AJINKYATARA SAHAKARI SOOT GIRNI LTD,,SATARA vs. INCOME TAX OFFICER,, SATARA

This appeal is filed by the assessee against the order dated 28.10.2016 passed by the ld. CIT(Appeals) – 4, Pune for A.Y. 2013-14.

Ground No.1 raised by the assessee challenging the action of the ld. CIT(Appeals) in confirming the addition of Rs.38,93,293/- treating the same as “Income from Other Sources” in the facts and circumstances of the case.

The assessee is a Co-operative Society registered under the Maharashtra State Societies Act, 1960 and which was formed for business of weaving of cotton yarn in the name and style as “Ajinkyatara Sahakari Soot Girni Ltd.”. During the course of assessment proceedings, the assessee earned Rs.38,93,293/- as interest earned from Union 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 assessee society contended that such income was utilized by it for the expenses incurred for setting up of the factory with its pre-operative expenses. The AO held that all of such pre-operative expenses will be only allowed 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 “Income from Other Sources”. The ld. CIT(Appeals) confirmed the same.

Before us, the Ld.A.R. Shri Pramod Shingte submits that the amount received by the assessee from State Government towards equity contribution specifically for setting up of spinning unit. The said amount could not be used immediately. As such, the said equity fund was deposited in the Union Bank of India. He further submits that 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 interest amount received thereon cannot be considered as income in the hands of the assessee. The Ld.A.R. further pointed out that on similar identical facts, this Tribunal in the case of Narayanadada Chavan Sahakari Soot Girni Ltd., (ITA No.2094/PUN/2019 order dated19.02.2020) and referred to Para No.6 and submitted that the assessee is entitled to claim the said amount as deduction as against the “Income from Other Sources” as confirmed by the ld. CIT(Appeals) in his impugned order.

The Ld. D.R. strongly supported the order of ld. CIT(Appeals).

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 as share capital of State Government in the fixed deposits. The fact remains admitted that the amount was received by the assessee from the State Government towards share capital in the setting up of assessee factory. It is also a fact undisputed that as per the directions of the State Government, the amount received towards share capital from the Government was required to be deposited with the Nationalized Banks and withdrawals of such amount monitored by the Government. Therefore, it is clear that the said deposited amount and interest thereon earned could be utilized only after receiving prior permission of the concerned authorities of the Government. In our view, the AO was not justified in taxing the interest received on such deposits treating the same as “Income from Other Sources”. 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 justified in taxing the income as “Income from Other Sources” and directed the AO to allow the set off of the interest against the capital expenditure incurred during the pre-installation stage taking support from decision of Hon’ble Supreme Court in the case of CIT Vs. Shriram Multi Tech Ltd., reported in (2018)

In the light of the above observations, the addition made by the AO as confirmed by the ld. CIT(Appeals) is not justified and addition thereon is deleted. Thus, we direct the AO to allow the set off of interest against the capital expenditure incurred during the pre-installation stage. Thus, ground No.1 raised by the assessee is allowed.

Ground No.2 raised by the assessee is against the order of ld. CIT(Appeals) in confirming an amount of Rs.3,86,681/- on account of interest income earned from Maharashtra State Electricity Distribution Corporation Limited (MSEDC) in the facts and circumstances of the case.

The Ld.A.R. submits that the assessee did not receive any interest nor any confirmation from MSEDC. He further submits that without having any evidence on record the AO computed the notional interest on the deposit made with MSEDC. As on today, the assessee does not have anything on record to show that the assessee has received 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.

We have heard the rival submissions and perused the material on record. We find that the AO specifically mentioned that assessee earned interest income from (MSEDCL) but however the Ld.A.R. submitted 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 fresh examination.

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. reported no objection. Hence, ground No.3 is dismissed as not pressed.

In the result, the appeal of assessee is partly allowed for statistical purposes.