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2022 (6) TMI 966 - AT - Income TaxCorrect head of income - interest income received by the assessee from its short term fixed deposit as income under the head “ income from other sources” OR “ income from business” - HELD THAT:- The funds that have been deposited by the assessee are not extra funds but these are part of the loans, therefore, the netting is a right principle to be applied against the interest income. The arguments of ld AR that the amount in Flexi account are not deposited by the assessee but the amount transferred to the bank also hold water. Admittedly, when the money transferred to flexi account from current account generate certain interest income. This interest income is also liable to be set off against the interest outgoing. We are not adjudicating as to whether this interest income is to be assessed under the head “ income from business” or “income from other sources” as these interest income have gone to reduce the interest burden on the assessee’s loans taken and the set off is to be granted to the assessee against interest outgo. In these circumstances, the disallowance as made by the AO and confirmed by the ld CIT(A) on this issue stands deleted. AO is directed to give the benefit of set off of the interest income against the interest expenditure. Our view finds support from the decision of Hon’ble Supreme Court in the case of National Co-operative Development Corporation [2020 (9) TMI 496 - SUPREME COURT] wherein held that “income has to be determined on the principles of commercial accountancy. In the case of a business, the profits must be arrived at on ordinary commercial principles. The scheme of the I.T.Act requires the determination of “real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, permissible expenses are required to be set off”. Disallowance made by the AO under the head “ prior period expenses” - HELD THAT:- Admittedly, as per the provisions of section 32 of the I.T.Act, 1961, whether the assessee claimed the depreciation or not, the depreciation is compulsory to be allowed to the assessee. It is also an admitted fact that the assessee has been formed on account of demerger from GRIDCO. The depreciation breakup of the earlier years relate to the depreciation allowable to the assessee in respect of demerger of GRIDCO. These figures would not have been available to the AO for granting the depreciation u/s 32 of the Act, especially when this has come to his notice only during the relevant assessment year. Similarly, it is admitted that certain expenses have been incurred during the earlier years but that does not mean that the assessee loses the benefit of such expenses. Admittedly, the stand of the AO that prior period expenses relate to earlier years cannot be considered during the relevant assessment year is a valid stand. This being so, the issue in respect of prior period expenses is restored to the file of the AO with a direction that said expenses are to be considered and allowed for such of the earlier years in respect of which the said expenses relate to. Hence, this issue stands partly allowed.
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