AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 50
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....- for assessment year 2012-13. The assessee company has treated it as capital receipt instead of revenue receipt, according to the A.O, and has credited to the preoperative expenses, which goes to reduce the cost of the project. The A.O completed the assessments for assessment year 2011-12 under section 143(3) of the Act, on 28.01.2014 at a total income of Rs. 10,74,55,670/- under the head of 'income from other sources' and for assessment year 2012-13, he completed the assessment under section 143(3) of the Act on 19/2/2014 at a total income of Rs. 1,22,04,940/- under the head "income from other sources". 3. Aggrieved, the assessee preferred appeals before the ld. CIT(A), who confirmed the orders of the A.O, assessing the interest income as 'income from other sources", vide order dated 31/3/2015. 4. The A.O, accordingly initiated penalty proceedings and levied penalty under section 271(1)(c) of the Act at Rs. 3,60,00,000/- for assessment year 2011-12, and Rs. 40,00,000/- for assessment year 2012-13, vide separate orders, dated 19/6/2015. 5. Aggrieved by the orders of the A.O dated 19/6/2015, imposing the penalty under section 271(1)(c) of the Act, the assessee preferre....
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....rt from relying upon the case law, reported in 280 ITR 521, the Ld. A.O. has not brought on record any cogent and independent material, which could suggest that the interest income earned in assessment years 2011-2012 and 2012-2012 are either concealment of income or furnishing of inaccurate particulars of such income; and that merely not accepting the claim of the assessee and by relying upon a case law, does neither amount to concealment of income nor amounts to furnishing of in accurate of particulars of such income. The ld. A.R. of the assessee has also placed reliance upon the following case laws: 1. CIT vs. Reliance Petroproducts Pvt. Ltd 322 ITR 158 (SC). 2. CIT vs. Caplin Point Laboratories Ltd., 293 ITR 524. 3. CIT vs. Harshvardhan Chemivals and Minerals Ltd., 259 ITR 212. 4. CIT Vs. Atul Mohan Bindal, 317 ITR 1 (SC) 5. Karan Raghav Exports Pvt. Ltd Vs. CIT, 349 ITR 112 (Del) 6. CIT Vs. Raj Overseas, 336 ITR 261 (P & H) 7. Mahavir Irrigation Pvt. Ltd Vs. CIT, 314 ITR (AT) 150 8. CIT Vs. Nath Bros. Exim International Ltd., 288 ITR 670 (Del) 9. CIT Vs. International Audio Visual Co., 288 ITR 570....
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....after referred to as " Act, 1956") and is 100 percent subsidiary company of "M/S Jaiprakash Power Ventures Ltd". In the A.Y in question, Assessee company was in the process of setting up a Thermal Power Project in Tehsil-Karchana, District-Allahabad. 5. The funds of Assessee company were placed in short term deposit with banks and earned interest of Rs. 10,74,55,666/- in the A.Y 2011-12 and Rs. 1,22,04,939/- in the A.Y 2012-13. Assessee company treated aforesaid interest income as capital receipt instead of Revenue receipts and credited said amount to pre-operative expenses which go to reduce the cost of project. 6. For the A.Y 2011-12, return of income was filed by Assessee company electronically on 27.09.2011 declaring nil income. Case was selected under scrutiny through CASS and notice under Section 143 (2) dated 03.08.2013 was issued through speed post dated 23.08.2013. Again notice under Section 143 (2)/ 142 (1) of Act, 1961 alongwith questionnaire was issued and duly served. Assessee was also asked vide order dated 10.01.2014 to explain as to why the interest income on Fixed Deposit treated as Capital Receipt be not disallowed and said income be tre....
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....e more than one source of income but all giving rise to income which are taxable under one head only. Source of income in the present case is the industrial undertaking for generation of power being set up by the assessee and all the funds, which are available with the assessee at its disposal are arranged by the assesses for that purpose. A chart showing cost of project and means of finance is available on page no. 62 as per which total project cost is Rs. 10,780 crores to be financed by equity of Rs. 2,698 crores I.e 25% of total project cost and debt Rs. 8,085/- crores I.e 75% of total project cost. Till 31/03/2011, the assessee has arranged total funds of Rs. 1378.97 crores and the same was used till that date on account of purchase of land, computers and furniture, on account of advance for land and supplier for capital equipment , short term FD with bank and the balance amount was left with bank in current account. Hence, it is seen that the entire funds available with the assessee company are in respect of this project being set up by the assessee company being generation of power and FD income is earned by temporary deployment of this fund of this business undertaking and n....
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....efore, any income from this source cannot be brought to tax before the setting up of business is completed resulting into start of the previous year".(emphasis added) 12. From the facts noticed above, we find that interest on Fixed Deposit Receipt has no immediate nexus with the business of Assessee company. Business is yet to commence. So long as Assessee had no business income, the interest earned can not be treated as business income. Thus in our view, it has to be treated as "income from other sources". 13. In Commissioner of Income Tax Vs. Govinda Choudhury & Sons 1993 (203) ITR 881 (SC), Court said:- " Interest can be assessed under the head "Income from other sources" only if it cannot be brought within one or the other of the specific heads of charge". 14. In Commissioner of Income Tax Vs. Rajasthan Land Development Corporation 1995 (211) ITR 597 (Rajasthan), Court held that interest on fixed deposits and other deposits before commencement of business is an "income from other sources". 15. The judgment in Commissioner of Income Tax Vs. Govinda Choudhury & Sons (supra) was followed in Commissioner of Income Tax Vs. B.N. Agarwala a....
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....d with respect to interest income, it claimed that it will go to reduce preproduction expenses, therefore, interest income was not exigible to tax. A.O rejected this claim and CIT (A) confirmed the view of A.O. Tribunal also rejected appeal of company. Supreme Court also confirmed the aforesaid view. It confirmed Madras High Court's decision in Commissioner of Income Tax Vs. Seshasayee Paper and Boards Ltd 1985 (156) ITR 542, that interest earned by Assessee on investment of share capital in call deposits, even before production commenced, would be assessed separately under the heads ''Other sources'. Contrary view taken by Andhra Pradesh High Court in Commissioner of Income Tax Vs. Nagarjun Steels Ltd 1988 Tax LR 973 (AP), by Orrisa High Court in Commissioner of Income Tax Vs. Electrochem Orrisa Ltd 1995 Tax LR 911 (Orrisa) and Bombay High Court in Commissioner of Income Tax Vs. Maharashtra electrosmelt Ltd 1995 Tax LR 1002 (Bombay) was overruled. Court also referred to a decision of this Court in Kedar Narain Singh Vs. Commissioner of Income Tax 1938 6 ITR 157 (ALL) holding "anything which can properly be described as income is taxable under the Act unless express....
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....ncashed and used for expansion of business. The deposits made by the company were not in the regular course of business, nor it was the business of the company to make deposits and earn interest. The interest income cannot be said to be attributable to the activities of the company. The interest had accrued on the funds, which were not immediately required by the assessee-company for its business purposes and which were invested in FDRs. The assessee company is engaged in the business of manufacture of oxygen and nitrogen gas; rerolling of steel; and fabrication of railway wagons. The surplus profits retained by the company were kept in FDRs. The interest earned on such income was not earned out of business regularly carried out by the assessee company".(emphasis added) 19. Another Division Bench of this Court in Commissioner of Income Tax Vs. Indo Gulf Fertilizer and Chemical Corporation Limited 2006 (280) ITR 621 (All) has also taken the same view and after referring to Supreme Court judgment in Tuticorin Alkali Chemical and Fertilizers Ltd. Vs. ITC (supra) in para-10 of the judgment, Court said as under:- The aforesaid decision has been followed subseq....