TMI Blog2021 (5) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... ANT , ACCOUNTANT MEMBER AND SHRI KULDIP SINGH , JUDICIAL MEMBER Appellant by : Shri Atiq Ahmed, Sr.DR Respondent by : None ORDER PER O. P. KANT , AM : This appeal by the Revenue is directed against order dated 30/05/2017 passed by the learned Commissioner of Income-tax (Appeals)-6, New Delhi [in short the Learned CIT(A) ] for assessment year 2013-14, raising following grounds: 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of ₹ 5,61,63,696/- and ₹ 28,00,638 on account of interest received from bank and on advances to contractors respectively during the year by not appreciating the fact the provisions laid down in section 5 of the Income Tax Act, 1961 (the Act) wherein it has been clearly mentioned that the total income of a person includes all the income earned/received or deemed to be earned/received by the person in the previous year? 2. Whether on the facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of ₹ 1,61,296/- on account of miscellaneous income by sale of scrap even when the receipt was squarely cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that purpose was to use the money in such a way so as to reduce cost of the power plant to the extent possible, by earning interest income and this would also benefit the revenue in a way that company would claim less amount of depreciation every year after completion of the project. 2.2 Whereas according to the Assessing Officer, the interest accrued on funds, which were not required immediately by the assessee company for its business purposes and which were invested in fixed deposit and for the advances given to the contactors and therefore interest was not earned out of business regularly carried out by the assessee company. The Assessing Officer assessed the interest income and miscellaneous income (for sale of a scrap) under the head Income from other sources . On further appeal, the Ld. CIT(A) deleted the addition under the head income from other sources observing as under: 3.1.3 The facts of the case and the submissions of the AR have been carefully considered. It is observed that the ground of appeal relates to the receipt of ₹ 28,00,638/- on account of interest from contractor's advances, ₹ 5,61,63,696/- on account of interest income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earn interest. Going by the facts of the case and various decisions cited above, the interest receipts are treated as capital in nature and the additions deserve to be deleted. Besides, it is observed that the similar addition of interest income from bank and interest from contractor's advances in A.Y. 2011-12 and A.Y. 2012-13 was also deleted by CIT(A) in the appellant's own case. However, miscellaneous income of ₹ 1,61,296/- on account of sale of scrap etc. is also covered by Supreme Court in the case of CIT Vs. Bokaro Steel Ltd. [1999] 236 ITR 315. Therefore, the addition of ₹ 5,91,25,630/- is hereby deleted. These grounds of appeal are therefore allowed. 3. Before us, none appeared on behalf of the assessee. 4. The Learned Department Representative, relied on the order of the Assessing Officer and submitted that money was raised by way of share capital which was not specifically linked with the setting up of the plant, and therefore the decision of the Hon ble Delhi High Court in the case of Indian Oil Panipat Power Consortium (supra) is not applicable over the facts of the assessee. 5. We have heard submission of the Learned DR and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Progress in Schedule - 4 of the balance sheet. The AO in the assessment order observed that the assessee has not offered above incomes for tax. AO observed that the facts of case are similar to the case of Tuticorin Alkali Chemical Fertilizers ltd. v. CIT (supra). Therefore, the AO treated the above receipt of ₹ 175.74 lakh as chargeable to tax u/s 56 of the Act as 'Income from other sources' following the decision of Hon'ble apex court in the case of CIT vs. Tuticorin Alkali and Chemicals Fertilizers Ltd. (1997) 227 ITR 172. 4.2 Therefore, the issue to be decided in this appeal is whether the above receipts are capital receipt as claimed by the appellant or income from other sources u/s 56 of the Act as held by the AO. The whole emphasis of Apex Court decision in the Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) was that funds were found to be surplus. The company was ready to commence trial production and the surplus funds were deposited in bank to earn interest. 4.3 In the instant case there is no dispute that project was under construction during the previous year relevant to AY 2010-11 and the business had not commenced. The appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be surplus after the completion of construction of the unit. In the instant case the work of construction of the power plant was under progress. Therefore, funds cannot be said to be at surplus. 4.5 Some of such funds which were lying unutilized were temporally parked by the appellant in bank to earn interest. The purpose of bank deposits yielding interest was evidently to maintain liquidity of funds and to reduce the cost of construction of the power plant. Therefore, interest earned on such unutilized funds temporally parked with banks to maintain liquidity and to reduce cost, is inextricably linked with the setting up of the project. Similarly, the interest incomes earned on advance to contractors engaged for construction of power plant is also inextricably linked with the setting up of the power plant. These incomes have also gone on to reduce the expenses for setting up of the plant as evident from schedule 15 of annual report showing details of expenses during construction. Hon'ble Supreme Court on identical issue in CIT v. Bokaro Steel Ltd. 102 taxman 94 (SC) after considering the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the construction of its steel plant. The receipts have been adjusted against the charges payable to the contractors and have gone to reduce the cost of construction. They have, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. 7. However, while interest earned by investing borrowed capital in short-term deposits is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilization of various assets of the company and the payments received for such utilization are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with the setting up of the capital structure of the assessee - company. They must, therefore, be viewed as capital receipts going to reduce the cost of construction. 4.6 Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. vs. 1TO (2009) 315 ITR 255 (Del.) held that where interest on money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land, a claim t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricably linked with the setting up of the power plant. 4.8 Therefore, decisions of Hon'ble Supreme Court in the case of Bokaro Steel Ltd. (supra), Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. (supra) and NTPC Sail Power Company (P) Ltd. (supra) are squarely applicable in the instant case. Identical issue was raised in appeal for AY 2008-09 which was decided by me in favour of the appellant in A. No. 102/2010-12 vide decision dt. 17/12/2012 following the above decisions of Supreme Court and Delhi High Court as under: 8.1.5 Since the work of construction of the power plant has just started and funds were essentially utilized for conducting survey, investigation preliminary expenses, for land purchase, for infrastructure development work and for disbursement as advance to the contractors engaged for construction of power plant etc., therefore, funds cannot be said to be at surplus. Moreover, the liability towards sundry creditors (₹ 23.52 crores) are far more than the funds lying in bank (₹ 3.34 crores). Interest income is also inextricably linked with the setting up of the power plant because interest income have gone on to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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