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TMI Blog2014 (3) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... its. 3. In this case AO noted that assessee is a company and is engaged in the business of real estate. AO further noted that the assessee has stated that it was in construction of Five Star Hotel. AO observed that assessee has earned interest income of Rs. 20,13,229/- on term deposits and the same was not declared as income in the profit and loss account. AO noted that the assessee has deducted the said amount from capital work in progress. On enquiry it was asked that why this amount was not treated income from other sources. Assessee responded that assessee was required to deposit the margin money with the bank for issuance of bank guarantee. That assessee had paid interest on term loan which was much more than the interest received on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank. Copy of sanction letter is enclosed for your ready reference. Assessee Company was required to give a bank guarantee to DDA. The same was arranged from the bank. Assessee was required to give certain margin in the shape of fixed deposits to bank against the bank guarantee. Assessee has huge interest payments on term loan taken from the bank. On the margin money provided to the bank certain interest accrued to the assessee and the same has been adjusted against the interest payments on term loan and the balance amount was capitalized in the books. The above procedure is in accordance with the lCAl guidelines and accounting standards issued time to time. However learned Assessing Officer did not accepted assessee's contention and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fixed deposit. It was commercial exigency that forced them to make a deposit. Deposit was made for keeping as margin money for Bank Guarantee in favor of DDA. It was a project requirement. AO has totally ignored the apex court judgment in the case of Bokaro Steel Limited. In this case it was held that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre- operative expenses. In a recent judgment in the case of ITO vs. Beam Estate (P) Limited (Delhi) 2012, 6 TaxCorp (DT) 49980 learned CIT(A) allowed the interest payments to be adjusted against interest income. On f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned from fixed deposits. It was kept in the bank and marked as lien for furnishing the bank guarantee. That it had an inextricable nexus with securing the contract and assessee has huge interest payments on term loan taken from the bank. That on the margin money provided to the bank certain interest accrued to the assessee and the same has been adjusted against the interest payments on term loan and the balance amount was capitalized 6. Considering the above facts, Ld. CIT(A) held that the addition made by the AO was liable to be deleted and appeal was allowed. 7. Against the above order the Revenue is in appeal before us. 8. We have heard both the counsel and perused the records. We find that in this case the assessee was allotted a pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be taxable under the head 'Income from Other Sources'. However, in the present case, we find that facts are different. Assessee has acquired loan from bank for construction of five start hotel. Assessee had to give bank guarantee to the DDA in this regard. For this purpose, fixed deposit was placed as margin in the bank. In these circumstances, we find that the decision of the Hon'ble Apex Court and other courts referred in the submission of the assessee's counsel as above before the Ld. CIT(A) are germane and support the case of the assessee. We agree with the Ld. CIT(A) that the present case is not one where the assessee has made the deposit of surplus funds lying idle with an intention to earn the interest. On the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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