to be reduced from the profit of business to arrive at the deduction under Section 80HHE. Thus, revenue has concluded that same has resulted in excess allowance of 80HHE. Accordingly, proceedings under Section 154 of Income Tax Act, 1961 were initiated and assessee was called upon to furnish its objection.

On re-appreciating the matter, order came to be passed under Section 154 of the Income Tax Act, 1961 as per Annexure-C dated 27.03.2007, whereunder it came to be held that assessee is not entitled to deductions under Section 80HHE of the Act. Appellate Commissioner set aside the order in Appeal No.ITA.No.17/DCIT.Central Circle.1(1)/BLR/CIT(A)-VI/2007-08 vide order dated 19.08.2008 by concluding that, from the records it is found that the Fixed Deposits from which the interest had been earned, has been given as security for Term Loans and Overdrafts in appellant’s business and payment of interest on such Overdrafts and Term Loans far exceeds the receipt of interest received on Fixed Deposits. Appellate Commissioner having concluded that the issue involved in the case was contentious one, annulled the order passed by the Assessing Authority under Section 154 of the Income Tax Act, 1961.

We do not find any ground to interfere in the impugned order, inasmuch as, the question as to whether the interest received on Fixed Deposits kept apart for business purposes falls within the business income or income from other sources is debatable point. Such debatable point is beyond the scope of Section 154 of the Income Tax Act, 1961. At an earlier point of time, the Assessing Officer had taken one particular view, since two views were possible. Hence, this is not the case wherein the Authority would have exercised power under Section 154 of the Income Tax Act, 1961. Hence, appeal stands dismissed. Accordingly, substantial question of law is answered against the revenue.