TaxTMI 
TaxTMI 
2020 (9) TMI 812
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....eposits 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-Product Special Economic Zone Project, in the ....
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.... 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 2: Additional Ground No. 1: 1. On the facts & circumstances of the case, the Ld. CIT(A) erred in upholding....
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....AT 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 ITR 81 iv. SC HK Investment 211 ITR 511 v. Mumbai ITAT JF Laboratory 96 ITD 448 vi. Bangalore ITAT Prestige Garden Construction 67 SOT 139 vii. Delhi High Court in Vodafone South Ltd. 61 Taxmann.com ....
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....0.00 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 17343.84 22060.52 44195.77 51817.71 75544.21 72890.16 85704.85 99881.09 116801.38 170069.73 3 Bank Balances Fixed deposits 9415.07 9548.54 - - - - 947.39 1011.75 1630.20 2180.68 Current Account 380.43 1442.32 468.89 45.85 93.89 74.54 87.55 33.28 49.08 96.86 D Interest on borrowed funds 1699.52 3724.57 4948.93 5148.14 6049.97 7560.67 9696.81 9696.81 13933.84 17230.85 E Interest on Fix....
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....on 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 and 2008-09 and therefore, the appeals of the assessee should be dismissed. 6. Having regard to the facts of the case and the decisions relied upon by the ld. counsel for the assessee, we find that the assessee has deposited the funds which were not immediately required for the assessee's business and as and when required, they were immediately withdrawn and used for business purposes. Therefore, there is a distinction in facts between earlier years where the Tribunal decided the issue against the assessee, and the AYs before us. The ld. counsel for the assessee has specifically relied on the decision of the coordinate bench at Mumbai, ITAT, in the case of Kamat Hotels (India) Ltd. (supra), wherein, after considering the decision of the Hon'ble Supreme Court in the case of Tutic....
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....rved 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 setting up of a plant and if the funds are " surplus" and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head " Income from other sources". On the other hand, the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise " inextricably linked" to the setting up of the plant, such income is required to be capitalized to be set off against preoperative expenses. 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrast....
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....d 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 have been put in fixed deposits with banks; but, there is no dispute that such funds have been raised for financing the construction of new projects. It is not the case of the Revenue that the deposits with the bank are not for a temporary period. In such a situation, it is the rationale laid down in the case of Bokaro Steel Ltd. (supra), which is applicable. 8.4 In this context, we may also refer to the fact-situation in the case of NTPC Sail Power Company (P) Ltd., (supra) before the Hon'ble Delhi High Court. In the case of NTPC Sail Power Company (P) Ltd.,(supra), assessee was in the business of running power plant and in terms of its expansion plan, it proposed to set-up a new unit. For the said purpose, it raised Term loans and the interest relatable to the borrowings utilized for expansion purpose ....