TaxTMI 
TaxTMI 
2018 (6) TMI 1672
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....nt. As the issues raised in both the appeals 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 pro....
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....te Authority(FAA)and made detailed submissions. After considering the available 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 argumen....
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....uced the cost of the project that all the expenditure incurred towards construction 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 a....
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....before the commencement of production on such borrowed money has to be capitalised and 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 ....
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.... that some interest had been earned. This was, therefore, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. The interest was a capital receipt, which would go to reduce the cost of asset." All other cases cited above support the view taken by her. 5.1.Considering the above we are of the opinion that the FAA had rightly held that in the case of interest receipts on margin deposits kept with the banks for th....