Elgen (India) Private Limited, Hyd, Secunderabad V. ITO, Ward-17(2), Hyd, Hyderabad

ITA 1286/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2370 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 04-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Capital receipt; Capital expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1286 & 1287/HYD/2016 ASSESSMENT YEARS: 2012-13 & 2013-14 ELGEN (INDIA) PVT. LTD., HYDERABAD. PAN AAACE 8520 VS. INCOME TAX OFFICER, WARD 17(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V. SIVA KUMAR REVENUE BY : SMT. N. SWAPNA DATE OF HEARING : 22-09-2017 DATE OF PRONOUNCEMENT : 29-11-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST A COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX(A) - 5, HYDERABAD, DATED 29-07-2016 FOR AYS 2012-13 & 2013 -14. AS THE ISSUE IS IDENTICAL IN BOTH THE APPEALS, THE SAME WE RE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY THE FACTS OF THE CASE, AS TAKEN FROM AY 2012-13, ARE THAT THE ASSESSEE, IS A COMPANY, YET TO START COMMERCI AL OPERATIONS, FILED ITS RETURN OF INCOME FOR THE AY 2012-13 ON 28/09/20 12 ADMITTING THEREIN LOSS OF RS. 3,71,359/-. THE SAID RETURN WAS SELECTED FOR SCRUTINY UNDER CASS CATEGORY, THEREFORE, A NOTICE U/S 143(2) WAS ISSUED ON 07/08/2013. IN RESPONSE TO THE SAID NOTIC E, THE AR OF THE ASSESSEE APPEARED AND FURNISHED THE INFORMATION CAL LED FOR. AFTER 2 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. CONSIDERING THE INFORMATION FURNISHED, THE AO DETER MINED THE INCOME OF THE ASSESSEE AS UNDER: 2.1 THE ASSESSEE COMPANY M/S ELGEN (INDIA) LTD., WA S ESTABLISHED FOR THE PURPOSE OF POWER GENERATION. IT HAS TAKEN U P A 700MW (350 X 2) GAS BASED POWER PROJECT IN KARIMNAGAR. IT RECEIV ED HUGE AMOUNT OF SHARE CAPITAL NEARLY 50 CRORES INCLUDING SHARE PREM IUM. MOST OF THE SHARE CAPITAL WAS CONTRIBUTED BY THE FRIENDS AND RE LATIVES WHO ARE NRIS. SINCE THE ASSESSEE COULD NOT GET APPROVALS FR OM VARIOUS GOVT. DEPARTMENTS DURING THE YEAR UNDER CONSIDERATION, TH E FUNDS RECEIVED IN THE FORM OF SHARE CAPITAL AND SHARE PREMIUM WAS KEPT IN FIXED DEPOSITS IN THE BANK. DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE EARNED AN AMOUNT OF RS. 2,16,68,124/- AS I NTEREST ON DEPOSITS AND THE SAID INTEREST HAD BEEN SET OFF AGA INST THE CAPITAL EXPENDITURE OF RS. 2,17,39,457/- AND THE BALANCE AM OUNT OF RS. 71,333/- WAS SHOWN AS EXPENDITURE TO BE SET OFF IN FUTURE AND ACCORDINGLY, THIS AMOUNT WAS SHOWN ON THE ASSETS SI DE OF BALANCE SHEET. 2.2 THE AO NOTED THAT DURING THE PREVIOUS YEAR RELE VANT TO AY 2010-11 ALSO THE ASSESSEE COMPANY EARNED AN AMOUNT OF RS. 17,43,212/- AS INTEREST ON FDRS AND THE SAID INTERE ST WAS OFFERED TO TAX EVEN THOUGH IT HAD INCURRED CAPITAL EXPENDITURE OF RS. 51,76,387/- (1,02,06,485 50,30,098) DURING THE SAID FY. THE A O OPINED THAT WHEN THE INTEREST INCOME EARNED OUT OF THE FIXED DE POSITS WAS OFFERED BY THE ASSESSEE ITSELF FOR FIRST YEAR AND IMMEDIATE LY FOLLOWING YEAR, IT HAS CHANGED THE TREATMENT OF INTEREST RECEIPT AND R EDUCED THE CAPITAL EXPENDITURE. HENCE, THE AO ASKED THE ASSESSEE TO EX PLAIN THE SAME. THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER C ONSIDERATION, IT OBTAINED LEGAL OPINION ABOUT THE TAXABILITY OF THE INTEREST AND ACCORDING TO THE LEGAL OPINION, IT NEED NOT OFFER T HE INTEREST AS INCOME FROM OTHER SOURCES AND THE SAME CAN BE SET OFF AGAINST THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE. THERE FORE, THE COMPANY 3 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. HAD SET OFF THE INTEREST EARNED ON FIXED DEPOSITS A GAINST THE CAPITAL EXPENDITURE AND DID NOT OFFER ANY INCOME OUT OF INT EREST EARNED. 2.3 AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AN D ANALYSING THE ISSUE IN THE LIGHT OF VARIOUS CASE LAW INCLUDING T HE CASE OF M/S TUTIKORIN ALKALI CHEMICALS & FERTILIZERS LTD. (227 ITR 172), THE AO HELD THAT THE ASSESSEE HAD MADE DEPOSITS ONLY OUT O F THE SHARE CAPITAL RECEIVED WHICH OTHERWISE SHOULD HAVE BEEN K EPT IDLE. THEREFORE, PRINCIPLES LAID DOWN BY THE HONBLE SUPR EME COURT IN THE CASE OF TUTIKORIN ALKALI CHEMICALS & FERTILIZERS LT D. (SUPRA) ARE CLEARLY APPLICABLE TO THE CASE OF ASSESSEE AND ACCO RDINGLY, HE BROUGHT THE INTEREST AMOUNT OF RS. 2,16,68,124/- TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A) WHEREIN IT WAS CONTENDED T HAT THE AMOUNT RECEIVED TOWARDS THE EQUITY SHARE CAPITAL AND ALLOT MENT OF SHARES IN THE COMPANY WERE INEXTRICABLY LINKED TO THE SETTING UP OF THE PROJECT SUCH AS ACQUIRING LAND, DEVELOPMENT OF INFRASTRUCTU RE, GETTING THE DPR PREPARED, THE PROMOTERS FINANCIAL CAPACITY, FI NANCIAL SOUNDNESS AND READINESS TO UNDERTAKE THE PROJECT, ETC. ASSESS EES FURTHER ARGUMENTS AND CASE LAW RELIED UPON WERE EXTRACTED B Y THE CIT(A) IN HIS ORDER AT PAGES 4 TO 19. 5. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, EXAMINED THE ISSUE ELABORATELY IN LIGHT OF VARIOUS CASE LAW INCLUDING THE CASE LAW RELIED UPON BY THE ASSESSEE, OBSERVED THAT IN THE INSTANT CASE THERE COULD BE NO DOUBT THAT THE EXPENDITURE I NCURRED BY THE ASSESSEE CAN BY NO STRETCH BE SAID TO HAVE BEEN INC URRED WITH THE OBJECT OR FOR THE PURPOSE OR EARNING THE INTEREST I NCOME. FURTHER, HE OBSERVED THAT IT COULD NOT BE SAID THAT THE EXPENDI TURE INCURRED WAS TO PRESERVE THE ASSET OR COULD IT BE SAID THAT THE EXP ENSES WERE INCURRED FOR THE PURPOSE OF MAINTENANCE OF THE SOURCE. HE AL SO OBSERVED THAT 4 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. THE INTEREST INCOME WAS DERIVED FROM THE FIXED DEPO SITS AND ACCOUNTS ETC., THE ASSESSEE COULD NOT BE SAID TO HAVE CARRIE D ON ANY BUSINESS TO BRING THE INTEREST INCOME WITHIN THE MEANING OF SECTION 28 OF THE ACT AND, THEREFORE, THE INTEREST INCOME WAS LIABLE TO BE ASSESSED ONLY UNDER THE INCOME FROM OTHER SOURCES. IN VIEW OF T HE ABOVE OBSERVATIONS, THE CIT(A) HELD THAT THE AO WAS RIGHT IN HOLDING THAT THE EXPENSES CLAIMED WERE NOT RELATED TO THE INTEREST I NCOME AND WAS NOT A DEDUCTIBLE EXPENDITURE. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON IN BOTH THE APPEALS EXCEPT THE AMOUNT OF ADDITION: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS AGAINST LAW, WEIGHT OF EVIDENCE AND PR OBABILITIES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER AND H OLDING THAT THE INTEREST AMOUNT OF RS.2,16,68,124/- IS ASSESSAB LE AS INCOME FROM OTHER SOURCES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , HAD ERRED IN HOLDING THAT THE ASSESSEE COMPANY WAS NOT ENTITLED TO SET OFF OF INTEREST ON BANK DEPOSITS OF RS.2,16,68, 124/ - EARNED DURING THE PRE-OPERATIVE PERIOD AGAINST THE EXPENDI TURE INCURRED DURING THE SAID PERIOD. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN MERELY RELYING ON THE ASSESSMENT ORDER OF LEARNED A O, WHICH ORDER FAILED TO CONSIDER THE DETAILED SUBMISSIONS M ADE IN THIS BEHALF BY THE APPELLANT. 7. LD. AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE US WHEREIN HE RELIED ON VARIOUS CASE LAW TO SUBMIT THA T IF THE AMOUNTS WERE MEANT FOR THE PURPOSE OF SETTING UP OF THE PLA NT AND INTEREST EARNED ON ACCOUNT OF TEMPORARY DEPLOYMENT OF THESE FUNDS BUT DUE TO LAND DISPUTES OR GOVERNMENT DECISIONS NOT TO ALLOT GAS, COAL, WATER LINKAGES, WHICH LED TO TEMPORARY DEPLOYMENT OF THES E FUNDS IN FIXED 5 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. DEPOSITS AND EARNED INTEREST, WHICH HAS TO BE TREAT ED AS CAPITAL RECEIPTS, THESE SHOULD NOT BE BROUGHT TO TAX NET. 7.1 HE SUBMITTED THAT IF MORE THAN ONE VIEW IS POSS IBLE ON THE SAME SET OF FACTS, THE LD. CIT(A) OUGHT TO HAVE ADOPTED THE VIEW WHICH IS MOST FAVOURABLE TO THE ASSESSEE. FOR THIS PROPOSITI ON HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. VEGETABLE PRODUCTS, [1973] 88 ITR 192 (SC). FURTHER, HE SUBMI TTED THAT SEEN FROM ANY ANGLE, IT WOULD BE MORE LOGICAL, LEGAL, RA TIONAL AND EQUITABLE THAT INTEREST DERIVED DURING THE PROJECT IMPLEMENTA TION STAGE BE ALLOWED TO BE SET OFF FROM THE COST OF PROJECT RAT HER THAN TAXING AN OTHERWISE CAPITAL RECEIPT. HE ALSO SUBMITTED THAT T HE METHOD FOLLOWED BY THE ASSESSEE IS REVENUE NEUTRAL. THEREFORE, THER E WILL BE NO LOSS OF REVENUE AS ULTIMATELY THE COST OF ASSETS, AFTER THE SET OFF OF INTEREST INCOME AGAINST CAPITALIZED COST OF VARIOUS INDIRECT EXPENSES WILL BE LOWER, THUS, LEADING TO A LOWER CLAIM OF DEPRECIATI ON BY THE COMPANY OVER THE LIFE OF ASSETS. 8. LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS O F REVENUE AUTHORITIES AND ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BONGAIGAON REFINERY & PETROCHE MICAL LTD., [2001] 251 ITR 329 (SC) WHEREIN THE APEX COURT HELD THAT I NCOME DERIVED FROM HOUSE PROPERTY, GUEST HOUSE, CHARGES F OR EQUIPMENT AND RECOVERIES FROM THE CONTRACTORS ON AC COUNT OF WATER AND ELECTRICITY SUPPLY DURING THE FORMATION P ERIOD OF THE BUSINESS IS NOT CHARGEABLE TO TAX BUT HAD TO BE ADJUSTED AGAINST THE PROJECT COST; INTEREST INCOME IS HOWEVER TAXABLE . 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE ASSESSEE HAS BROUGHT SHARE CAPITAL F OR THE SOLE PURPOSE OF ESTABLISHING POWER GENERATION UNIT, MAIN LY, A GAS BASED 6 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. PROJECT OF 700MW. THIS SHARE CAPITAL ALONG WITH SHA RE PREMIUM, WAS CONTRIBUTED BY THE FRIENDS AND RELATIVES, WHO ARE N RIS, OF THE DIRECTOR. THE ASSESSEE HAS COMMENCED THE INITIAL AC TIVITIES FOR SECURING THE VARIOUS PERMISSIONS/APPROVALS FOR THE PROJECT FROM THE STATE/CENTRAL GOVERNMENT AGENCIES, LAND ACQUISITION AND PROJECT FEASIBILITY ETC. DUE TO CHANGE IN THE GOVERNMENT PO LICIES AND UNFORESEEN DEVELOPMENT, IT MAKES THE PROJECT DIFFIC ULT TO IMPLEMENT. IN THE GIVEN CASE, IT WAS DISCOVERED THAT SHORTFALL IN ALLOCABLE SUPPLY OF NATURAL GAS IN KRISHNA BASIN WOULD NOT MEET THE DEMAND OF POWER UNITS IN THE STATE OF AP/TELENGANA. ACCORDINGLY, PO WER MINISTRY HAS ISSUED AN ADVISORY TO POWER DEVELOPING UNITS NOT TO PLAN PROJECTS UNTIL 2015-16 VIDE CIRCULAR DATED 14/03/2012. THE ABOVE D EVELOPMENT BROUGHT THE PROJECT IMPLEMENTATION PROCESS TO HALT . THE ASSESSEE STILL EXPECTS TO GET FAVOURABLE SANCTION FROM THE P OWER MINISTRY FOR GAS LINKAGES CONSIDERING THE FACT THAT THERE IS STI LL HUGE DEMAND FOR POWER. IN ORDER TO ACHIEVE THE ABOVE OBJECT OF ESTA BLISHING GAS BASED POWER PLANT, ASSESSEE HAS RETAINED THE SHARE CAPITA L AND ALSO THIS CAPITAL COULD NOT BE RETURNED TO THE SHAREHOLDERS A S THE SAME WAS ALREADY ALLOTTED. SUCH SHARE CAPITAL WAS DEPOSITED IN THE BANKS AND EARNED INTEREST INCOME. CAN THE INTEREST BE CHARGEA BLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. WE HAVE ANALY SED THE ABOVE QUERY IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMEN TS OF HONBLE SUPREME COURT, HIGH COURTS AND COORDINATE BENCHES. THE MAJOR DECISIONS OF HONBLE SUPREME COURT IN THIS SUBJECT ARE AS UNDER: 1. TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD., VS CIT, [1997] 227 ITR 172 (SC): IF FUNDS HAVE BEEN BORROWE D FOR SETTING UP OF A PLANT AND THE FUNDS ARE SURPLUS, THEN BY VIRTUE OF THAT CIRCUMSTANCES THEY ARE INVESTED IN FIXED DE POSITS, THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXAB LE UNDER HEAD INCOME FROM OTHER SOURCES. 2. CIT VS. BOKARO STEEL LTD. [1999] 236 ITR 315 (SC ): IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER 7 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. MANNER ON FUNDS, WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRE D TO BE CAPITALIZED TO BE SET OFF AGAINST PREOPERATIVE EXPE NSES. 9.1 FROM THE ABOVE RATIOS, IT IS CLEAR THAT IF THE SURPLUS FUNDS ARE INVESTED IN FIXED DEPOSITS, THE INTEREST INCOME EAR NED IS CHARGEABLE TO TAX. WHEREAS IN THE BOKARO STEEL CASE, FUNDS WHI CH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT, SUCH INCOME REQUIRED TO BE CAPITALIZED. LATER IN THE CASE OF BONGAIGOAN REFINERY, [2001] 251 ITR 329 (SC), THE HONBLE SUPREME COURT HAS REI TERATED THE FINDINGS OF BOKARO STEEL, FOR THE OTHER INCOME AND, WITH REGARD TO INTEREST INCOME, IT REITERATED THE RATIO OF TUTICOR IN ALKALI CASE. HONBLE SUPREME COURT HAS LAID DOWN THE PRINCIPLE THAT THE SURPLUS FUNDS INVESTED AND INCOME GENERATED ARE TAXABLE UNDER TH E HEAD INCOME FROM OTHER SOURCES AND AT THE SAME TIME, IF IT IS INEXTRICABLY LINKED TO PROJECT, IT CAN ONLY BE CAPITALIZED. SUBSEQUENTLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO, 181 TAXMAN 249 (DEL.) HAS HELD AS UNDER: THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPM ENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON F UNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE TH E INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINES S, IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE, WAS REQUIR ED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES. IN THE CASE OF PR. CIT VS. FACOR POWER LTD.,[2016] 66 TAXMANN.COM 178 (DELHI), THERE IS A FINDING OF FACT THAT THE MONEY PLACED I N THE FIXED DEPOSITS WAS INEXTRICABLY LINKED WITH THE SETTING U P OF THE POWER PLANT. THUS, THE REVENUE GENERATED ON ACCOUNT OF IN TEREST ON FIXED DEPOSIT WOULD BE IN THE NATURE OF A CAPITAL R ECEIPT AND NOT REVENUE. THIS CASE HAS BEEN DECIDED ON THE BASIS OF THIS PRINCIPLE AND NOT ON THE BASIS THAT THE SOURCE OF T HE FUNDS WAS THROUGH RAISING OF SHARE CAPITAL AND NOT THROUGH BO RROWINGS. 8 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. 9.2 IN THE ABOVE TWO DECISIONS, IT IS CLEAR THAT IN CASE THE SHARE CAPITAL IS BROUGHT FOR SPECIFIC PURPOSE FOR THE IMP LEMENTATION OF THE PARTICULAR PROJECT, AND INTEREST IS EARNED BY TEMPO RARILY DEPOSITING IN THE BANK, SUCH INCOME CAN BE TREATED AS CAPITAL RE CEIPT. IN THE GIVEN CASE, ASSESSEE HAS BROUGHT THE SHARE CAPITAL ONLY F OR THE IMPLEMENTATION/COMMENCEMENT OF THE POWER PROJECT. SINCE, IT COULD NOT PROCEED WITH THE IMPLEMENTATION, UNDER CONSTRAI NT, IT KEPT THE UNUTILIZED FUNDS IN THE BANK; IN THAT PROCESS IT H AS EARNED INTEREST; BY FOLLOWING THE RATIOS OF HONBLE SUPREME COURT, T HE FUNDS KEPT IN BANK UNDER CONSTRAINT AND THE FUNDS ARE INEXTRICABL Y LINKED TO THE PROJECT, SUCH INCOME CAN BE TREATED AS CAPITAL RECE IPT. AT THE SAME TIME, THE FINDINGS OF DELHI HIGH COURT IN THE SIMIL AR CIRCUMSTANCES AS IN THE CASE UNDER CONSIDERATION ARE FULLY APPLICABL E TO THE CASE IN HAND. THEREFORE, IN OUR CONSIDERED VIEW, THE ASSESS EE IS ELIGIBLE TO TREAT THE INTEREST AS CAPITAL RECEIPT. WHETHER THE ASSESSEE CAN UTILIZE THIS RECEIPT TO SET OFF THE OTHER PRE-IMPLEMENTATIO N EXPENSES, IN OUR VIEW, WE HAVE ALREADY TREATED THE INTEREST RECEIPTS AS CAPITAL IN NATURE AND THE PRE-COMMENCEMENT EXPENSES ARE ALSO C APITAL EXPENDITURE, THE ASSESSEE CAN SET OFF SUCH EXPENSES . 9.5 LD. DR HAS SUBMITTED JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF DERCO COOLING COILS LTD., [1992] 198 ITR 37 5 (AP) WHEREIN THE COURT HAS LAID DOWN THE FOLLOWING RATIO: THE RECEIPT IN QUESTION AROSE OUT OF SHARE CAPITAL MONEY DEPOSITED WITH THE BANK WHICH MIGHT OR MIGHT NOT BE UTILIZED OR MEANT TO BE UTILIZED FOR THE PURPOSE OF SETTING UP OF THE PLANT. THIS AGAIN EMPHASIZED THAT THE INTEREST RECEIVED MI GHT NOT STAND ON THE SAME FOOTING AS THE INTEREST INCURRED DURING PRE- PRODUCTION PERIOD, SO THAT ONE COULD BE SET OFF AGA INST THE OTHER. IN THE ABOVE CASE, THE ISSUE WAS, CAN THE ASSESSEE SET OFF THE INTEREST INCOME EARNED BY DEPOSITING THE SHARE CAPI TAL MONEY AGAINST THE INTEREST EXPENSES INCURRED DURING PRE-PRODUCTIO N PERIOD. THIS RATIO CANNOT BE APPLIED TO THE CASE OF THE ASSESSEE UNDER CONSIDERATION. 9 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. 9.6 CONSIDERING THE ABOVE DISCUSSION, IN OUR CONSID ERED VIEW, THE INTEREST INCOME EARNED BY ASSESSEE BY DEPOSITING TH E SHARE CAPITAL IN FIXED DEPOSITS UNDER CONSTRAINT ARE ELIGIBLE TO TRE AT THE INCOME AS CAPITAL IN NATURE AND ALLOWED TO SET OFF AGAINST TH E PRE- COMMENCEMENT EXPENSES DURING THE YEAR. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10. AS THE ISSUE IN AY 2013-14 IS IDENTICAL TO THAT AY 2012-13, FOLLOWING THE CONCLUSIONS DRAWN THEREIN, WE ALLOW T HE APPEAL IN AY 2013-14 ALSO. 11. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERA TION ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT AC COUNTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2017. KV COPY TO:- 1) ELGEN (INDIA) PVT. LTD., PLOT NO. 213, ROAD NO. 1, FILM NAGAR, JUBILEE HILLS, HYDERABAD 500 096. 2) ITO, WARD 17(2), INCOME-TAX TOWERS, AC GUARDS, HYD. 3) CIT(A) 5, HYDERABAD 4 PR. CIT 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE 10 ITA NOS. 1286 & 1287/H/16 ELGEN (INDIA) PVT. LTD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER