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TMI Blog2021 (2) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 576.94 crores. During the course of assessment proceedings, it was explained that company has been granted licence for construction of maintenance of certain transmission lines and evacuation of power from Karcham-Wangtoo HEP located in the State of Himachal Pradesh to Abdullapur sub-station located in the State of Haryana. It was explained that the project is under implementation and profit and loss account has been drawn for the year under consideration. All the expenses incurred during the year have been shown in the balance-sheet as Incidental Expenses During Construction [IEDC]. Examination of the IEDC statement revealed that the assessee company had earned an amount of Rs. 1,53,70,579/- as "Interest on short term deposits with Banks". The said amount was deducted from the expenditure mentioned in the said statement. Thus, the interest received on the FDRs has been reduced from the pre-operative expenditure which are pending allocation. After reduction of this amount, IEDC expenditure was shown at Rs. 239,45,85,724/-. Thus, the interest income earned during the year, instead of being shown separately, has been used towards abatement of capital cost. The A.O. issued s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 700 crore were raised. The entire debt was received from consortium of banks under Trust and Retention Account Agreement and loan agreement. Project funds were also raised from time to time during the period of the project. Out of the project funds so raised, the funds not immediately required were temporarily parked with the bank in fixed deposit receipts for short term duration. During the year under consideration, the availability of funds was as under:- i) Funds available from equity and debt Rs. 295 crore ii) Funds used in project Rs. 251 crore iii) Short term bank FDRs 55.16 crore iv) Project contracts remaining to be executed 117 crore v) Interest received on FDRs 3.40 crore vi) Interest paid on borrowed funds 5.80 crore 2.1 In the year under consideration, since the project was at its initial stages and the assessee had not started any business, no profit and loss account was prepared for the year. The assessee received interest income of Rs. 3,40,52,432/- on temporary FDRs of Rs. 5,16,77,561/- which was credited to the Incidental Expenditure During Construction Pending Allocation account and the same was claimed as exempt being capital receipt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining to a question of law and arising from facts on record should be allowed to be raised when it was necessary to consider that question in order to correctly assess the tax liability of the assessee. 4. The Ld. Sr. DR opposed the assessee's prayer for admitting additional ground of appeal. 5. Having heard both the parties with respect to admitting of additional ground of appeal, it is our considered opinion that this ground deserves to be admitted as it essentially raises a question of law and no factual investigation is required while admitting this additional ground of appeal. Accordingly, we admit additional ground of appeal raised by the assessee. 6. The Ld. AR submitted that while dismissing the assessee's appeal, the ld. Commissioner of Income Tax (A) had made an incorrect assertion that the assessee's counsel was persuaded to accept the judgment of the Hon'ble Apex Court in the case of Tuticorin Chemicals and Fertilizers Ltd. (supra). It was submitted that an affidavit under Rule 10 of the Income Tax Tribunal Rules has been filed by the erstwhile counsel wherein it has been averred that this observation of the Ld. Commissioner of Income Tax (A) is incorrect. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Steel Ltd. (supra) and the judgment of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra) along with a plethora of other related judgments on identical set of facts. The relevant observations and adjudication are contained in Para 18, 19, 20, 21, 22, 23 and 24 of the above said order of the ITAT Ahmedabad Bench in the case of Adani Power Ltd. vs. ACIT (supra). The same is being reproduced hereunder for a ready reference:- "18. We find that both the parties have relied upon the decisions of the Hon'ble Apex Court and in addition, the assessee has relied upon the decision of Hon'ble Delhi High Court. Therefore, it would be appropriate to first refer to those decisions. In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), the Hon'ble Apex Court held as under:- "...that the company had surplus funds in its hands. In order to earn income out of the surplus funds, it had invested the amount for the purpose of earning interest. The interest thus earned was clearly of revenue nature and would have to be taxed accordingly. The accountants might have taken some other view but accountancy practice was not necessaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source." 20. In the case of Karnal Co-operative Sugar Mills Ltd. (supra), their Lordships of Hon'ble Apex Court, after applying the decision of Bokaro Steel Ltd. (supra), held as under:- "Held, that, in the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest had been earned. This was, therefore, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. The interest was a capital receipt, which would go to reduce the cost of asset. " 21. In the case of Karnataka Power Corporation (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that for newly set up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of s. 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under s. 14 in Chapter IV of the Act. For an income to be classified 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as Bokaro Steel Ltd. (supra). The conclusion of the Delhi High Court is in fact the law which emerges as per the decision of Hon'ble Apex Court. Therefore, in our opinion, the CIT (A) was not justified in ignoring the decision of Hon'ble Delhi High Court by simply mentioning that the issue is covered by the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). After considering these two decisions of the Hon'ble Apex Court and also some other decisions of the Hon'ble Apex Court, their Lordships of the Delhi High Court arrived at the conclusion "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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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