TMI Blog2022 (6) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had deposited its funds in short term deposits with the bank for period ranges between 10 days to 91 days. It was the submission that the assessee s accounts with the bank was also known as Flexi Account whereby the bank also uses to transfer excess of the funds in the account over and above the average requirements to Fixed Deposits by the bank itself. It was the submission that the AO had disallowed all the interest received by the assessee from its deposits with the bank, which had been claimed by the assessee as business income . It was the submission that the Assessing Officer had treated the same as liable to be taxed under the head income from other sources . It was fairly agreed by ld AR that for the assessment years 2011-12 2012-13, the assessee was incurring losses and, therefore, whether the such income was assessed under the head income from other sources or income from business , the issue was only academic insofar as the assessee was entitled to set off under section 72 of the Act of the interest income even though assessed under the head income from other sources against its business loss. It was the submission that in the assessment year 2013-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernments, Cooperative Societies, etc. Since this is the business activity, that is what has persuaded us to opine that the income generated in the form of interest on the unutilised capital is in the nature of business income. The objectives are wholly socioeconomic and the amounts received including grants come with a prior stipulation for the funds received to be passed on to the downstream entities. This is the reason they have been treated as capital receipts. However, we are unable to opine that since this is a pass-through entity on the basis of a statutory obligation, the advancement of loans and grants is not a business activity, when really it is the only business activity. Once it is business activity, the interest generated on the unutilised capital has been held by us to be the business income. 5. Ld AR also filed a copy of the decision of the SMC Bench of Jaipur Tribunal in the case of Shri Devasamparambil Hassainar Kuttty vs ACIT in ITA No.827/JP/2014 order dated 30.7.2019, had following the decision of Co-ordinate Bench of this Tribunal in the case of Mod Construction Co. vs ACIT (ITA No.389/JP/2012 dated 25.4.2017) held as follows: We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny way linked to the business activities of the assessee. It was the further submission that the AO has also raised a specific query as to how the deposits were part of the statutory compliance. The assessee has not been able to show anything either before the AO, or the ld CIT(A) and also before the ITAT. It was the submission that the ld CIT(A) has been extremely reasonable in his order and same should be upheld. 8. We have considered the rival submissions. At the outset, what is the noticed here is that the deposits are short term. The maximum period of the deposits is 91 days. It is not as if the assessee is attempting to make money out of making deposits in the bank. The assessee is admittedly a loss making concern and desperate attempting to shore up its account. In this process, it is also admitted that the assessee has substantial loan liability and the interest therefrom is a huge outgo and if at all the deposits are considered as surplus deposits, the assessee would have benefited by repaying this loan to reduce the interest liability. Further, the facts remains that these are short term deposits. Obviously, the assessee needs these surplus funds in the immediate fut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that these are expenses actually incurred by the assessee though it relates to earlier years. It was the submission that the assessee has no objection, if this issue is restored to the file of the Assessing Officer for allowance in the year to which it relates. 10. In reply, ld CIT DR drew our attention to page 28 of PB, which was breakup of the prior period expenses. It was the submission that the depreciation was on account of demerger of the GRIDCO, certain business loss/unabsorbed depreciation had been allocated to the assessee. It was the submission that the depreciation relates to earlier years and the assessee having not claimed it during the earlier years, the same was not liable to be allowed during the relevant assessment years. It was the submission that similarly, the pay arrears, details of the arrears were available to the assessee for the earlier years and the assessee having not claimed it then should not be granted the benefit during the relevant assessment years. He vehemently supported the order of the AO as well as ld CIT(A). It was the submission that the house rent details yearwise was also available to the assessee in 2008 itself. Similarly, in regar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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