TMI Blog2020 (10) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... in confirming the addition by taking different opinion from the earlier A.Y. 2012-13 taken by the earlier CIT(A). It is pertinent to note that once the ECB loan which is to be utilized for capital expenditure only, then, any interest earned on funds temporarily parked in FDRs is inextricably linked with the setting up of hotel of the assessee, and the same should be held as capital receipts only and is permitted to be set off against the capital expenditure as per the provisions of Income Tax Act. The order of the CIT(A) is set aside. Hence, appeal of the assessee is allowed. - ITA No. 2948/DEL/2018 (A.Y 2013-14) - - - Dated:- 27-8-2020 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER Appellant by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. Whereas, as per the 26AS, the assessee received interest amounting to ₹ 6,55,69,400/-. The Assessing Officer after considering the reply and documents of the assessee made an addition of ₹ 6,55,69,400/- by holding the interest earned on FDRs as income from other sources. 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that in the earlier year for Assessment Year 2012- 13, the facts were identical and the Tribunal has decided the appeal of the assessee in favour of the assessee vide order dated 29/11/2019 being ITA No. 6597/Del/2016. The Ld. AR submitted that the Assessing Officer erred in law and on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance with the RBI instruction. The assessee had paid interest amount of ₹ 13.38 crores and has earned interest on FDRs of ₹ 4.03 crores. The net amount of interest of ₹ 9.35 crores has been added to the preoperative expenditure pending capitalization, i.e. in capital WIP. There is no quarrel that the interest paid on ECB loan has been capitalized. Way back in the year 1974, Hon ble Supreme Court in the case of Challapalli Sugars Ltd. vs. CIT, 98 ITR 167 (SC) had examined the question whether interest paid before commencement of production by a company on the amount borrowed for acquisition, installation of plant and machinery would form part of actual cost of the asset, assessee will be entitled to depreciation allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed whether by way of interest or in any other manner or the funds, which are otherwise inextricably linked with setting up of a plant, such income is required to be capitalized to be set off against preoperative expenses. .. 8. The sequitor of the judgment of Hon ble Supreme Court and Hon ble jurisdictional High Court is that if the funds have been raised for the purpose of setting up of a plant or acquisition of capital asset then the funds have to be inextricably linked with the activities of the plant and if such funds have been put in FDRs, then interest received will be a capital receipt and cannot be taxed as income from other sources. Respectfully following the aforesaid principle, which is applicable on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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