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2015 (7) TMI 151 - ITAT DELHI

2015 (7) TMI 151 - ITAT DELHI - TMI - Interest on deposit with Indian Banks and others - CIT(A) deleted the addition - Held that:- On similar facts and circumstances the E Bench of the Tribunal in the assessee’s own case for the A.Y. 2008-09 [2015 (7) TMI 193 - ITAT DELHI] held that CIT(A) has rightly appreciated the facts of the case and has rightly arrived at the correct conclusion as the funds kept in bank deposits cannot be classified as surplus funds as project was under completion. The arg .....

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Sr.DR ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the Revenue against the order of the Ld.CIT(Appeals) -XVI, New Delhi dated 29.8.2013 pertaining to the A.Y. 2009-10. 2. Facts in brief:- The facts of the case are given in paras 3.3.1 to 3.3.3 of the order of the Ld.CIT(A), which are extracted for ready reference. The assessee is a Public Limited Company which was incorporated on 23.5.2003 as a joint venture company between NTPC Ltd. And Tamil Nadu Electricity Board .....

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pany had also raised Secured Loans of ₹ 605,61,00,000. The facts of the case are that the petitioner company had started construction of the power generating plant of the capacity to produce 1500 MW of electricity at Vallur, in the outskirts of Chennai, Tamilnadu, in the financial year 2003-04. The actual work of construction of the said power plant was started on 28-03-2007, which is now expected to be completed in the financial year 2912-13. The funds for the entire power plant had been .....

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ntire funds generated from time to time were utilized to meet the cost of infrastructure development work and also disbursement of advances to the contractors who were contracted for carrying out the specific jobs. The petitioner company had filed its Return of income on 16-09-2009, declaring its total income at Rs. NIL. However the amount of interest income of ₹ 33,18,899 received during the year on temporarily parking of its funds with the bank in STDR account for short durations was tre .....

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her perusal of the P&L account and schedule-11, it is seen that the assessee has earned a Misc. income of ₹ 96,02,551/-, which comprises of the following (i) Interest of ₹ 33,18,899/- on FDR with Indian Banks (ii) Interest of ₹ 62,19,455/- on deposits with others (iii) ₹ 64197/- on account of Misc. Receipts However, the assessee has not offered this income for tax, rather it has been set off against interest & finance charges under "Expenditure during Constru .....

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the period is taken as incidental expenditure during construction and getting capitalized along with the project cost." This argument of the assessee is not acceptable because the interest income earned on fixed deposit etc. is specifically taxable under the head "Income from other sources" u/s 56 of the I. T. Act. Reliance is placed on the decision of the Hon'ble supreme Court In the case of Tuticorin Alkali Chemical &Fertilizers Ltd. Vs CIT {1997} 227 ITR 172(SC). The as .....

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o pertinent to mention that the assessee had paid an advance tax of ₹ 1,08,152/- on 13.9.2008 and also of ₹ 3,27,692/- on 13.12.2008. It has also claimed credit for TDS of ₹ 22,56,682/- on interest. Since the assessee knew that it will not earn any income from business during the year and the only income would be interest income, then the payment of advance tax shows that it was fully aware that such interest income is liable to tax. 4. Aggrieved the assessee carried the matter .....

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377; 96,02,551/- including interest on deposit with Indian Banks and others. 2. The Ld. CIT (A) has erred in law and facts in not appreciating the provision laid down in Subsection 1 to section 5 of the Act wherein it has been clearly mentioned that the total income of any previous year of a person who is resident includes all income from whatever source derived. 3. The Ld. CIT (A) has erred in law and facts in not accepting the Assessing Officers plea that the income earned on fixed deposits et .....

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on of the income Tax Act, 1961. 6. The appellant craves to be allowed to add any fresh ground of appeal and/or delete or amend any of the ground of appeal. 6. We have heard Shri P.Dhamkanunja, Ld.Sr.D.R. on behalf of the Revenue and Shri Ajay Kumar Agarwal, C.A. the Ld.Counsel for the assessee. 7. The Ld.Sr.D.R. contended that the assessee has not demonstrated nexus between the earning of interest with the business of the assessee. He relied on the decision of the Hon ble Supreme Court in CIT vs .....

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ppeal of the Revenue. He relied on the submissions made by him before the First Appellate Authority. 9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, on perusal of material on record, orders of the authorities below, case laws cited, we hold as follows. 10. For the immediately preceding A.Y. 2008-09 the E Bench of the Tribunal in ITA 1520/Del/2013 order dt. 20th June, 2014 has held as follows. 4. We have heard rival parties and have gone through .....

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said power plant was located at Yellur at the outskirt of Chennai, Tamil Nadu. The construction of the power generating unit was started on 28-03-2007 which is expected to be completed by 2012-13. The total authorized capital of the company was ₹ 2000 crores. By end of financial year 31-03-2008 the assessee company had raised ₹ 380, 00,00, 0001-. These funds were essentially utilized during the initial period of construction from A. Y. 2004-05 to A. Y. 2008-09 for conducting survey, .....

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izers Ltd. (1997) 227 ITR 172. However, the whole emphasis of Apex Court decision in the Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) was that funds were found to be surplus. The company was ready to commence trial production and .the surplus funds were deposited in bank to earn interest. However, there is no finding of fact given by the assessing officer that there were surplus funds available with the assessee company. Even, in the remand report of the assessing officer there is n .....

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funds cannot be said to be at surplus. The purpose of bank deposits yielding interest was evidently to maintain liquidity of funds and to reduce the cost of construction of the power plant. Interest income was inextricably linked with the setting up of the power plant because interest income have gone on to reduce the incidental expenses for setting up of the plant as evident from schedule 12 of balance sheet showing details of incidental expenses during construction. Further, when amounts of li .....

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cted with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilization of various assets of the company and the payments received for such utilization are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with the setting up of the capital structure of the assessee - company. They must, therefore, be viewed as capital receipts going to reduce the cost of .....

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ng up of the plant and such interest earned cannot be treated as income from other sources. The Hon 'hie Delhi High Court, had also distinguished the facts before them from the facts which were before the apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v CIT. The distinction drawn by Delhi High Court, was that that there was a finding of fact recorded in the case before the apex court that whatever money was deposited in the bank was essentially found to be the surp .....

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o section 36 (1) (iii) of the Income Tax Act enacts that any amount of the interest paid towards ("in respect of) capital borrowed for acquisition of an asset or for extension of existing business regardless of its capitalization in the books or otherwise, "for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use" would not qualify as deduction. However, in -all these cases, when th .....

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ny and the interest earned were inextricably linked with the setting up of the power plant. 8.1.5 The above decisions are squarely applicable in the instant appeal. In view of the above, since the work of construction of the power plant has just started and funds were essentially utilized for conducting survey, investigation & preliminary expenses, for land purchase, for infrastructure development work and for disbursement as advance to the contractors engaged for construction of power plant .....

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