TaxTMI 
TaxTMI 
2020 (9) TMI 812
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....e loans taken, the company has made fixed deposits in the Bank to the tune of Rs. 95.48 crores for earning interest on the deposits and as per the details furnished by the assessee, the assessee company has received interest of Rs. 1,36,04,879/- during the financial year 2008-09 but did not offer the said income to tax in its return of income filed for the A.Y 2009-10. The assessee was therefore, asked to show cause as to why the interest on FDs of Banks to the tune of Rs. 1,36,04,879/- earned during the relevant period should not be treated as "income from other sources" of the company and accordingly brought to tax. 2.1 The assessee, vide its reply dated 21.12.2011, stated that the amount obtained by way of secured loans, which could not be deployed immediately, were kept in fixed deposits with the Banks from time to time, so as to earn interest which in effect reduced the actual interest outgo. It was submitted by the company that though it earned interest income of Rs. 1,36,04,879/- on fixed deposits during the year, it has also paid interest of Rs. 49,48,93,142/- on secured loans and since the borrowed funds have been obtained solely for the purpose of setting up of Multi-P....
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....that the AO be directed to delete the aforesaid chargeability of the amount of interest earned on fixed deposits as the same is in the nature of capital receipt and hence will go to reduce the amount of interest expenditure to be capitalised. Without prejudice to Ground I above: Ground Il: Interest earned on fixed deposits should be netted off against interest Expenditure on borrowed funds:- 1. Without prejudice to the foregoing ground, on the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in upholding the action of A.O. in not allowing the deduction of interest expense against interest earned despite the fact that there exists a nexus between the borrowed funds and the deposits placed by which interest is earned. 2. The Appellant prays that the interest expense be allowed to be deducted against earned on fixed deposits. Ground Ill:- The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal". 3.1 Further, vide letter dated 15.05.2019, the assessee has raised the following additional grounds of appeal: "Without Prejudice to Ground 1 and ....
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....etronet LNG Ltd. (2011) (Delhi H.C.) reported in 10 taxmann.com 257 iii. Hyderabad Hi-Tech Textile Part P Ltd. Vs. ITO in ITA no.587/Hyd/2016, ITAT Hyderabad Bench. iv. Adani Power Ltd. Vs. ACIT (2015) 61 taxmann.com 355 (ITAT Ahmedabad Bench) v. Prayagraj Power Generation Co.Ltd. vs. ITO (ITA no.625 & 626 of 2013) Lucknow Bench of ITAT vi. Kamath Hotels (India) Limited vs. ACIT (ITA No.1078/Mum/2013) (Mumbai Bench of ITAT) vii. Elgen (India) Pvt. Ltd. Vs. ITO (ITA no.1286 & 1287 /Hyd/2016) (Hyderabad Bench of ITAT) viii. PCIT vs. Road Infrastructure Development Corporation of Rajasthan Ltd. Reported in 257 Taxman 208 (Rajasthan) ix. CIT vs. Shri Rama Multi Tech Ltd. Reported in 393 ITR 371 (SC) 4.2. In addition to the above, in support of his contention that the interest income is to be set off against the interest expenditure on borrowed funds, the Ld.Counsel for the assessee relied upon the following decisions. i. CIT vs. VGR Foundations (Madras HC) reported in 298 ITR 132 ii. DCIT vs.CNIL in ITA no.1649 /Mad/20 15 (Chennai Bench of ITAT) iii. Supreme Court Continental Construction 195 I....
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.....03) (240.85) (283.10) (345.11) Total (A) 2814.71 5018.22 4418.22 4418.22 9399.43 9236.94 9172.40 9158.58 9116.33 9054.33 B Borrowed Funds 1 Secured Loans 28902.97 37504.00 40555.56 44500.00 46500.00 46500.00 25000.00 20833.33 20833.00 23333.33 2 Unsecured Loans - - - 2901.29 13786.76 25023.59 60567.48 71784.67 92744.00 116470.32 Total (B) 28902.97 37504.00 40555.56 47401.29 60286.76 71523.59 85567.48 92618.01 113577.00 139803.65 C Investments 1 Fixed Assets 14.35 13.24 12.46 17.05 17.28 41.84 84.80 98.89 130.20 92.99 2 CWIP 17343....
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....support of his contention that the interest income on temporarily idle funds is a capital receipt and is not to be treated as "income from other sources", the ld. counsel for the assessee placed reliance upon the decision of the "A" Bench of Mumbai, ITAT in the case of Kamat Hotels (India) Ltd., ITA No. 1078/Mum/2013, order dated 03/10/2017. In support of his contention that where the fixed deposits are inextricably linked with the business of the assessee, the interest income therefrom has to be set off against the preoperative expenses of the assessee, he placed reliance upon the decision of the coordinate bench of the ITAT, Chennai in the case of M/s Chennai Network Infrastructure Pvt. Ltd., ITA No. 1649/Mds/2015, order dated 9th September, 2016. In support of his contention that interest income earned on fixed deposits of own funds cannot be treated as income from other sources, he has relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Shree Rama Multi Tech Ltd., [2018] 92 Taxmann.com 363. 5. The learned DR, on the other hand, submitted that the issue is covered against the assessee by the decision of ITAT in assessee's own case for the A.Y 2007-08 an....
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....lkali Chemicals & Fertilizers Ltd. (supra) as well as in the case of Bokaro Steel Ltd. (supra), held that the interest income was in the nature of capital receipt and was required to be set-off against pre-operative expenses. In coming to its decision, the Hon'ble High Court observed that the test is whether the activity which is taken up for setting up of the business and the funds which are generated are inextricably connected to the setting-up of the plant or not. Pertinently, the Hon'ble High Court was dealing with a similar argument that is being set-up before us, which is to the effect that the deposit of share capital in short term deposits with bank had no connection with setting-up of the power plant. The Hon'ble High Court in the context of the above arguments observed as under:- "5. In our opinion, the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra) is that if funds have been borrowed for ....
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....s & Fertilizers Ltd. (supra) would prevail to treat the interest income as an independent income assessable as 'income from other sources'. No doubt, and as noted by the Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. (supra), in the case of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra), the funds available with the assessee were "surplus" and therefore the Hon'ble Supreme Court held that the interest income would be treated as 'income from other sources'. Factually speaking, in the instant case, there is no dispute that the FCCB proceeds have been raised with the specific purpose of funding the ongoing new hotel projects and it is only during the period awaiting deployment of full funds in the construction of new projects that a part has been placed in the banks, which has yielded impugned interest income. It may be a case of "idle funds", as the CIT(A) has put it, but it certainly is not a case of "surplus" funds, so as to attract the rationale of Tuticorin Alkali Chemicals & Fertilisers Ltd. (supra). Because it is only in the interregnum period, pending utilisation in the construction of new projects, that the funds h....
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....acts as in the case of the assessee before us for all the Assessment Years before us, and therefore, in our opinion, it is clearly applicable to the case before us. On the other hand, we find that the decisions relied upon by the ld. DR are distinguishable on facts. In the case of Raasi Cements Ltd., the Jurisdictional High Court was considering the case where interest was earned on surplus funds deposited during the installation of assessee company and, therefore, it was held that it has to be treated as 'income from other sources. In the case of Sponge Iron India Ltd., (supra), the assessee therein had set off of interest on short term deposits against the setting up of the project under the head exploration and general administration. Since the assessee had not commenced its business, it was held that interest income cannot be treated as business income of the assessee and cannot be set off against the expenditure incurred towards administration, exploration and mining expenditure. In the case of Thermal Power Tech Corporation India Ltd, the coordinate bench has followed the decision of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. This deci....