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2015 (6) TMI 632 - ITAT DELHI

2015 (6) TMI 632 - ITAT DELHI - TMI - Treatment to the interest received on account of bank deposit - capital receipt or income from other sources - Held that:- In the present case, the funds were not surplus funds as the fixed deposits which were made from October onwards were redeemed till April 2009 and funds were utilized for contract payments for the project. During proceedings before Ld. CIT(A), the assessee had filed copy of contract awarded during July 2008 to June 2009 and it had demons .....

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CIT(A) has made a clear finding with respect to linkage of funds treating the interest income received on account of bank deposit as capital receipt. Therefore, in view of above, we do not find any infirmity in the order of Ld. CIT(A) and the same is upheld. - Decided against revenue. - I.T.A. No. 4300/Del/2012 - Dated:- 10-6-2015 - SMT. DIVA SINGH AND SHRI T.S. KAPOOR,JJ. For the Petitioner : Smt. Parwinder Kaur, Sr. DR For the Respondent : Shri K Sampath, Adv. ORDER PER T.S. KAPOOR, AM: This i .....

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td. 2. The Learned CIT(A) has erred on facts and circumstances of the case and in law in allowing to adjust interest income against preoperative expenses, however assessee had no compulsion for making fixed deposit with the bank rather it was surplus money kept with the bank to earn interest. 3. The brief facts as noted in the assessment order are that the assessee company was incorporated on 24.08.2005 to carry on in India or elsewhere the business to generate, receive, produce, improve, buy, s .....

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s income from other sources. On further perusal of details, the A.O. observed that the assessee had reduced such interest from capital w.i.p., therefore, the assessee was asked to provide an explanation as to why interest income of ₹ 70,75,813/- be not treated as income from other sources. In response, the assessee company submitted that the assessee had earned interest income from FDRs which were placed with bank as margin money for procurement of various capital goods required for settin .....

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it issued for credits for import of capital goods and bank guarantee. The A.O. held that in the present case, no such compulsion was there. As regards the argument of assessee that the funds were kept for procurement of various capital goods, the A.O. held that contention of assessee far away from the fact and he rejected this contention by holding as under: The assessee has claimed that the FDs with banks were kept as Margin for procurement of various capital goods for setting up the project. T .....

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20 Lakhs. Similarly, in the list of Capital-Work-In-Progress, there is no such capital asset as has been acquired by the assessee during the year. On the other hand, it is seen that the assessee has given an advance of ₹ 11.29 Crores against Capital Contracts. The case of the assessee is not such that the assessee had no funds in its hands but it was necessary for it to procure capital goods by keeping its FDs as Margin against procurement of such capital goods, Here in this case, the ass .....

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CIT 227 ITR 172, made the addition of R.70,75,843/- as income from other sources. Aggrieved, the assessee filed appeal before Ld. CIT(A) and made various submissions. The assessee before Ld. CIT(A) also tried to distinguish the facts of the case of Tuticorin with that of itself and these submissions are noted in Ld. CIT(A) s order at para 7.2. It was also submitted that the expenditure including capital advances were used from share application money which were temporarily put in Fixed Deposits .....

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holding as under: I have considered the submission of the appellant and observation of the ASSESSING OFFICER. It is seen that appellant company was in the process of setting up a power project in Orissa. For that appellant had acquired land in F.Y. 2007-08 and spent ₹ 68.62 lacs on purchase of land etc. During the F.Y. 2008- 09, appellant company has taken money from share holders as additional share capital in October 2008 for the purpose of acquiring capital assets for setting of the pow .....

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t further gave contract to M/s Paharpur Cooling Towers for ₹ 1017 lacs and paid advance of ₹ 10 lacs. These facts established that amount raised as additional share capital from share holders and put in the FDRs was inextricably linked with acquisition of plant and machinery by the appellant company. The additional share capital raised was for purpose of acquiring capital assets which was temporarily put in the Fixed Deposits. The appellant had spent substantial money in acquisition .....

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s required to be set off against the preoperative expenses. In this regard reliance is placed on the decision of Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. vs ITO [2009/315 ITR 0255 (DEL)INCOME OR CAPITAL-INTEREST-INTEREST EARNED PRIOR TO COMMENCEMENT OF BUSINESS ON FUNDS BROUGHT IN BY WAY OF SHARE CAPITAL FOR SPECIFIC PURPOSE-IS CAPITAL RECEIPT-LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES-INCOME-TAX ACT, 1961. The assessee-company was incorporate .....

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d run into legal entanglements on account of title as "Income from other sources". The Commissioner (Appeals) accepted the stand of the assessee that the interest was in the nature of a capital receipt which was liable to be set off against pre-operative expenses. The Tribunal reversed this order. On appeal : Held, allowing the appeals that the funds in the form of share capital were infused for the specific purpose of acquiring land and the development of infrastructure. Therefore the .....

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e, the same are not applicable to the case of the appellant. The additional share capital raised by the appellant was linked with acquisition of capital assets, therefore, interest received from such capital is capital receipt and same can be adjusted against preoperative expenses. Therefore, the addition made by the ASSESSING OFFICER of ₹ 70,75,843/- treating the interest income as "income from other sources" is deleted. 5. Aggrieved, the Revenue is in appeal before us. 6. At th .....

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Ld. CIT(A) has noted down the difference between the facts in assessee s case and that of the facts in Tuticorin and argued that in the case of Tuticorin, the assessee had borrowed funds whereas in the case of assessee, the assessee had raised funds by way of share capital. Moreover, he argued that funds were not surplus funds as the cost of project was more than ₹ 500 crores and during the year only ₹ 24 crores were received and these were placed temporarily in the form of bank dep .....

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t case, the assessee had raised funds through share capital and in that case, the question decided was as to whether the investment of borrowed funds prior to commencement of business result in earning of interest by the assessee and Hon'ble Supreme Court in that as case has held that if a person borrows money for business purposes but utilizes the money to earn interest, the interest so generated will be his income from other sources. In the present case, the funds placed in bank deposits w .....

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