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TMI Blog2017 (10) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as capital receipt, hence, not taxable. 3. Brief facts are, the assessee a domestic company is a wholly owned subsidiary of Kiran Energy Solar Power Pvt. Ltd. The assessee which was incorporated on 19th March 2011, dedicated to building a portfolio of grid connected Solar Photo Voltaic Power Plant within high Isolation Zones at Phaladi, Rajasthan. In furtherance of it objects, the assessee was in the process of implementing 20 MW Solar Power Project under Jawahar Nehri National Solar Mission, Phase-I, Batch-II. In the course of assessment proceedings, for the impugned assessment year, the Assessing Officer while verifying the details of expenditure shown in capital work-in-progress as per the audited financial statement found that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was incorporated to set-up a power plant. He submitted, such power plant has to be set-up under the auspices of NTPC Vidyut Vyapar Nigam Ltd. (NVVN) which is a Nodal Agency for Solar Power Project. He submitted, as per the terms and conditions of the bid document net worth of the company interested in setting up the power plant should be equal to or more than the value calculated at Rs. 3 crore or equivalent U.S. dollar per MW of the project capacity up to 20 MW. For every MW additional capacity beyond 20 MW, additional net worth of Rs. 2 crore would need to be demonstrated. He submitted, as per the terms and conditions, for a newly incorporated company, where the annual accounts have not been prepared, the net worth criteria shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant, the interest earned on fixed deposit is inextricably linked to Solar Power Project and, therefore, is a capital receipt, hence, is to be reduced from the capital work-in-progress. 6. Learned Sr. Counsel submitted, the ratio laid down in case of Tuticorin Alkali Chemicals and Fertilisers Ltd. (supra) is not applicable to the facts of the case since, in that case, surplus funds available with the assessee out of borrowed funds was invested in fixed deposit in the pre-construction period. He submitted, in the facts of the assessee's case, the fund which was invested in fixed deposit was inextricably linked to setting-up of the power project. Therefore, the interest earned on such deposit is a capital receipt, hence, has to be reduced f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on 25th January 2012. As per the terms and conditions stipulated in the bid one of the financial criteria in Request For Selection (RFS) document requires a newly incorporated company to have the required net worth connected to the capacity of the power project. Thus, as per the pre-condition, the assessee was required to have the net worth of Rs. 60 crore. Since, the assessee was not having the required net worth it had to infuse fund for enabiling itself to meet the qualification criteria and for this purpose, assessee's parent company KESPPL stepped in and invested fund in acquiring 98,500 equity shares and 1,00,000 compulsorily convertible preference shares of the assessee company, thereby, enabling the assessee to have the requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Department held that the interest earned from fixed deposit on investment of surplus fund during the pre-construction period is assessable as income from other sources. However, the Hon'ble Supreme Court in case of Bokaro Steels Ltd. (supra) took note of the decision in Tuticorin Alkali Chemicals and Fertilisers Ltd. (supra) referred to by the Departmental Authorities. Further, the Hon'ble Supreme Court took note of the decision of the Hon'ble Supreme Court in Challapalli Sugars Ltd. v/s CIT, [1995] 98 ITR 167 (SC) wherein it was held that accepted accountancy rule for determining cost of fixed deposit is to include all expenditure necessary to bring such assets into existence and to pay them in working condition. In case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other sources. The learned Commissioner (Appeals) having found that interest earned was inextricably linked with the setting-up of the power plant allowed the claim of the assessee following the decisions of the Hon'ble Supreme Court in Bokaro Steels Ltd. (supra). However, while deciding Department's appeal, the Tribunal followed the decision in Tuticorin Alkali Chemicals and Fertilisers Ltd. (supra) and reversed the order of the learned Commissioner (Appeals). When the matter came up before the High Court, the High Court following the decision of the Hon'ble Supreme Court in Bokaro Steels Ltd. (supra) held that, since, the interest income was inextricably linked to the set-up of power project, it will be a capital receipt and w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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