2013 (4) TMI 265 - AT - Income Tax

Interest on FDRs - Addition under the head income from other sources by treating it pre- operative income earned - CIT(A) deleted the addition - Held that - The decision of CIT Vs. Jaypee DSC Ventures Ltd. 2011 (3) TMI 309 - DELHI HIGH COURT wherein held that case is not one where the assessee had made the deposit of surplus money lying idle with it in order to earn interest, on the contrary, the amount of interest was earned from fixed deposit which was kept in the bank for furnishing the bank guarantee. It had an inextricable nexus with securing the contract. The view expressed by the Tribunal cannot be found fault with by holding that the interest earned by the assessee on the FDRs has intrinsic and inseggregable nexus with the work undertaken and, therefore, the interest earned by the assessee is capital in nature and shall go towards adjustment against the project expenditure and the same cannot be assessed as income from other sources. The above case is squarely applicable to the facts of the assessee s case as it is 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 present case was directly linked with the business activity of the company. The same is intricately connected with the business activity of the company. The interest was a capital receipt, which would got reduce the cost of asset. Hence interest earned should not form part of profit & loss account and accordingly cannot be taxed as income - in favour of assessee.

Summary

Issues:
- Addition of income under the head "other sources" treated as pre-operative income
- Claim of expenditure during business setup

Analysis:
1. Addition of Income under "Other Sources":
The appeal by the Revenue challenged the deletion of an addition of Rs.1,65,81,054 under "other sources" by treating it as pre-operative income earned. The Tribunal considered the decision of the Hon'ble Jurisdictional High Court in a similar case and found that the interest earned on fixed deposits kept as margin money for bank guarantees had a direct nexus with securing contracts. The Tribunal concluded that the interest earned was capital in nature and not assessable as income from other sources. The Tribunal upheld the CIT(A)'s order based on the applicability of the High Court decision to the facts of the case.

2. Claim of Expenditure during Business Setup:
The assessee raised a cross-objection regarding the claim of expenditure amounting to Rs.11,25,88,953 during the business setup. However, during the hearing, the assessee's counsel indicated that if the Revenue's appeal was dismissed, the cross-objection would not be pressed. Since the Revenue's appeal was already dismissed, the Tribunal treated the cross-objection as not pressed and subsequently dismissed it. Therefore, both the Revenue's appeal and the cross-objection by the assessee were dismissed by the Tribunal.

In conclusion, the Tribunal upheld the deletion of the addition under "other sources" based on the High Court decision and dismissed both the Revenue's appeal and the assessee's cross-objection.