TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 642
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....d in law, the Ld CIT(A) has erred in giving finding that interest of Rs. 2, 65, 85, 922/ - on margin money kept for obtaining bank guarantee / letters for credit for power business is to be assessed under the head (Business Income' and upholding the action of the assessee in reducing the above amount from the work in progress (WIP) account, ignoring the detailed reasoning given by the Assessing Officer in para 5 of the Assessment Order that it is taxable under the head (Income from Other Source'. 2. "On the facts and circumstances of the case and in law, the Ld CIT(A) has allowed the appeal of treating interest on margin money as Business Income, ignoring the facts that the interest income that had been received by the assessee on its fund kept in deposit with the bank and does not have any direct nexus with the Business that was being carried on." 3. "The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored." 2. Brief facts of the case are that the assessee is a company and engaged in the business of power generation. During the relevant period under assessment the assessee claimed that it was under the pr....
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....karo Steel Ltd. [236 ITR 315 (SC)] and CIT vs. Karnal Co-operative Sugar Mills Ltd. [243 ITR 2(SC), wherein it was held that such interest received partake the character of capital receipt. 7. We have noted that in assessee's group case in ACIT vs. Essar Power Gujrat Ltd.(supra), in ITA No. 4019,4020/Mum/2016, the coordinate bench of Tribunal in order dated 01.06.2018 on identical grounds of appeal passed the following order: "5.We have heard the rival submissions and perused the material before us. We find that the assessee was setting up a thermal power plant, that during the year under appeal, the project of construction of the power plant was under progress and no commercial activities whatsoever had begun, that all the major expenses incurred in relation to the project were capitalised under 'capital work in progress', that during the year under appeal the assessee had earned interest income out of the funds augmented for issuing bank guarantee to various parties in connection with the construction of the power projects as well as for meeting the various expenses for purchase of various assets required in the construction of the power plant, that the same was trea....
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.... purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited 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 the purpose of getting the Credit Facilities which were required for the construction of the plant, it was to be allowed to be reduced from the cost of the plant and was to be held as not taxable. So, confirming her order, we hold that her order does not suffer from any factual or legal infirmity. Effective ....
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....rplus funds have been parked with the banks as fixed deposits pending its utilization in project under progress. It is a case where the fixed deposits giving rise to the interest income has been placed as margin money with the State Bank of India for obtaining bank guarantee for the purposes of the project in progress and consequently, the fixed deposits are integrally connected with the setting up the power plant. The interest income therefore is not independent of the costs incurred for power project. Hence, we find ourselves in complete agreement with the action of the CIT(A) in upholding the action of the assessee to reduce interest income arising from deposits placed with banks out of the costs of project in progress and in reversing the action of the AO in treating the same as revenue de hors the development of the project. The grievance of the Revenue is bereft of any merit." 9. Further, on similar grounds, the Co-ordinate Bench in Solarfield Energy Pvt. Ltd. vs. ITO, in ITA Nos. 5189-90/Mum/2016 dated 16.07.2019 passed the following order: "5. We have considered the submissions of the parties and perused the material on record. We have seen that issue pertaining to addit....
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....ily parked in fixed deposit, thereby, indicating that the interest earned on such fixed deposit has an immediate and proximate nexus with the setting-up of power project. Notably, the Departmental Authorities have rejected assessee's claim that the interest earned is a capital receipt relying upon the decision of the Hon'ble Supreme Court in Tuticorin Alkalj^ Chemicals and Fertilisers Ltd. (supra). On a careful reading of the said judgment, we are of the view that the ratio laid down therein will not apply to the facts of the present case. In the case of Tuticoj1n _ Alkali Chemicals and Fertilisers Ltd. (supra), the assessee has borrowed funds for setting up of a plant. However, the surplus fund available out of the borrowed fund was invested in fixed deposit and assessee earned interest. The Department held that the interest earned from fixed deposit on investment of surplus fund during the pre-construction period is assessable as income from other sources. However, the Hon'ble Supreme Court in case of Bokaro Steels Ltd. (supra) took note of the decision In Tuticorin A/kali Chemicals and Fertilisers Ltd. (supra) referred to by the Departmental Authorities. Further, t....
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....ollowing the decision of the Hon'ble Supreme Court in Bokaro Steels Ltd. (supra) held that, since, the interest income was inextricably linked to the set-up of power project, it will be a capital receipt and will come to reduce the cost of the project and accordingly allowed assessee's claim. In our view, the ratio laid down in case of Bokaro Steels Ltd. (supra) and Indian Oil Panipat Power Consortium Ltd. (supra) are squarely applicable to the facts of the present case. Undisputedly, in case of assessee, the funds invested temporarily in the fixed deposit were for the purpose of setting-up of the power project. Therefore, the interest earned is inextricably linked with the power project The other decisions relied upon by the learned Sr. Counsel including the decision in case of CIT v/s Karnal Cooperative Sugar Mills Ltd. (supra) express similar view. That being the case, applying the ratio laid down in the decisions referred to above, we hold that the interest earned on fixed deposit is capital receipt and has to be set-off against pre-operatives expenditure thereby will go to reduce the cost of CWIP. Ground raised is allowed." 6. The issue and the governing facts for ....