2018 (5) TMI 2059

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....ned CIT (A) erred in confirming the order of the AO and holding that the interest amount of Rs. 2,94,09,230 is assessable as income from other sources". 2. Brief facts of the case are that the assessee company was incorporated for the purpose of establishing a power generation plant, which is yet to start commercial operations pending government clearances. A survey u/s 133A of the Act was conducted on 30.01.2015, during the course of which, it was found that the company received share capital of Rs. 50.00 crores including the share premium which was invested in fixed deposits. Pending government clearances, the interest income earned from such deposits was set off against the capital expenditure incurred by the company during the preopera....

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..... Considered the rival submissions and perused the material facts on record. The assessee has brought share capital for the sole purpose of establishing power generation unit, mainly, a gas based project of 700MW. This share capital along with share premium, was contributed by the friends and relatives, who are NRI's, of the director. The assessee has commenced the initial activities for securing the various permissions/approvals for the project from the state/central government agencies, land acquisition and project feasibility etc. Due to change in the government policies and unforeseen development, it makes the project difficult to implement. In the given case, it was discovered that shortfall in allocable supply of natural gas in Kr....

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....hether 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. 9.1 From the above ratios, it is clear that if the surplus funds are invested in fixed deposits, the interest income earned is chargeable to tax. Whereas in the Bokaro Steel case, funds which are otherwise inextricably linked to the setting up of the plant, such income required to be capitalized. Later in the case of Bongaigoan Refinery, [2001] 251 ITR 329 (SC), the Hon'ble Supreme Court has reiterated the findings of Bokaro Steel, for the other income and, with regard to interest income, it reiterated the rati....

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....he share capital is brought for specific purpose for the implementation of the particular project, and interest is earned by temporarily depositing in the bank, such income can be treated as capital receipt. In the given case, assessee has brought the share capital only for the implementation/commencement of the power project. Since, it could not proceed with the implementation, under constraint, it kept the unutilized funds in the bank; in that process it has earned interest; By following the ratios of Hon'ble Supreme Court, the funds kept in bank under constraint and the funds are inextricably linked to the project, such income can be treated as capital receipt. At the same time, the findings of Delhi High court in the similar circums....