TaxTMI 
TaxTMI 
2015 (5) TMI 1226
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.... not sustainable in the eyes of law. 3. That in the facts and circumstances of the case the ld Commissioner of Income Tax (Appeals) is not justified in upholding the addition of Rs. 28,42,77,854/-. 3. After hearing both the parties we find that assessee is a company engaged in the business of Planning, Promoting, Organizing the development of all aspects of hydroelectric power on behalf of Himachal Pradesh State Government and Himachal Pradesh State Electricity Board. During the year assessee company was implementing various projects in the state of Himachal Pradesh. None of the power projects undertaken by the assessee company has commenced production. The assessee company had earned interest amounting to Rs. 28,42,77,854/-. It was noted by the AO that Statutory Auditor as per their report has stated that interest earned by the assessee on temporary investment was taxable. In view of the decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals And Fertilizers Ltd. Vs. CIT 227 ITR 172. The assessee had not shown the interest income in the return of income and therefore assessee was issued a show cause notice that why interest earned by it on surplus and borrowe....
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....rest payments which I being capitalized to project cost instead of claiming as revenue expenditure. In the similar way as already contended interest earned on Term deposits claimed as set off against the interest paid on loan so as to reduce the cost of Project. All the expenses including interest on loan incurred during construction state are eligible for capitalization i.e. to be a part of asset created and are eligible for Depreciation. This would mean that in the converse case, where interest is earned. It should be an abatement of capital cost so as to reduce the capital base for depreciation purpose. In view of above contention, income tax refund has been sought in the Income Tax Return filed. Further in view of similar issue decided i.e. in the case of Indian Oil Panipat Power Consortium Limited Vs. ITA(2009 315 ITR 255 (Delhi by the Delhi High Court and Apex Court judgment in the case of Bokaro Steel Limited (1999) 227 ITR 172 it was held that interest earned on funds received for a specific purpose and kept temporarily in short term deposit could not be classified as Income from other sources. Since the income was earned in a period prior to commencement of business ....
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.... not been made as a mandatory business requirement but surplus funds have been invested in the form of deposits with the various bank. The deposits by no means could be considered as short term deposits which is apparent from the fact that this issue of accrual of interest is perpetuating from year-toyear as mentioned Para 2.2. The ratio of Indian Oil Panipat Power Consortium Ltd. 315 ITR 255 are distinguishable on the facts to the assessee's case as under:- 1. Indian Oil Panipat Power Consortium Ltd. Share capital was introduced whereas in assessee's case loan has been taken from Delhi Jal Board. 2. Assessee has not entered into short-term deposits as a mandatory requirement as in Indian Oil Panipat case. 3. Thus the facts of the case are more akin to Tuticorin Alkali Chemicals & fertilizers Ltd. Vs. CIT (1997)227 ITR (SC). Reliance is placed on ITAT, Hyderabad judgment in case of Kakinad SEZ(P) Ltd. Vs Bokaro Steel Ltd. 236 ITR 315 as well as Indian Oil Panipat Power Corp. Ltd. 315 ITR 255 have been considered. In present case deposits made were not utilised as margin money or for such similar cause mandatory for commencing business so these funds take the form of sur....
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....e facts and material on record, we do not find any justification to sustain the findings of the authorities below. It is not in dispute that assessee corporation is a government company promoted by H.P. State Electricity Board Ltd. The assessee has admittedly not started commercial operation in the year under consideration and was still in the pre-operative stage. The assessee claimed that it has no surplus funds but the finding of the authorities below was that assessee earned interest on surplus funds. The accounts of the assessee placed on record clearly support the submission of the assessee that there were no surplus funds available with the assessee. The assessee also claimed that its funds were temporarily employed for short term deposits for efficiently and effectively use of its funds so as to reduce the total cost of the project. The ld. CIT(Appeals) also partly agreed with the submission of the assessee that part funds were invested for setting up of the plant & machinery. The assessee's counsel has referred to the accounts of the assessee at page 15 of the Paper Book to show that assessee received lesser interest of Rs. 625.97 lacs and paid interest on loan at Rs. 3....
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....Indian Oil Panipat Power Consortium Ltd. V ITO 315 ITR 255 (Delhi) held as under : The assessee-company was incorporated in pursuance of a joint venture entered into between Indian Oil Corporation and M of Japan to set up a power project. In order to effectuate the purpose for which the joint venture was conceived, share capital was contributed by these two corporations which included Rs. 20 crores by way of additional share capital. The Assessing Officer treated the interest earned on monies received as share capital by the assessee temporarily placed in a fixed deposit awaiting acquisition of land which had run into legal entanglements on account of title as "Income from other sources". The Commissioner (Appeals) accepted the stand of the asses- see that the interest was in the nature of a capital receipt which was liable to be set off against pre-operative expenses. The Tribunal reversed this order. On appeal : Held, allowing the appeals, that the funds in the form of share capital were infused for the specific purpose of acquiring land and the development of infrastructure. Therefore the interest earned on funds primarily brought for in the business could not be classifie....