TMI Blog2017 (8) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... any had made fixed deposits to procure capital goods for project as per terms of EPCG Scheme Interest on fixed deposits in providing bank Guarantee under EPCG scheme is in the nature of capital receipt and to be set off against project cost and Accordingly we direct the Assessing Officer to delete the addition and allow the ground of the assessee. - I.T.A. No. 1518/Mds/2016 - - - Dated:- 3-2-2017 - SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Shri R. Sivaraman, Advocate For The Respondent : Mr. Supriya Pal, JCIT ORDER PER G. PAVAN KUMAR, JUDICIAL MEMBER: The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has proposed to set up a coal gasification based Ammonia area complex in Odhisa and the project has to be executed over a period of 36 months on the allocated land. Further the work in progress is in the preliminary stages and yet to commence its commercial operations in the said financial year. The assessee company has earned interest of ₹ 1,14,45,691/- and since the assessee has not commenced Business interest income was set off against pre-operative expenses and also filed letter explaining that the assessee has made fixed deposits with Axis Bank to give Bank guarantees in connection with import of capital goods required for project, and the interest earned has intrinsic and insegregable nexus with the business of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of ₹ 1,14,45,691/-. 4. Aggrieved by the order, assessee filed an appeal before the CIT(A). In the appellate proceedings, the Ld. AR argued that the Assessing Officer has erred in treating interest on fixed deposit as income from other sources without appreciating that these fixed deposits are provided as Bank guarantees in connection with import of capital goods required for the project, further the Ld. AO erred in rejecting set off interest income against the pre-operative expenses. The Ld. CIT(A) considered the findings and assessee submissions and the judicial decisions and confirmed the action of the Assessing Officer and dismissed the appeal. 5. Aggrieved by the CIT(A) order, assessee filed before the Tribunal and Befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has not commenced its business and therefore same has to be treated as income from other sources. The Ld. AR drew attention to the financial statements, in respect of plant and machinery, capital work in progress and other assets, where addition made to the value of assets as on 01.04.2011. The fact that the assessee company made investments in the financial year being the first year and also claimed set off of interest. Further, the Ld. AR drew our attention to the letter addressed by the Bank for sanctioning the credit facilities and to prove that the assessee is in the initial stage of business though the actual commercial production was not commenced and the steps were taken by the assessee company to complete project as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of sale of tender documents, even at the pre-commencement stage is inextricably linked to the process of setting up of business and, it therefore, capital in nature. Similar was the view of the Delhi High Court in the case of Indian Drugs Pharmaceuticals (Supra), which view has been endorsed by the Supreme Court. 10. However, a reading of the order of the Tribunal would reveal that there can be no iota of doubt that the Tribunal failed to appreciate the finding of the Delhi High Court, in similar set of facts, which was ultimately endorsed by the Supreme Court that the receipts which are inextricably linked to the process of setting up of business could not be constructed in any other manner other than in the nature of capital rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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