TaxTMI 
TaxTMI 
2015 (6) TMI 632
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....t as income under head other sources and there by overlooking the ratio laid down in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. 2. The Learned CIT(A) has erred on facts and circumstances of the case and in law in allowing to adjust interest income against preoperative expenses, however assessee had no compulsion for making fixed deposit with the bank rather it was surplus money kept with the bank to earn interest." 3. The brief facts as noted in the assessment order are that the assessee company was incorporated on 24.08.2005 to carry on in India or elsewhere the business to generate, receive, produce, improve, buy, sell, etc. in electric power by establishing thermal power plant, active power plants etc. During the yea....
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.... such compulsion was there. As regards the argument of assessee that the funds were kept for procurement of various capital goods, the A.O. held that contention of assessee far away from the fact and he rejected this contention by holding as under: "The assessee has claimed that the FDs with banks were kept as Margin for procurement of various capital goods for setting up the project. The claim of the assessee is far away from the facts of the case. As per the Schedule of Fixed Assets, the major portion of Fixed Assets was Land which comprised 82% of the Total Assets. Thus, out of total assets of Rs. 1.48 Crores, land cost is Rs. 1.21 Crores. Rest of the assets are office equipments, furniture, vehicle and computers. By no stretch of imagi....
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....enditure including capital advances were used from share application money which were temporarily put in Fixed Deposits awaiting for the payments to be made for awarding new contracts and for further payments of existing contract and therefore, it was submitted that funds placed in FD were inextricably linked with the project and in this respect, case law decided by Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. Vs ITO 315 ITR 255 was also relied upon. Ld. CIT(A) allowed relief to the assessee by distinguishing the facts of Tuticorin Alkali Chemicals and Fertilizers Ltd. by holding as under: "I have considered the submission of the appellant and observation of the ASSESSING OFFICER. It is seen that app....
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....but the same were meant for acquisition of capital assets. In view of the above it is held that funds raised by the appellant company were inextricably linked with acquisition of the capital assets. The interest received from such funds which were put in FDRs for temporary period was in the nature of capital receipts and such receipts was required to be set off against the preoperative expenses. In this regard reliance is placed on the decision of Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. vs ITO [2009/315 ITR 0255 (DEL)INCOME OR CAPITAL--INTEREST--INTEREST EARNED PRIOR TO COMMENCEMENT OF BUSINESS ON FUNDS BROUGHT IN BY WAY OF SHARE CAPITAL FOR SPECIFIC PURPOSE--IS CAPITAL RECEIPT--LIABLE TO BE SET ....
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....of the case laws relied upon by the ASSESSING OFFICER were different, therefore, the same are not applicable to the case of the appellant. The additional share capital raised by the appellant was linked with acquisition of capital assets, therefore, interest received from such capital is capital receipt and same can be adjusted against preoperative expenses. Therefore, the addition made by the ASSESSING OFFICER of Rs. 70,75,843/- treating the interest income as "income from other sources" is deleted." 5. Aggrieved, the Revenue is in appeal before us. 6. At the outset, Ld. D.R. invited our attention to grounds of appeal and submitted that the case law of Tuticorin as relied upon by A.O. was applicable to the facts of the present case and ....
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....lt in earning of interest by the assessee and Hon'ble Supreme Court in that as case has held that if a person borrows money for business purposes but utilizes the money to earn interest, the interest so generated will be his income from other sources. In the present case, the funds placed in bank deposits were not raised by borrowing funds and rather they were raised through share capital as noted by Ld. CIT(A) at page 8 of his order. Moreover in the case law of Tuticorin Alkalies, the funds were surplus funds whereas in the present case, the funds were not surplus funds as the fixed deposits which were made from October onwards were redeemed till April 2009 and funds were utilized for contract payments for the project. During proceedin....