TMI Blog2014 (3) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... n the contrary the amount of interest was earned from fixed deposit which was kept in the bank and marked as lien for furnishing the bank guarantees - Thus, it had an inextricable nexus with securing the contract - the assessee was justified in adjusting the interest earned from the interest payments on term loan and the balance of interest paid was capitalized in the books – thus, there is no infirmity in the order of the CIT(A) in directing that the addition made by the AO under the head 'income from other sources' was to be deleted – Decided against Revenue. - ITA No. 4431/Del/2012 - - - Dated:- 21-2-2014 - Shri Shamim Yahya And Shri C. M. Garg,JJ. For the Petitioner : Sh. Ved Jain, CA Smt. Rano Jain, CA and Sh. V. Mohan Chour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in its capital work in progress. That as far as interest earned on FDR is concerned, the same cannot be termed to be interest earned, on account of main business of the assessee company. AO further observed that FDR made by the assessee does not originate from the time of the sanction of the bank loan. He held that there is no direct nexus or proximity of relationship between the bank loan taken and the FDR made. Hence, he held that the income earned on FDR is revenue expenditure and is to be taxed as income from other sources. In this regard, AO placed reliance upon Hon'ble Apex Court decision in the case of Tuticorn Alkali Chemcials and Fertilizers Limited vs. CIT (1997) 93 Taxman 502 (SC). Hence, AO concluded that interest inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee received sum of Rs, 20,13,229/- as interest from same bank against the margin money deposited with them. Margin money was required for issuing of bank guarantee in favor of DDA who has given the land to the assessee. Margin money was paid out the term loan received by the assessee. There was circumstances that assessee had idle money to deposit in bank to earn interest when there is such a huge interest payout. Learned Assessing Officer misunderstood the facts and took the loan as business loan while it was taken for a project to establish a five star hotel. Learned Assessing Officer wrongly applied the ratio of judgment delivered by the Apex Court in the case of Tuticorn Alkali Chemicals Fertilizers limited Vs CIT (1997) 93 Taxman 502 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009) 25 DTR 100 principals laid down by Apex Court in the case of Bokaro Steel Ltd. were followed. (Copy of judgment is enclosed). Keeping in view the facts of our case and the various legal pronouncements n is clear that if the interest is earned during construction period on idle money it can be taxed as revenue income. However if the funds are part of project funds and can be inextricably connected to the setting of plant then interest earned on such funds should be reduced from the capital expenditure incurred during the year. Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd vs. [TO (2009) 020 DTR 0107 (DEL) had confirmed it. 5. Ld. CIT(A) accepted the above submissions of the assessee. He observed that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the bank guarantee to the DDA. For obtaining these from the bank, assessee was required to give certain margin in the shape of fixed deposits in the bank account against the bank guarantee. In these circumstances, assessee had to incur interest expenses on the loan taken from the bank. It was capitalized and the AO has accepted the same. The interest which was received on the fixed deposits was deducted from the capital work in progress of the assessee. This was not accepted by the AO. The AO was of the opinion that there was no nexus between the interest paid and interest received. He further placed reliance upon the Hon'ble Apex Court in the case of Tuticorn Alkali Chemicals Fertilizers Limited vs. CIT (1997) 93 Taxman 502 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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