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TMI Blog2015 (7) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Ld.CIT(Appeals) XVI, New Delhi dated 29.8.2013 pertaining to the A.Y. 2009-10. 2. Facts in brief :- The facts of the case are given in paras 3.3.1 to 3.3.3 of the order of the Ld.CIT(A), which are extracted for ready reference. The assessee is a Public Limited Company which was incorporated on 23.5.2003 as a joint venture company between NTPC Ltd. And Tamil Nadu Electricity Board (hereinafter referred to as TNEB), with an equal percentage of share holdings. The main objective of the petitioner company was to construct power plants for generating electricity. The petitioner company was incorporated with the authorised capital of ₹ 20000,00,00,000. The issued, subscribed and paid up capital of the petitioner company stood at ₹ 380,00,00,000 as on 31.3.2009 and the amount lying in Share Deposit A/c Pending Allotment was ₹ 32,00,00,000. The petitioner company had also raised Secured Loans of ₹ 605,61,00,000. The facts of the case are that the petitioner company had started construction of the power generating plant of the capacity to produce 1500 MW of electricity at Vallur, in the outskirts of Chennai, Tamilnadu, in the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een earned during pre-commencement period of the business. Vide letter dated 01/12/2011, the assessee has submitted as under : This interest income from banks was basically earned on the funds temporarily parked in banks as short term deposits. As we were in the construction phase of the project, all the expenditure and income during the period is taken as incidental expenditure during construction and getting capitalized along with the project cost. This argument of the assessee is not acceptable because the interest income earned on fixed deposit etc. is specifically taxable under the head Income from other sources u/s 56 of the I. T. Act. Reliance is placed on the decision of the Hon'ble supreme Court In the case of Tuticorin Alkali Chemical Fertilizers Ltd. Vs CIT {1997} 227 ITR 172(SC). The assessee has failed to establish any nexus between the earning of such interest with its business i.e setting up of the power plant. In fact it has itself admitted that it had temporarily parked its surplus funds in banks as short term deposits. Therefore the facts of case are similar to the case of Tuticorin Alkali Chemical Fertilizers Ltd. Vs CIT ( supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue and Shri Ajay Kumar Agarwal, C.A. the Ld.Counsel for the assessee. 7. The Ld.Sr.D.R. contended that the assessee has not demonstrated nexus between the earning of interest with the business of the assessee. He relied on the decision of the Hon ble Supreme Court in CIT vs. Tuticorin Alkali and Chemicals Fertilisers Ltd. (1997) 227 ITR 172 and submitted that the order of the A.O. should be restored and the order of the First Appellate Authority be reversed. 8. The Ld.Counsel for the assessee on the other hand submitted that under similar facts and circumstances the E Bench of the Tribunal in the assessee s own case for the A.Y. 2008-09 in ITA 1520/Del/2013 order dt. 20th June, 2014 had upheld the findings of the First Appellate Authority and dismissed the appeal of the Revenue. He relied on the submissions made by him before the First Appellate Authority. 9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, on perusal of material on record, orders of the authorities below, case laws cited, we hold as follows. 10. For the immediately preceding A.Y. 2008-09 the E Bench of the Tribunal in ITA 1520/Del/2013 order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and if the money is found to be surplus after the completion of construction of the unit. In the instant case the work of construction of the power plant has just started. Therefore, funds cannot be said to be at surplus. 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. Interest income was inextricably linked with the setting up of the power plant because interest income have gone on to reduce the incidental expenses for setting up of the plant as evident from schedule 12 of balance sheet showing details of incidental expenses during construction. Further, when amounts of liability towards sundry creditors (Rs.23.52 crores) are far more than the funds lying in bank (Rs.3.34 crores), it cannot be said that there are surplus funds available with the company. Hon 'ble Supreme Court in Bokaro Alkali Chemicals and Fertilizers Ltd. after considering the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. held that; However, while interest earned by investing borrowed capital in short-term deposits is an independent source of income not connected with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use would not qualify as deduction. However, in -all these cases, when the interest was received by the assessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, this Court, and indeed the Supreme Court held that if the receipt is inextricably linked to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. By the same logic, in this case too, the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. 8.1.5 The above decisions are squarely applicable in the instant appeal. In view of the above, 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 (Rs.23.52 crores) are f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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