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TMI Blog2021 (5) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 1,61,296/- on account of 'miscellaneous income' by sale of scrap even when the receipt was squarely covered under provision to section 5 of the Act r.w.s. 56(1) & (2) of the Act which says that the total income includes all the income earned/received or deemed to be earned/received by the persons in the previous year? 3. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 5,61,63,696/- and Rs. 28,00,638/- on account of interest received from bank and on advances to contractors respectively by ignoring the findings of the Assessing Officer (the AO) recorded in assessment order that the assessee invested surplus funds which were not immediately required by it in FDRs and earned interest on it which clearly falls in the defining of 'income from other sources' as per sub section (1) & (2) to section 56 of the Act. 4. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. 2. Briefly stated facts of the case are that the assessee company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal relates to the receipt of Rs. 28,00,638/- on account of interest from contractor's advances, Rs. 5,61,63,696/- on account of interest income from banks and Rs. 1,61,296/- on account of Misc. Income from sale of scrap etc.. It is submitted that the company is a Private Limited Company which was incorporated on 09.09.2008 as a joint venture company between NTPC Ltd. and Bihar State Electricity Board, with an equal percentage of shareholdings with the main objective of construction of power plant(s) for generating electricity. The joint venture was incorporated with an authorized capital of Rs. 2000 Crore. It had started in the financial year 2009-10, the preliminary work like survey and investigations etc i.e. before undertaking the construction of the power generating plant of the capacity to produce 3960 MW (660 MWx6 units) of electricity at Shivanpur, Distt- Aurangabad, Bihar. The total estimated cost of the project is Rs. 12,600 crore. The main work of construction of the said power plant was started in the year 2011-12, which is now expected to be completed in the financial year 2018-19 (Stage-1). The funds for the entire power plant had been planned to be financed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sortium (supra) is not applicable over the facts of the assessee. 5. We have heard submission of the Learned DR and perused the relevant material on record. We find that identical issue in the assessment year 2011-12 and 2012-13 has been decided in favour of the assessee by the Learned First Appellate Authority. On further appeal by the Revenue before the Tribunal, the issue whether the interest and other miscellaneous income is in the nature of capital receipt or income from other sources, has been decided by the Tribunal in ITA No. 4560 and 4561/Del./2014 for assessment years 2011-12 and 2012-13 respectively observing as under: "7. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts was a subject matter of the departmental appeal for the assessment year 2010-11 in ITA No. 6016/Del/2013 in the case of ACIT, Circle-13(1), New Delhi Vs NTPC Tamil Nadu Energy Co. Ltd., New Delhi wherein the issue has been decided in favour of the assessee and against the department vide order dated 15.02.2016 and the relevant findings have been given in para 5 & 6 which re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious 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 CEO, commercial operation is declared in respect of unit - I w.e.f. 29/11/2012, unit - II w.e.f. 25/08/13 and unit 3 is yet to be commissioned. By end of financial year 31-03- 2010 the assessee company had raised share holders fund of Rs. 905.5 crores and had borrowed funds in the form of secured loan of Rs. 1808.27 crores. These funds were essentially utilized during the initial period of construction from A.Y. 2004-05 to A.Y. 2010-11 for conducting survey, investigation & preliminary expenses, for purchasing land, for infrastructure development work and for disbursement as advance to the contractors engaged for construction of power plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... micals 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 amenities granted to the staff by the assessee. Secondly, hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and thirdly, interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts are directly connected with or are incidental to the work of construction of its plant undertaken by the assessee. Broadly speaking, these pertain to the arrangements made by the assessee with its contractors pertaining to the work of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition 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 from the facts which were before the apex court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v CIT. The distinction drawn by Delhi High Court, was that that there was a finding of fact recorded in the case before the apex court that whatever money was deposited in the bank was essentially found to be the surplus funds in the hands of that company and the very purpose of making fixed deposits was to earn interest on such surplus money. Apex court under those peculiar circumstances, had held in Tuticorin Alkali Chemicals that interest income arising on surplus funds, was chargeable to tax as income from other sources. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one 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 source u/s 56." 4.9 In view of the above factual and legal positions in the instant AY 2010-11 since the work of construction of the power plant was under progress, interest incomes are also inextricably linked with the setting up of the power plant and such incomes have gone on to reduce the expenses for setting up of the plant and as there was no surplus funds 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. 1,75,74,129/- as income from other source u/s 56. The appeal is allowed in gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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