TMI Blog2016 (3) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... MS. RANO JAIN, ACCOUNTANT MEMBER For The Appellant : S/Shri Deepak Chopra Piyush Singh For The Respondent : Shri S.K. Mittal, DR ORDER PER RANO JAIN, A.M. : This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals), Patiala dated 26.11.2014, relating to assessment year 2009-10. 2. Briefly, the facts of the case are that the assessee had earned interest income of ₹ 2,14,35,213/- out of FDRs with HDFC Bank and State Bank of Patiala (in short SBOP ). The Assessing Officer during the assessment proceedings noticed that the assessee had not commenced its business in this year. During the year, the assessee had also paid interest of ₹ 26,87,93,950/- to Punjab State Electricity Board (in short PSEB ) as interest on loan borrowed for acquisition of assets. Since the assessee had not commenced its business, therefore, all the expenses incurred during the year were capitalized as part of its capital work in progress. The assessee stated before the Assessing Officer that it has earned interest on short term deposit held with HDFC bank Ltd. and SBOP and the interest paid was on funds borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a different view has been taken. The cases are as under : i) CIT Vs. Bokaro Steels Ltd. (1999) 236 ITR 315 ii) CIT Vs. Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 iii) CIT Vs. Karnataka Power Corporation (2001) 247 ITR 268 iv) Bongaigaon Refinery Petrochemicals Ltd. Vs. CIT (2001) 251 ITR 329 It was stated that the Hon'ble Supreme Court held that the decision of Bokaro Steels Ltd. (supra) having been followed by the Hon'ble Supreme Court in two cases, namely CIT Vs. Karnal Cooperative Sugar Mills Ltd. (supra) and Karnataka Power Corporation (supra), it is not possible to take any view different from that taken in CIT Vs.. Bokaro Steels Ltd. (supra). The learned CIT (Appeals) forwarded the submissions of the assessee to the Assessing Officer and a report vide letter No.1283 dated 15.11.2014 was received by him from the Assessing Officer basically relying on the order of the Assessing Officer. 4. After considering the submission of assessee, Remand Report and analyzing all the judgments in detail, the learned CIT (Appeals) held that the bank guarantee against FDRs with HDFC bank are given to secure coal linkage i.e. for supply of coal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said evidences clearly establish the fact that the bank guarantees against FDRs with HDFC bank are given to secure coal linkage. Thus the guarantees are essential to ensure fuel linkage for the power project and that the interest borrowed funds temporary placed in fixed deposits are inextricably connected with the construction or project activity. Referring to the Rule 29 of the Income Tax Appellate Tribunal Rules, it was stated that the Tribunal would be obliged to exercise its discretionary powers for calling additional evidence and has inherent power to require any document to be produced or any witness to be examined for pronouncing its judgment or for any substantial cause while adjudicating the issues before it. Reliance was placed on a number of judgments and particularly, the judgment of Hon'ble Punjab Haryana High Court in the case of CIT Vs. Mukta Metal Works (2012) 20 TAxmann.com 774 (P H) and that of Delhi High Court in the case of CIT Vs. Text Hundred India (P) Ltd. (2011) 197 Taxman 128 (Delhi). 8. The learned D.R. vehemently objected to the admission of additional evidences. He stated that in Rule 29, it has been very clearly stated that the assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd. s case is that if funds have been borrowed for setting up of a plant and if the funds are surplus and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head income from other sources . On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd. s case to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise inextricably linked to the setting up of the plant, such income is required to be capitalized to be set off against preoperative expenses. 5.1 The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the chargin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals Fertilisers Ltd. it was found by the authorities that the funds available with the assessee in that case were surplus and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as income from other sources . On the other hand in Bokaro Steel Ltd. So case where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be inextricably linked to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses. 11. In the above circumstances, Delhi High Court has cleared the situation that even relying on the decision in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), Bokaro Steels Ltd. (supra) and other judgments of the Apex Court, the situation remains the same that the funds are to be shown by the assessee to be inextricably linked with the setting up of the plant in order to get the said benefit. 12. In the present case though the assessee has stated the circumstances under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal feels that it is necessary to enable it to pass orders; or (b) for any substantial cause; or (c) where the income-tax authorities did not provide sufficient opportunity to the assessee to adduce evidence. 15. In the present case, we see that in order to bring out the fact on record whether the funds are inextricably linked to the setting up of plant or not. These evidences which are filed before us under Rule 29 are very important. The fact remains that the assessee has not taken any new plea and the same has been taken all along before the lower authorities. We find that there is a substantial cause for admitting these evidences and we hereby admit these evidences and send the matter back to the file of the Assessing Officer to consider the same and decide the issue as per law. If it is found that the funds were deployed for some reason which is inextricably linked with the setting up of the plant and not for running the plant, then relief be given to the assessee, otherwise, the stand taken by the Assessing Officer in first round may be confirmed. 16. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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