2015 (7) TMI 193 - AT - Income Tax

Treatment to surplus funds - Held that - CIT(A) has rightly appreciated the facts of the case and has rightly arrived at the correct conclusion as the funds kept in bank deposits cannot be classified as surplus funds as project was under completion. The argument of Ld. D.R. that facts were not verified by Ld. CIT(A) does not hold any force as Ld. CIT(A) by quoting figures in his order has arrived at the conclusion. - Decided against revenue.

Summary

Issues Involved:
Appeal filed by Revenue against order of Ld. CIT(A) for assessment year 2008-09 regarding deletion of income earned on Fixed Deposits.

Detailed Analysis:
Issue 1 - Classification of Income from Fixed Deposits:
The Revenue argued that income from fixed deposits should be taxed as 'income from other sources' as the funds were considered surplus. The Ld. CIT(A) relied on judicial pronouncements to support the assessee's claim that the funds were not surplus but essential for the ongoing project. The Hon'ble Supreme Court and Hon'ble Delhi High Court judgments highlighted that interest income from fixed deposits was linked to the project's setup and should be capitalized against preoperative expenses. The Ld. CIT(A) correctly analyzed the situation, emphasizing that the funds in bank deposits were not surplus as the project was still under construction. The appeal filed by the Revenue was dismissed based on these findings.

Issue 2 - Forfeited Earnest Money Deposit:
Regarding the forfeited earnest money deposit of Rs. 6 lakhs, it was argued that the sum was linked to the project setup and should be capitalized against preoperative expenses. The Ld. CIT(A) agreed with this argument, considering the forfeiture as an integral part of the project setup. Citing relevant case law and facts, the Ld. CIT(A) decided this ground of appeal in favor of the appellant.

Conclusion:
The judgment upheld the decision of the Ld. CIT(A) regarding the classification of income from fixed deposits and the treatment of the forfeited earnest money deposit. The detailed analysis of the facts and legal principles led to the dismissal of the Revenue's appeal. The judgment provided a clear understanding of the issues involved and the reasoning behind the decision, ensuring a fair and just outcome based on established legal precedents.