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TMI Blog2015 (7) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... ce same were heard together. 2. First of all we will take appeal for the A.Y. 2008-09, wherein the only issue raised in various grounds of appeal is that, the Ld. CIT(A) has erred in law and on facts in not setting off the interest expenditure of Rs. 5,02,732/-, against interest income of Rs. 1,80,53,158/- offered under the head "Income from other sources." 3. The facts in brief are that the assessee company is engaged in the business of manufacture and sale of steel. During the year, the assessee company was in the process of setting up a steel plant project in a special economic zone at Hazira, Gujarat. The assessee had not commenced its revenue operations during the year. In the course of the assessment proceedings, the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer after relying upon the decision of Allahabad High Court in the case of Kisan Sahakari Chini Mills Ltd. Vs. CIT and the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT reported in (1997) 227 ITR 172 (SC), held that such interest expenditure cannot be set off against the interest income and same should be capitalized under the head pre operative expenses. His detail analysis for making the decisions and reliance on other decision have been dealt and incorporated by him from pages 7 to 12 of the assessment order. 4. Before the Ld. CIT(A), the assessee again reiterated its submissions and clarified that the assessee company has not debited any interest expenditure relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income. The Ld. CIT(A), too relied upon and reiterated the ratio and the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. and held that assessee may be entitled to capitalize interest payable by it, however, it cannot claim an adjustment of this expenditure against interest assessable u/s 56. The expenditure which are allowable as deduction have to be within the ambit of section 57 only, i.e. if they have been incurred for the purpose of income assessable u/s 56, which the assessee has failed to prove. Since the business of the assessee had not started therefore, there cannot be any profit or loss incurred by the assessee in the relevant assessment year and accordingly the expenditure by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and interest earning relating to setting up of project has not been routed through P&L account. A separate interest income on term deposits of Rs. 1,80,53,158/- which was parked out of funds not immediately required was offered to tax as "Income from other sources". From the said income the assessee has reduced the interest expenditure of Rs. 5,02,732/- which was claimed to be directly linked and attributable to earning of such interest income. So far as capitalization of interest earned on margin money which were earmarked against the borrowing facility has been accepted by the AO. The only dispute is that whether the interest of Rs. 5,02,732/- paid on the borrowings which were source of funds parked in term deposits has to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the case of the assessee that the interest payable by it on the term loans should be allowed as deduction u/s 57. Here also if the interest payable on the borrowed funds are directly relatable to setting up of the project, then perhaps the decision of the Ld. CIT(A) would be assailable, but here in this case, the assessee's claim is that interest expenditure was directly related to earning the interest income taxable under the head "Income from other sources." Hence the decision of Hon'ble Supreme Court and other decisions as relied upon by the Ld. CIT(A) will not be applicable. In order to establish that such an interest expenditure was directly related to the interest income, the matter is being restored back to the file of the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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