Sugar Company Claims Rs. 14.45 Lakh Interest on FDs against Pre-Operative Expenses: ITAT Allows Set-Off [Read Order]
The AO had treated the interest as taxable under “Income from Other Sources,” which was upheld by the CIT(A).
The Panaji Bench of Income Tax Appellate Tribunal ( ITAT ) allowed a set-off of Rs. 14.45 lakh interest earned on fixeddeposits (FD) by the assessee against pre-operative expenses.
Shirguppi Sugar Works,appellant-assessee, engaged in an integrated sugar mill, co-generation plant, and distillery business, filed its return for AY. 2012-13 on 28.09.2012, declaring nil income. The case was selected for scrutiny under CASS, and notices under sections 143(2) and 142(1) were issued.
During assessment, the AO examined the project’s commissioning, audited accounts, and business losses. The dispute arose over interest of Rs. 14,45,670/- earned on fixed deposits, which the assessee claimed as set-off against pre-operative expenses. The AO held the interest taxable under “Income from Other Sources.”
The assessee explained that the deposits were maintained for issuing bank guarantees under the EPCG scheme to import capital goods and demonstrated a nexus with project expenses.
The AO rejected the explanation, added weighment charges of Rs. 53,044/-, and assessed total income at Rs. 14,98,710/- under section 143(3) dated 22.08.2014. The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)], which confirmed the AO’s order. Subsequently, the assessee filed an appeal before the tribunal.
The assessee counsel submitted that the CIT(A) erred in confirming the AO’s order and overlooked the assessee’s submissions. He stated that the assessee had explained that interest earned on fixed deposits, claimed as set-off against pre-operative expenses, was linked to bank guarantees for importing capital goods. The counsel supported the claim with judicial decisions and requested the appeal to be allowed.
The Departmental counsel supported the CIT(A)’s order.
A single member bench of Pavan Kumar Gadale (Judicial Member) examined the submissions and records. The assessee counsel argued that the CIT(A) erred in upholding the AO’s order and overlooked the appellant’s explanations. Ground no. 3, relating to weighment charges, was not pressed and was treated as withdrawn.
Regarding the disputed interest on fixed deposits, the assessee counsel submitted that the deposits were maintained to issue bank guarantees for importing capital goods under the EPCG scheme, linking the interest directly to project expenses. He relied on judicial decisions to support that such interest should be set off against pre-operative expenses rather than taxed as income from other sources.
After considering the facts, submissions, and judicial precedents, the tribunal allowed the appeal, holding that the interest income on fixed deposits could be set off against pre-operative expenses, and directed the AO to delete the addition.
Accordingly the appeal was partly allowed.
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