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2019 (11) TMI 1653 - AT - Income TaxCapitalization of interest on FDRs earned during the period of construction - interest earned on funds temporarily parked in FDRs - capital receipts set off against the capital expenditure - HELD THAT:- The entire ECB loan was disbursed in a single trench in the year under consideration and till this year, the assessee could utilize only ₹ 33.70 crores and was considered in the capital WIP. The assessee has temporarily parked the ECB loan in FDRs till utilization for fixed asset/capital expenditure strictly in compliance with the RBI instruction. The assessee had paid interest amount of ₹ 13.38 crores and has earned interest on FDRs of ₹ 4.03 crores. The net amount of interest of ₹ 9.35 crores has been added to the preoperative expenditure pending capitalization, i.e. in capital WIP. There is no quarrel that the interest paid on ECB loan has been capitalized. As decided in FACOR POWER LTD. [2016 (1) TMI 461 - DELHI HIGH COURT] NTPC SAIL POWER COMPANY PVT. LTD. [2012 (10) TMI 524 - DELHI HIGH COURT] if the funds have been raised for the purpose of setting up of a plant or acquisition of capital asset then the funds have to be inextricably linked with the activities of the plant and if such funds have been put in FDRs, then interest received will be a capital receipt and cannot be taxed as income from other sources. Thus we hold that once the ECB loan which is to be utilized for capital expenditure only, then, any interest earned on funds temporarily parked in FDRs is inextricably linked with the setting up of hotel of the assessee, which is to be held as capital receipts only and is permitted to be set off against the capital expenditure. The decision of CIT (A) is in line with the judicial precedence and therefore, the impugned order of the ld. CIT (A) is upheld. Consequently, the appeal of the Revenue is dismissed.
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