TaxTMI 
TaxTMI 
2018 (8) TMI 914
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....was incorporated on 09.06.2004 for the purpose of carrying a hotel business by establishing a five start hotel at Rajarhat, Kolkata. In connection with the said project, the appellant company had purchased land at New Town, Rajarhat from West Bengal Housing Development Corporation Ltd. (hereinafter referred to 'WBHIDCO') in the year 2005. The appellant company has also sought and obtained approval from various local, state and central authorities in connection with the said hotel project. The appellant had also obtained long term borrowings from Axis Bank for the hotel project against mortgage of entire leasehold land purchased from WBHIDCO and paripassu charge on all present and future moveable fixed & current assets etc. During the relevant financial year 2011-12, the hotel was under construction and the project was yet to complete. In the Profit & Loss A/c prepared for the year ending on 31.03.2012, the appellant company had credited income of Rs. 7,02,72,979/- derived from Fixed Deposits and funds. The appellant company had debited expenses of Rs. 12,00,81,779/- in the Profit & Loss A/c. Out of the said expenditure, Rs. 3,27,03,538/- was capitalized by the appellant and a sum o....
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....connection with the setting up of five star hotel is as follows: i) In regard to the above, land situated at New Town was purchased by Shristi Infrastructure Development Corporation Ltd i.e. shareholder of the appellant company from West Bengal Housing Infrastructure Development Corporation Ltd [WBHIDCO] vide conveyance deed dated 22.03.2007.Before that, a Permissive possession certificate was given by WBHIDCO to the said company on 25.08.2005 for undertaking soil tests and preparation of the master plan for the construction of the 5 Star Hotel Complex. The said permissive possession certificate was cancelled and a Revised Permissive Possession Certificate dated 16.05.2006 issued for the said purpose by WBHIDCO. In the said Revised Permissive Possession Certificate, it was clearly written that the actual physical possession of the land will be given after full payment of the land price and execution of the Deed of Conveyance. A copy of the Revised Permissive Possession Certificate is enclosed at pages 92-94 of the paper book. ii) In connection to the said purpose of constructing the Five Star Hotel, the appellant company vide letter dated 16.10.2006 made an applic....
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....pellant company for the piling work for the proposed 5 Star Hotel complex at the said premises subject to the following conditions: (The said letter is enclosed at pages 146-147 of the paper book) No construction work shall be taken up at or above the ground level till the building plan is formally sanctioned by WBHIDCO No construction work can be done other than the piling work below the ground level x) The appellant company obtained provisional registration of the said proposed "Tourism Unit" proposing creation of 300 rooms at a project cost of Rs. 20319.57 lakhs on 10.07.2007from the Tourism Department, Govt. of West Bengal subject to the conditions mentioned inthe said letter. The said letter is enclosed at pages 148 of the paperbook. xi) Subsequently on 12.09.2008, Extension and Modification Deed was entered into between Shristi Infrastructure Corporation Ltd and the assessee company (enclosed at pages 149-162 of the paper book) wherein the assessee company had requested the lessor to extend the period of lease for a further period of 30 years commencing from the date of expiry of the said Lease dated 31.03.2007 and ending on21.03.2087. ....
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....e appellant company vide Form 4 "Permit for Sinking of New Well" u/s 7(3)(b), 7(5)(a) of the West Bengal Ground water Resources, dated 20.04.2011 was granted permission for sinking a new well for extracting ground water subject to the conditions mentioned in the said form. The said form is enclosed at pages 202 of the paper book. xix) On 16.11.2011, an agreement was entered into between West Bengal State Electricity Distribution Company Ltd (WBSEDCL) and the Project Manager i.e. SIDCL whereby WBSEDCL agreed to supply energy for commercial purposed at 5 Star Hotel Project at Plot No.CBD-2 in Action Area -II, New Town upon the terms and conditions mentioned in the said agreement. Copy of the agreement between WBSEDCL and SIDCL is enclosed at pages203-209 of the paper book. xx) Government of India. Ministry of Tourism confirming the Provisional approval granted on10.07.2007, vide letter dated 27.02.2012, granted approval to the appellant company for the setting up the hotel project by the name of "Shristi Hotel Pvt. Ltd" at Plot No. AA-II/CBD/2,AA-II, New Town, Rajarhat, Kolkata-700156, West Bengal under 5 star category from the point of view of its suitability....
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.... 9. In the course of appellate proceedings the Ld. AR also took an alternate plea that if the AO's premise that the company's business was not set up and for that reason expenses incurred were not be allowed as revenue expenditure, is upheld; then on the same principle the income of Rs. 7,02,72,979/- derived during such pre-commencement phase should not be treated to be revenue in nature but such income should be netted off against expenses incurred on setting up of the said business. The Ld. AR submitted that he could take such alternate plea before this Tribunal for the first time since the intent & object of appellate proceedings is ultimately to arrive at the true & correct income of any assessee on which he is legally liable to pay tax. The Ld. AR submitted that if the plea of the lower authorities is accepted that during the relevant year the project of the assessee was in pre-commencement stage then the AO could the expenses incurred in connection with the project to be capital or pre-operative in nature but the income incidental to same project to be revenue in nature. The Ld. AR therefore urged that should the assessee's primary contention fail, then the assessee's alterna....
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....ered the ratio laid down in this judgment, the alternate claim raised by the assessee is maintainable. In the judgment relied on by the Ld. AR, the Hon'ble Supreme Court considered the scope, ambit and power of the Tribunal to consider and decide upon the issues which were not raised before the departmental authorities. In that judgment, the assessee had initially claimed deduction for development rebate in respect of the certain expenses incurred on introduction of Casablanca Conversion System (CCS) in its spinning plant. Such claim was rejected by the AO because in his opinion the introduction of CCS did not involve installation of new machinery. The disallowance was upheld by the AAC. On appeal before the Tribunal, the assessee raised alternate plea that if development rebate is not allowed on the ground that there was no installation of new machinery, then the amount expended should be allowed as "current repairs". On appreciation of relevant facts, the Tribunal allowed the assessee's alternate claim for deduction as 'current repairs'. The Hon'ble High Court upheld the decision of the Tribunal and on further appeal while upholding the judgment of the Hon'ble High Court , the Ho....
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....long, it was not possible for the assessee to utilize the entire finance raised in one go. Under these circumstances, therefore, in order to reduce the effective cost of setting up the hotel project, the assessee had deployed this temporary surplus fund in fixed deposits which yielded interest income to the assessee during pre- commencement stage. We find that in the impugned order, the AO considered such interest receipt in isolation under the head "Other Sources" and assessed such interest on stand- alone basis. We, however, find merit in the Ld. AR's submission that such interest cannot be considered by the AO in isolation and brought to tax on stand-alone basis. We could not lost sight of the fact that the company had never intended to raise funds and deployed the same for the purpose of rendering interest simplicitor. Object and intents of raising financial resources was to set up its hotel project in Kolkata and in order to ensure that the work up to the setting up of the project was not hindered, sufficient financial resources were arranged by the assessee over a period till the commercial operation commenced were utilized by the assessee only for setting up of the hotel pro....
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....Steel Ltd. [J999] 236 ITR 315 . The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are " surplus" and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head" Income from other sources". On the other hand, the ratio of the Supreme Court judgment in Bokaro Steel Ltd. [1999] 236 ITR 315 to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise "inextricably linked" to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses." 14. We also rely on the judgment of Hon'ble Delhi High Court in the case of Pr. CIT Vs. Facor Power Ltd. (2016) 380 ITR 474 (Del). In this case the interest earned by the assessee on temporary investment on FDRs made out of the additional share capital was assessed as income. Such share capital was raised to part finance construction of the power plant. On appeal, the appellate authorities concurrently found tha....