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2016 (3) TMI 49

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..... cted against the order dated 29.08.2013 of ld. CIT(A)-XVI, Delhi for the assessment year 2010-11 on the following grounds : 1. The Ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 1,75,74,129/- including interest on deposits with Indian Banks and others. 2. The Ld. CIT(A) erred in law and on facts in not appreciating the provision laid down in Sub section 1 to section 5 of the Act wherein it has been dearly 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) erred in law and on facts in not accepting the Assessing Officer s plea from other sources u/s. 56 of the Income Tax Act, 1961; 4. The Ld. CIT(A) erred in law and on facts in not considering the fact that interest earned on fixed deposits is ultimately an income and also failed to mention any provision of the Act under which such income is exempt. 5. The Ld. CIT(A) erred in law and on facts in holding that the interest on surplus amount is not taxable though the surplus amount is nowhere mentioned under the provisions of the Income Tax Act 1961. 2. The brief facts of the cas .....

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..... g the capitalization of interest. 4. The ld. AR, on the other hand, contended that the action of the AO was not justified. The assessee had advanced money to his contractors for smooth working, which was interest bearing out of debt funds for setting up of plant. He placed reliance on the judgments submitted before the Assessing Officer. He strongly opposed the arguments of the ld. DR and stated that the AO was not justified to assess the interest income in lieu of capitalization of interest earned and he further stated that the ld. CIT(A) has rightly deleted the addition. 5. We have heard the submissions of both the parties, perused the materials available on record, case laws cited by ld. Counsel for assessee, assessment order and the order of the ld. CIT(A). We find that the ld. CIT(A) has elaborately discussed the issue and gave his finding vide para No. 4.1 to 4.9 at page No. 8 to 13 of the impugned order. For the sake of convenience, the relevant finding of the ld. CIT(A) is reproduced below : 4.1 I have carefully considered the facts of the case, the findings of the AO as well as the submissions of the A/R of the appellant. Both the Grounds of appeal are directed a .....

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..... pect of unit - I w.e.f. 29/11/2012, unit - II w.e.f. 25/08/13 and unit 3 is yet to be commissioned. By end of financial year 31-03-2010 the assessee company had raised share holders fund of ₹ 905.5 crores and had borrowed funds in the form of secured loan of ₹ 1808.27 crores. These funds were essentially utilized during the initial period of construction from A.Y. 2004-05 to A.Y. 2010-11 for conducting survey, investigation preliminary expenses, for purchasing land, for infrastructure development work and for disbursement as advance to the contractors engaged for construction of power plant etc. 4.4 Further, there is no finding given by the AO that advances were made by the appellant out of surplus fund. From the balance sheet it is observed that as against the above funds of ₹ 2713.77 crores (without considering amounts due to sundry creditors), sums aggregating to ₹ 2998.02 crores were used for acquiring / construction of fixed assets. Against the liabilities and provisions aggregating to ₹ 293.45 crores, bank and cash balances was ₹ 4.74 crores only. Further, the debit balance of Profit and Loss Account as appearing in the Balance Shee .....

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..... ies granted to the staff by the assessee. Secondly, hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and thirdly, interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts are directly connected with or are incidental to the work of construction of its plant undertaken by the assessee. Broadly speaking, these pertain to the arrangements made by the assessee with its contractors pertaining to the work of construction. To facilitate the work of the contractor, the assessee permitted the contractor to use the premises of the assessee for housing its staff and workers engaged in the construction activity of the assessee's plant. This was clearly to facilitate the work of construction. Had this facility not been provided by the assessee, the contractors would have had to make their own arrangements and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee has provided these facilities. The same is tru .....

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..... om 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 surplus funds in the hands of that company and the very purpose of making fixed deposits was to earn interest on such surplus money. Apex court under those peculiar circumstances, had held in Tuticorin Alkali Chemicals that interest income arising on surplus funds, was chargeable to tax as income from other sources. 4.7 In identical issue in the case of NTPC Sail Power Company (P) Ltd. vs. CIT in ITA No. 1238, Hon'ble Delhi High Court in its decision on 17/07/2012 held that:- It is no doubt correct that the proviso to 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 acqu .....

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