Ajinkyatara Sahakari Soot Girni Ltd, Satara V. Income tax Officer, Satara

ITA 379/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7187 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-02-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 14-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MALVIYA
• Keywords: Business expenditure; Capital expenditure; Set aside

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE ( THROUGH VIRTUAL COURT) BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.379/PUN/2017 / ASSESSMENT YEAR:2013-14 AJINKYATARA SAHAKARI SOOT GIRNI LTD., A/P. SHAHUNAGAR-WALSE, TAL. SATARA, DIST. SATARA 415519. PAN : AACFA5359J . / APPELLANT V/S THE INCOME TAX OFFICER, WARD 2, SATARA. . / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI ALOK MALVIYA / ORDER PER S.S. VISWANETHRA RAVI, J.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER DA TED 28.10.2016 PASSED BY THE LD. CIT(APPEALS) 4, PUNE FOR A.Y. 2013-14. 2. GROUND NO.1 RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF THE LD. CIT(APPEALS) IN CONFIRMING THE ADDITION OF RS.38,93,293/- TREATIN G THE SAME AS INCOME FROM OTHER SOURCES IN THE FACTS AND C IRCUMSTANCES OF THE CASE. / DATE OF HEARING : 2 8 . 0 8 .2020 / DATE OF PRONOUNCEMENT : 31 .0 8 .2020 2 3. THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED UN DER THE MAHARASHTRA STATE SOCIETIES ACT, 1960 AND WHICH WAS FOR MED FOR BUSINESS OF WEAVING OF COTTON YARN IN THE NAME AND STYLE AS AJIN KYATARA SAHAKARI SOOT GIRNI LTD.. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE EARNED RS.38,93,293/- AS INTEREST EARNED FROM U NION BANK OF INDIA AND CLAIMED THE SAME AS DEDUCTION AFTER ADDING BACK THE PRELIMINARY EXPENSES. THE AO WAS OF THE OPINION THAT THE ASSESSEE EARNED SUCH INTEREST INCOME AS INCOME FROM OTHER SOURCES. THE AS SESSEE SOCIETY CONTENDED THAT SUCH INCOME WAS UTILIZED BY IT FOR THE EX PENSES INCURRED FOR SETTING UP OF THE FACTORY WITH ITS PRE-OPERATIVE EXPEN SES. THE AO HELD THAT ALL OF SUCH PRE-OPERATIVE EXPENSES WILL BE ONLY ALLOWE D AS EXPENSES AFTER COMMENCEMENT OF BUSINESS EQUALLY IN FIVE CONSECUTIVE YEARS. IT IS NEITHER CEASES TO BE ITS INCOME NOR IT CAN BE ALLOWED AS DEDUCTION OF SUCH PRE-OPERATIVE BUSINESS EXPENSES BEFORE COMMENCEMENT OF ITS BUSINESS AND PROCEEDED ADDING SUCH AMOUNT UNDER THE HEAD OF INCO ME FROM OTHER SOURCES. THE LD. CIT(APPEALS) CONFIRMED THE SAME. 4. BEFORE US, THE LD.A.R. SHRI PRAMOD SHINGTE SUBMITS THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM STATE GOVERNMENT TOWARD S EQUITY CONTRIBUTION SPECIFICALLY FOR SETTING UP OF SPINNING UNIT. THE SAID AMOUNT COULD NOT BE USED IMMEDIATELY. AS SUCH, THE SAID EQUITY FU ND WAS DEPOSITED IN THE UNION BANK OF INDIA. HE FURTHER SUBMITS T HAT THE AMOUNT OF THE SHARE CAPITAL WAS DEPOSITED WITH THE UNION BANK OF INDIA ON THE DIRECTIONS OF THE STATE GOVERNMENT AND THE WITHDRAWAL OF THE SAID AMOUNT WAS MONITORED BY THE STATE GOVERNMENT. HE ARGUED THAT THE ENTIRE SHARE CAPITAL CONTRIBUTED BY THE STATE GOVERNMENT AND THE IN TEREST AMOUNT RECEIVED THEREON CANNOT BE CONSIDERED AS INCOME IN THE HANDS OF THE 3 ASSESSEE. THE LD.A.R. FURTHER POINTED OUT THAT ON SIMILAR IDENTICAL FACTS, THIS TRIBUNAL IN THE CASE OF NARAYANADADA CHAVAN SAHAKAR I SOOT GIRNI LTD., (ITA NO.2094/PUN/2019 ORDER DATED19.02.2020) AND R EFERRED TO PARA NO.6 AND SUBMITTED THAT THE ASSESSEE IS ENTITLED TO CLAIM THE SAID AMOUNT AS DEDUCTION AS AGAINST THE INCOME FROM OTHER SOURCE S AS CONFIRMED BY THE LD. CIT(APPEALS) IN HIS IMPUGNED ORDER. 5. THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF LD. CIT(APPEALS). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE RAISED BY THE ASSESSEE IS WITH RESPECT TO THE TAXABILITY OF THE INTEREST EARNED FROM UNION BANK OF INDIA A S SHARE CAPITAL OF STATE GOVERNMENT IN THE FIXED DEPOSITS. THE FACT REMA INS ADMITTED THAT THE AMOUNT WAS RECEIVED BY THE ASSESSEE FROM THE STAT E GOVERNMENT TOWARDS SHARE CAPITAL IN THE SETTING UP OF ASSESSEE FACTO RY. IT IS ALSO A FACT UNDISPUTED THAT AS PER THE DIRECTIONS OF THE STATE GOVE RNMENT, THE AMOUNT RECEIVED TOWARDS SHARE CAPITAL FROM THE GOVERNMENT WAS REQUIRED TO BE DEPOSITED WITH THE NATIONALIZED BANKS AND WITHDRAWALS OF S UCH AMOUNT MONITORED BY THE GOVERNMENT. THEREFORE, IT IS CLEAR THAT THE SAID DEPOSITED AMOUNT AND INTEREST THEREON EARNED COULD BE UTILIZED ON LY AFTER RECEIVING PRIOR PERMISSION OF THE CONCERNED AUTHORITIES OF THE GOVER NMENT. IN OUR VIEW, THE AO WAS NOT JUSTIFIED IN TAXING THE INTEREST RECE IVED ON SUCH DEPOSITS TREATING THE SAME AS INCOME FROM OTHER SOURC ES. AS DISCUSSED ABOVE, AS POINTED OUT BY THE LD.A.R., THE ORDER DATED 19 .02.2020 IN THE CASE OF NARAYANDADA CHAVAN SAHAKARI SOOT GIRNI LTD., THIS TRIBUNAL DECIDED THE IDENTICAL ISSUE AND HELD THAT AO WAS NOT JUS TIFIED IN TAXING THE INCOME AS INCOME FROM OTHER SOURCES AND DIRECTED TH E AO TO ALLOW THE 4 SET OFF OF THE INTEREST AGAINST THE CAPITAL EXPENDITURE INCU RRED DURING THE PRE-INSTALLATION STAGE TAKING SUPPORT FROM DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. SHRIRAM MULTI TECH LTD., REPO RTED IN (2018) 403 ITR 426 SC. FOR READY REFERENCE PARA NO.6 OF ORDER OF THIS TRIBUNAL (SUPRA) IS REPRODUCED HEREIN BELOW : 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESP ECT TO THE TAXABILITY OF THE INTEREST OF THE AMOUNT RECEIVED BY THE ASSESSEE TOW ARDS 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 CA PITAL OF THE ASSESSEE. IT IS ALSO A FACT THAT THE AS PER DIRECTIONS OF THE STATE GOVERNMENT, THE AMOUNT RECEIVED TOWARDS SHARE CAPITAL FROM THE GOVE RNMENT WAS REQUIRED TO BE DEPOSITED WITH THE NATIONALIZED BANKS AND THE WI THDRAWALS OF THE AMOUNT OF THE SHARE CAPITAL WAS MONITORED BY GOVER NMENT AND IT COULD BE UTILIZED ONLY AFTER RECEIVING PRIOR PERMISSION OF THE PROPER AUTHORITIES OF THE GOVERNMENT. IN SUCH A SITUATION, WE ARE OF THE VIE W THAT AO WAS NOT JUSTIFIED IN TAXING THE INTEREST RECEIVED ON SUCH F IXED 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 TE CH LTD., REPORTED IN (2018) 403 ITR 426 SC WHEREIN THE HONBLE APEX COURT HAS H ELD THAT IF THE SHARE APPLICATION MONEY THAT IS RECEIVED IS DEPOSITED IN THE BANK IN THE LIGHT OF STATUTORY MANDATORY REQUIREMENT, THE INTEREST EARN ED FROM SHARE APPLICATION MONEY WHEN INEXTRICABLY LINKED WITH THE REQUIREMENT TO RAISE SHARE CAPITAL CANNOT BE CONSIDERED TO BE REVENUE RECEIPT. IT FU RTHER OBSERVED THAT THE PURPOSE OF SUCH DEPOSIT WAS NOT TO MAKE SOME ADDITI ONAL 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 JUSTIFI ED IN TAXING THE INCOME AS INCOME FROM OTHER SOURCES. WE THEREFORE DIRECT T HE 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 LIGHT OF THE ABOVE OBSERVATIONS, THE ADDITION MA DE BY THE AO AS CONFIRMED BY THE LD. CIT(APPEALS) IS NOT JUSTIFIED AND ADDI TION THEREON IS DELETED. THUS, WE DIRECT THE AO TO ALLOW THE SET OFF OF INT EREST AGAINST THE CAPITAL EXPENDITURE INCURRED DURING THE PRE-INSTALLATION STA GE. THUS, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 8. GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST THE ORD ER OF LD. CIT(APPEALS) IN CONFIRMING AN AMOUNT OF RS.3,86,681/- ON ACCOU NT OF 5 INTEREST INCOME EARNED FROM MAHARASHTRA STATE ELECTRICIT Y DISTRIBUTION CORPORATION LIMITED (MSEDC) IN THE FACTS AND CIRCUMSTANCES OF THE CAS E. 9. THE LD.A.R. SUBMITS THAT THE ASSESSEE DID NOT RECEIVE ANY INTEREST NOR ANY CONFIRMATION FROM MSEDC. HE FURTHER SUBMITS THA T WITHOUT HAVING ANY EVIDENCE ON RECORD THE AO COMPUTED THE N OTIONAL INTEREST ON THE DEPOSIT MADE WITH MSEDC. AS ON TODAY, THE ASSESSE E DOES NOT HAVE ANYTHING ON RECORD TO SHOW THAT THE ASSESSEE HAS REC EIVED INTEREST INCOME FROM MSEDC. HE PRAYED TO REMAND THE ISSUE TO THE FILE OF AO FOR CONSIDERING THE SAME AFRESH TAKING INTO CONSIDERATION THE RELEVANT MATERIAL ON EVIDENCE. 10 THE LD. D.R. SHRI ALOK MALVIYA REPORTED NO OBJECTION IN REMANDING THE ISSUE TO THE FILE OF THE AO. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE AO SPECIFICALLY MENTIONED THAT AS SESSEE EARNED INTEREST INCOME FROM (MSEDCL) BUT HOWEVER THE LD.A.R. SUBMIT TED THAT THERE WAS NO SUCH INCOME AS RECEIVED BY THE ASSESSEE. IN ORDER TO FIND OUT WHETHER THE ASSESSEE RECEIVED SUCH INTEREST INCOME FROM MSEDCL., WE DEEM IT PROPER TO REMAND THE ISSUE TO THE FILE OF AO FOR FR ESH EXAMINATION. THE ASSESSEE IS AT LIBERTY TO FILE ALL EVIDENCE IN SUPPORT O F CONTENTIONS MADE BEFORE US. THUS, THE ORDER OF LD. CIT(APPEALS) IS SET ASIDE A ND GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6 12. LD.A.R. SUBMITTED THAT ASSESSEE IS NOT INTERESTED TO PROSECUTE GROUND NO.3 AND PRAYED TO DISMISS THE SAME AS NOT PRESSED. THE LD. D.R. RE PORTED NO OBJECTION. HENCE, GROUND NO.3 IS DISMISSED AS NOT PRESSED. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 31 ST DAY OF AUGUST, 2020. SD/- SD/- (P.M. JAGATAP) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER PUNE; DATED : 31 ST AUGUST, 2020. YAMINI ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5. 6. CIT(APPEALS)-4, PUNE. PR.CIT-3, PUNE. '#$ %%&',)&', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER , // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY )&', / ITAT, PUNE.