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TMI Blog2019 (9) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... t as the interest expense and income are inextricably linked. Accordingly, we do not find any reason to disturb the finding of the ld. CIT-A. Regarding the interest income from GMDCL, we note that such income was earned by the assessee on the fixed deposits on the bank guarantee made in connection with the project awarded by GMDCL. This fact can be verified from the bank guarantee furnished by the Axis Bank Ltd on behalf of the assessee. There was also no allegation that such bank guarantee represents the circular transaction. Moreover, there was no defect pointed out by the authorities below in the bank guarantee furnished by the assessee. Accordingly, we disagree with the finding of the learned CIT (A). Hence the ground filed by the assessee in its CO is allowed. Ground of appeal of Revenue is dismissed and the ground filed by the assessee in its CO is allowed. Addition on account of CENVAT Credit - contention of the assessee by observing that as per the provisions of section 145A of the Act the assessee is liable to include the amount of duty, cess, tax etc in the amount of purchases, sales and the closing stock - CIT(A) deleted the addition made by the Assessing Officer by obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 3,81,36,986.00 on account of interest income treating the same as inextricably linked with the business and accordingly reduced from the cost of the project. 2. The facts of the case as culled out from the order of the authorities below are that the assessee is a private limited company and hundred percent subsidiary of Adani Enterprises Ltd. (for short AEL). The assessee is engaged in the business of mining/exploration activities. AEL was awarded a contract by UCM Coal Company Limited during the year in a consortium for the development and operation of coal block situated in Orissa. 2.1 AEL subsequently assigned the contract to its subsidiary company being the assessee. After that, the assessee entered into a washery agreement with GVI info private Ltd. As per the agreement, GVI has undertaken the work of constructing, operating, and managing the coal washery for the project. 2.2 The assessee in pursuance to the agreement with GVI provided a security deposit of ₹150 crores subject to the interest at the rate of 6% per annum. The assessee accordingly earned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l washery shall be required under the Contract. (ii) Transport of coal from Mine to Washery through belt conveyor sustem. (iii) The washing technology, other equipment technology and cost shall be mutually discussed and finanlized by AML and GVL in concurrence. (iv) To make available for dispatch the agreed quantity of washed coal meeting the parameters. (v) To operate and maintain the washery as per the best standards in the industry. (vi) GVI shall maintain all the requisite records properly for the inspection by Government agencies concerned with respect to the details of run of mine coal, washed coal and rejects etc. 3.1 Accordingly, the assessee claimed that such agreement with the GVI was essential to execute the impugned project and GVI would not have agreed for such project without the security deposit. Accordingly, the assessee claimed that such interest income on the security deposit furnished to GVI was inextricably linked with the project. 3.2 The assessee also claimed that security deposit by way of furnishing the bank guarantee to GMDCL was inextricably link with the project. Therefore, such interest income cannot be treated as income from other sources un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 172 has treated the interest income as the income from other sources due to the fact that the same was not linked with the project of the assessee. 6.3 Thus, the criteria to see any receipt or payment is whether the same is inextricably link with the project. Accordingly, any receipt shall be treated as inextricably linked with the project if it arises in the course of the project of the assessee. 6.4 Now coming to the present facts of the case whether the impugned interest income from GVI represents the income in connection with the project. Regarding the interest income from the GVI, we among other thing, note that a question also arises about the source of fund forwarded by the assessee to GVI in the form of security deposit, whether it was own fund or non-interest /interest-bearing fund. On perusal of the balance sheet, we note that the own fund of the assessee stands at ₹5 crores which are not sufficient enough to provide such security deposit. Thus the borrowed fund has been utilized for furnishing such security deposit. The AO has not disturbed the interest expenses on such borrowed fund which was capitalized to the cost of the project. But the AO treated the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such it does not pertain to the inventories as envisaged under the provisions of section 145A of the Act. Accordingly, the assessee claimed that the provisions of section 145A of the Act does not apply to it. 7.1 However, the AO was not satisfied with the contention of the assessee by observing that as per the provisions of section 145A of the Act the assessee is liable to include the amount of duty, cess, tax etc in the amount of purchases, sales and the closing stock. Accordingly, the AO added the amount of CENVAT Credit as on the balance sheet date to the total income of the assessee. 7.2 Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 5.2 This issue was discussed by the A.O at para 3 of the assessment order. As seen from the appellant's reply dated 20.01.2014, it was contended that the appellant company was engaged in the mining activity i.e service sector; the CENVAT credit pertained to the services received by the appellant; the credit did not pertain to the inventories and therefore the provisions of sector 145A were not applicable. A.O. did not make any observations on these contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:- "3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of ₹ 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the addition made by the A.O. on account of unutilised modvat/cenvat credit of ₹ 56,08,089/-. We are in complete agreement with the view taken by the learned tribunal." 9.3 There is no ambiguity that the assessee has been following the exclusive method of accounting. In view of the above, we concur with the view of the Ld. CIT(A) and accordingly decline to in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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