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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 ..... n ble Delhi High Court Triumph Reality Pvt. Ltd. [ 2022 (4) TMI 1233 - DELHI HIGH COURT] we agree with the assessee that Only Net Interest shall be capitalised. Therefore, we direct the AO to delete the addition - grounds of appeal raised by the assessee are allowed. - SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER For the Appellant : Shri Suhas Bora AR For the Respondent : Shri M G Jasnani, IRS - DR ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by Assessee is directed against the order of ld. Commissioner of Income Tax (Appeal), Pune-11 dated 18.08.2022 for A.Y.2015-16 emanating from the assessment order under section 143(3) of the Income Tax Act, 1961 dated 30.11.2017. The Assessee has raised the following grounds of appeal: 1. The order of the Ld CIT (A) -11, Pune in the case is opposed to establish law and the judicial pronouncement. 2. The Ld CIT(A) erred both in facts as well as in law in confirming the addition of Rs. 1,27,82,145/-, without considering following important factors: (a) The sources of loan given to Pride Purple Infrastructure is out of bank loan taken which is for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest income of Rs. 1,27,82,145/- from its sister concern and the said interest income was set-off against the interest paid on loan taken by the assessee company. Therefore, the said amount was not capitalized as WIP. The assessee company further submitted that the company earned interest from the idle fund lying with the company in order to protect the interest of the company and therefore, such setting-off should be allowed. 3. The Assessing Officer (AO) following the Hon'ble Supreme Court decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT 227 ITR 172 (SC) held that the interest income earned by the assessee company is taxable as income from other sources and accordingly rejected claim of the assessee of deduction of Rs. 1,27,82,145/- and the said amount of Rs. 1,27,82,145/- was added to the closing work-in-progress by the AO. The Ld.AO also added Rs. 1,27,82,145/- to the Total Income of the Assessee. The ld.CIT(A) confirmed the assessment order. The ld.CIT(A) s Para 10 13 are as under : 10. These decisions clearly held that normally the interest income earned by an assessee through investment of its surplus fund will be taxed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds were diverted to the sister concern cannot be accepted because it will be a violation of terms and condition to credit facility granted by the bank which cannot be allowed by the bank. Considering the 1 facts of the case and the legal position laid down by the Hon. Supreme Court in the case of Tuticorin Alkali (supra), the contention of the appellant that set off of interest 111 paid should be granted against the interest income received from the sister concern, is rejected. 4. Aggrieved by the order of ld.CIT(A), the assessee filed appeal before this Tribunal. Submission of ld.Authorised Representative (ld.AR) : 5. The ld.AR submitted that assessee had borrowed loan from State Bank of India for the project of the assessee. However, since the funds were not required, the assessee gave temporary loan to its sister concern i.e. Pride Purple Infrastructure through banking channel. The assessee company earned interest from idle fund. Earning an interest income out of borrowed funds not immediately required for the business is definitely part of business and hence, interest received by assessee should not be treated as income from other sources. The ld.AR filed copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ldings(supra) is distinguishable on facts. The ld.DR submitted that in the case of CIT Vs. Lok Holdings the assessee Lok Holdings had received certain advances from customers on account of purchase of flats. Since these amounts were not immediately required for the business of the assessee. Assessee temporarily invested with banks. However, in the case of the assessee, the assessee has borrowed money from State Bank of India and that borrowed amount has been diverted to sister concern. Therefore, the Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings is distinguishable on facts and not applicable to the case of the assessee. 6.1 Ld.DR strongly relied on the order of the AO and Ld.CIT(A). Findings and Analysis: 7. We have heard both the parties and perused the records. The assessee is a Private Limited Company and in the business of construction of real-estate. During the year Assessee was constructing residential Project called Park Ivory . It is an admitted fact by the assessee that assessee follows Project Completion Method for recognition of revenue and has not recognized any revenue for taxation during the year. It has been shown as part of closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BWC (Fund Based Working Capital) limit of Rs. 80 crores to the assessee. (page 21 of the paper book). During the year, the Assessee had availed credit facility from State Bank of India of Rs. 25,29,71,951/- for its business. Assessee already had its own available fund of Rs. 33,75,82,188/- (Rs.2,19,00,000/- + Rs. 31,56,82,188/-) and Advance of Rs. 19,57,99,420/-. 9. We have perused the Bank Statement of assessee of State Bank of India.(page 50 onwards of PB) The relevant part extract is as under : Txn Date Value Date Description Ref No./ Cheque No. Branch Code Debit Credit Balance 25/02/2015 25/02/2015 TO CLEARING-JSB REAL VALUE ADVERTISERS-693964 / 693964 5076 1,44,0800.00 -21,05,47,172.00 25/02/2015 25/02/2015 TO CLEARING-HDF Vasavadatta Cement- 693959 /693959 5076 3,27,380.00 -21,08,74,552.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 facts of the case are that the respondent M/s. Lok Holdings was, at the relevant time, a firm involved in the business of development of properties. In the course of its business, the assessee-firm received monies in advance f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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.'s case (supra) is squarely applicable to the facts of the present case. Unquote. 11.3. The Hon ble Bombay High Court in the identical facts held that the Interest Income earned is business income. Hon ble Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attracted as no prudent business man would allow taxation of interest income without the expenditure incurred for earning the same being taken into account. There is also the overriding principle in tax law that it is not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, 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 this Court in Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 181 Taxman 249/315 ITR 255 has held In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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