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TMI Blog2020 (3) TMI 1280X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources on one hand and treated interest expenses as part of the project cost. Both the CIT(A) and Tribunal have rightly come to the conclusion that the interest income earned by the assessee is inextricably linked with the project as both interest expenses and interest income are arising from the same borrowed fund. Interest income on the fixed deposit placed with the Bank for issuance of bank guarantee - HELD THAT:- Reliance placed by the Assessing Officer on the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals [ 1997 (7) TMI 4 - SUPREME COURT] would not be tenable because in the said decision, the Supreme Court has held that if the idle fund of the assessee is invested for the purpose of earning interest income, such income would be treated as income from other sources. Considering the concurrent findings of fact arrived at by the CIT(A) and the Tribunal that the interest income earned by the assessee on the security deposit kept with GVISPL is directly and inextricably linked with the project, the project cost is to be reduced to that extent as the assessee has borrowed funds for placing such security deposit and interest expenses incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestions as substantial questions of law: [A] Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of ₹ 3,81,36,986 made under Section 56 of the Act without appreciating the fact that the said income earned is not inextricably linked with the business of the assessee and cannot be reduced from capital expenditure. [B] Whether, the Appellate Tribunal has erred in law and on facts in deleting the addition of unutilized CENVAT credit of ₹ 29,60,018/- without appreciating the fact that the assessee has followed exclusive method for accounting CENVAT as against inclusive method mandated under Section 145A of the Act? 2.1. In Tax Appeal No. 114 of 2020, the Revenue has proposed the following solitary question as substantial question of law: Whether the Appellate Tribunal has erred on facts and in law in deleting the addition of ₹ 1,04,463 made under Section 56 of the Act on account of interest earned on bank deposits? 3. The short facts giving rise to these appeals may be summarized as under: 3.1. The respondent-assessee is a Pvt. Ltd. Company and 100% subsidiary of Adani Enterprises Ltd. (for short, AEL ). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, was of the opinion that security deposit placed by the assessee with GVISPL was only an arrangement between the parties and the same was not linked with the project of the assessee. The Assessing Officer, therefore, treated the interest income earned by the assessee on the security deposit placed by GVISPL as income from other sources under Section 56 of the Act, 1961. 3.6. The Assessing Officer also disallowed ₹ 1,04,463/- earned by the assessee on the deposit kept with the Bank for issuance of Bank Guarantee as income from other sources. 3.7. The assessee being aggrieved and dissatisfied with the assessment order, preferred an Appeal before the CIT (A). The CIT (A), after considering the submission of the assessee, held that the security deposit placed with GVISPL was directly linked with the project undertaken by the assessee from AEL/UCM. 3.8. The CIT(A) therefore, directed to reduce the interest income from the project development expenditure. However, the CIT(A) confirmed the action of the Assessing Officer with respect to interest income of ₹ 1,04,463 earned on the fixed deposit made with the Bank in order to obtain the Bank Guarantee by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject. 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 interest income from such borrowed fund as income from other sources and not as part of the impugned project. In our considered view, the AO cannot treat the interest expenses and interest income differently arising from the same fund. In our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m other sources and not as part of the project. Thus, it was found by the Tribunal as well as the CIT(A) that Assessing Officer could not have treated interest expense and the interest income differently arising from the same fund. When the Assessing Officer was satisfied with regard to the utilisation of the fund, he ought to have considered the interest income and interest expenses arising from the same fund at par. In other words, the Assessing Officer could not have treated interest income as income from other sources on one hand and treated interest expenses as part of the project cost. 4. In such circumstances, both the CIT(A) and Tribunal have rightly come to the conclusion that the interest income earned by the assessee is inextricably linked with the project as both interest expenses and interest income are arising from the same borrowed fund. 5. With regard to the interest income on the fixed deposit placed with the Bank for issuance of bank guarantee, the Tribunal has found that the bank guarantee was in connection with the project awarded by GMDCL. The Tribunal also verified this fact from the Bank Guarantee furnished by the Axis Bank Ltd. on behalf of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable to tax under s. 22 as income from house property. Likewise, the company may have income from other sources. The company may also, as in that case, keep the surplus funds in short-term deposits in order to earn interest. Such interest will be chargeable under s. 56 of the IT Act. This Court also emphasised the fact that the company was not bound to utilise the interest so earned to adjust it against the interest paid on borrowed capital. The company was free to use this income in any manner it liked. However, while interest earned by investing borrowed capital in short-term deposits is an independent source of income not connected with the construction activities or business activities of the assessee, the same cannot be said in the present case where the utilisation of various assets of the company and the payments received for such utilisation 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. In the case of Challapalli Sugars Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit kept with GVISPL is directly and inextricably linked with the project, the project cost is to be reduced to that extent as the assessee has borrowed funds for placing such security deposit and interest expenses incurred for such borrowed funds are capitalised. Therefore, we are of the opinion that in the facts of the case, the question No.1 proposed by the Revenue cannot be termed as a substantial question of law. 10. With regard to the second question, the Assessing Officer disallowed ₹ 29,60,018/- on account of CENVAT credit. The assessee in its audited financial statements has shown an unutilised CENVAT credit as on 03.02.2011 and claimed that such CENVAT credit pertains to the services received by the assessee and does not pertain to inventories as envisaged under the provision of Section 145A of the Act, 1961 and therefore, the provisions of Section 145A of the Act, 1961 do not apply to it. 11. However, the Assessing Officer was not satisfied with the contention of the assessee and added the amount of CENVAT credit as on the date of balance-sheet to the total income of the assessee by observing that as per the provisions of Section 145A of the Act, 1961, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein 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 interfere in his order. Hence, the ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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