NARAYANDADA CHAVAN SAHAKARI SOOT GIRNI LIMITED, SANGLI V. ITO WARD 2(5), SANGLI

ITA 2094/PUN/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5211 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-02-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 26-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Capital receipt; Capital expenditure
• Section: 143(3); 234B; 139(1); 147; 148; 56

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI GEORGE MATHAN, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.2094/PUN/2019 / ASSESSMENT YEAR : 2012-13 NARAYANDADA CHAVAN SAHAKARI SOOT GIRNI LTD., FORMERLY M/S. SHIRALA TALUKA SHETKARI SAHAKARI SOOT GIRNI LTD., A/P BHAT SHIRGAON, SHIRALA, SANGLI 415 408. PAN : AACAS4700L. . / APPELLANT V/S THE INCOME TAX OFFICER, WARD 2(5), SANGLI. . / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI. REVENUE BY : SHRI PANKAJ GARG. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 1, KOLHAPUR DATED 11.12.201 9 FOR THE ASSESSMENT YEAR 2012-13. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A CO-OPERATIVE SOCIETY STATED TO HAVE BEEN ESTABLISHED ON 05.09.1991 AND REGISTERED UNDER THE MAHARASHTRA CO- OPERATIVE SOCIETIES ACT, 1960 FOR SETTING UP OF A SPINNING UNIT. AO FR OM THE NMS / DATE OF HEARING : 17.02.2020 / DATE OF PRONOUNCEMENT: 19.02.2020 2 ITA NO.2094/PUN/2019 DATA AVAILABLE FROM THE COMPUTER SYSTEM NOTED THAT THE RE WERE HUGE FIXED DEPOSITS OF THE ASSESSEE WITH THE BANK OF INDIA, SHIRALA A ND IT HAD ALSO RECEIVED INTEREST FOR THE YEAR UNDER CONSIDERATION BUT A SSESSEE HAD NOT FILED THE RETURN OF INCOME. SINCE THE ASSESSEE HAD FAILED TO FILE THE RETURN OF INCOME U/S 139(1) OF THE ACT, PROCEEDINGS U/S 147 OF THE ACT WERE INITIATED AND ACCORDINGLY, NOTICE U/S 148 OF THE ACT WAS IS SUED ON 27.03.2018 AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT, ASSESSEE FILED RETURN OF INCOME ON 02.05.2018 DE CLARING LOSS OF RS.6,95,133/-. THE CASE WAS TAKEN UP FOR SCRUTINY AND TH EREAFTER ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 147 OF THE ACT VID E ORDER DATED 30.12.2018 AND THE TOTAL INCOME WAS DETERMINED AT RS.30,45 ,317/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO VIDE ORDER DATED 11.12.2019 (IN APPEAL NO.ITBA/APL/S/ 250/2019- 20)/ 1022124814(1) DISMISSED THE APPEAL OF THE ASSESSEE. A GGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING AND TAXING T HE INCOME FROM INTEREST RECEIVED ON FIXED DEPOSITS HOLDING IT AS ' INCOME FROM OTHER SOURCES' INVOKING S. 56 OF THE ACT. THIS IS C ONTRARY TO THE PROVISIONS OF LAW. IT BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 17,70,373/- BEING INTEREST ON FIXED DEPOSITS WITH B ANKS OUT OF SHARE CAPITAL SUBSCRIBED BY THE STATE GOVT. THE OWN ERSHIP LIES WITH THE STATE GOVT. THE INTEREST CANNOT BE TAXED I N THE HANDS OF THIS ASSESSEE. THE ADDITION BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) WAS NOT JUSTIFIED IN RELYING ON THE HON ' BLE SUPREME COURT JUDGMENT IN THE CASE OF TUTIKORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA) WHICH VERDICT WAS DISTINGUISHABLE ON F ACTS AND LAW . THE DISTINGUISHING FEATURES ARE EXPLAINED IN 'STATE MENT OF FACTS ' . THE ADDITION INVOKING S. 56 IS NOT PROPER. IT BE DE LETED . 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND I N LAW THE CIT(A) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF DEDUCTION U/S 80(2)(D) OF THE ACT. IT IS LEGALLY ALLOWABLE TO THE ASSESSEE . THE CLAIM OF RS. 12,09,122/- BE ALLOWED. 3 ITA NO.2094/PUN/2019 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ASSESSMENT IS FRAMED UNDER S. 143(3) R.W.S. 147 OF THE ACT. THE INVOKING OF S.147 IS NOT ACCORDING TO LAW IN THE AB SENCE OF ANY SATISFACTION RECORDED PRIOR TO ACTION AS PER S.149( 1)(B) OF THE ACT. THE ACTION IS ILLEGAL AND QUASHED BEING ILLEGA L AND WITHOUT - JURISDICTION. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE REOPENING IS ALSO BAD IN LAW INITIATED IN THE ABSEN CE OF ANY TAXABLE INCOME. THE ACTION FALLS TO THE GROUND. THE ACTION U/S 147 AND CONSEQUENTIAL ASSESSMENT BE QUASHED. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEVY OF INTEREST U/S 234A, 234B AND 234C IS NOT JUSTIFIED. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE ONLY ISSUE WHICH REQUIRES ADJUDICATION IS WITH RESPECT TO TAXING OF INCOME ON INTEREST RECEIVED FROM FIXED DEPOSITS AS INCOME FROM OTHER SOURCES. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON PER USING THE DETAILS FURNISHED BY THE ASSESSEE, AO NOTICED THAT ASSES SEE HAD RECEIVED INTEREST ON FIXED DEPOSITS AMOUNTING TO RS.17,70,373/- WHIC H WAS CREDITED IN THE PROFIT AND LOSS ACCOUNT AND WAS SET OFF OF AGAINST THE EXPENDITURE INCURRED DURING THE PRE-OPERATIVE BUSINESS DURING THE Y EAR UNDER CONSIDERATION. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY INTEREST INCOME ON FIXED DEPOSITS NOT BE TREATED AS INCOME FROM O THER SOURCES, TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT THE MAHARASHTRA STATE GOVERNMENT HAD AGREED TO PARTICIPATE IN EQUITY OF THE C OMPANY AND THE EQUITY CONTRIBUTION RECEIVED FROM THE STATE GOVERNMENT WAS INVESTED IN THE FIXED DEPOSITS AS IT WAS NOT IN A POSITION TO UTILIZE THE FUNDS IMMEDIATELY AND IT WAS TOWARDS THE SHARE CAPITAL FOR SETT ING UP OF A SPINNING UNIT. IT WAS THEREFORE SUBMITTED THAT THE INTERE ST RECEIVED WAS A CAPITAL RECEIPT AND WAS NOT LIABLE FOR TAXATION. THE SUBMISS ION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. AO HELD THE INTEREST RECEIVED BY THE ASSESSEE TO BE REVENUE RECEIPT AND FUR THER HELD THAT IT 4 ITA NO.2094/PUN/2019 COULD NOT BE ADJUSTED AGAINST THE PRE-INSTALLATION EXPEN DITURE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM STATE GOVERNMENT TOWARDS EQUITY CONTRIBUTION WAS FO R SETTING UP OF THE SPINNING UNIT AND SINCE THE AMOUNT COULD NOT BE UTILIZE D IMMEDIATELY, THE FUNDS WERE INVESTED IN THE SHORT TERM DEPOSITS. IN SUPPORT OF HIS CONTENTION THAT THE AMOUNT WAS RECEIVED FROM THE STATE GOVERNMENT, HE POINTED TO THE COPY OF THE LETTER RECEIVED FROM MAHARASH TRA GOVERNMENT AND ALSO SUBMITTED THE FREE TRANSLATION COPY OF THE LETT ER DATED 06.01.1999 AND FROM THERE HE POINTED OUT THAT THE AMOUN T OF THE SHARE CAPITAL WAS DEPOSITED WITH THE BANKS ON THE DIRECTIONS OF THE STATE GOVERNMENT AND THE WITHDRAWAL OF THE AMOUNT WAS MONIT ORED BY THE GOVERNMENT AND THUS IT WAS UNDER THE CONTROL OF THE GO VERNMENT. HE THEREFORE SUBMITTED THAT IN VIEW OF THESE FACTS, THE INTERE ST RECEIVED CANNOT BE CONSIDERED TO BE TAXABLE IN THE HANDS OF ASSESSEE. L D. D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE TAXABILITY OF THE INTEREST OF THE AMOUNT RECEIVED BY THE ASSESSEE TO WARDS SHARE CAPITAL IN THE FIXED DEPOSITS. IT IS AN UNDISPUTED FACT THAT THE AMOUNT WAS RECEIVED BY THE ASSESSEE FROM THE STATE GOVERNMENT TO WARDS SHARE CAPITAL OF THE ASSESSEE. IT IS ALSO A FACT THAT THE AS PER DIREC TIONS OF THE STATE GOVERNMENT, THE AMOUNT RECEIVED TOWARDS SHARE CAPITAL FROM THE 5 ITA NO.2094/PUN/2019 GOVERNMENT WAS REQUIRED TO BE DEPOSITED WITH THE NATION ALIZED BANKS AND THE WITHDRAWALS OF THE AMOUNT OF THE SHARE CAPITAL WAS MO NITORED BY GOVERNMENT AND IT COULD BE UTILIZED ONLY AFTER RECEIVING P RIOR PERMISSION OF THE PROPER AUTHORITIES OF THE GOVERNMENT. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT AO WAS NOT JUSTIFIED IN TAXING THE INTEREST RECEIVED ON SUCH FIXED DEPOSITS AS INCOME FROM OTHER SOURCES AND FOR W HICH WE PLACE RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. SHRIRAM MULTI TECH LTD., REPORTED IN (2018) 403 ITR 426 SC WHEREIN THE HONBLE APEX COURT HAS HELD THAT IF THE SHARE APPLICATION MONEY THAT IS RECEIVED IS DEPOSITED IN THE BANK IN THE LIGHT OF STATUTORY MANDATORY REQUIREMENT, THE INTEREST EARNED FROM SHARE APPLICATION MONEY WHEN INEXTRICABLY LINKED WITH THE REQUIREMENT TO RAISE SHARE CA PITAL CANNOT BE CONSIDERED TO BE REVENUE RECEIPT. IT FURTHER OBSERVED THAT THE PURPOSE OF SUCH DEPOSIT WAS NOT TO MAKE SOME ADDITIONAL INCOME BUT WAS TO COMPLY WITH THE STATUTORY REQUIREMENT THEN INTEREST ACCRUED O N SUCH DEPOSITS WAS MERELY INCIDENTAL. WE THEREFORE RELYING ON THE AFORESAID DE CISION OF HONBLE APEX COURT HOLD THAT THE AO WAS NOT JUSTIFIED IN TAXING T HE INCOME AS INCOME FROM OTHER SOURCES. WE THEREFORE DIRECT THE AO TO ALLOW THE SET OFF OF INTEREST AGAINST THE CAPITAL EXPENDITURE INCURRED D URING THE PRE- INSTALLATION STAGE. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 19 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( GEORGE MATHAN ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 19 TH FEBRUARY, 2020. YAMINI 6 ITA NO.2094/PUN/2019 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-1, KOLHAPUR. PR. CIT-3, PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.