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2019 (1) TMI 346 - ITAT AHMEDABADAddition on account of interest income u/s 56 - characterization of interest income earned on advances given to AWEL and interest earned on fixed deposits pending utilization as independent receipt of revenue nature liable to be taxed as ‘income from other sources’ u/s.56 - Held that:- As noticing the process of reasoning applied by CIT(A) and approve his action affirmatively in so far as interest generated on temporary advances given to group concern he has rightly held that interest income to be of capital nature linked with the process of setting up of its power plant and such receipts would go to reduce the cost of the project which also includes huge interest costs as capitalized. Decision of Bokaro Steel Ltd. [1998 (12) TMI 4 - SUPREME COURT], Karnataka corporation Sugar Mills Ltd. & Bongaigaon Refinery & Petro Chemicals Ltd. vs. CIT [2001 (7) TMI 4 - SUPREME COURT] which in turn distinguish the decision of the Hon’ble Supreme court in Tuticorin Alkali Chemicals Fertilizers Ltd. [1997 (7) TMI 4 - SUPREME COURT]. Thus, we find ourselves in complete agreement with the action of the CIT(A) in upholding the action of AO to reduce interest income arising from short term advances placed with sister concern out of project development expenditure and in reversing the action of the AO in treating the same as revenue income de hors the projects development in progress. The grievance of the Revenue thus is bereft of any merits. Appeal of the Revenue is dismissed. Cross objection filed by the assessee to impugne the action of the CIT(A) in sustaining the interest income on funds kept as fixed deposits pending utilization to be revenue income and consequently not liable to be set off against project development costs CIT(A) in our view, has failed to take notice of the plea that interest expenditure and interest income arise from the same source i.e. borrowed funds. The income and expenditure are thus inextricably linked. We thus are of the view that when the facts are seen in perspective, the action of the CIT(A) appears to suffer from this cardinal error. In the absence of any other activity other than the construction of power plant, the interest expenditure on borrowed funds and incidental income by way of interest mobilized are required to be treated at par. The interest income therefore is eligible for set off against the corresponding interest costs and consequently, such income should be reduced out of interest costs which also form part of the capital expenditure. In this view of the matter, we set aside the action of the CIT(A) and direct the AO to delete the addition made on this score. - decided in favour of assessee
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