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TMI Blog2021 (2) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... re direct the Assessing Officer to restrict the impugned disallowance to the extent of assessee s exempt income yielding investments. The assessee gets part relief to this extent. This first substantive issue is partly decided in assessee s favour. Addition of interest income treated as income from other sources - HELD THAT:- We find no merit in assessee s stand in principle since its interest income is not related to any revenue deriving business activity. The same therefore deserves to be treated as income from other sources only going by the CIT(A) s detailed discussion extracted hereinabove in the light of various judicial precedents. The fact also remains that neither of the lower authorities has proceeded on netting formula going by Hon ble apex court s decision in ACG Associated Capsules Pvt. Ltd.[ 2012 (2) TMI 101 - SUPREME COURT] . We therefore direct the Assessing Officer to allow netting benefit qua the impugned addition vis- -vis the corresponding expenditure incurred at the taxpayer s behest in above terms. Set-off of its impugned interest income against business losses - CIT(A) appears to have denied the assessee the impugned intra head set-off of the two heads of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted [366 ITR 505] (Bom) that the necessary presumption that flow in such an instance is that of utilisation of non-interest bearing funds only in deriving exempt income. We go by this process reason alone to delete proportionate interest expenditure disallowance of ₹ 3,37,63,307/-. 5. This leaves us with the third limb of administrative expenditure disallowance of ₹ 22,60,366/-. Learned CIT-DR fails to dispute that both the lower authorities have gone by the assessee's gross amount of investments than those yielding its exempt income only. We therefore direct the Assessing Officer to restrict the impugned disallowance to the extent of assessee's exempt income yielding investments. The assessee gets part relief to this extent. This first substantive issue is partly decided in assessee's favour. Necessary computation to follow as per law. 6. We are now left with the second issue of interest income addition of ₹ 26,45,20,127/- treated as 'income from other sources' in both the lower proceedings. Ld.CIT(A) detailed discussion to this effect reads as under: "5.1 During the course of assessment proceedings, it is noticed by the Assessing Officer, that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 227 ITR 172 (SC), wherein it was held that: "interest earned short term investment of funds borrowed for setting up of factory during construction of factory before commencement of business, has to be assessed as income from other sources and it cannot be claimed as non-taxable on the ground that it would go to reduce interest on borrowed funds. ...... .. In the case before us, the company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The interest thus earned is clearly of revenue nature and will have to be taxed accordingly. The accountants may have taken some other view but accountancy practice is not necessarily good law. In B.S.C. Footwear Ltd. vs. Ridgway (Inspector of Taxes) (1972) 83 ITR 269 (HL), the House of Lords had no hesitation in holding that the accounting practice for calculating Its profit followed by the assessee and accepted by the Revenue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income. " 5.6. In the case of M/s.Bokaro Steel Ltd. (supra), different assessment years were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the interest payment. Hence no interest income is assessable in hands. The ITO has rejected the claim and was assessed under Income from other sources. The court held that interest earned by the appellant has rightly been held to be the income and taxable under the head 'Income from other sources'. c) CIT Vs. Coromandal Cements Ltd (1997) [234 ITR 412] (SC) d) CIT Vs. New Central Jute Mills Co. Ltd [1979] [118 ITR 1005](Koll.); In this case the appellant earned interest which was deposited in a bank to receive interest. The difference between interest paid and earned was claimed as revenue expenses. The Kolkata High Court, referred to the observation that in case money borrowed by d newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalized and added to the cost of the fixed assets which have been created as a result of such expenditure. The Court concluded in favor of the Revenue. "The expenditure assessee has failed to establish that it was its purpose that utilized amount received on loan for earning interest. It cannot be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sources u/s. 56 of the IT Act, 1961. h) In the case of CIT Vs. Seshasayee Paper & Boards Limited, Hon'ble Madras High Court held that "the interest earned by the assessee on investment of share capital in call deposits have been before production commenced should be assessed separately under the head Other sources". I) CIT vs. Nagarjuna Steel, Hon'ble A.P. High court held that "interest received on short term deposits by a company prior to commencement of production could not be treated as revenue receipt", j) Chalapalli sugar limited Vs. CIT [1975J [98 ITR 167J (SC) held that the Interest was not allowed as revenue expenditure in the period prior to commencement of the business of the assessee. k) In the case of Central Travancore Specialists Hospital Ltd Vs. ACIT, Hon'ble ITAT, Cochin Bench held that "interest earned by the assessee even during the construction period on the short-term deposit kept with the bank is assessable as an income". I) CIT Vs. Universal Electro Graphite Limited [1989] [197 ITR 465], wherein it related to interest on Fixed deposits and let a payment of call money prior to setting up of business showi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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