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TMI Blog2023 (12) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... e idle fund to protect the interest of company. (b) Earning of interest income out of borrowed funds not Immediately required for the business is definitely activity part of business and thus, the interest income received from Pride Purple Infrastructure which is set off against interest paid on bank loan should not be treated as Income from Other Sources. 3. While confirming the addition made by the AO, Ld CIT(A) failed to appreciate the contention of the appellant that the interest earned is out of the amount borrowed on which interest has been paid and therefore, netting off the interest received and paid is justified in law without giving any valid reason. 4. The appellant may kindly be permitted to add to or alter any of grounds of appeal, if deemed necessary." Brief Facts of the case: 2. The brief facts of the case are that the appellant is a Private Limited Company engaged in the business of Construction and Real Estate activity. It was incorporated on 21/02/2002 as per the certificate of registration issued by ROC. The return of income for A.Y. 2015-16 was filed by the assessee on 28/09/2015 by declaring a total income of Rs. 28,770/-. The case was selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate business activity. It is also held by the Hon. Bombay High Court that in peculiar facts of case, if an assessee is able to prove the linkage of making such investment with his business, in that case only, such interest income can be considered as business income. In the present case, the contention of the appellant is that the earning of interest income out of borrowed fund not immediately required for the business is definitely a business activity. Besides this, the appellant has not furnished anything to substantiate that the funds were given to its sister concern for business purposes or has not furnished anything to substantiate that the interest was earned during the course of business. Since, the appellant has failed to substantiate that the earning of interest income has any linkage to its business activities, the contention of the appellant that the interest income is business income, cannot be accepted? .................. 13. Coming to the second issue as to whether the interest paid on the bank loan can be set off against the Income from Other Sources as claimed by the appellant. The said issue has been discussed in detail by the Hon. Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings 308 ITR 356 and CIT Vs. Lokhandwala Construction Inds 260 ITR 579 (BOM). 5.1 Ld.AR submitted that the Decision of the Hon'ble SC in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd Vs. CIT is distinguishable on facts and hence not applicable to the case of the assessee. Ld.AR submitted that in the case of Tuticorin Alkali Chemicals And Fertilizers Ltd, the Company had not commenced its business, where as in the case of the Assessee Pride Purple Builders Pvt. Ltd., it was incorporated on 21/02/2002 and had commenced business. The assessee is in the business of construction of housing project, the construction had already started. The Assessee had received Booking Advance of Rs. 19,57,99,420/- as on 31.03.2015 and Rs. 2,88,52,242/- as on 31.03.2014. The Assessee follows project completion method. The Ld.AR submitted that based on these facts the case relied by the AO is distinguishable on facts. 5.2 Ld.AR submitted that the assessee availed Loan from State Bank of India for its business purpose, the project called "Park Ivory". The project was stock in trade of the assessee and not a capital asset. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76/- as closing work-in- progress. Assessee has not capitalized the interest expenses of Rs. 1,27,82,145/-. It is observed that as per the Profit and Loss Account, assessee had incurred interest expenses of Rs. 1,85,90,273/- out of which Rs. 58,08,120/- has been capitalized as part of closing work-in-progress. Assessee claimed that assessee had received interest of Rs. 1,27,82,145/- from its sister concern on account of loan given by the assessee to sister concern and the said amount has been reduced from the total interest income payable. The details of work-in-progress submitted by assessee are as under : Particulars Rs. Rs. Opening stock 20,21,58,776 Add: All costs 35,27.62,121 Material cost 31,76.89.411 Finance expense 2,84.80,273 Other Expense 64,77,073 Depreciation 1,15,364 Add: Profit 38,766 Less: Other Income 1,28,20,911 Closing WIP 33,99,79,976 8. Analysis of Assessee's Balance Sheet shows following facts: As on 31.3.2015 As on 31.3.2014 Share Capital 2,19,00,000/- 2,19,00,000/- Reserve & Surplus 31,56,82,188/- 31,56,43,422/- Advance against Bookings 19,57,99,420 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure and the credit facility availed by the assessee. 10. The assessee had earned Interest Income from the said Investment made in the sister concern Pride Purple Infrastructure. 10.1 In the Balance Sheet, in Note Number 7, the assessee has shown as under : "Investment in Pride Purple Infrastructure : Rs. 22,71,62,710/-" 10.2 Thus, assessee has shown Rs. 22,71,62,710/- as investment in sister concern Pride Purple Infrastructure. 11. It is a fact that the Assessee was constructing a housing project called "Park Ivory". The construction of the said project had already started in earlier years and assessee had also received Booking Advance. It means the assessee had also already started sale. 11.1 In these facts and circumstances of the case, we agree with the Ld.AR that the case law relied by the AO in the case of Tuticorin Alkali Chemical (supra) is distinguishable on facts as in that case the business was not commenced, where as in the case of the Assessee the business was already started in earlier years. 11.2 The Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings 308 ITR 356 (Bombay)[15-01-2008]has held as under : Quote, " 2. The brief relevant fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year. 7. The advocate appearing for the respondent relied upon a judgment of the Division Bench of this Court in the case of CIT v. Paramount Premises (P.) Ltd.[1991] 190 ITR 259 . The facts of Paramount Premises (P.) Ltd.'s case (supra) were almost similar to the facts before us. The assessee in that case had received deposits in instalments from prospective purchasers while the work of construction was in progress. If the purchasers failed to make deposits by stipulated dates, they were required to pay interest. Idle amounts were deposited with the bank or given on temporary loans until such time as they were required for construction. Thus, interest was earned on these amounts. In due course the assessee's appeal was considered by the Tribunal and the Tribunal recorded a finding that the entire interest sprang from the business activity of the assessee and did not arise out of any independent activity. This Court held that the aforesaid interest was assessable as income from business and affirmed the correctness of the view of the Tribunal that the interest so earned was "Income from business". In our view, the law as laid down in Paramount Premises (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs U K Bose [2013] 29 taxmann.com 219 (Delhi) has held as under : Quote , " 15. That leaves us with the second substantial question of law in ITA No. 258/2010 which is as under: - (ii) Whether the ITAT was correct in law in deleting the addition of Rs. 10,12,529/- made by the assessing officer on account of interest paid by the assessee on loan taken for purchase of an exempted asset?" We may notice the facts giving rise to the question. The assessee received interest of Rs. 17,87,426/- from Sahara India Commercial Corporation Ltd. (SICCL) against which it claimed deduction of Rs. 10,12,524/-, being interest paid to the sameentity i.e. SICCL and declared the net interest of Rs. 7,74,897/- as his income................................ This Court held that the interest which had to be excluded from the business profits was not the gross amount of interest, but only the net interest after adjusting the expenditure incurred by the assessee to earn such interest. There was reference made to the judgment of the Supreme Court in Keshavji Ravji & Co. ( Supra) and it was observed by this Court in paragraph 51 of the judgment that the underlying principle of netting would get att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel acquired by the assessee under SARFAESI Act. The entire ECB loan was disbursed in a single trench in the year under consideration and during this year, the assessee could utilize only Rs. 33.70 crores. Therefore, the assessee had temporarily parked the ECB loan in FDRs till utilization for fixed asset/capital expenditure strictly in compliance with RBI instructions. The assessee had paid interest of Rs. 13.38 crores and has earned interest on FDRs of Rs. 4.03 crores. The net amount of interest of Rs. 9.35 crores has been added to the preoperative expenditure pending capitalization. 4. The judgment passed in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) referred to and relied upon by learned standing counsel for the Appellant has been considered and explained subsequently by the Apex Court in CIT v. Bokaro Steel Ltd. [1999] 102 Taxman 94/1 SCC 645, wherein it has been held "......if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income." 5. Subsequently, a Division Bench of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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