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2017 (3) TMI 884 - AT - Income TaxIncome generated on sale of goods generated on trial run - AO held that same had to be treated as income earned by the assessee - as argued that AO should be directed to allow the underlying expenditure from the receipts which had been taxed - Held that:- As decided in Bokaro Steel Ltd.[1998 (12) TMI 4 - SUPREME Court] the advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income. We find that while deciding the appeal, the FAA has directed the assessee to allow the expenditure from the taxable receipts. Thus, he has followed the very basic principle of taxation jurisprudence and that principle stipulates that all the expenditure incurred by the assessee have to be compulsorily allowed from the income taxed by the AO. If the AO wants to tax a particular income, he cannot disallow the expenditure incurred by the assessee to earn the said income. Considering the above,we are of the opinion that the order of FAA does not suffer from any legal or factual infirmity. Therefore, confirming the same we decide the effective Ground of appeal against the AO.
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