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2020 (3) TMI 1280 - GUJARAT HIGH COURTAddition u/s 56 - interest earned on bank deposits treated as income from other sources - HELD THAT:- Assessee was having its own fund of ₹ 5 crores, which was not sufficient enough to provide the security deposit to GVISPL. Thus, the borrowed fund was utilised by the assessee for furnishing the security deposit. AO did not disturb the interest expense claimed on such borrowed fund which was not capitalised as the cost of the project but the interest income from such borrowed fund which was placed as the security deposit by the assessee with GVISPL was treated as income from other sources and not as part of the project. As found by the Tribunal as well as the CIT(A) that Assessing Officer could not have treated interest expense and the interest income differently arising from the same fund. When the Assessing Officer was satisfied with regard to the utilisation of the fund, he ought to have considered the interest income and interest expenses arising from the same fund at par. Assessing Officer could not have treated interest income as income from other sources on one hand and treated interest expenses as part of the project cost. Both the CIT(A) and Tribunal have rightly come to the conclusion that the interest income earned by the assessee is inextricably linked with the project as both interest expenses and interest income are arising from the same borrowed fund. Interest income on the fixed deposit placed with the Bank for issuance of bank guarantee - HELD THAT:- Reliance placed by the Assessing Officer on the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals [1997 (7) TMI 4 - SUPREME COURT] would not be tenable because in the said decision, the Supreme Court has held that if the idle fund of the assessee is invested for the purpose of earning interest income, such income would be treated as income from other sources. Considering the concurrent findings of fact arrived at by the CIT(A) and the Tribunal that the interest income earned by the assessee on the security deposit kept with GVISPL is directly and inextricably linked with the project, the project cost is to be reduced to that extent as the assessee has borrowed funds for placing such security deposit and interest expenses incurred for such borrowed funds are capitalised. Therefore, we are of the opinion that in the facts of the case, the question No.1 proposed by the Revenue cannot be termed as a substantial question of law. Disallowance on account of CENVAT credit - assessee in its audited financial statements has shown an unutilised CENVAT credit as on 03.02.2011 and claimed that such CENVAT credit pertains to the services received by the assessee and does not pertain to inventories as envisaged under the provision of Section 145A - HELD THAT:- Both CIT(A) and the Tribunal have arrived at findings of fact that the assessee was following the method of valuation consistently and there was no dissatisfaction of the Assessing Officer about the correctness of the books of accounts of the assessee and the assessee has been recording his transaction of purchase, sales and valuation of inventories net of CENVAT. Consequently, if the inventory of the closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchase is also required to be increased by the said amount, which would result into tax neutral exercise. In view of the above concurrent findings of fact arrived at by the CIT(A) and Tribunal, we are of the opinion that the addition made by the Assessing Officer on account of CENVAT credit is rightly deleted as the assessee has consistently followed the valuation method of net of CENVAT Credit and the addition of CENVAT Credit would also require adding of the CENVAT credit in the purchases, resulting into tax neutral exercise.
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