TMI Blog2014 (8) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... f funds does not determine the allowability of the claim made u/s 57(iii) of the Act. The decisions relied upon by the Ld Counsel in this regard should be examined by the AO in the remand proceedings. AO shall grant a reasonable opportunity of being heard to the assessee. Accordingly, grounds raised by the assessee are allowed for statistical purposes. Interest earned on advances paid during pre-commencement period - Held that:- In the case of Tuticorin Alkali Chemicals and Fertilizers Ltd vs. CIT [1997 (7) TMI 4 - SUPREME Court] which is relevant for the proposition that interest earned on surplus funds would need to be treated ‘income from other sources’ and accordingly interest earned on advances paid during pre-commencement period found to be linked to setting up of the plant of the assessee would need to be treated as capital receipt”. Considering the settled position of the issue at the level of the Apex Court, we are of the opinion that the decision taken by the CIT (A) while allowing the assessee’s appeal is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed. - I.T.A. No. 1043/M/2013, I.T.A. No. 512/M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e therefore, the netting is required in view of the nexus between the interest income and interest expenditure. It is an undisputed fact that the assessee offered the interest income u/s 57 of the Act. On perusal of the said submissions of the assessee, CIT (A) analyzed the facts of the case and held as follows. 4.3 .The dispute is regarding whether any interest expense arising to the appellant regarding such borrowed funds would be allowed as deduction to the appellant or not. The appellant has worked out the interest expense on the funds deposited as fixed deposit with the HDFC Bank holding that the average borrowing cost would amount to ₹ 7.81%. However, it is seen that only a proportionate interest cost has been worked out by the appellant without giving any supporting documents to establish as to how a rate of 7.81% has been incorporated/considered by it. It is seen that a general statement has been made and a average proportionate borrowing cost worked out by taking into consideration the opening loan account, closing loan account in the year along with the interest cost. The interest cost, it is seen, was on the total amount of borrowings of the appellant. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 8. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties, we are of the opinion that the issue of source of funds was deliberated by the AO/CIT (A), which is now made clear by the Ld Counsel before us. All the papers are found in the form of paper book. We find that there is a direct nexus of funds of the borrowed capital with the Fixed Deposits in question partly. The interest paid on a loan taken to avoid premature encashment of the Fixed Deposit is deductible against the interest earned on the Fixed Deposit as held by the ITAT, Agra Bench in the case of Raj Kumari Agarwal vs. DCIT vide ITA No.176/Agra/2013 (AY 2008-2009), dated 18.7.2014 . Having decided on the issue of nexus of funds and the allowability of the interest expenses against the interest income, the remaining issue is about the interest rate of 7.81% applied by the AO in determining the interest expenses. In our opinion, this requires revisit of the issue to the file of the AO. Assessee must demonstrate before the AO the exact account of interest expenses relatable to the interest income in question. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 1,13,41,850/-. During the assessment proceedings, AO noticed that interest income received by the assessee from Paschim Gujarat Vij Co. Ltd (PGVCL) on the security deposit of ₹ 14.788 Crs, which is placed with the assessee, was not offered by the assessee for taxation as it was capitalized. In this regard, AO asked the assessee to substantiate its action. Not satisfied with the explanation of the assessee, AO made an addition of ₹ 94,75,453/- under the head income from other sources by holding that the assessee had not started the business activity as yet and therefore, any income earned before the commencement of business activity has to be treated as income from other sources and relied on various decisions in support of his decision. Aggrieved, assessee carried the matter in appeal before the first appellate authority. 13. During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) allowed the appeal. Para 3.4 to 3.7 of the impugned order are relevant in this regard. Aggrieved with the decision of the CIT (A), Revenue filed the present appeal by raising the above mentioned grounds. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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