9911796707
TMI Blog2015 (2) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... t determine the allowability of the claim made u/s 57(iii) of the Act. - Decided in fvaour of assessee for statistical purposes. Interest income on security deposit - income from other sources OR capital receipts - Held that:- CIT (A) relied on various decisions of the higher judiciary and one of them is the case of Tuticorin Alkali Chemicals and Fertilizers Ltd vs. CIT [1997 (7) TMI 4 - SUPREME Court] which is relevant for the proposition that interest earned on surplus funds would need to be treated income from other sources and accordingly interest earned on advances paid during pre-commencement period found to be linked to setting up of the plant of the assessee would need to be treated as capital receipt". Considering the settled position of the issue at the level of the Apex Court, we are of the opinion that the decision taken by the CIT (A) while allowing the assessee s appeal is fair and reasonable and it does not call for any interference. - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows. "4.3………….The dispute is regarding whether any interest expense arising to the appellant regarding such borrowed funds would be allowed as deduction to the appellant or not. The appellant has worked out the interest expense on the funds deposited as fixed deposit with the HDFC Bank holding that the average borrowing cost would amount to ₹ 7.81%. However, it is seen that only a proportionate interest cost has been worked out by the appellant without giving any supporting documents to establish as to how a rate of 7.81% has been incorporated / considered by it. It is seen that a general statement has been made and a average proportionate borrowing cost worked out by taking into consideration the opening loan account, closing loan account in the year along with the interest cost. The interest cost, it is seen, was on the total amount of borrowings of the appellant. However, what was the interest charged by the bank on the amounts borrowed has not been stated. It is also seen that the AO statement that the funds had been taken specially for business purpose and for earning interest income fixed deposits was correct. Therefore, the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s now made clear by the Ld Counsel before us. All the papers are found in the form of paper book. We find that there is a direct nexus of funds of the borrowed capital with the Fixed Deposits in question partly. The interest paid on a loan taken to avoid premature encashment of the Fixed Deposit is deductible against the interest earned on the Fixed Deposit as held by the ITAT, Agra Bench in the case of Raj Kumari Agarwal vs. DCIT vide ITA No.176/Agra/2013 (AY 2008-2009), dated 18.7.2014. Having decided on the issue of nexus of funds and the allowability of the interest expenses against the interest income, the remaining issue is about the interest rate of 7.81% applied by the AO in determining the interest expenses. In our opinion, this requires revisit of the issue to the file of the AO. Assessee must demonstrate before the AO the exact account of interest expenses relatable to the interest income in question. If necessary, AO shall admit the letters from the bank, if any, in the interest of justice. It is the submission of the Ld Counsel that the purpose of funds does not determine the allowability of the claim made u/s 57(iii) of the Act. The decisions relied upon by the Ld Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was capitalized. In this regard, AO asked the assessee to substantiate its action. Not satisfied with the explanation of the assessee, AO made an addition of ₹ 94,75,453/- under the head 'income from other sources' by holding that the assessee had not started the business activity as yet and therefore, any income earned before the commencement of business activity has to be treated as 'income from other sources' and relied on various decisions in support of his decision. Aggrieved, assessee carried the matter in appeal before the first appellate authority. 13. During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) allowed the appeal. Para 3.4 to 3.7 of the impugned order are relevant in this regard. Aggrieved with the decision of the CIT (A), Revenue filed the present appeal by raising the above mentioned grounds. 14. During the proceedings before us, Ld DR heavily relied on the order of the AO and reiterated the contention that any income earned before the commencement of business activity has to be treated as 'income from other sources'. 15. On the other hand, Ld Counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
