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2014 (12) TMI 1378 - ITAT CHANDIGARHCorrect head of income - Interest earned on bank deposits - Business income or income from other sources - HELD THAT:- 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's counsel has referred to the accounts of the assessee to show that assessee received lesser interest of ₹ 625.97 lacs and paid interest on loan in the year under consideration would show that assessee has to pay more interest as against the small interest received by assessee. Therefore, if any adjustment is made against interest paid, still there is a liability of the assessee to pay interest on the loans. The assessee also explained that for effective funds management, the temporary surplus funds were kept in short term bank deposits and thereafter, interest was earned and so was also used for construction of the project and for paying interest to the power finance company which have not been adversely commented upon by the authorities below. Therefore, the reliance of the Assessing Officer on the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT [1997 (7) TMI 4 - SUPREME COURT] was totally misplaced. It is clear that the funds with the assessee, even if temporarily used for savings/short term deposits, but the earning of the interest were directly connected with work of construction of the project employed by the assessee - earning of interest could not be treated as income from other sources, since the income was earned in the period prior to commencement of the business and it was the nature of capital receipt and was required to be set off against pre-operative expenses. We, therefore, set aside the orders of authorities below and delete the addition. Appeal of the assessee is allowed.
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