TMI Blog2017 (12) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. Briefly the facts of the case, as taken from AY 2012-13, are that the assessee, is a company, yet to start commercial operations, filed its return of income for the AY 2012-13 on 28/09/2012 admitting therein loss of ₹ 3,71,359/-. The said return was selected for scrutiny under CASS category, therefore, a notice u/s 143(2) was issued on 07/08/2013. In response to the said notice, the AR of the assessee appeared and furnished the information called for. After considering the information furnished, the AO determined the income of the assessee as under: 2.1 The assessee company M/s Elgen (India) Ltd., was established for the purpose of power generation. It has taken up a 700MW (350 x 2) gas based power project in Karimnagar. It received huge amount of share capital nearly 50 crores including share premium. Most of the share capital was contributed by the friends and relatives who are NRIs. Since the assessee could not get approvals from various govt. departments during the year under consideration, the funds received in the form of share capital and share premium was kept in fixed deposits in the bank. During the year under consideration, the assessee earned an amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial capacity, financial soundness and readiness to undertake the project, etc. Assessee s further arguments and case law relied upon were extracted by the CIT(A) in his order at pages 4 to 19. 5. The CIT(A), after considering the submissions of the assessee, examined the issue elaborately in light of various case law including the case law relied upon by the assessee, observed that in the instant case there could be no doubt that the expenditure incurred by the assessee can by no stretch be said to have been incurred with the object or for the purpose or earning the interest income. Further, he observed that it could not be said that the expenditure incurred was to preserve the asset or could it be said that the expenses were incurred for the purpose of maintenance of the source. He also observed that the interest income was derived from the fixed deposits and accounts etc., the assessee could not be said to have carried on any business to bring the interest income within the meaning of section 28 of the Act and, therefore, the interest income was liable to be assessed only under the income from other sources . In view of the above observations, the CIT(A) held that the AO wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the cost of assets, after the set off of interest income against capitalized cost of various indirect expenses will be lower, thus, leading to a lower claim of depreciation by the company over the life of assets. 8. Ld. DR, on the other hand relied on the orders of revenue authorities and also relied on the decision of the Hon ble Supreme Court in the case of Bongaigaon Refinery Petrochemical Ltd., [2001] 251 ITR 329 (SC) wherein the Apex Court held that income derived from house property, guest house, charges for equipment and recoveries from the contractors on account of water and electricity supply during the formation period of the business is not chargeable to tax but had to be adjusted against the project cost; interest income is however taxable . 9. Considered the rival submissions and perused the material facts on record. The assessee has brought share capital for the sole purpose of establishing power generation unit, mainly, a gas based project of 700MW. This share capital along with share premium, was contributed by the friends and relatives, who are NRI s, of the director. The assessee has commenced the initial activities for securing the various per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court has reiterated the findings of Bokaro Steel, for the other income and, with regard to interest income, it reiterated the ratio of Tuticorin Alkali case. Hon ble Supreme Court has laid down the principle that the surplus funds invested and income generated are taxable under the head income from other sources and at the same time, if it is inextricably linked to project, it can only be capitalized. Subsequently, the Hon ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. Vs. ITO, 181 Taxman 249 (Del.) has held as under: The funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources . Since the income was earned in a period prior to commencement of business, it was in the nature of capital receipt and hence, was required to be set off against preoperative expenses. In the case of Pr. CIT Vs. Facor Power Ltd.,[2016] 66 Taxmann.com 178 (Delhi), there is a finding of fact that the money placed in the fixed deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
