TMI Blog2017 (3) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a result of such expenditure. By the same reasoning if the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss of ₹ 11.30 crores. The AO completed the assessment under section 143 (3) of the Act, on 28/03/2013, determining its income at Rs.(-) 74.46 lakhs. 2. Effective ground of appeal is about deleting the addition made by the AO, amounting to ₹ 8.45 crores. During the course of assessment proceedings, the assessee filed a detailed working with regard to its pre-operative expenditure allocation. From the said working, the AO found that the assessee had included a sum of ₹ 2.65 crores on account of raw material for trial run. He directed the assessee to furnish further details and issued a show cause notice on 21/03/2013. After considering the same, the AO held that the assessee had earned a total income of ₹ 6.89 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a copy of plant commissioning certificate, dated 28/02/2010, pertaining to its PP plant, that for the purpose of the income tax proceedings it was irrelevant, that cost of the assets was to be determined as per the section 43 (6) of the Act, that assessee might have purchased raw material for production, that sales resulting from the said raw material could not be said to be have any relation to the cost to the assessee, that majority of the expenditure pertaining to trial run was purely related to earn non-commissioned plant and not to generate any sales. Finally the amount of income earned by the assessee of ₹ 8.45 crores (Rs. 6.89crores + ₹ 1.55 crores) had to be taxed in the hands of the assessee and the expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rightly reduced in the books of account from the cost of assets in accordance with the recognized method of accounting. Referring to the AS-10 the assessee relied upon the cases of Bokaro Steel Ltd. (236ITR315) and Bongaon Refinery and Petrochemicals Ltd.(251ITR329). Alternatively, it was argued that AO should be directed to allow the underlying expenditure from the receipts which had been taxed. After considering the submission of the assessee and the assessment order, the FAA held that income tax was leviable upon income/profits and gains, that it was not a tax on gross reciept. He directed the AO to allow the underlying expenditure from the receipts that has been taxed. 4. D uring the course of hearing before us, the Departmental R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the assessee had entered into supplementary agreements with its contractors under which the assessee had made certain advances to the contractors to enable them to execute the large scale construction work smoothly. The assessee-company had charged interest. This interest was later adjusted against the dues of the contractors. (iii) For the purpose of the construction work the assessee had given on hire certain plant and machinery to the contractors. Against the letting of plant and machinery, the assessee received from the contractors, income in the form of hire charges. (iv) The assesseecompany allowed the contractors to use the stones lying on the assessee's land for construction work. The stones lying on the assessee-company' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source.... In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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