The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) in the case of Brahma Center Development Pvt Ltd v PCIT held that where after an enquiry the AO took the view that interest amount is not taxable, the contention of the revenue that no such enquiry has been made fails.
The PCIT in the assessment found that the assessee who has earned an income by way of interest on FDRs, instead of crediting the amount to the Profit and Loss account had deducted the same from the value of inventory as shown in the Balance Sheet.
It has been contended by the Revenue that no enquiry was made by the AO specifically as to the issue of interest because the record does not show that the AO put any specific question as to why the interest shall not been taxed as income from other sources.
On the other hand, assessee contended that (1) It is not a case of no enquiry inasmuch as the AO raised a query, obtained reply of assessee and only after being satisfied by the submissions of the assessee, AO took his view that interest amount is not taxable; (2) If the PCIT felt that the AO should have made further inquiries, it is incumbent upon the PCIT to make some inquiries before reaching a conclusion that the assessment order is erroneous in so far as it is prejudicial to the interest of Revenue; (3) That the decision of M/s Tuticorin Alkali Chemicals and Fertilizers Ltd has no application to the facts of the case since the business of the assessee was not commenced and in the present case, the business of the assessee had commenced.
The Bench constituting of Shri R.K. Panda as Accountant Member and Shri K. Narasimha Chary as Judicial Member held that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the AO that the interest earned was adjusted against the project expenditure.
The case of M/s Tuticorin Alkali Chemicals was also discussed in the present case where it was discussed that since all the material was available on record, there was no need for the PCIT to conduct any further inquiry. While discussing the earlier established precedents it has been stated that the interest earned on funds primarily bought for infusion in the business could not have been classified as income from other sources.
While distinguishing the present case from the above-stated cases, it has been held that the assessee had already commenced his business in the present case. Also that the PCIT is not justified in invoking in the jurisdiction under Section 263 of the Income Tax Act.
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