TMI Blog2017 (10) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Ltd [ 1999 (4) TMI 7 - SC ORDER ] as clearly laid down the principal that the deposit of money which are directly linked with the purchase of plant and machinery, any income earned on such deposit which was incidental to the acquisition of asset for the setting up of plant and machinery, the consequential interest was capital receipt which would go to reduce the cost of asset. Similar view was taken by the Supreme Court in the case of Bongaigaon Refinery Petrochemicals Ltd [ 2001 (7) TMI 4 - SUPREME COURT ] Respectfully following the judgment of Hon ble Supreme Court, we also direct the Assessing Officer to find out from the details whether this interest earned was out of the borrowed funds, which was directly linked to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) holding that interest income of ₹ 4,24,30,920/- is assessable as income from other sources but interest expenses are to be allowed which are meant for earning of such interest income. For this the Revenue has raised following ground no.1: - 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the relatable interest expenditure incurred on interest income of ₹ 4,24,30,920/- u/s. 57(iii) of the I.T.Act without appreciating the fact that the borrowed funds are not meant for earning interest from such lending as held by Hon ble Apex Court in the case of Dr.V.P.Gopinathan 248 ITR 449 (SC). The ground raised by the assessee in this regard is as under:- 1. On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal work-in-progress and ₹ 90,45,333/- being interest received against margin money. The Assessing Officer was of the view that this income is taxable as Income from other sources and, accordingly, he treated both the amounts i.e. ₹ 4,24,40,920/- ₹ 90,45,333/- as Income from other sources . Accordingly, he made an addiction of ₹ 5,14,76,310/. Aggrieved the assessee preferred appeal before the CIT(A). 4. The CIT(A) after considering the decision of Hon ble Supreme Court in the case of Bongaigaon Refinery Petrochemicals Ltd. [2001] 252 ITR 329 (SC) and Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 (SC) treated the interest income as income earned on temporary deposits out of the surplus funds kept a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder banks and actual utilization for the project. In between the surplus funds were kept as fixed deposits and earned interest by the assessee amounting to ₹ 4,24,30,920/-. The assessee while filing return of income claimed the interest from aforesaid fixed deposit and reduced it from cost of project as fixed deposit claiming that interest thereon was inextricably linked with the setting up of project. The assessee claimed interest from fixed deposits as capital receipt in its revised return of income. The assessee before us also claimed that the interest received can only go to reduce the cost of capital asset and these amounts are inextricably linked with the process of setting up of plant and machinery. The assessee claimed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the borrowed funds, which was directly linked to the purchase of plant and machinery, in that eventuality, the Assessing Officer will treat the interest as capital receipt. In case the interest is relatable to surplus funds, out of share capital and reserve surplus, interest will be treated as Income from other sources . As regards to deductibility of interest expenditure, in case the AO treat this interest receipt as income from other sources, the same shall be considered by Ld. AO as per law. We direct the Assessing Officer accordingly. 6. In the result, the appeal of the Revenue and the cross objection of the assessee are partly allowed for statistical purpose. Order pronounced in the open court on this day of 11th Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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