TaxTMI 
TaxTMI 
2017 (5) TMI 1660
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....the case in considering the interest earned during the construction period out of borrowed funds, as income from other sources. 2. The CIT(A) ought to have consider the fact that your Appellant has commenced business on staring the construction, therefore interest on FDR ought to have been reduced from the pre-operative expenses and capitalized. 3. Your Appellant submits that the CIT(A) as well as ITO having appreciated the fact that borrowed funds from banks not immediately required, have been deposited in Fixed deposits ought to have allowed the set off of interest earned on deposit from interest on borrowed funds. 4. Your Appellant submits that there being a nexus between the interest earned and interest paid the same ought to h....
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....le as assessee has not commenced the business. Assessee has relied on various decisions including the decision of Hon'ble Supreme Court in the case of Bokaro Steel Ltd., Vs. CIT [236 ITR 315] (SC). However, AO has not accepted the same and distinguishing the cases relied on by assessee, brought the amount to tax under the head 'other sources'. 2.1. Before the Ld.CIT(A), assessee has contested the same and made elaborate submissions. Ld.CIT(A) has analysed the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., [227 ITR 172] (SC), the facts involved in the case of Bokaro Steel Ltd., Vs. CIT [236 ITR 315] (SC) and also the series of judgments following the Bokaro Steel Ltd., Vs. CIT, li....
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....y, interest earned on deposits cannot be regarded as falling under the head of profits and gains of business or profession. Such income would fall for classification as income from other sources. 7.11 It is pertinent to note hear that the issue with regard to assessing the interest income earned during the period prior to commencement of a business has been a very litigious issue which has seen many turns and tribulations over the period of time. In fact, the Hon'ble Supreme Court of India in view of the dichotomous views taken by the apex court in the cases of Tuticorin Alkali (supra) and Bokaro Steel (supra) referred the matter to a larger Bench i.e., Bongaigaon Refinery and Petrochemicals (supra). The larger Bench of the Hon'b....
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....T Vs. Shri Ram Honda Power Equipment and Others [289 ITR 475] (Del). It was the submission that assessee has borrowed funds and these funds are not surplus funds, so the same should have been set-off to the interest paid on the borrowed funds during the construction period. 4. Ld.DR, however, relied on the orders of the AO and CIT(A) and supported the orders in view of the principles laid down by the Hon'ble Supreme Court. 5. I have considered the rival contentions and perused the facts of the case and case law relied upon. It is clear that assessee, even though has borrowed funds has not utilised them for the purpose of project and has kept them in short term FDs with another bank, not in the bank from which it has obtained loan.....
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....ead 'Other Sources'. The order of the CIT(A) has clearly demarcated the distinguishing features of various judgments of Hon'ble Supreme Court and has correctly came to the conclusion that interest on FDs is taxable during the pre-operative period under the head 'Other Sources'. 5.1. The Hon'ble jurisdictional High Court in the case of CIT Vs. Raasi Cement Ltd., [232 ITR 554] has answered similar questions involved in favour of the Revenue. The question before the Hon'ble High Court was whether the interest earned on surplus funds deposited in the banks during the installation of the company, the status of the company before commencement of the business. The Hon'ble High Court has held that such interest has to be separate....