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TMI Blog2018 (6) TMI 1672X X X X Extracts X X X X X X X X Extracts X X X X ..... the construction of the power projects as well as for meeting the various expenses for purchase of various assets required in the construction of the power plant, that the same was treated as capital asset by the assessee that it was accordingly reduced from the capital work in progress and was claimed as business income. In our opinion in case money is borrowed by a newly started company which is in the process of constructing and erecting its plant the interest incurred before the commencement of production on such borrowed money has to be capitalised and has to be added to the cost of the fixed assets created as a result of such expenditure. Similarly if the assessee receives any amount which is inextricably linked with the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajendra, Challenging the orders dated 23/03/2016 of the CIT(A)-12, Mumbai the Assessing Officer (AO)has filed above appeals. Assessee-company is engaged in the business setting up of coal based power plant. As the issues raised in both the appeals are similar so we are adjudicating them together. Details of filings of returns retunred incomes assessed incomes can be summarised as under: AY. ROI filed on Returned income Asst.date Assessed income 2011-12 05/09/2011 ₹ 3.65 crores 18/03/2014 ₹ 6.99 crores 2012-13 27/09/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kali Chemicals Fertilizers Ltd. (227 ITR 172);South India Shipping Corporation Ltd.(240ITR24);Radico Khaitan Ltd (274 ITR 354); Rajasthan Land Development Corpn. (211 ITR 597)and Ravi Ratna Exports P. Ltd.(246 ITR 443) held that the interest income received on margin money was to be taxed under the head Income From Other Sources . 3.Aggrieved by the order of the AO the assessee filed an appeal before the First Appellate Authority(FAA)and made detailed submissions. After considering the available material she held that that the assessee had not commenced its business operations during the year under consideration that all the expenses incurred in connection with the setting up of the power plant were capitalized and the income earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was required to make deposit with the banks for the purpose of opening of Letter of Credit that the amount so deposited would partake the characteristics of trade related deposits made for the purpose of the Power Generation business that during the tenure of the said margin deposit the assessee had earned interest which was incidental and interlinked with its business of appellant that earned interest reduced the cost of the project that all the expenditure incurred towards construction of the plant were clubbed under CWIP and preoperative expenses, that the interest received on the fixed deposits was rightly reduced from same With regard to the accounting for the Finance Cost relating to the borrowings as mentioned above and corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses for purchase of various assets required in the construction of the power plant, that the same was treated as capital asset by the assessee that it was accordingly reduced from the capital work in progress and was claimed as business income. In our opinion in case money is borrowed by a newly started company which is in the process of constructing and erecting its plant the interest incurred before the commencement of production on such borrowed money has to be capitalised and has to be added to the cost of the fixed assets created as a result of such expenditure. Similarly if the assessee receives any amount which is inextricably linked with the process of setting up its plant and machinery such receipts will go to reduce the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Apex Court in the matter of Karnal Cooperative Sugar Mills Ltd.(supra)wherein the Court after taking note of the facts of the case has held as under: in the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee s agreement with the supplier. It was on the money so deposited that some interest had been earned. This was, therefore, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X
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