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TMI Blog2014 (5) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... setup its business and had not commenced operations and Ld. CIT (Appeal) has further erred in upholding the said finding of Ld. A.O. by wrongly applying the Hon. Supreme Court's decision in case of Tuticoin Alkalis Chemicals & ferti. Ltd. Vs CIT, 227 ITR Page 172. (ii) Your Appellant further respectfully submits that the Id. A.O. erred in taxing the interest receipt on staff loans and deposits for letters of credit (LC) Bank Guarantee margin, amounting to Rs. 22,00,821/- as income from other sources and Ld. CIT (A) further erred in sustaining the said addition. (iii) Without prejudice to the above, your Appellant further submits that Ld. CIT(A) has further erred in sustaining this addition / disallowance on the ground that the expenditure is not inextricably linked to earning of said interest. Alternatively, Your Appellant further submits, if the said interest income is held to be taxable, the Ld. A.O. may be directed to allow deduction of expenditure incurred in relation to interest and Bank Charges on L C & B G under section 57 (iii) of the Act. (iv) Your Appellant further submits that both the lower authorities have further erred in levying interest u/s.234B, 234D & 244A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills, 243 ITR 2. For the legal proposition that interest received on LC for procurement of assets is a capital receipt and directly connected and incidental to the cost of the assets. The claim of the assessee was that the margin money was kept with the bank and thereupon interest was earned. The AO has concluded that the assessee had not commenced its business. The interest income earned by the assessee from the fixed deposits with the bank was held as "income from other sources". The AO has also held that the interest expenditure as claimed by the assessee was not to be allowed being capital expenditure. In support of the said decision, the AO has also cited few case laws; need not to reproduce keeping brevity in mind. Being aggrieved the matter was carried before the First Appellate Authority. 3. Learned CIT(A) was not convinced on all the issues. He has held that there was no business activity commenced and the assessee was in the process of setting up the business. The next conclusion of the learned CIT(A) was that the interest earned pertained to pre-commencement period. According to him, the business of the assessee was in preoperative stage. On this legal point, he has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on loan. 5. We have heard both the sides at some length. As far as the question of setting up of the business is concerned, we may like to mention at the outset that in a decision pronounced by Respected Third Member ITAT Pune Bench in the case of Styler India Pvt. Ltd., 113 ITD 55 (Pune) wherein (JM is the party). It was pronounced that the assesseecompany being incorporated for rendering advisory and consultancy services in the field of automobiles and having a place of business and employed qualified people to render advice and having contacted various clients who entered into agreement with the assessee then it could be held that the assessee had set up its business. However, it was also held that the expenditure on building was capital in nature, therefore, not allowable. In the present case, facts of the case have revealed that the assessee-company was constituted to develop and operate infrastructure facilities in India towards development of Special Economic Zones at Positra, in the State of Gujarat. The assessee had obtained an approval from the Gujarat State and Union Government. The assessee has commenced the process of land acquisition from private parties. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allowed the expenditure under section 37(1). In view of the principles decided in above cases, we are of the opinion that the assessee's activities of prospecting which is a permitted activity by the FIPB in which the assessee has considerable expertise and further, considering that various permissions granted by the Govt. of Andhra Pradesh was only for reconnaissance with reference to exploration of diamonds, it can be concluded that the assessee has commenced its business from the time it started the prospecting activity. It is also seen from the permissions granted by the FIPB that in some cases the assessee was permitted to undertake for prospecting only for other minerals (except coal and iron ore). Therefore, prospecting activity itself is to be considered as assessee's business activity. There is no dispute with reference to the expenditure being spent on prospecting activities in the year under consideration. Accordingly, it is held that the assessee has commenced its business activities." 5.1 Considering the totality of the facts and circumstances of the case and the details of the "Project Development Expenditure" as annexed to the balance sheet of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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