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2019 (6) TMI 1411 - AT - Income TaxInterest income on margin money deposits - interest income arising from deposits made with the Bank during the pre-commencement period - Capital receipt or ‘income from other sources' - whether interest income derived from certain deposits placed with the banks (while the power project construction is under progress and in the process of being set up and has not commenced generating electricity) can be set off against the ongoing power project costs incurred of capital nature and consequently, whether such interest income would go to reduce project costs prior to its commencement or not? - HELD THAT:- It is primarily the case of the assessee that the interest income derived from margin money deposits is inextricably linked to the project being set up. Hence, the interest income is required to be regarded as income of capital nature for the purposes of project. We concur with the view taken by the CIT(A) that interest income so earned on deposits placed with Bank to obtain the bank guarantee have been rightly reduced from the project development expenditure incurred for set up of power plant. We note that identical issue came up for consideration of the co-ordinate bench in the case of M/s. Adani Power Rajasthan Ltd. [2019 (1) TMI 1132 - ITAT AHMEDABAD] in a similarly placed situation. We find that the CIT(A) has rightly applied the law laid down by the Hon’ble Supreme Court in Bokaro Steel Ltd. [1998 (12) TMI 4 - SUPREME COURT] It is a case where the fixed deposits giving rise to the interest income has been placed as margin money with the State Bank of India for obtaining bank guarantee for the purposes of the project in progress and consequently, the fixed deposits are integrally connected with the setting up the power plant. The interest income therefore is not independent of the costs incurred for power project. Hence, we find ourselves in complete agreement with the action of the CIT(A) in upholding the action of the assessee to reduce interest income arising from deposits placed with banks out of the costs of project in progress and in reversing the action of the AO in treating the same as revenue de hors the development of the project. The grievance of the Revenue is bereft of any merit. CIT(A) has rightly allowed the deduction of interest expenditure incurred for development of project (forming part of costs of project) against the interest receipts derived from margin money deposits. We do not see any error in the conclusion of the CIT(A) on this score.
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