NARAYANDADA CHAVAN SAHKARI SOOT GIRNI LIMITED(FORMERLY M/S SHIRLA TALUKA SHETKARI SAH SOOT GIRNI LTD), SANGLI V. ITO, WARD2(5), SANGLI

ITA 2095/PUN/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9541 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 26-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VITTHAL BHOSALE
• Keywords: Capital receipt; Capital expenditure
• Section: 143(3); 13; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 2 095 /PUN/201 9 / ASSESSMENT YEAR : 20 1 1 - 12 NARAYANDADA CHAVAN SAHAKARI SOOT GIRNI LTD., FORMERLY M/S. SHIRALA TALUKA SHETKARI SAHAKARI SOOT GIRNI LTD., A/P. BHAT SHIRGAON, SHIRALA, SANGLI 415408 PAN : AACAS4700L ...... / APPELLANT / V/S. INCOME TAX OFFICER, WARD 2(5), SANGLI / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI VITTHAL BHOSALE / DATE OF HEARING : 1 6 - 03 - 2021 / DATE OF PRONOUNCEMENT : 18 - 03 - 2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 11 - 12 - 2019 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, KOLHAPUR [CIT(A)] FOR ASSESSMENT YEAR 20 1 1 - 12. 2. THE LD. AR SUBMITS THAT THE ASSESSEE DOES NOT WANT TO PROSECUTE THE GROUND NO. 4 AND PRAYED TO TREAT THE SAME AS N OT PRESSED. 2 ITA NO .2095/PUN/2019, A.Y. 2011 - 12 15 3. GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE INVOLVING ONLY ISSUE CHALLENGING THE ACTION OF CIT(A) IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF INVOKING SECTION 56 OF THE ACT. 4. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A CO - OP ERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PRODUCTION, COLOURING AND SELLING OF COTTON. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS BORROWED FUNDS AND KEPT THEM IN FIXED DEPOSITS UNDER WHICH THE ASSESSEE EARNED INTERE ST OF RS.38,92,957/ - FOR THE YEAR UNDER CONSIDERATION. IT WAS EXPLAINED THAT THE FUNDS WERE NOT PART OF SURPLUS FUNDS BUT WAS A CONTRIBUTION OF SHARE CAPITAL OF STATE GOVERNMENT WHICH HAD RECEIVED IN ORDER TO SET UP A SPINNING MILL. ACCORDING TO THE AO T HAT THE ASSESSEE HAD NOT UTILIZED THE SAID FUNDS DURING THE PRE - OPERATIVE PERIOD AND PART OF THE SAME WAS KEPT AS SHORT TERM FIXED DEPOSIT IN BANK. FURTHER, HE HELD SUCH INTEREST RECEIVED FROM FD HAD NO CONNECTION WITH SETTING UP OF BUSINESS AND IS A REVE NUE RECEIPT WHICH IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF BOKARO STEEL LTD. VS. CIT AND CONTENDED THE INTEREST RECEIVED WAS A CAPITAL RECEIPT AND LIABLE TO BE SET OFF AGAINST PRE - OPERA TIVE EXPENSES BUT HOWEVER THE AO PROCEEDED TO TREAT THE SAME AS INCOME FROM OTHER SOURCES VIDE THIS ORDER DATED 30 - 12 - 2018 PASSED U/S. 143(3) R.W.S. 147 OF THE ACT. THE CIT(A) CONFIRMED THE SAME. 5. BEFORE US, THE LD. AR, SHRI M.K. KULKARNI SUBMITS THA T THE ISSUE RAISED IS SIMILAR AND IDENTICAL TO THE FACTS INVOLVING THE ISSUE RAISED IN A.Y. 2012 - 13 AND REFERRED TO ORDER DATED 19 - 02 - 2020 PASSED BY THIS TRIBUNAL IN ASSESSEES OWN CASE AND ARGUED THAT THIS TRIBUNAL HELD THE FIXED DEPOSIT WAS NOT TO MAKE S O ME ADDITIONAL INCOME BUT TO COMPLY WITH THE STATUTORY REQUIREMENT AND THE INTEREST ACCRUED THEREON ON SUCH DEPOSIT WAS MERELY 3 ITA NO .2095/PUN/2019, A.Y. 2011 - 12 15 INCIDENTAL WHICH IS LIABLE FOR SET OFF AGAINST CAPITAL EXPENDITURE AND NOT INCOME FROM OTHER SOURCES. 6. THE LD. DR, SHRI VITT HAL BHOSALE RELIED ON THE ORDER OF AO AND CIT(A). 7. WE NOTE , THAT THE FACT REMAINS UNDISPUTED THAT THE AMOUNT WAS RECEIVED BY THE ASSESSEE FORM GOVERNMENT OF MAHARASHTRA TOWARDS SHARE CAPITAL AND WITHDRAWALS FROM SAID SHARE CAPITAL WAS MONITORED BY THE STATE GOVERNMENT AND IT COULD BE UTILIZED ONLY FOR THE PURPOSE TO WHICH IT HAS BEEN GRANTED. IT IS ALSO UNDISPUTED FACT THAT THE SHARE APPLICATION MONEY IS DEPOSITED IN THE BANK IN VIEW OF THE STATUTORY MANDATORY DIRECTION AND THE INTEREST RECEIVED FROM S HARE APPLICATION MONEY WHICH WAS DEPOSITED IN THE BANK INEXTRICABLY LINKED WITH THE REQUIREMENT TO RAISE SHARE CAPITAL IS A CAPITAL RECEIPT BUT NOT REVENUE RECEIPT AS TREATED BY BOTH THE AUTHORITIES BELOW. THE RELEVANT PORTION IN PARA NO. 6 IN ITA NO. 209 4/PUN/2019 IN ASSESSEES OWN CASE FOR A.Y. 2012 - 13 IS REPRODUCED HERE - IN - BELOW : 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE TAXABILITY OF THE INTEREST OF THE AMOUNT RECEI VED BY THE ASSESSEE TOWARDS SHARE CAPITAL IN THE FIXED DEPOSITS. IT IS AN UNDISPUTED FACT THAT THE AMOUNT WAS RECEIVED BY THE ASSESSEE FROM THE STATE GOVERNMENT TOWARDS SHARE CAPITAL OF THE ASSESSEE. IT IS ALSO A FACT THAT THE AS PER DIRECTIONS OF THE STAT E GOVERNMENT, THE AMOUNT RECEIVED TOWARDS SHARE CAPITAL FROM THE GOVERNMENT WAS REQUIRED TO BE DEPOSITED WITH THE NATIONALIZED BANKS AND THE WITHDRAWALS OF THE AMOUNT OF THE SHARE CAPITAL WAS MONITORED BY GOVERNMENT AND IT COULD BE UTILIZED ONLY AFTER RECE IVING PRIOR 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 WHICH WE PLACE RELIANCE ON T HE 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 STATUT ORY MANDATORY REQUIREMENT, THE INTEREST EARNED FROM SHARE APPLICATION MONEY WHEN INEXTRICABLY LINKED WITH THE REQUIREMENT TO RAISE SHARE CAPITAL CANNOT BE CONSIDERED TO BE REVENUE RECEIPT. IT FURTHER OBSERVED THAT THE PURPOSE OF SUCH DEPOSIT WAS NOT TO MAK E SOME ADDITIONAL INCOME BUT WAS TO COMPLY WITH THE STATUTORY REQUIREMENT THEN INTEREST ACCRUED ON SUCH DEPOSITS WAS MERELY INCIDENTAL. WE THEREFORE RELYING ON THE AFORESAID DECISION OF HONBLE APEX COURT HOLD THAT THE AO WAS NOT JUSTIFIED IN TAXING THE IN COME AS INCOME FROM OTHER SOURCES. WE THEREFORE DIRECT THE AO TO ALLOW THE SET OFF OF INTEREST AGAINST THE 4 ITA NO .2095/PUN/2019, A.Y. 2011 - 12 15 CAPITAL EXPENDITURE INCURRED DURING THE PREINSTALLATION STAGE. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 8. IN THE LIGHT OF THE ABOVE, WE H OLD THE INTEREST EARNED ON FIXED DEPOSITS WHICH ARE SAID TO HAVE BEEN CONTRIBUTED AS SHARE CAPITAL BY THE GOVERNMENT OF MAHARASHTRA IN ORDER TO SET UP A SPINNING MILL IS A CAPITAL RECEIPT WHICH ARE LIABLE TO BE SET UP AGAINST PRE - OPERATIVE EXPENSES. THUS, THE INTEREST EARNED AS TREATED BY THE AO AND CIT(A) AS REVENUE RECEIPT IS NOT JUSTIFIED. THUS, THE GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 T H MARCH, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 18 TH MARCH, 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 1, KOLHAPUR 4. THE PR. CIT - 1, KOLHAPUR 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE