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7. The Assessi ng Offi cer has hel d as under:

"In the P&L account the assessee has shown income from agency charges accrued on Division No.l amounting to Rs. 14,13,539/- at the rate of 9.5% . As per schedule of work expenditure of other Jammu Development Authority departments filed in schedule 3, it has been observed that the assessee ha s not shown income from agency charges in respe ct of the all the works/schemes executed during the financial year relevant to the a ssessment year 2005-06. As pe r schedule -3 assessee has received amount of Rs.6,34,69,560/- from other departments for execution of their works. The assessee was asked vide order sheet entry dated 21.06.2007 as to why income @ 9.5 /o of the amount received from other departments may not be added back to the income. In response t o this the assessees vide reply date d 24.12.2007 has stated:-

3A.2.3.4.The total premia receipts of the year under appeal was R s.11,57,35 ,243 of wh ich Rs.9,58,09,089 pertained to Nazul Account i.e. State Government's Account and Rs.1,99 ,26,154 pe rtained to General Development Account i.e. the Appellant 's own Jammu Development Authority account. The appellant had also incurre d an expenditure of Rs.12,06,64,979 /- on works and development schemes, of which Rs.4,92,83,178 pertained to nazul schemes and Rs.7,13,81,801 pertained t o GDA schemes. T he AO h owever, considere d only the income si de and ign ored the expenditure totally.

(2) In case, it is not require d by any Deptt. Of the Govt., the authority shall use it for raising residential col onies, public ma rkets, shopping centres; parking pla ces, cinema h alls and theatres and similar other obje cts suitable to yield income and generate resou rces an d also lease it out to private individuals/ group of pe rsons on pe rpetual lease basis. The period of such lease shall be fixed Jammu Development Authority by the Authority in due consideration of the locality and the areas.' The perusal of this rule clarifies that in case the nazul land is required by the government as provided in the sub section 4 of the Jammu Development Act, the control of land shall by notification in official gazette be transferre d to the government on the terms an d conditions settled between government and the authority. The government has to pay the cost of development of such land to the authority. All other Nazul lands which are not requi red by the government shall be used by the Authority for raising colonies, malls etc and to yield income an d genera te resources from such land. Thus, the rule itself clarifies that the authority is free to yield income from such lands.

"The authority has folly accounte d for interest on FDR both pledged or otherwise As the FDR has matured during the years, the income has directly been credited to interest income and these FDR being renewed for one year or so. The a ccrue d interest for remaining pe riod ha s been prope rly calculated as per details enclosed. Kindly refer to schedule attached."

As per balance sheet filed for th e assessment year 2005-06, assessee had FDR s amounting to Rs.27,87,90,781/- as on 31.03 .2005. As per balance sheet filed for assessment year 2004-05 assessee had FDRs amounting to Rs.28,86,99,820/-. The two figures confirm that assessee had invested almost equal amount of about Rs.28 crores for whole of the year. However, as per schedule 5 and 6 to the balance sheet the assessee has re flected the interest accrued at Rs.48,17 ,403/- only. Under schedule 5 the assessee has reflected the interest on Rs.13,73,95,468/- at Rs. 33,69,0 12/- for 179 days only. It has further reflected inte rest on nine FDRs amounting to Rs.13 ,20,28,843/- at Rs.14,48 ,391/- for an average peri od of 75 days only. The compa rative figures of F DRs availa ble for the cu rrent year and previous year clea rly indicates that almost equal figure of FDRs remained invested with the bank for wh ole of the year. Assessee has not furnished interest accrued on Rs. 13,73,95,468/- for six months only while the interest for balance pe riod has not been reflected. Therefore the interest accrued on those F DRs amounting to Rs.33,69,012/-