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TMI Blog2019 (11) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of the hospital then the interest received by the assessee has a direct nexus with the construction of the hospital and consequently it would be capitalized and to be used to reduce the cost of construction of the hospital. Accordingly, when the net of the interest received and interest payment would be finally capitalized then the income offered by the assessee to tax as net interest income cannot be disturbed. In view of the above facts and circumstances, the disallowance and addition made by the A.O. is deleted and the net income offered by the assessee to tax is allowed. - Decided in favour of assessee. - ITA No. 491/JP/2018 - - - Dated:- 19-11-2019 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri P.C. Parwal (CA) For the Revenue : Smt. Ronni Pal (JCIT) ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 05/02/2018 of ld. CIT(A)-I, for the A.Y. 2014-15. The assessee has raised following grounds of appeal: 1. The Ld. CIT(A) has erred on facts and in law in upholding the finding of AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the interest income. Accordingly, the A.O. capitalized the interest expenditure to the hospital building account and assessed the entire interest income to tax. The assessee challenged the action of the A.O. before the ld. CIT(A) but could not succeed. 3. Before us, the ld AR of the assessee has submitted that there is a direct nexus between the loan obtained from the RFC and advance given to M/s Super Prime Construction Pvt. Ltd.. He has referred to the dates of loan received from RFC and the advance given to M/s Super Prime Construction Pvt. Ltd. and submitted that the assessee has utilized loan to give the advance because there was a delay in sanction of the site plan of the hospital by the local authorities. The ld AR has thus contended that as the loan amount from inception was not utilized for construction purpose and was advanced to M/s Super Prime Construction Pvt. Ltd. on which the interest is received, therefore, the interest paid by the assessee on the loan amount as no relation with the construction and cannot be capitalized to the cost of building. Accordingly, the assessee has rightly claimed the same as deduction against interest so received. In s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same has to be capitalized to the hospital building account in view of the decision of the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT (supra). 5. We have considered the rival submissions as well as relevant material on record. There is no dispute that the interest expenditure on the loan taken by the assessee for construction of hospital building is not allowable U/s 36(1)(iii) of the Act prior to the date on which such asset is put to use. Even the assessee also did not claim the interest paid as business expenditure. The dispute is only regarding the allowability of the interest expenditure against the interest income earned by the assessee by giving the said amount to M/s Super Prime Construction Pvt. Ltd. U/s 57(iii) of the Act. The A.O. applied the decision of the Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT (supra) for disallowing the claim of deduction and capitalizing the same to the building account. At the outset, we note that the Coordinate Bench of this Tribunal in the case of M/s Barmer Lignite Mining Co. Ltd. Vs DCIT (supra) has considered an identical issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed. The Judgment and order under challenge is set aside. The question is answered in the negative and in favour of the Revenue. In other words, the interest income is assessable to tax in the hands of the assessee. No order as to costs. 5.4 In view of the above Judgment, the submissions of the assessee that interest earned on deposit should not be taxed as the income from other sources is devoid of any merit, hence rejected. Another submissions of the assessee as Ground No. 2, it is contended by the assessee that in earning this income the assessee has incurred expenditure that which allowable u/s 57 of the Act. It is contended that the interest cost incurred by the assessee of such borrowing is ₹ 17.94 crores whereas the interest earned is only ₹ 12.64 crores. We have given our thoughtful consideration to this submission of the Ld. Counsel for the assessee has per Section 57 of the Act. As per section 57 of the Act income chargeable under the head Income from the other sources shall be computed after making the deductions of expenditure (not being in the nature of capital expenditure) laid out or expended wholly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the books or otherwise, for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use would not qualify as deduction. However, in all these cases, when the interest was received by the assessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, this Court, and indeed the Supreme Court held that if the receipt is inextricably linked to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. By the same logic, in this case too, the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. It may be added that the Tribunal has not found that the deposits made as margin monies were not limited to the construction activity connected to the expansion of the business by way of setting up of a new power generation plant. Accordingly, when the net of the interest received and interest payment would be finally capitalized then the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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