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TMI Blog2020 (3) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... me declaring total income of Rs. -68,27,726/- was filed on 16th October, 2014 and book profit u/s. 115JB of the Act of Rs. Nil. The case was subject to scrutiny assessment and notice u/s. 143(2) of the act was issued on 2nd Sep, 2014. During the course of assessment, the assessing officer noticed that during the year under consideration the assessee has not entered into any business transaction and was not having any business income. The assessing officer noticed that assessee has claimed various expenses like salary/entertainment expenses/foreign travelling expenses etc., however, the assessee has not shown any income from its operations. The assessee had shown income of Rs. 1,80,56,955/- from interest on fixed deposit held with bank. Accordingly, the assessing officer has asked the assessee vide notice dated 29th August, 2016 to explain as to why the expenses claimed should be not disallowed by treating as capital expenses as no operational revenue had been shown during the year under consideration. The explanation of the assessee furnished vide letter dated 12th Sep, 2016 was reproduced by the assessing officer at page no.7 to 8 of the assessment order. In his written submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the ld. CIT(A) stating if the disallowance of claim of expenses made by the assessing officer is upheld then the interest earned by the assessee prior to the commencement of business should also be treated as capital receipt. However, the ld. CIT(A) has stated that since the assessing officer has not adjudicated upon the nature of interest income, therefore, he held that alternative ground was not arised from the order of assessment. The ld. CIT(A) has also stated that the decision of Indian Oil Panipat Power Consortium ltd. and Adani Power Ltd. 315 ITR 255 referred by the assessee was distinguishable from the facts in the case of the assessee as whole amount of share capital was not invested in fixed deposit in the case of the assessee. Accordingly, the ld. CIT(A) has also dismissed the alternative ground of appeal of the assessee. 5. During the course of appellate proceedings before us, the ld. counsel has submitted paper book comprising detail of information and copies of documents furnished before the assessing officer and CIT(A) during the course of assessment and appellate proceedings. The ld. counsel has contended that during the year the assessee has started constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 31st March, 2013 and schedule for other income vide which the interest on bank deposit was shown to the amount of Rs. 1,80,56,955/-. On the other hand, ld. departmental representative placed reliance on the finding of ld. CIT(A). 7. We have heard both the sides and perused the material on record. During the assessment year, the assessing officer noticed that assessee has claimed various expenses in the P & L account on account of employees benefit expenses, finance cost, depreciation and other expenses against income from fixed deposit at Rs. 1,80,66,955/-. The assessing officer has disallowed the claim of revenue expenditure of the assessee to the amount of Rs. 2,33,36,067/- stating that business activities or commercial operations have not been started during the year under consideration. The ld. CIT(A) has sustained the disallowance made by the assessing officer stating that assessee company has not yet commenced its business, therefore, the claim of expenditure cannot be allowed. In respect of alternative claim of the assessee that if the disallowance of expenditure made by the assessing officer is upheld, then, the interest income prior to the commencement of business s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing facilities and same should be considered as capital in nature and should be reduced from the cost of the project. The ld. counsel has placed reliance on the various judicial pronouncements as cited above in this order. In respect of alternative claim of the assessee, we are of the view that once it has been considered that assessee has not commenced its business, therefore, the interest income earned by the assessee prior to the commencement of the business is required to be treated as capital receipt. In this regard, we have gone through the judicial pronouncement referred by the ld. counsel in the case of Indian Oil Panipat Power Consortium Ltd. vs. ITO 181 taxman 249 wherein Hon'ble Delhi High Court has held that income earned in a period prior to commencement to its business it was in nature of capital receipt and as well as was required to be set off against pre-operative expenses. We have also gone through the judicial pronouncements referred by the ld. counsel in the case of NTPC, SAIL Power Company Pvt. Ltd. vs. CIT (2012) 25 taxman.com 401 Delhi wherein it is held that funds invested by assessee company and interest earned were inextricably linked with setting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in favour of the assessee. With the assistance of ld. representatives, we have gone through the aforesaid decision of Co-ordinate Bench of the ITAT and considered that the identical issue on similar facts has been adjudicated in favour of the assessee. Relevant part of the decision is reproduced as under:- "23. That the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), after considering the decisions in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and Bokaro Steel Ltd. (supra) at length, held at pages 258, 259 and 260 of report, i.e., 315 ITR 255, as under:- 5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 and that of Bokaro Steel Ltd. [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals [1997] 227 ITR 172 is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Income from other sources'. It is well-settled that an income received by the assessee can be taxed under the head "Income from other sources" only if it does not fall under any other head of income as provided in s. 14 of the Act. The head "Income from other sources" is a residuary head of income. See S.G. Mercantile Corporation (P) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC). 5.2 It is clear upon a perusal of the facts as found by the authorities below that 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 pre-operative expenses. In the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 it was found by the authorities that the funds available with the assessee in that case were 'surplus' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement of business was in the nature of capital receipt and hence was required to be set off against the pre-operative expenses. The assessee has already set off the interest income against the pre-operative expenses which is titled as "project development expenditure". In view of above, we are of the opinion that the interest income of Rs. 1,35,87,158/- as well as Rs. 7,91,51,306/- was a capital receipt not chargeable to tax during the year under consideration. Accordingly, Ground Nos. 2 and 4 of the assessee's appeal are allowed." 17. There is no disparity on facts. The Id.CIT(A) has simply followed the order of the Id.CIT(A) in the assessment year 2008-09. Therefore, respectfully following the order of the IT AT in the assessment year 2008-09, we reject the ground of appeal taken by the Revenue and allow the grounds of appeal taken by the assessee." Respectfully following the decision of the Co-ordinate Bench as cited on identical issue on similar facts, the appeal of the assessee is allowed." In the light of the above facts and after considering the various judicial pronouncements of the Hon'ble High Courts and Co-ordinate Benches of the ITAT as cited above, we cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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