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TMI Blog2020 (12) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... terest expenditure capitalized in the closing Work-in-progress. Further the decisions relied upon by the Ld. CIT(A) are distinguishable from the facts of the case of the assessee. In fact the interest received from the fixed deposit was revenue in nature whereas interest expended was capital in nature? 3. Whether on the facts & circumstances of the of the case and in law, Ld, CIT(A) has erred in not appreciating the fact that since creation of fixed deposits was not the condition precedent for availing the bank credit, therefore the fixed deposits were not created for business purpose but only to earn bank interest and said interest is taxable under the head 'Income from Other Sources? 4. Whether on the facts & circumstances of the of the case and in law, Ld, CIT(A) has erred in not appreciating the fact that the decision of Hon'ble Punjab & Haryana High Court's in the case of CIT Vs Abhishek Industries Ltd. [205 CTR P H 304, (2006) 286 ITR 1 (PH)] is squarely applicable to the assessee's case in respect of diversion of interest bearing funds as a interest free loans to the sister concern? 5. Whether on the facts & circumstances of the of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch interest income is to be assessed as business income and not income from other sources. CIT Vs. Lok Holdings 2009- TMI-32351/(2009) 308 ITR 356 (Bom) Interest incomes from deposits made out of surplus business funds were assessable as Income from Business and not from Income from Other Sources. Interest income was closely connected with business of the assessee and was part of the business income Satishchandra and Co. Vs. CIT (1998) 234 ITR 79 (Kar) It was a case of temporary surplus fund available to the assessee not immediately required for its business purposes which was kept in fixed deposits but ne vertheless, the funds were meant only for the assessee's construction activities and, therefore, they were inextricably /inked with the assessee's activities and hence, assessable as income from business Voltas International Ltd. Vs. ACIT (2010) 2 ITR (Trib) 410 (Mum) Interest earned on short term deposits made out of spare funds is assessable as business income. Snam Progetti SPA Vs. Add.CIT (2010) 132 ITR 70 (Del) Unutilized funds were invested in interest bearing short-term deposits. The assessee earned interest on such short-term fixed deposits made out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder contentions also support the view that the interest earned is capital receipt and has rightly been capitalised and reduced from WIP to effectively reduce the cost of borrowed funds. This ground is, therefore allowed." 5. Against the above order revenues in appeal before us. 6. We have heard both the parties and perused the records. We find that learned CIT(A) has given the finding that the fixed deposits were created and thereafter used as margin for pertaining bank loan for the purpose of business. In this way of the matter the Nexus with business is duly established. The case laws referred by the CIT(A) duly supported proposition. Furthermore in our considered opinion the issue may not have much of the revenue impact. Hence in considered opinion once it is established that there was business nexus there is no infirmity in the order of learned CIT(A) allowing the netting off of the same. Accordingly the upon the order of learned CIT(A) on this issue. Apropos second issue : ground no 5 7. Though no specific issue is referred in this ground, Learned counsel of the assessee has submitted that this ground is relating to the assessing officer's action of disallowing interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case establish that the interest free advances to wholly owned subsidiaries had direct nexus with the business of the appellant and were made out of commercial expediency. The subsidiary companies owned the land and the appellant had entered into facilitation agreement with the subsidiaries for development of that land. This establishes that the business of the appellant was inextricably linked with that of the subsidiaries and was in fact dependent on the land resources available with subsidiaries in their books. 5.3.5 The appellant has relied upon the ratio of judgement of Hon'ble Supreme Court in S.A. Builders Ltd. vs CIT, 288 ITR 1. Similar issue was examined by Hon'ble Bombay High Court in The Commissioner of Income Tax-7 Vs M/s Reliance Communications Infrastructure Ltd, Income Tax Appeal No. 3155 OF 2009 wherein the Hon'ble Court made the following observation on the above mentioned judgement: "10. In S.A. Builders, the Assessing Officer had observed that the assessee had transferred a certain amount to its subsidiary out of a cash credit account in which there was a debit balance. The Assessing Officer found that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the subsidiary and utilizes even borrowed money for furthering its business connection, there is no reason or justification to make a disallowance in respect of the deduction which is otherwise available under Section 36(1)(iii)." In conclusion, the Hon'ble Bombay High Court observed: ".......the finding is that the funds were deployed as a matter of commercial expediency and to further the business of the assessee. The latter finding is independent of whether borrowed funds were or were not utilized, for in view of the judgment of the Supreme Court held, the fact that borrowed funds were utilized for making investments or, as the case may be, for making advances would not disentitle the assessee to the deduction so long as business expediency exists." 11. In the instant case, as discussed above, business expediency of making interest free advances to wholly owned subsidiaries has been established. Accordingly learned CIT appealed deleted the disallowance of proportionate interest by the assessing officer. 12. Against the above order assessee is in appeal before us. 13. We have heard both the parties and perused the records. We find that it is undisputed fact of the ..... 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