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TMI Blog2015 (7) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... rable cogency in the submissions and the case laws relied upon by the Ld. Counsel of the assessee, therefore, we are of the view that the interest received on FDR’s of ₹ 5,91,850/- in the present case is not to be taxed as income from other sources in the hands of the assessee company, hence, we delete the addition made by the AO and confirmed by the Ld. CIT(A) - Decided in favour of assessee. Addition on account of sale consideration of the assessee treated as unexplained income under section 68 - Held that:- as per the Ld. CIT(A) it is the immediate requirement of cash that had made the assessee to bring in picture the entire paper transaction of sale and purchase of cloth, though in effect no such transaction took place. In view of the above, the genuineness of sales transaction as well as purchase transaction remaining unproved, we find considerable cogency in the finding of the Ld. CIT(A) wherein he has observed that the addition made by the AO uls 68 of IT Act is correct on account of unproved purchases and subsequent unproved sales thereby leading to unexplained cash credit u/s 68 of IT Act, 1961 at ₹ 49,28,006/-. Keeping in view of the aforesaid facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard, assessee s counsel submitted that the assessee was sanctioned a total grant of ₹ 43.07 crores which was to be paid in staggered manner. He further submitted that as per point no. 2 (xviii) at page 28 of the Disbursement letter it was stipulated that the SPV shall not utilize the interest earned on grant so released to it for any purpose. The interest earned shall be indicated in the UC which can either be adjusted in next release or to be refunded to Govt. Of India after in aid sanctioned is utilized. And in view of this clause the Central Govt. released a grant of ₹ 12,91,45,365/- only as against ₹ 14.36 crores which was eligible as the 2nd installment. The assessee also in the balance sheet for FY 2011-12 has reflected the interest earned on grant as capital reserves. Thus, he pleaded that the interest earned on FD made with banks out of central government as not the income of the assessee and rather it was to be refunded to the Central Govt. or to be adjusted against the future grant. Accordingly, he submitted that it is of capital nature. He further submitted that the AO while passing the assessment order of the AY 2011-012 and the 2012-13 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a sum of ₹ 47,21,002/- and after setting off such expenditure against interest income, a loss of ₹ 41,29,152/- was capitalised under the Head Preoperative Expenses', In fact, according to the AO, the assessee has parked the surplus funds in the form of FDs, as regards the Central Govt. Subsidy received by the assessee, Therefore, the AO held that the earning of interest income was no where inextricably linked to setting up of business and moreover, sec. 57(iii) of the IT Act, 1961 provides that unless an expense has been incurred wholly and exclusively for the purpose of business, the same cannot be allowed to be set off against interest income. Other incomes which are normally included under the head 'Income from Other Sources', inter alia, includes 'interest on bank deposits . We find that the Ld. CIT(A) in his impugned order has referred the judgment of the Hon'ble Supreme Court of India in CIT Vs. Dr. V Gopinathan (2001) 248 ITR 449 (SC), wherein it has been held that interest received by the asseesee from the bank on a fixed deposit is income in his hands and there could be no deduction therefrom unless there is a law permitting such deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g practice cannot override Section 56 or any other provision of the Income Tax Act. Similar views have been held in CIT Vs Assam Plantation Crops Development Corporation Ltd. (1996) 221 ITR 392 (Gau), that section 56 envisages that income of every kind which is not to be excluded from total income under the Act, shall be chargeable to Income Tax, if it is not chargeable under any of the heads in section 14. The interest so earned on share capital funds on short term FDs undoubtedly fell in the category of 'Income from Other Sources'. We note that Ld. CIT(A) has observed that in view the fact that the Hon ble Apex Court In Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT (1997) 93 Taxman 502/227 ITR 172 (SC) has clearly held that interest earned on short term investment of funds before commencement of business has to be assessed as lncome from Other Sources' and that it cannot be held to be non taxable on ground that it would go to reduce interest liability on borrowed amount which would be capitalized. Ld. CIT(A) has noted that Interest on fixed deposits and even other deposits before the commencement of business is 'Income from Other Sources'. In other wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Indian Oil Panipat Power Consortium Ltd. vs. ITO 315 ITR 255, Delhi High Court wherein it was held that the assessee corporation was formed as joint venture of two corporations to set up a power project. The share capital contributed by two corporation was to be used for purchase of land and development of infrastructure for the project. Since there was some legal problem to acquire title of land, the funds were temporarily put in FDR in a bank. The interest earned on FDR before commencement of project was to be treated as capital receipt to be adjusted preoperative expenses, since it had a direct link with setting up power project. The interest was not assessable as income from other sources. Section 4 and Section 56 of the Income Tax Act, 1961. We also find that similar decision was also relied upon by the assessee s counsel of the Hon ble Gujrat High Court in the case of Gujrat Corporation Ltd. 354 ITR 201, wherein it was held that the assessee corporation was promoted by Government for augmenting power supply. The share capital was provided by Government. The interest on short term deposits from share capital was paid to Government as per agreement. The interest income wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality or the make of the fabric, on the face of the bills. Even there were no details of cartage or transportation of consignment. We further find that AO has given the following finding that since: (i) the names and addresses in respect of all the 33 sales invoices were not made available, thus stone walling any efforts at verification of such transactions. (ii) the entire sale being in cash, also has not been explained and it is too much of a coincidence that all 33 sales invoices do not have the names of the customers. (iii) no details in terms of quality and quantity of items sold have been mentioned on the face of the bills. (iv) no details regarding transportation of goods traded have been mentioned. (v) no confirmation could be received from the said M/s Shyam Lal Gupta Textiles (Pvt.) Ltd or its one of the Director's, namely Mr. Suresh Goyal and hence purchases also remaining unproved, the said transactions regarding sale/purchase of cloths remained unproved and that the evidence in the form of sales bills etc were in the nature of in house evidence, manufactured for the purpose of generating cash for purchase of land in Madhya Pradesh and therefore, by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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