TMI Blog2014 (5) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... ing DE Beers India Prospecting (P) Ltd. Versus ITO [2011 (12) TMI 409 - ITAT, Mumbai] - the assessee has commenced its business and is eligible for claim of deduction u/s 37(1) on expenditure of non-prospecting activities and depreciation - the assessee is eligible for set off of the interest income - Most of the issues arose as deductions are being claimed on non-operational incomes also - the assessee is expected to place on record the purpose of the deposit, utilization of funds and most important fact is also to be brought on record about the nexus of interest earned and interest paid - the matter should be remitted back to the AO so that the procurement of funds, its utilization and the source of deposit has to be examined afresh by the AO and the nexus can be established in respect of the interest earned and interest paid – Decided in favour of Assessee. - ITA No. 804/Ahd/2010 - - - Dated:- 25-4-2014 - Shri Mukul Kr. Shrawat And Shri N. S. Saini,JJ. For the Petitioner : Shri O. P. Batheja, Sr. D. R. For the Respondent : Shri S.N. Soparkar with Urvashi Shodhan, AR ORDER Per Shri Mukul Kumar Shrawat, Judicial Member This is an appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g pre-operative business expenditure. The AO has also opined that the interest earned was to be assessed as income from other sources . The AO has cited Tuticorin Alkalis Chemicals and Fertilizers, 227 ITR 172. The reply of the assessee before AO was as under: The company framed for the purpose of carrying out the business of development and operation of infrastructure facilities in India. Since the project of Special Economic Zone had not commenced during the year so all the capital expenditure incurred during the year was transferred to capital work-in-progress. Interest income of rS.22,0,821/- is total interest linked to the setting up of the project and starting the business and hence it is capital receipt which will go in reducing the cost of assets. The receipt is therefore a capital receipt and cannot be taxed as income. The case referred by your goodself i.e. Tuticorin Alkali Chemicals Fertilizers Ltd, Vs. CIT (227 ITR, 172) wherein it has been held that the interest earned by the assessee on investment of share capital in all deposits even before production commenced could be assessed separately under the head income from other sources . The funds were borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head other sources but on the other hand interest expenditure pertained to the formative years; hence, required to be amortized. Against the said view of the learned CIT(A) now the assessee is further in appeal. 4. In the light of the above facts, we have heard both the sides. Learned AR, Mr. S.N. Soparkar and Urvashi Shodhan have placed reliance on Sardar Sarovar Narmada Nigam Ltd., 263 CTR 591 (Guj.) for the legal proposition that a company can be said to have set up its business from the date when one of the categories of its business was started; hence, Revenue expenditure on such date was held as allowable expenditure. He has placed reliance on the decision of Hon ble Apex Court in the case of Karnal Co-operative Sugar Mills, 243 ITR 2 (SC), for the legal proposition that the interest on money deposited to open LC for purchase of machinery required for set up a plant and income earned on such deposit being incidental to acquisition of assets is to be capitalized and must not be assessed as income from other sources. On the other hand, from the side of the Revenue, learned Sr.D.R. Mr. O.P. Batheja has placed reliance on the decision of Hon ble Rajasthan High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aha Mumbai SEZ was in full swing. The requisite approval was also obtained from the government. After obtaining the approval from the Ministry of Commerce, Government of India, immediately thereafter the project was launched on 9th August, 2003. Because of these facts, we hereby hold following the decision of Styler India Pvt. Ltd. (supra), wherein this issue of setting up of business had been discussed at length that the assessee s business was set up and the expenses were incurred to propagate the business of the assessee. It is worth to mention that in one of the case ITAT J Bench Mumbai pronounced in the case of De Beers India Prospecting Pvt. Ltd., being ITA Nos.40/Mum/2006, 6560, 6561 6562/Mum/2007, order dated 16.12.2011 has held as under: The reason for disallowance of the expenditure and permitting it to be capitalized by AO is on the opinion that the assessee has not commenced its business activities. Commencement of the business activities has various facts. As permitted by the Department of Industrial policy and promotion, the assessee is permitted to undertake prospecting and mining activities for diamonds originally and subsequently prospecting for other min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pporting their respective stands, we are of the opinion that this issue has become academic in nature as the incomes of interest whether assessed under the head business' or 'income from other sources', the same is eligible for set off to the other expenditure being claimed under the head 'business'. Consequent to our finding that the assessee has commenced its business and is eligible for claim of deduction under section 37(1) on expenditure of non-prospecting activities and depreciation thereon, the assessee is eligible for set off of the interest income. Since the issue becomes academic in nature, we do not intend to go into the aspect whether income is to be assessed as business income or other sources. There is various case law on the issue, holding if the capital funds are kept in deposits then the income is to be assessed as income from other sources and if the working capital funds are kept then to be treated as business income but, most of the case law was given on respective facts. Most of the issues arose as deductions are being claimed on non-operational incomes also. In that context various decisions were rendered depending on facts and applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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