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TMI Blog2017 (11) TMI 1776X X X X Extracts X X X X X X X X Extracts X X X X ..... try to the respective assessees', vide registered post with acknowledgement due and have been duly served on them. In spite of such service of notice, none appeared for the assessees. Therefore, the appeals of the Revenue are heard ex-parte qua assessee and are disposed of as under. 2. The grounds raised by the Revenue in all of these appeals are the same. For the sake of convenience, grounds of appeal raised by Revenue for the A.Y 2012-13 are reproduced hereunder: "1. The Ld. CIT(A) erred in law and on facts in considering the interest income earned during the pre-commencement period, as a capital receipt. 2. The Ld. CIT(A) is not justified in law and on facts in treating the interest income as a capital receipt by relying upon the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in the work-inprogress was income tax and financial cost. He held that the claim of income tax as an expenditure is not allowable as per the IT Act either as capital or as revenue expenditure. As regards the financial cost incurred on account of borrowed funds, which has been set-off against the interest income from the fixed deposits, he held that the same is not allowable as the interest bearing funds are utilized for the purpose of setting up of business. While interest income is not derived from the business of the assessee nor can it be treated as capital work-in-progress, but is to be brought to tax under the head "income from other sources". Accordingly, a show cause notice was issued to the assessee. The assessee filed a letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head "income from other sources". Accordingly, he brought it to tax in respect of all the assessees. 4. Aggrieved, the assessee preferred appeals before the CIT(A) who, after considering the judgments of Hon'ble Supreme Court in the Case of (i) Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT [997] 227 ITR 172 (SC); (ii) CIT Vs Bokaro Steel Ltd (1999) 236 ITR 315 (SC); (iii) CIT Vs Karnal Co-operative Sugar Mills Ltd., (2000) 243 ITR 2 (SC) and other Hon'ble High Court decisions at length, has held that the interest income earned from the fixed deposits of the equity fund is to be treated as capital receipt which goes to reduce the project cost. Against the relief granted by the CIT(A) the Revenue is in appeal before us. 5. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has held that the principle lydown by the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) will not apply where the receipts are inextricably linked with the activity of setting up of the capital structure of the assessee company. This decision was followed by the Hon'ble Supreme Court in the case of Karnal Co-operative Sugar Mills Ltd., (supra) and also by a three Judges Bench in CIT Vs Karnataka Power Corporation (2001) 247 ITR 268. In the case of Bokaro Steel Ltd., (supra) the Hon'ble Supreme Court was considering various expenses incurred by the assessee before setting up of the plant and the income earned by the assessee from letting out of quarters for the residence of staff and workers em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to the project or construction, then the amounts are to be set off from capital expenditure incurred during preoperative stage. In the case before us, the funds deposited by the assessee with the banks are out of the equity capital of the assessee and not surplus funds and they were deposited in the bank because, the assessee was not in a position to proceed with the implementation of the project due to various bottlenecks beyond the control of the assessee. It is also to be noticed that the assessee was not paying any interest on such funds as it is its share capital which is meant were setting up of the project only. Such deposits are, in our opinion, inextricably linked with the project and are part of capital work-in-progress. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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