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2017 (3) TMI 1038 - AT - Income TaxInterest income from securities - amount deposited with Paschim Gujarat Vij Co.Ltd for availing electricity for the purposes of construction of power plant - whether treated as revenue in nature chargeable to tax under the head income from other sources? - Held that:- The assessee is engaged in the business of special purpose vehicle and during the assessee was engaged in the construction of electricity plant at Mundra, Gujarat and he security deposit was given purely to avail the electricity for the purpose of construction of plant which by no stretch of imagination would be treated as revenue in nature as the sole purpose behind the advancing security was to avail electricity for the construction purpose and therefore inextricably linked with the construction of the plant. We also find that the similar issue arose in the assessment year 2009-10 and the FAA decided the issue in favour of the assessee and the appeal filed by the revenue before the ITAT was also dismissed by the Tribunal. In the case of Bokaro Steel Ltd (1998 (12) TMI 4 - SUPREME Court) held that the interest from advances paid to contractor by the assessee for the purpose of facilitating the work of construction is incidental to the work of construction of plant undertaken by the assessee and receipt accruing from the said advances was held to be capital receipt and not income of the assessee from other independent sources. The deposit has been given by the assessee in order to avail electricity so that the construction of the project is facilitated. In our opinion, the assessee has advanced money which is connected to construction of plant and therefore, we are not in agreement with the conclusion drawn by the ld.CIT(A). Therefore, respectfully following the ratio laid down above we set aside the order of the ld. CIT(A) and direct the AO to treat the interest as capital receipt by deleting the disallowance. - Decided in favour of assessee. Disallowance of interest expenditure on the borrowings claimed as deduction against the interest income from the fixed deposits - Held that:- As decided in assessee's own case for AY:2009-2010 we find that there is a direct nexus of funds of the borrowed capital with the Fixed Deposits in question partly. The interest paid on a loan taken to avoid premature encashment of the Fixed Deposit is deductible against the interest earned on the Fixed Deposit as held in the case of Raj Kumari Agarwal vs. DCIT [2014 (7) TMI 867 - ITAT AGRA]. Having decided on the issue of nexus of funds and the allowability of the interest expenses against the interest income, the remaining issue is about the interest rate of 7.81% applied by the AO in determining the interest expenses. In our opinion, this requires revisit of the issue to the file of the AO. Assessee must demonstrate before the AO the exact account of interest expenses relatable to the interest income in question. If necessary, AO shall admit the letters from the bank, if any, in the interest of justice.
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