TaxTMI 
TaxTMI 
2022 (11) TMI 588
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect. 2.1 That the learned CIT(A) has failed to appreciate that the assessee who had undertaken the construction of Hotel is in the stage of construction and had not become operational and that the interest had been earned on deposits made out of its own capital earn marked for the project. 2.3 That the learned CIT(A) has failed to appreciate that the assessee had incurred a liability by way of payment of interest in respect of the amounts raised by it and as such, without prejudice to the contention that the sums received could not be treated as income ought to have held that the amount of interest paid of Rs.l 1,13,77,224/- deserved to have been held as allowable u/s 57(ii) of the Income Tax Act. 2.4 That the learned CIT(A) has failed to appreciate that the facts of the case of the assessee are pari-materia with the facts of the case of CIT vs. Bokaro Steel Ltd. reported in 236 ITR 315 2.5 That the learned CIT(A) has failed to appreciate that there is an inextricable link between the deposit made in the bank and the margin money, provided by it against which credit facilities had been allowed by the Bank to the assessee. The finding that there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. 7. During the course of scrutiny assessment proceedings and on examining the financial statement of accounts, the Assessing Officer was of the opinion that the assessee is yet to set up its business, as is evident from the Profit and Loss Account, wherein no revenue has been shown for any of the years and on examination of the balance sheet, it was found that a sum of Rs.74.80 crores is shown as Capital Work in Progress and a further sum of Rs.42.32 crores is shown as 'Project and Pre-operative Expenses' pending capitalization. 8. On perusal of the details furnished by the assessee with regard to project and pre-operative expenses pending capitalization, the Assessing Officer found that the assessee has adjusted/set off an amount of Rs. 46,92,827/- from the said expenses. 9. The assessee was asked to explain the same and to show cause as to why the said interest income should not be brought to tax and assessed to tax as 'Income from Other Sources' 10. It was explained that the sum of Rs. 7,62,46,669/- is reflected as on 31.03.2009 against deposit amount as against Rs. 3,13,00,000/- in the immediately preceding year and it was explained that this deposit account has b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urnished before the lower authorities, which have been examined and no adverse inference has been drawn in so far as details for issue of letters of credit/bank guarantee in favour of the supplier is concerned. It is also not in dispute that the assessee has reduced interest accrued on FDRs from the Project and Pre-operative Expenses' reflected in the balance sheet. Entire transaction has been duly explained by way of Notes to the respective Schedule to the Balance Sheet by the assessee and the auditors. 17. Hon'ble High Court of Delhi in the case of Indian Oil Panipat Power Consortium Ltd 315 ITR 255 has held as under: "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 infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be safely concluded that the interest earned on FD is inextricably linked to the setting up the hotel as such and, therefore, the findings of the ld. CIT(A) in treating interest of Rs. 23,31,717/- as income from other sources is not only erroneous but against the facts of the case in hand as explained hereinabove. 20. Considering the facts of the case in totality, we direct the Assessing Officer to consider the interest of Rs. 23,31,717/- as part of capital receipt to be deducted from the cost of project. 21. Ground Nos. 1 and 2 with all sub ground are allowed. 22. The next issue relates to the disallowance of Rs. 8,97,700/- being 1/5 of preliminary expenses. 23. Briefly stated, the underlying facts in this issue are that an expenditure of Rs. 44,88,500/- was incurred by the assessee in Assessment Year 2007-08 towards payment of ROC fees. The said was claimed as revenue expenditure under the head "Rates and Taxes". However, during the course of assessment proceedings, the assessee prayed that the said expenses may be allowed as per provisions of section 35D of the Act. The said prayer was not accepted by the Assessing Officer who disallowed the said claim of expenditure....