2018 (6) TMI 1672

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....peals are similar so we are adjudicating them together. Details of filings of returns retunred incomes assessed incomes can be summarised as under: AY. ROI filed on Returned income Asst.date Assessed income  2011-12 05/09/2011 Rs. 3.65 crores 18/03/2014 Rs. 6.99 crores 2012-13 27/09/2012 Rs. 5.44 crores 29/12/2014 Rs. 11.14 crores   ITA/4020/Mum/2016,AY.2011-12: 2.Effective ground of appeal is about treating the interest amount amoungting to Rs. 3.33 crores on margin money kept for obtaining bank guarantee for credit for power business as business income.  During the assessment proceedings the AO found that the assessee was in the process of project construction and setting up of Power Generation Plant that....

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....e material she held that that the assessee had not commenced its business operations during the year under consideration that all the expenses incurred in connection with the setting up of the power plant were capitalized and the income earned out of the funds mobilized for the construction of the power plant for the purpose of availing the credit facilities and as per the terms of the power purchase agreement from the banks was on account of compulsion in order to avail such facility that the interest income earned on the FDR/margin money placed with bank was inextricably linked to the setting up of the power plant that there was considerable force in the argument that the aforesaid interest income was inextricably connected to the setting....

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....ion of the plant were clubbed under CWIP and preoperative expenses, that the interest received on the fixed deposits was rightly reduced from same With regard to the accounting for the Finance Cost relating to the borrowings as mentioned above and corresponding interest income earned from deposits earmarked against financing faculties during construction period,he submitted that all the Finance Cost till commencement of commercial production was capitalized that the interest income earned from deposits earmarked against financing facilities during construction period was deducted from the same. He referred to clause 2.4 of  Significant Accounting Policies as appearing in Schedule XI being Notes forming Part of the Accounts and stated t....

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....nd has to be added to the cost of the fixed assets created as a result of such expenditure. Similarly if the assessee receives any amount which is inextricably linked with the process of setting up its plant and machinery such receipts will go to reduce the cost of its assets. We also hold that treatment of the receipts depends on the purpose for which the funds are utilised. The use of funds decides the characterisation of the amount. In the case under consideration that the interest receipt was directly linked to setting up of business apparatus of the assessee. It was not idle money that was invested or parked for earning interest. We have perused the clause 2.4 of Significant Accounting Policies as appearing in Schedule XI and are of t....