AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 192
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....d the information called for. After considering the information furnished, the AO determined the income of the assessee as under: 2.1 The assessee company M/s Elgen (India) Ltd., was established for the purpose of power generation. It has taken up a 700MW (350 x 2) gas based power project in Karimnagar. It received huge amount of share capital nearly 50 crores including share premium. Most of the share capital was contributed by the friends and relatives who are NRIs. Since the assessee could not get approvals from various govt. departments during the year under consideration, the funds received in the form of share capital and share premium was kept in fixed deposits in the bank. During the year under consideration, the assessee earned an amount of Rs. 2,16,68,124/- as interest on deposits and the said interest had been set off against the capital expenditure of Rs. 2,17,39,457/- and the balance amount of Rs. 71,333/- was shown as expenditure to be set off in future and accordingly, this amount was shown on the assets side of Balance Sheet. 2.2 The AO noted that during the previous year relevant to AY 2010-11 also the assessee company earned an amount of Rs. 17,43,212/- as inter....
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....see can by no stretch be said to have been incurred with the object or for the purpose or earning the interest income. Further, he observed that it could not be said that the expenditure incurred was to preserve the asset or could it be said that the expenses were incurred for the purpose of maintenance of the source. He also observed that the interest income was derived from the fixed deposits and accounts etc., the assessee could not be said to have carried on any business to bring the interest income within the meaning of section 28 of the Act and, therefore, the interest income was liable to be assessed only under the 'income from other sources'. In view of the above observations, the CIT(A) held that the AO was right in holding that the expenses claimed were not related to the interest income and was not a deductible expenditure. 6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the following grounds of appeal, which are common in both the appeals except the amount of addition: "1. The order of the Learned Commissioner of Income tax (Appeals) is against law, weight of evidence and probabilities of the case. 2. The learned Commissioner o....
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....uest house, charges for equipment and recoveries from the contractors on account of water and electricity supply during the formation period of the business is not chargeable to tax but had to be adjusted against the project cost; interest income is however taxable." 9. Considered the rival submissions and perused the material facts on record. The assessee has brought share capital for the sole purpose of establishing power generation unit, mainly, a gas based project of 700MW. This share capital along with share premium, was contributed by the friends and relatives, who are NRI's, of the director. The assessee has commenced the initial activities for securing the various permissions/approvals for the project from the state/central government agencies, land acquisition and project feasibility etc. Due to change in the government policies and unforeseen development, it makes the project difficult to implement. In the given case, it was discovered that shortfall in allocable supply of natural gas in Krishna Basin would not meet the demand of power units in the state of AP/Telengana. Accordingly, Power Ministry has issued an advisory to Power developing units not to plan projects un....
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..... ITO, 181 Taxman 249 (Del.) has held as under: "The funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as 'income from other sources'. Since the income was earned in a period prior to commencement of business, it was in the nature of capital receipt and hence, was required to be set off against preoperative expenses." In the case of Pr. CIT Vs. Facor Power Ltd.,[2016] 66 Taxmann.com 178 (Delhi), "there is a finding of fact that the money placed in the fixed deposits was inextricably linked with the setting up of the power plant. Thus, the revenue generated on account of interest on Fixed Deposit would be in the nature of a capital receipt and not revenue. This case has been decided on the basis of this principle and not on the basis that the source of the funds was through raising of share capital and not through borrowings." 9.2 In the above two decisions, it is clear that in case the share capital is brought for specific purpose for the implementation of the particular project, a....