TMI Blog2019 (10) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... ated:- 17-10-2019 - Shri Rajpal Yadav And Shri Amarjit Singh, JJ. Appellant by: Shri/Ms. Sonia Kumar, Sr. D.R. Respondent by: Shri S.N. Soparkar Shri Parin Shah, A.Rs. ORDER AMARJIT SINGH, J. This assessee s appeal for A.Y. 2012-13, arises from order of the CIT(A), Gandhinagar, Ahmedabad dated 05-04-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The assessee has raised following grounds of appeal:- ITEM NO. I: Not Considering Interest Income Of ₹ 21,36,598/- As Inextricably Linked With The Process of Setting Up The Project Which Has Yet Not Commenced And Thereby Making Addition By Treating The Same As Revenue Receipt 1.1 The learned CIT(A) has grossly erred in facts and circumstances of case in upholding the decision of learned A.O. by confirming the addition on account of Interest Income of ₹ 21,36,598/-. 1.2 The learned CIT(A) has grossly erred in law and on facts by not considering the fact that appellant has rightly considered interest income of ₹ 21,36,319/- as income inextricably linked with the process of setting up the project which has yet not commenced i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nabove as the facts and circumstances of the case may justify. PRAYER The appellant therefore respectfully prays that: - (i) The interest income of ₹ 21,36,598/- be considered as capital receipt being inextricably linked with the process of setting up of the project as the same is going to reduce the cost of assets and in turn the decision of the learned CIT (A) to uphold the decision of learned A.O regarding addition on account of Interest Income ₹ 21,36,598/- may kindly be deleted. Without prejudice to our claim contentions, if the addition is confirmed then the same be restricted to ₹ 21,36,319/- instead of ₹ 21,36,598/-. (ii) Initiation of penalty proceedings under Section 271(1) (c) be quashed. (iii) Such and further relief as the nature and circumstances of the case may justify. 3. The fact in brief is that return of income declaring income at Rs. nil was filed on 28th Sep, 2012. The case of the assessee was subject to scrutiny assessment and notice u/s. 143(2) of the act was issued on 7th August, 2013. The assessee company was a special purpose vehicle promoted by Gujarat Petroleum Corporation, set up a power project at villa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee 5. We have heard both the sides and perused the material on record. It is undisputed fact that assessee has borrowed funds from various banks for its projects. The assessee has earned interest income on temporary investment of same fund in FD till the utilization of the same funds in the project. The total interest income of ₹ 21,36,319/- has been considered by the assessee as capital receipt which ought to have been inextricably linked with the process of setting up plant and machinery, such receipt will go to reduce the cost of its assets. The interest income has been reduced from CWIP project development cost of respective projects. In this regard, the ld. counsel has referred the decision of Hon ble ITAT vide ITA No. 1663/Ahd/2014, ITA No. 1686/Ahd/2014 with CO 252/Ahd/2014 in the case of DCIT vs. Adani Power Ltd. dated 28/06/2018 and contended that on identical issue and identical fact the ITAT Bench in the above cited case has decided the issue in favour of the assessee. With the assistance of ld. representatives, we have gone through the aforesaid decision of Co-ordinate Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassified as income under the head Profits and gains of business or profession it would have to be an activity which is in some manner or form connected with business. The word business is of wide import which would also include all such activities which coalesce into setting up of the. business. See Mazagaon Dock Ltd. vs. CIT/CEPT (1958) 34 ITR 368 (SC) and Narain Swadeshi Weaving Mills vs. CEPT (1954) 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure then it cannot be held that the income derived by parking the funds temporarily with Tokyo Mitsubishi Bank, will result in the character of the funds being changed, in as much as the interest earned from the bank would have a hue different than that of business and be brought to tax under the head 'Income from other sources'. It is well-settled that an income received by the assessee can be taxed under the head Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their Lordships of the Delhi High Court arrived at the conclusion it is dear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for the 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 the pre-operative expenses. That, the ratio of the above finding of the Hon'ble Delhi High Court would be squarely applicable to the facts of the assessee's case, because admittedly in the case under appeal before us the share capital as well as loans were raised for the specific purpose of setting up of the power generation plants. The business of the assesses has not been commenced and therefore, as per above decision, the interest received in the period prior to commencement of business was in the nature of capital receipt and hence was required to be set off against the pre-operative expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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