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TMI Blog2017 (9) TMI 1806X X X X Extracts X X X X X X X X Extracts X X X X ..... udes all the income earned/received or deemed to be earned/received by the person in the previous year. 2. Whether, on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the above mentioned interest income by holding that interest income from contractors advances are inextricably linked with the setting up by ignoring the fact that the advances given by the company were not in the regular course of business nor were it is the business of the company to make advances and earn interest. 3. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal." 4. From the aforesaid grounds, it is noticed that only grievance of the department in this appeal relates to the deletion of addition made by the AO on account of interest earned on the contractors advances by the assessee during the construction period. 5. The ld. Counsel for the assessee at the very outset sated that this issue is squarely covered in assessee's favour vide order dated 15.02.2016 in ITA No. 6016/Del/2013 for the assessment year 2010-11 in assessee's own case (copy of the said order was furnished which is placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. Tuticorin Alkali and Chemicals & Fertilizers Ltd. (1997) 227 ITR 172. 4.2 Therefore, the issue to be decided in this appeal is whether the above receipts are capital receipt as claimed by the appellant or income from other sources u/s 56 of the Act as held by the AO. The whole emphasis of Apex Court decision in the Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) was that funds were found to be surplus. The company was ready to commence trial production and the surplus funds were deposited in bank to earn interest. 4.3 In the instant case there is no dispute that project was under construction during the previous year relevant to AY 2010-11 and the business had not commenced. The appellant company was incorporated on 23-05-2003 as a joint venture company between NTPC Ltd. and Tamil Nadu Electricity Board for the purpose of construction of power plant for generation of electricity. The total project was meant to produce 1500 mw of electricity through 3 units @ 500 mw by each unit. The said power plant was located at Vellur at the outskirt of Chennai, Tamil Nadu. The construction of the power generating unit was started on 28-03-2007. As per letter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds temporally parked with banks to maintain liquidity and to reduce cost, is inextricably linked with the setting up of the project. Similarly, the interest incomes earned on advance to contractors engaged for construction of power plant is also inextricably linked with the setting up of the power plant. These incomes have also gone on to reduce the expenses for setting up of the plant as evident from schedule 15 of annual report showing details of expenses during construction. Hon'ble Supreme Court on identical issue in CIT v. Bokaro Steel Ltd. 102 taxman 94 (SC) after considering the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. (supra) held that interest from advance to contractors, rent charged on contractor, hire charges from contractors are inextricably linked to the setting up of the project and as such capital receipts. In that said decision Hon'ble Apex Court held:- "5. We will take the first three heads under which the assessee has received certain amounts. These are the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said in the present case where the utilization of various assets of the company and the payments received for such utilization are directly linked with the activity of setting up the steel plant of the assessee. These receipts are inextricably linked with the setting up of the capital structure of the assessee - company. They must, therefore, be viewed as capital receipts going to reduce the cost of construction." 4.6 Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. vs. 1TO (2009) 315 ITR 255 (Del.) held that where interest on money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land, a claim that such interest is a capital receipt entitled to be set off against pre-operative expenses, is admissible, as the funds received by the assessee company by the joint venture partners are "inextricably linked" with the setting up of the plant and such interest earned cannot be treated as income from other sources. The Hon'ble Delhi High Court applied the ratio of Hon'ble Supreme Court in Bokaro Steel Ltd. (supra) while arriving at the above decision. Hon'ble High Court also distinguished the facts before them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court as under: "8.1.5 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 far more than the funds lying in bank (Rs.3.34 crores). Interest income is also 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. In view of the above, as the interest on STDR are "inextricably linked" to the setting up of the project and the fact that no surplus funds are also available with the appellant company, therefore, such income is required to be capitalized to be set off against the pre operative expenses. As such the A.O. is not justified in adding the sum of Rs. 36,06,774/- as income for other so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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