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TMI Blog2019 (9) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said income earned is not inextricably linked with the business of the assessee and cannot be reduced from capital expenditure. 2. The Id. CIT(A) has erred in law and on facts in deleting the addition of unutilized CENVAT credit of Rs. 29,60,018/- without appreciating the fact that the assessee has followed exclusive method for accounting CENVAT as against inclusive method mandated u/s.145A of the Act. The 1st issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 3,81,36,986.00 on account of interest income treating the same as inextricably linked with the business and accordingly reduced from the cost of the project. 2. The facts of the case as culled out from the order of the authorities below are that the assessee is a private limited company and hundred percent subsidiary of Adani Enterprises Ltd. (for short AEL). The assessee is engaged in the business of mining/exploration activities. AEL was awarded a contract by UCM Coal Company Limited during the year in a consortium for the development and operation of coal block situated in Orissa. 2.1 AEL subsequently assigned the contract to its subsidiary company be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee before the learned CIT (A) submitted that it had provided a security deposit to GVI in pursuance to the washery agreement. As per the agreement, GVI was to perform the following activities: (i) Construct, operate and manage the coal washery with 40MT per annum capacity at mine head within time line to enable AML to deliver coal under the Contract to UCM. The total capacity of the coal washery shall be required under the Contract. (ii) Transport of coal from Mine to Washery through belt conveyor sustem. (iii) The washing technology, other equipment technology and cost shall be mutually discussed and finanlized by AML and GVL in concurrence. (iv) To make available for dispatch the agreed quantity of washed coal meeting the parameters. (v) To operate and maintain the washery as per the best standards in the industry. (vi) GVI shall maintain all the requisite records properly for the inspection by Government agencies concerned with respect to the details of run of mine coal, washed coal and rejects etc. 3.1 Accordingly, the assessee claimed that such agreement with the GVI was essential to execute the impugned project and GVI would not have agreed for such project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Bokaro Steel Ltd. reported in 236 ITR 315 wherein the income such as rental charges, machine higher charges, and interest income, etc were reduced from the cost of the project as these incomes were directly connected with the business of the assessee. 6.2 Similarly, the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT reported in 227 ITR 172 has treated the interest income as the income from other sources due to the fact that the same was not linked with the project of the assessee. 6.3 Thus, the criteria to see any receipt or payment is whether the same is inextricably link with the project. Accordingly, any receipt shall be treated as inextricably linked with the project if it arises in the course of the project of the assessee. 6.4 Now coming to the present facts of the case whether the impugned interest income from GVI represents the income in connection with the project. Regarding the interest income from the GVI, we among other thing, note that a question also arises about the source of fund forwarded by the assessee to GVI in the form of security deposit, whether it was own fund or non-interest /interest-bearing fund. On peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT (A) erred in deleting the addition made by the AO for Rs. 29,60,018.00 on account of CENVAT Credit. 7. The assessee in its audited financial statement has shown an unutilized CENVAT Credit amounting to Rs. 29,60,018.00 as on 31 March 2011. The assessee during the assessment claimed that the impugned CENVAT Credit represents against the services received by it and as such it does not pertain to the inventories as envisaged under the provisions of section 145A of the Act. Accordingly, the assessee claimed that the provisions of section 145A of the Act does not apply to it. 7.1 However, the AO was not satisfied with the contention of the assessee by observing that as per the provisions of section 145A of the Act the assessee is liable to include the amount of duty, cess, tax etc in the amount of purchases, sales and the closing stock. Accordingly, the AO added the amount of CENVAT Credit as on the balance sheet date to the total income of the assessee. 7.2 Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 5.2 This issue was discussed by the A.O at para 3 of the assessment order. As seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of the closing stock without giving effect to the purchases. In this regard, we find support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. In Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:- "3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of Rs. 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the ..... 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