Shirguppi Sugar Works Limited Vs ITO (ITAT Panaji)
Interest During Pre-Production Not “Other Sources” – Tribunal Deletes Addition- FDs Linked to Project Finance – ITAT Allows Set Off Against Capital Cost
Assessee, engaged in integrated sugar mill, co-generation plant & distillery unit, filed return for AY 2012-13 declaring NIL income. During scrutiny, AO noticed interest of ₹14,45,670 earned on fixed deposits placed with banks, which was claimed set off against pre-operative expenses. AO held that since the income was earned during pre-production stage, it was taxable as “income from other sources” u/s 56, & further added ₹53,044 towards weighment charges. Assessment was thus completed at ₹14,98,710 u/s 143(3). On appeal, CIT(A) confirmed AO’s action.
Before Tribunal, Assessee argued that FDs were kept for obtaining bank guarantees required by customs department under EPCG scheme for import of capital goods. Hence, deposits were directly linked to project & interest earned was incidental to acquisition of capital assets, eligible to be set off against pre-operative expenses. Reliance was placed on Supreme Court & High Court rulings.
Tribunal observed that fixed deposits were indeed connected to issuance of guarantees for importing capital goods, establishing nexus between interest income & project cost. It held that such interest cannot be taxed separately as “income from other sources” but should be capitalised & adjusted against project cost. Therefore, addition of ₹14,45,670 was deleted. As regards weighment charges, the Assessee did not press the ground, which was dismissed. In result, the appeal was partly allowed.
