TMI Blog2017 (9) TMI 1806X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per N. K. Saini, AM: These two appeals by the department are directed against the separate orders each dated 28.05.2014 of ld. CIT(A)-XVI, New Delhi. 2. Since the issues involved are common and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. First we will deal with the appeal in ITA No. 4558/Del/2014 for the assessment year 2011-12. Following grounds have been raised in this appeal: 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the interest income amounting to ₹ 2,59,43,153/- by not appreciating the provision laid down in section 5 of the Income Tax Act wherein it has been clearly mentioned that the total income of a person includes all the income earned/received or deemed to be earned/received by the person in the previous year. 2. Whether, on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the above mentioned interest income by holding that interest income from contractors advances are inextricably linked with the setting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the P L Account the appellant has shown under the head other income, amount of ₹ 1,02,740/- as interest income earned on short term deposits parked with Banks and an amount of ₹ 174,71,389/- as interest earned on interest bearing advance given to contractors, total ₹ 1,75,74,129/- which was adjusted against Expenditure During Construction Account in Schedule - 15 and the net Expenditure During Construction was capitalized under the Capital Work in Progress in Schedule - 4 of the balance sheet. The AO in the assessment order observed that the assessee has not offered above incomes for tax. AO observed that the facts of case are similar to the case of Tuticorin Alkali Chemical Fertilizers ltd. v. CIT (supra). Therefore, the AO treated the above receipt of ₹ 175.74 lakh as chargeable to tax u/s 56 of the Act as 'Income from other sources' following the decision of Hon'ble apex court in the case of CIT vs. Tuticorin Alkali and Chemicals Fertilizers Ltd. (1997) 227 ITR 172. 4.2 Therefore, the issue to be decided in this appeal is whether the above receipts are capital receipt as claimed by the appellant or income from other sources u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility towards sundry creditors (Rs.86.78 crores) are far more than the funds lying in bank (Rs.4.74 crores). Therefore, it is clear that advances were not given out of surplus funds available with the company. Simply because money is lying in bank meant for construction of the plant, it cannot be treated as the surplus money. The surplus money can arise only after meeting all the obligations relating to the construction of the power plant and if the money is found to be surplus after the completion of construction of the unit. In the instant case the work of construction of the power plant was under progress. Therefore, funds cannot be said to be at surplus. 4.5 Some of such funds which were lying unutilized were temporally parked by the appellant in bank to earn interest. The purpose of bank deposits yielding interest was evidently to maintain liquidity of funds and to reduce the cost of construction of the power plant. Therefore, interest earned on such unutilized funds temporally parked with banks to maintain liquidity and to reduce cost, is inextricably linked with the setting up of the project. Similarly, the interest incomes earned on advance to contractors engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for the wear and tear of the machinery. The advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitches as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts are arrangements which are intrinsically connected with the construction of its steel plant. The receipts have been adjusted against the charges payable to the contractors and have gone to reduce the cost of construction. They have, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. 7. However, while interest earned by investing borrowed capital in short-term deposits is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilization of various assets of the company and the payments received for such utilization are directly linked with the activity of setting up the steel pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, this Court, and indeed the Supreme Court held that if the receipt is inextricably linked to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project, By the same logic, in this case too. the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. 4.8 Therefore, decisions of Hon'ble Supreme Court in the case of Bokaro Steel Ltd. (supra), Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. (supra) and NTPC Sail Power Company (P) Ltd. (supra) are squarely applicable in the instant case. Identical issue was raised in appeal for AY 2008-09 which was decided by me in favour of the appellant in A. No. 102/2010-12 vide decision dt. 17/12/2012 following the above decisions of Supreme Court and Delhi High Court as under: 8.1.5 Since the work of construction of the power plant has just started and funds were essentially utilized for conducting surve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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