2018 (8) TMI 1373 - HC - Income Tax

Capitalisation of interest received from the bank fixed deposits and set-off of this interest from the preoperative expenses - Held that - It is an accepted and admitted position that the respondent/assessee had not commenced and was not engaged in any business activity as the business of manufacture and production of styrene butadiene rubber had not started. - no substantial question of law arises and the appeal is dismissed in limine - Decided against the revenue.

Summary

Issues: Capitalisation of interest received from bank fixed deposits and set-off from preoperative expenses.

Capitalisation of Interest Issue:
The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 pertains to the assessment year 2013-14 of Indian Synthetic Rubber Pvt. Ltd. The central issue revolves around the capitalisation of interest received from bank fixed deposits and its set-off from preoperative expenses. The Tribunal found that the fixed deposits were procured from surplus funds, including share capital and borrowings, and were utilized for obtaining bank guarantees for setting up and construction of the factory project. It was noted that the respondent had not commenced business activities in manufacturing styrene butadiene rubber as per the assessment order.

Legal Precedents and Decision Analysis:
In analyzing the issue, the Tribunal referred to the decision in CIT v. Bokaro Steel Ltd. and a High Court decision in ITA No.233/2018, PCIT-VI vs. M/s. NTPC Tamil Nadu Energy Co. Ltd. The Tribunal distinguished the applicability of the decision in Tuticorin Alkali Chemicals and Fertilisers Ltd. vs. CIT, as the respondent had not commenced its business activities, a fact acknowledged by the Revenue. Consequently, the Tribunal concluded that no substantial question of law arose in the case, leading to the dismissal of the appeal with no order as to costs.

Conclusion:
The judgment delves into the intricacies of capitalisation of interest received from bank fixed deposits and its set-off against preoperative expenses in the context of the respondent's business activities. By referencing relevant legal precedents and distinguishing applicable decisions, the Tribunal reached a decision based on the specific circumstances of the case. The dismissal of the appeal signifies the alignment of the decision with established legal principles and factual considerations surrounding the commencement of business operations by the respondent.