TMI Blog2014 (7) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... oney has not come from the production as during the assessment year, the production had not started - assessee has kept the available funds in the FDRs for a short period and earned the interest – the deposit was made under the compulsion for having the letter of credit - Without letter of credit/bank guarantee, plant and machinery cannot be imported and without plant and machinery, factory cannot be established - any income earned on such deposit is incidental acquisition of assets for setting up of the plant and machinery – Relying upon CIT Vs. Karnal Co-operative Sugar Mills Ltd. [1999 (4) TMI 7 - SUPREME Cour] – thus, the claim of the assessee is allowable - The interest earned on the short term deposit, felicitate the letter of credit/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he project, the assessee has obtained the secured loans from financial institutions and equity share capital etc. The application money was received from the promoters, which was not immediately required for the purpose of acquisition of capital assets. Machines were likely to be imported, so the assessee, for the short period, kept the amount in the Bank in the form FDRs/ICDs. During the assessment year under consideration, no manufacturing activity was started. The interest of ₹ 13,97,610/- was earned on short deposit and the same was claimed by the assessee as pre-operative expenses, but the A.O. has not allowed the same and treated the interest income under the head income from other sources . The CIT(A) as well as Tribunal uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relief may kindly be given. On the other hand, Shri Dhananjay Awasthi, learned counsel for the department justified the impugned orders. He submits that money in the deposit was utilized from the share application money. In other words, the FDRs were made out of the share application money received from the promoters and not from borrowed funds. During the assessment year under consideration, no production was started. The earning of the interest is not a business of the assessee and there is no provision under the Act providing that the income from other sources would cease to be taxable, if it is applied in acquisition of capital assets. Therefore, merely because the interest income had been appropriated or adjusted towards constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osited money to open a letter of credit for the purchase of machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incident to the acquisition of assets for the setting up of the plant and machine. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and fertilizers limited v. CIT (1997) 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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