SP JAMMU UDHAMPUR HIGHWAY LTD., Mumbai V. DCIT CIRCLE 3(3)(2), Mumbai

ITA 1507/MUM/2019

AI Insights

The case involves SP Jammu-Udhampur Highway Pvt Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2014-15. The primary issues were the treatment of interest income and the classification of certain expenses. The Assessing Officer had treated the interest income as 'Income from Other Sources' and the expenses as pre-operative, directing them to be capitalized. The Tribunal examined the applicability of various Supreme Court judgments and the specific terms of the agreements and financial practices of the assessee, leading to the decision to treat the interest income as capital receipt and to allow the expenses as claimed by the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123897 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 07-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 11-03-2019
• Other Referred Cases: Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT, Bokaro Steel Ltd. v. CIT, Indian Oil Panipat Power Consortium Ltd. v. ITO, Hazaribagh Expressway Ltd. v. ITO, Adani Power Ltd. v. Assistant Commissioner of Income-tax, Range-1, Ahmedabad, Facor Power Ltd. v. Commissioner of Income-tax, Kansara Modler Ltd. v. Commissioner of Income-tax
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Assessment record; Capital receipt; TDS; Set aside; CHAPTER IV
• Section: 145; 56; 142(1); 115JB; 208; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “G”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, HON'BLE JUDICIAL MEMBER ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 41/44, Shapoorji Pallonji Centre Minoo Desai Marg Colaba, Mumbai – 400005 PAN: AAOCS5512N v. DCIT- Circle-3(3)(2) Aayakar Bhavan Mumbai - 400020 (Appellant) (Respondent) Assessee by : Shri Manish Chulawala Department by : Smiti Samant Date of Hearing : 08.12.2022 Date of Pronouncement : 02.01.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals)–8, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.12.2018 for the A.Y. 2014-15. 2. Brief facts of the case are, assessee filed its return of income for A.Y.2014-15 on 28.11.2014 declaring loss at ₹.1,91,63,769/- and 2 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., assessee also declared book loss u/s. 115JB of Income-tax Act, 1961 (in short “Act”) at ₹.1,92,11,960. The return of income was selected for scrutiny and accordingly notices u/s.143(2) and 142(1) of the Act were issued and served on the assessee. In response authorized representative of the assessee attended and submitted the information as called for. 3. The assessee is carrying on the business of Design, Build, Finance, Operate and Transfer (DBFOT) for the rehabilitation, Strengthening and Four laning of Jammu Udhampur Section of National Highway-1A, from KM 15.00 (On Jammu Bypass) to KM 67.00 on Annuity basis in the State of Jammu and Kashmir. 4. Assessing Officer observed from the statement of Profit and Loss Account for the year ended 31.03.2014, for the sake of clarity Profit and Loss Account is reproduced below: - Interest Income & Other Income vs. Pre-Operative Expenses: 5.1 The Statement of Profit & Loss for the year ended 31.03.2014 is reproduced as under: Particulars Current Year Previous Year Revenue from Operation --- --- Other Income Interest on Fixed Deposits 9,19,15,998 16,51,48,295 Interest on IT Refund 8,06,463 3 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., Particulars Current Year Previous Year Miscellaneous Income 87,089 9,28,09,550 Finance Cost 10,06,03,172 Depreciation & Amortization expenses 8,19,490 Other Expenses 1,05,98,848 11,20,21,510 17,28,53,505 Profit Before Tax (1,92,11,960) 5. Assessing Officer observed from the computation of income that assessee after adding back depreciation as per books and interest on delayed TDS and claiming depreciation as per the Act. The assessee company declared loss for the year at ₹.1,91,63,769/-. He observed that assessee has not earned any income from its normal business activity and the entire income credited of ₹.9,28,09,550 in the statement of profit and loss is on account of interest only. He observed that the expenditure claimed by the assessee to the extent of ₹.11,20,21,510 as business expenditure. Based on the above observation Assessing Officer issued notice u/s.142(1) of the Act dated 10.11.2016 directing the assessee to submit the following information: - “1) It is seen from the audited financial statements that you have taken loans amounting to ₹.2147.49 crores for the project. Out of total interest on this loan, an amount of ₹.210,06,03,172 has been debited in Profit & Loss Account. 2) Depreciation of ₹.28,19,490 has been charged to Profit & Loss Account. 3) Other expenses of ₹.105,98,848 including advisory fees of ₹.73,87,670 has been charged to Profit & Loss Account. 4 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 4) There is no income from revenue and only income credited in the Profit & Loss Account is interest on fixed deposits (₹.9,19,15,998) and interest on IT Refund (₹.8,06463) and Liabilities no longer required ₹.87,089. 5) On the basis of the facts mentioned above, it is clear that the only revenue is interest which should be taxed under its appropriate head i.e. Income from Other Sources and all the expenditure need to be capitalized as the project has not completed and no revenue has been earned out of it. Further, as per the Supreme Court judgement in the case of Tuticorin Alkali Ltd., the interest earned on excess funds temporarily invested need to be taxed as Income from Other Sources. Facts of your case are absolutely covered by said decision and hence show cause as to why the interest income credited in the Profit & Loss Account, which has been considered by you as Income from Business/Profession should not be assessed under the head 'Income from Other Sources'. 6) You are also requested to show cause as to why entire expenses debited in Profit & Loss Account should not be capitalized and transferred to Capital Work in Progress as no income has been generated and offered to tax, from the respective project." 6. In response, Ld. AR of the assessee submitted that the assessee is into construction of road between Jammu and Udhampur and as required by statutes concerning Companies Act, 1956 and Income Tax Act, 1961, assessee has complied with requirements of Accounting Standard 10, being Accounting of Fixed Assets. The assessee has computed the construction cost and allied cost which are directly attributable to the construction of the project and bringing it to its working condition and the balance costs are excluded and charged to Profit and Loss Account. It was stated that the activity is duly audited by the concerned auditors. With respect to allowability of expenses 5 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., charged to Profit and Loss Account, assessee has received interest from the Fixed Deposits made out of the funds borrowed. Since the interest is charged to profit and loss account, interest received is also credited to Profit and Loss Account. Without prejudice to the stated above, in case Assessing Officer treats interest as part of income from other sources, Assessing Officer was requested to treat interest paid and charged to Profit and Loss Account as deduction from interest earned and charged under head income from Other Sources. 7. After considering the submissions of the assessee, Assessing Officer rejected the same and observed that entire income credited in the Profit and Loss Account is nothing but other income and the same has no direct relation to the main business activity of the assessee company. Further, he observed that it is undisputed fact that the assessee company has not derived any income from its business operations and as per its own admission it had considered majority of expenditure as Work-in-Progress and claimed part of expenditure totaling to ₹.11,20,21,510 as revenue expenditure. The assessee nowhere in the explanation justified its action, but has emphasized that the expenditure needs to be allowed against the interest income in the event interest income is treated as 'Income from Other Sources'. Here, 6 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., the assessee appears to have ignored the basic fact that the entire expenditure debited in Profit and Loss Account i.e., finance and other expenditure is not wholly and exclusively incurred for earning the income charged under the head 'Income from Other Sources' as the entire interest expenditure is on account of loans taken for its business. The assessee is in the construction/infrastructure development business and the loans were taken from banks and financial institutions for the projects being executed by it. Therefore, the entire interest and other expenditure which have been charged to Profit and Loss Account should have also been added to the Work-in-Progress and should have been claimed when the assessee starts earning the income from the infrastructure it has developed. Accordingly, Assessing Officer disallowed the expenditure claimed by the assessee and directed the assessee to capitalize the same in work-in-progress. 8. With regard to interest income earned by the assessee, assessee has parked as fixed deposits etc., is taxable under the head "Income from Other Sources and accordingly amount of ₹.9,28,09,550/- is being taxed under the head "Income from Other Sources' and no part of the expenditure debited in Profit and Loss Account is being allowed against said income by relying on the decision of the Hon'ble Supreme Court in 7 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [227 ITR 172 (SC)]. 9. Further, he observed from the nature of expenditure and the over-all facts that the assessee is still executing the road project between Jammu & Udhampur and the same is not yet started giving returns to the assessee, it can be clearly said that the expenses incurred are preoperative in nature and accordingly, he also disallowed the expenditure. Accordingly, he treated the interest income earned by the assessee which is credited in the Profit and Loss Account, he treated as income from other sources, accordingly, he brought the above said income under the head income from other sources. 10. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions, for the sake of clarity it is reproduced below:- “The AO erred in determining the total Income of the Appellant at Rs. 9,28,09,550/- as against returned Loss of Rs. 1,92,11,960/- and further, the AO erred in treating expenses debited to Profit & Loss Account of Rs. 11,20,21,510/- as Pre-Operating Expenditure and thereby adding it into Work in Progress. The Assessing Office has taken recourse of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. Commissioner of Income Tax (1997) 141 CTR SC 387. Here we wish to point out that the aforesaid judicial precedent is for the assessment year 1982-83. There are certain changes in the Act itself after the said assessment year which one needs to consider before coming to any conclusion to decide on the case. 8 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., We are providing our point wise submission distinguishing the Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. Commissioner of Income Tax (1997) 141 CTR SC 387 in a point wise manner. 1. Therefore said judicial precedent ("Tuticorin Alkalies") clearly states that the case was for assessment year 1982-83. In that case, Income Tax Act, 1961 as amended till 1982 has been considered. There are important amendments such as amendment to section 145 with respect to notified Accounting standards and amendment with respect to 56(2)(id) with respect to charging of interest on securities to Income from other sources other than actually charged to Profit and loss Accounts. We need to consider Income Tax Act, 1961 ("the Act") as it stands on 1st April, 2013. 2. Section 56(2)(id) of the Act states as follows: "Income by way of interest on securities, if the income is not chargeable to income-tax under the head "Profit and gains of business or profession". Para 10 of the judgement clearly says that by an amendment made in 1988, Interest on securities has been made chargeable to tax as business income when such interest forms part of business profits and in all other cases under s.56(2)(id) as income from other sources. Although the amendment made in 1988 didn't have relevance for the purpose of that case as the assessment year pertains to the case is 1983-84 However, our assessment year being 2013-14, the said section is very well applicable to our case and hence, the aforesaid income is correctly charged under the head Business or Profession. Further, earning interest by putting additional funds in fixed assets remains an ancillary activity to the main activity and hence, the same is part of business of company. We say that we have correctly credited the same into Profit and Loss Account and in income tax, we have correctly shown the same under the head income from business/profession 3. As per the Para 11 of the case, deductions and adjustments on account of any expenditure cannot be made except as provided by the Act. Section 145 of the Act has been amended by Finance Act 1995 w.e.f 1/4/1997. The amended section is reproduced below: "(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-Section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. 9 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144" Related Accounting Standards for accounting of Fixed Assets and accounting of Borrowing Cost areAS10andAS 16 respectively. Para 9.3 of the Accounting standard for fixed Assets is reproduced herein below: "Administration and other general overhead expenses are usually excluded from the cost of fixed assets because they do not relate to a specific fixed asset. However, in some circumstances, such expenses as are specifically attributable to construction of a project or to the acquisition of a fixed asset or bringing it to its working condition, may be included as part of the cost of the construction project or as a part of the cost of the fixed asset", You honour will appreciate that major cost has been capitalized. Only cost which specifically relates to Administration and other general overhead expenses are rightly debited to profit and loss Account. Part of Advisory expenses are used for Administrative activities and hence, the same has been debited to profit and loss account. Your honour is requested to consider that the effects are correctly given in the books of accounts and in computation of total income and is based on Income Tax Act, as amended after the judicial pronouncement of "Tuticorin Alkalies". Further, Para 10 of the "Borrowing Cost" Accounting Standard 16: "To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset should be determined as the actual borrowing costs incurred on that borrowing during the period less any income on the temporary investment of those borrowings". With respect to following up of this Para, the deviation is only to the extent of net interest on the investment activity which is charged to profit and loss account as income rather than reducing the same from capital asset. As per extant accounting standards the same would have been reduced from part of capital assets. 10 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., Further to this, our stand gets strengthened after amendment in section 145 of the Income Tax Act, by Finance Act, 2015 wherein Government has charted out deviations to be followed from Accounting standards and the same is termed as Income Disclosure and Computing standards. This clearly points that Assessee was liable to abide by the then accounting standard till financial year 2015 and the assessee has rightly followed 4. Further, as per Generally Accepted Accounting Principles, one of the important concept is Matching Concept. The essence of the matching concept lies in the view that all costs which are associated to a particular period should be compared with the revenues associated to the same period to obtain the net income of the business. 5. We refer the case of [2012] 25 taxmann.com 401 (Delhi) HIGH COURT OF DELHI NTPC Sail Power Company (P.) Ltd. v. Commissioner of Income-tax. In this case, the assessee-company was in the business of running a power plant and under its expansion plan, it proposed to set up a new unit. It raised a term loan for setting up new plant and separate books of account were maintained for the same. For financing the expansion plan, the assessee-company raised additional capital of Rs.45,000 lakhs during the year The assessee-company earned total interest receipts of Rs. 616.73 lakhs during the year. The interest was earned on temporary deposits from the surplus funds and on the deposits made with banks by way of margin or giving advances, etc. For the purpose of expansion. Such interest earned was of Rs 331.58 lakhs. The balance or difference, of interest of Rs. 285.15 lakhs, which had been admitted as a normal income, did not relate to expansion work. The interest earned on the surplus fund by way of margins or giving advances for the purpose of expansion was adjusted to the incidental expenses during construction. The interest was adjusted on account of the matching principle since the interest earned on deposits kept in relation to the expansion were credited to/reduced from the incidental expenses during construction (IEDC). The Assessing Officer treated this interest as "income from other sources relying upon the judgment of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). The matter was travel led to the Hon'ble High Court and the Hon'ble High Court has examined the issue in the light of various judgments of the Hon'ble Apex Court in the case of Bokaro Steel Ltd. (supra); Kamal Co-operating Sugar Mills Ltd.'s case (supra); Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra) and Bongaigaon Refinery & Petrochemicals Ltd's case (supra) and various judgments of the different High Courts and has held that provisions of section 36(1)(iii) of the Act enacts that any amount of the interest paid towards (in respect of) capital borrowed for acquisition bran asset or for 11 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., extension of existing business regardless of its capitalization in the books or otherwise, "for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use" would not qualify as deduction and by the same logic where the funds were invested by the assessee- company and interest earned were "inextricably linked" with the setting up of the plant, the interest earned would be capitalized and would reduce the cost of the project. The relevant observation of the Hon'ble High Court is extracted hereunder for the sake of reference- "10. It is no doubt correct that the proviso to section 36(1)(iii) of the Income Tax Act enacts that any amount of the interest paid towards (in respect of) capital borrowed for acquisition of an asset or for extension of existing business regardless of its capitalization in the books or otherwise, "for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use" would not qualify as deduction. However, in all these cases, when the interest was received by the assessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, this Court, and indeed the Supreme Court held that if the receipt is "inextricably linked" to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. By the same logic, in this case too, the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. It may be added that the Tribunal has not found that the deposits made as margin monies were not limited to the construction activity connected to the expansion of the business by way of setting up of a new power generation plant. 11. As a result of the above discussion, it is held that the Tribunal and the lower authorities fell into error in holding that the interest earned on fixed deposit of amounts borrowed, which is the subject matter of the present appeal, would have to be treated as revenue receipt. The answer is given in favour of the assessee, the appeal is consequently allowed 6. Similar was the position in the case of Indian Oil Panipat Power Consortium Ltd. in which the assessee company was incorporated in pursuance of a joint venture entered into between Indian Oil Corporation and Marubeni Corporation of Japan to setup a power project and in order to effectuate the purpose, a joint venture was conceived. The joint venture partners contributed share capital which includes the sum by way of additional share capital. The said funds were required for purchase of land and development of infrastructure, but due to legal entanglements with respect to title of land, they were temporarily put axed in Bank and interest was earned thereon. It 12 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., claimed that said interest was capital receipt and therefore it should be set-off against pre-operative expenses, but the Assessing Officer has treated the same as income from other Source. On appeal, the Id. CIT(A) categorically held that the funds were placed in fixed deposit so that liquidity was ensured and money would remain available when required for purchase of land and infrastructure development and hence the interest earned was inextricably linked' with the setting up of the power plant. He, therefore, the judgment of the Hon'ble Apex Court in the case of Bokaro Steel Ltd. (supra) directed the Assessing Officer to delete the additionandconsiderthesameforcapitalizationtowardspre- operativeexpenses. On the Tribunal reversed the findings of the Id. CIT(A) and the matter was before the Hon'ble High Court to examine the issue whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The Hon'ble High Court has examined the issue in the light of various provisions of the Act and has finally concluded that the funds infused by the joint venture partners in the assessee- company were inextricably linked with the setting up of power plant. Therefore, the interest earned by the assessee could not be treated as income from other sources. The relevant observations of the Hon'ble High Court are extracted hereunder for the sake of reference- "The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are in extricable connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set-up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business. Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure then it cannot be held that the income derived by parking the funds Temporarily with Tokyo Mitsubishi Bank, will result in the character of the funds being changed, 13 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., inasmuch as, the interest earned from the bank would have a due different than that of business and be brought to tax under the head 'income from other sources'. It is well-settled that an income received by the assessee can be taxed under the head "income from other sources" only if it does not fall under any other head of income as provided in section 14 of the Act. The head "income from other sources" is a residuary head of income. In the instant case, it was clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources'. Since the income was earned in a period prior to commencement of business, it was in the nature of capital receipt and, hence, was required to be set- off against pre-operative expenses." 7. Further to this, we would like to mention the case of [2015/61 taxmann.com 355(Ahmedabad-Trib.) IN THE ITAT AHMEDABAD BENCH'B' Adani Power Ltd. v. Assistant Commissioner of Income-tax, Range-1, Ahmedabad where in the case of Tutiorin Alkalies is distinguished along with all the relevant judicial precedents. Copy of the same is attached herewith for your reference and records. We hope that this letter provides enough material to prove the steps taken by the assessee in justifying the correctness of the computation of total income. Further, to this if your honour requires any further information/explanation from our side, the same is shall be provided at earliest.” 11. After considering the detailed submissions, Ld.CIT(A) sustained the addition made by the Assessing Officer with regard to expenditure claimed by the assessee as well as the interest income treated as income from other sources by relying on the decision of Tuticorin Alkali Chemicals & Fertilizers Ltd (supra) and Bongaigaon refinery & petrochemicals Ltd. v. CIT [2001] 119 Taxman 488 (SC) and other case law which are discussed in the appellate order. 14 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 12. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. That the learned Commissioner of Income Tax, (Appeals), has erred in confirming the total income of the Appellant at Rs. 9,28,09,550/- as against returned loss of Rs.1,92,11,960/ 2. That the learned Commissioner of Income Tax, (Appeals), has erred in confirming the treatment of expenses debited to Profit & Loss Account of Rs 11,20,21,510/- as pre- operative Expenditure and thereby adding it into work in progress without appreciating the fact that major cost has been capitalized by the appellant and only cost which specifically relates to administration and other general overhead expenses are debited to profit and loss account. 3. That the learned Commissioner of Income Tax, (Appeals), has erred in confirming treatment of entire interest income of Rs 9,28,09,550/- derived on fixed-deposit-with bank, credited in Profit & Loss Account as Income from other sources. In doing so, the assessing officer ignored the fact that earning interest by putting additional funds in fixed deposits was inextricably linked with the project of the assessee. 4. Without prejudice to ground no. 3 above, learned Commissioner of Income Tax, (Appeals) was not justified in confirming the addition of Rs. 9,28,09,550/- made by the assessing officer on account of income from other source ignoring the fact that the assessee agrees to capitalize the interest income received from the FDR's thereby reducing the cost of fixed assets. 5. Without prejudice to ground no. 3, the learned Commissioner of Income Tax, (Appeals) erred in not allowing corresponding expenditure u/s 57 (iii) while treating the income under the head "Income from Other Sources". 6. That the explanations given, evidence produced and material available on record has not been properly considered and judicially interpreted.” 13. At the time of hearing, Ld. AR brought to our notice Page No. 27 of the Ld.CIT(A) order and submitted that Ld.CIT(A) has relied in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd (supra) and observed 15 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., that the assessee company had surplus funds and in order to earn interest income, it parked the surplus funds in the Fixed Deposit. The Hon'ble Apex Court decided the issue in favour of the department and moot question in deciding whether the interest income should be treated as income from other sources or not, depends upon the fact as to whether the funds which are parked to earned interest income, are out of surplus funds or whether they are kept as a condition precedent to carry out an contract. Ld.CIT(A) by relying on the above said decision treated the interest income earned by the assessee as income from other sources and not from business income. In this regard he brought to our notice Page No. 132 of the Paper Book which is the decision of the Coordinate Bench in the case of Hazaribagh Expressway Ltd., v. Income Tax Officer in ITA.No. 6696/Mum/2017 dated 22.01.2020 in which the Coordinate Bench has considered the similar case and it is held that the income earned by the assessee should be reduced from the capital work-in-progress. He relied on the above said case. 14. On the other hand, Ld.DR relied on the written submissions submitted dated 13.10.2021, for the sake of clarity it is reproduced below: - 16 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., “In pursuance of the direction of the Hon'ble Bench during the hearing on 07.10.2021, the written submission is being filed as below. The submission being filed is on technical issue and also on the merits of the main issue in the appeal. 1. The above appeal has been filed by the above appellant against the order dated 27.12.2018 passed by CIT(A)-8, Mumbai for A.Y.2014- 15, which was passed against the Assessment Order dated 25.12.2016 by DCIT, 3(3)(2), Mumbai. 2. The appellant company is engaged in the business of design, build, finance, operate and transfer for the carpeting, strengthening and four-laning of Jammu-Udhampur Section of NH-1A on an annuity basis in the state of J & K under the concession agreement dated 19.07.2010 with NHAI and is in the construction/pre-operative stage during the year under consideration. 3. The main issue arising out of the grounds of the appeal of the appellant is the confirmation by CIT(A) of a sum of Rs.9,28,09,550/-, being interest income from Fixed Deposits, taxed under the head 'Income from Other Sources' by the Assessing Officer, whereas the appellant claimed the same to be income from Business. The above interest income has been earned by the appellant from Fixed Deposits made during the construction period before completion of the project by the appellant. 4. During the course of hearing before Hon'ble ITAT, the appellant has filed a paper book and raised a plea that the above interest income is not to be taxed as Income from Other Sources but as Income from Business as the interest income earned on Fixed Deposits is from funds which are inextricably linked with project funds. It can be seen from para 9 of the above paper book that the main argument of the appellant before Hon'ble ITAT is that (a) the assessee was constrained to keep the funds in fixed deposits; and (b) the appellant is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals and Fertilizers relied upon by the A.O. and CIT(A). 4.1 Technical issue: The appellant has enclosed copy of the loan agreement at Annexure-F filed in the above paper book to support its above claim. During the course of hearing, the undersigned had raised this issue that the above plea of the appellant and the document in the paper book being relied upon does not seem to have been brought/filed before the A.O. as the assessment order does not deal with the same (please refer the assessment order dealing with the above addition) and the appellant has not certified in the paper book filed before ITAT that the documents in the same have been filed before the lower authorities, as per Rule 18 of ITAT Rules. 1 have also called for the 17 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., assessment record for A.Y.2014-15. It is seen that in response to a notice the appellant had filed written reply dated 26.10.2016 on 11.11.2016 before the A.O. (copy enclosed As Annexure A-2), which does not contain any such plea or the document in support of its claim. The A.O. had issued a show cause notice on 10.11.2016 but as per the entries in the order- sheet (copy enclosed as Annexure A-1) no further reply from the appellant is filed/on record. The same also does not emanate from the written submission of the appellant extracted by CIT(A) in para 3.1 of his order. Therefore, the Hon'ble ITAT may kindly consider the above technical issue appropriately. 5. On merits: Notwithstanding the above technical issue, even on merits the plea of the appellant is liable to be dismissed. On perusal of the assessment record, the plea of the appellant in para 7 of its written reply dated 26.10.2016 filed before A.O. on 11.11.2016 was mainly that the "assessee has received interest from fixed deposits made out of the funds borrowed. Since the interest is charged to profit and loss account, interest received is also credited to P & L Account without prejudice to what written herein above, in case your Honour treats interest as part of income from other sources, your Honour is requested to treat interest paid and charged to P & L Account as deduction from the interest earned and charged under the head Income from Other Sources". The A.O. in his assessment order dated 05.12.2016 has elaborately discussed the above issue in para 5 of the assessment order. The CIT(A) has also elaborately dealt with the above issue and cited various judicial pronouncements in his decision to confirm the above assessment on the issue. 5.1 Before Hon'ble ITAT, the appellant has filed the written submission dated 24.03.2021 in the paper book and as per para 9, the main argument of the appellant now before Hon'ble ITAT is that the above interest income is not to be taxed as Income from Other Sources but as Income from Business as the interest income earned on Fixed Deposits is from funds which are inextricably linked with project funds and (a) the assessee was constrained to keep the funds in fixed deposits; and (b) the appellant is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals and Fertilizers relied upon by the A.O. and CIT(A). 5.2 Therefore, the moot point involved is whether the interest income from Fixed Deposits can be considered as income from other sources or as income from business because the FDs are made from funds inextricably linked to the project funds. Merely because the funds have been borrowed for the purpose of the project does not mean that the funds are inextricably linked to the project and therefore the interest resulting from the deposits in fixed deposit should be treated as Income from Business and not from Income from Other Sources. The 18 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., appellant has also stated that "as per the loan agreement at Annexure F of paper book it was clear that the money disbursed by the banker could be used only for the purposes specified therein which was monitored by the bankers/lenders. All the disbursements are deposited in the Escrow Account which is subject to strict control and verification by the lenders and all disbursements are to be utilized solely for the purpose of implementation of the project and no other purpose. The funds are thus in inextricably linked to the setting up of the mega road project and interest earned on such borrowed funds infused in the business could not be classified as income from other sources". But, the appellant has not demonstrated or filed anything to show as to how it was constrained to keep the project funds in fixed deposits. It is quite natural that in the pre-commencement stage when the project funds were already borrowed and available to the appellant and not used the same were invested in FDs temporarily to earn the interest income. Even in the case of Tuticorin Alkali Chemicals and Fertilizers, the funds were borrowed for the project and the unused funds were deposited in Fixed Deposits and Hon'ble Supreme Court held that such interest income will be treated as Income from Other Sources. The above ratio of Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers has also been followed by the Hon'ble Supreme Court in its subsequent decisions in the case of CIT Vs. Bokaro Steel Ltd. (1999) (236 ITR 315) (SC) dated 18.12.1998 and above proposition is also supported by the decision of Hon'ble Apex Court in the case of Bongaigaon Refinery and Petrochemicals Ltd. Vs. CIT (2001) (119 taxman 488) (SC) dated 24.07.2001 which have been elaborated discussed by CIT(A) in para 3.1.6 to 3.1.8 of his order. These two decisions are also given after 1988 amendment in the section 56 of the Act but have supported the proposition of the Apex Court in the earlier case of Tuticorin Alkali Chemicals and Fertilizers on the above issue and the treatment of such interest income from FDs. 5.3 The CIT(A) in para 3.1.6 has elaborated that the Hon'ble Supreme Court in the case of CIT VS. Bokaro Steel Ltd. (supra) has differentiated between surplus funds being kept in short term deposits and interest received therefrom and the amounts received under five different heads during the construction phase which were held as inextricably linked with the process of setting up of the company's plant and machinery and held that the latter would go to reduce the cost of assets as these receipts are of a capital nature. In para 4 of the order of the Apex Court in the above case it was clearly held that "during these assessment years, the respondent assessee had invested the amount borrowed by it for the construction work which were not immediately required, in short term deposits and earned interest. It has been held in these proceedings that the receipt of interest amounts to income of the assessee from other sources. The assessee has not filed any appeal from this finding which is given against it. In any case, this 19 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., question is now concluded by a decision of this court in Tuticorin Alkali and Fertilizers Ltd. vs. CIT (1997) 227 ITR 172. Hence we are not called upon to examine that issue". 5.4 In light of the above decision, in this case wherein also the funds were borrowed for the construction work, the plea of the appellant that merely because the funds from the FDs are made are borrowed for project the interest income from the same should be held as income from business as the same are inextricably linked to the project funds should not be accepted. Moreover, the above decision is pronounced in 1999. 5.5 The appellant has also stated in its written submission before ITAT that "A distinguishing feature in the instant case is that the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals and Fertilizers and the interest has to be used solely for the purpose of implementation of the specified project only". However, it may kindly be noted that the loan agreement at Annexure F being filed in support such claim is merely a standard loan document with nothing special for the appellant to make such a claim and distinguish its case from the ratio in the Apex Court decision in the case of Tuticorin Alkali Chemicals and Fertilizers on the above issue. 6. Therefore, there is no merit in the claim of the appellant that the above interest income from FDs should not be treated as income from other sources. As regards the other case laws being relied upon by the appellant, it is submitted that when Apex Court decisions as quoted and elaborated by CIT(A) in his order have clearly decided the issue, the decisions of the lower authorities, given on their own facts of those cases, cannot be considered binding. In any case, CIT(A) has also quoted many other subsequent decisions and has confirmed the addition after elaborate discussion. It is therefore submitted that the pleas of the appellant, as discussed above, have no merits and the order of the CIT(A) may be confirmed. I also rely on the assessment order and the order of the CIT(A) on any other issue involved in this appeal.” 15. Further, he brought to our notice Page No. 8 of the agreement in which it was allowed to make the investment only in the permitted investment the details are clearly given in at Page No. 8 of the Paper Book. 20 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 16. Considered the rival submissions and material placed on record, we observe that the assessee is carrying on the business of Design, Build, Finance, Operate and Transfer (DBFOT) for the rehabilitation, Strengthening and Four laning of Jammu Udhampur Section of National Highway. We observe from the record that assessee in the process of laying the National Highway in Jammu Udhampur section and the project is still underway and we observe that assessee has paid interest expenditure as well as earned interest income from the funds deposited in the bank. The Assessing Officer disallowed the expenditure claimed by the assessee with the observation that assessee has not earned any business income relating to the project which is yet to commence. Therefore, he treated the expenditure claimed by the assessee as part of the capital work-in-progress and the interest income earned by the assessee, he has treated the same as income from other sources which assessee has earned by depositing the funds in fixed deposit by relying on the decision of the Tuticorin Alkali Chemicals & Fertilizers Ltd (supra). After careful consideration we noticed that Assessing Officer no doubt disallowed the expenditure claimed by the assessee as part of the capital work-in-progress, however, he rejected the claim of the assessee that the income earned by the assessee is part of the above project and 21 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., also he has not considered the fact that it is not a pre-operative expenditure rather it is a pre-commencement of the project. There is a considerable difference between these two. Further, we observe that the Coordinate Bench has considered the similar issue in the case of Hazaribagh Expressway Ltd., v. ITO (supra) and relevant findings are as under: - 8. We have heard both the parties, perused the materials available on record and gone though orders of the authorities below. We find that the issue involved in the present appeal regarding taxability of interest earned from time deposits, whether it is taxable under the head income from other sources or it can be reduced from capital work- in-progress, when the funds are inextricably linked with project funds is no longer a res-integra. The co-ordinate bench of ITAT, Mumbai ‘G’ bench in assessee’s own case for AY 2011-12 had considered an identical issue and after considering relevant facts and also by following another co-ordinate bench decision, in the case of Infrastructure Development Company of Rajasthan Ltd. vs DCIT (supra) held that interest earned from time deposits kept out of surplus funds available to the assessee out of project funds is deductable from the capital working progress. The relevant findings of the Tribunal are as under:- ISSUES No. 1:- 4. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the assessee has argued that the interest from deposit is required to be treated as business income in accordance with law and in this regard the Ld. Representative of the assessee has placed reliance upon the law settled by the different authorities cited as Indian Oil Panipat Power Consortium Ltd. Vs. ITO reported in 181 Taxmann page 249, 315 ITR 255 (Delhi High Court), Bokaro Steel Ltd. 236 ITR pg. 315 (SC), The Road Infrastructure Development Company of Rajasthan Ltd. ITA. No. 628/JP/2014 Jaipur, Andhra Pradesh Expressway Ltd. ITA. No. 663/M/2015 & Karnataka Power Corporation Ltd. 247 ITR 268. However, on the other hand, the Ld. Representative of the revenue has refuted the said contention. The factual situation is not in dispute to the fact that the assessee received the loan and credited in his account 22 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., lies with Bank of India who credited the interest in the account of the assessee. It is to be seen whether the said interest income is required to be treated as income from business or income from other sources. The assessee company is a special purpose vehicle (SPV) promoted by IL&FS Transportation Network Ltd. The company has entered into a Concession Agreement on 08.10.2009 with the National Highways Authority of India to Design, Engineers, Finance, Procure, Construct, Operate and Maintain 4 laning, Hazaribagh-Ranchi section of NH-33 on BOT basis in the state of Jharkhand. In the year of assessment, the assessee did not commence its business. All the expenses have been shown under capital work-in-progress. The assessee took the loan for the project and kept its fund with Bank of India which was utilized thereafter, therefore, the Bank of India credited the interest in favour of the assessee company which is in question. The law relied by the Ld. Representative of the assessee has decided this controversy by holding this fact that the interest income is in connection with the business exigency, therefore, the same is liable to be treated as business income. In the case decided by Hon’ble ITAT ‘D’ Bench in ITA. No. 663/M/2015 The Hon’ble ITAT has treated the said income as income from business. The relevant para no. 5 is reproduced as under.: - “5. Having heard rival submissions, we are of the view that there is merit in the later submissions made by Ld A.R. From the financial statements, we notice that the assessee has borrowed loans for executing the project and the amount of loan outstanding as on 31.3.2010 stand at Rs.824.73 crores. The loan taken from banks alone stands at Rs.503.29 crores. It is an admitted fact that the term loans have to be repaid in fixed installments and hence there is merit in the contentions of the assessee that it was constrained to keep the funds in fixed deposits to earn interest, which will meet a portion of interest burden of bank loans. Further, we find merit in the contentions of the assessee that it had to keep some surplus funds in hand in order to meet the maintenance requirements of the roads. In these set of facts, we are of the view that there were business exigencies in keeping the funds in fixed deposits and hence there is merit in the contentions of the assessee that interest income earned on those fixed deposits is assessable as income from business. In the case of Lok Holdings (supra), the assessee therein collected advances from the customers who intended to purchase the flats in the properties as developed by the assessee. Since the construction was going on, the surplus funds available with the assessee out of the advances so received was deposited in Fixed deposits. The Hon’ble 23 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., jurisdictional Bombay High Court, after considering the decision of Hon’ble Supreme Court rendered in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd (supra), held that the interest income is assessable under the head Income from business.” 5. In the similar circumstances, the Hon’ble ITAT Jaipur Bench in the case of ITA. No. 628/JP/2014 title as Infrastructure Development Company of Rajasthan Ltd. Vs. DCIT dated 11.08.2016 has held that the interest income upon the deposit by the assessee for the utilization of fund for the project, is liable to be treated as business income. The finding is hereby mentioned below for ready reference.: - “2.10 We have heard the rival contentions and pursued the material available on record. We find that both the parties have relied upon the decisions of the Hon'ble Supreme Court and in addition, the assessee has relied upon the decisions of Hon'ble Delhi High Court. Therefore, it would be appropriate to first refer to these decisions and some of the other recent decisions of Hon’ble High Courts and Coordinate Bench decisions. 2.11 In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), the Hon'ble Supreme Court held as under:— “The facts of this case were not in dispute. In the usual course, interest received by the company from bank deposits and loans would be taxable as income under the head Income from other sources' under section 56. It was argued on behalf of the company that it had not yet commenced its business and in any event if the income was derived from funds borrowed for setting up the factory of the company, it should be adjusted against the interest payable on the borrowed funds. Neither of the two factors can affect taxability of the income earned by the company the total income of the company is chargeable to tax under section 4. The Total income has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads. In the instant case, the company had chosen not to keep its surplus capital idle, but had decided to invest it fruitfully. The fruits of such investment will clearly be of the revenue nature. If the capital of a company is fruitfully utilised instead of keeping it idle, the income thus generated will be of the 24 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., revenue nature and not accretion of capital Whether the company raised the capital by issue of shares or debentures or by borrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest earned by the company by utilising the borrowed funds as its income. The company was at liberty to use the interest income as it liked it was under no obligation to utilise this interest income to reduce its liability to pay interest to its creditors. It could re-invest the interest income in land or shares, it could purchase securities, it could buy house property, it could also setup another line of business, it might even pay dividends out of this income to its shareholders. There was no overriding title of anybody diverting the income at source to pay the amount to the creditors of the company. It is well- settled that tax is attracted at the point when the income is earned Taxability of income is not dependent upon its destination or the manner of its utilization. It has to be seen whether at the point of accrual, the amount is of the revenue nature and if so, the amount will have to be taxed. It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act. Whether a particular receipt is of the nature of income and falls within the charge of section 4 is a question of law which has to be decided by the Court on the basis of the provisions of the Act and the interpretation of the term 'income' given in a large number of decisions of the High Courts, the Privy Council and also this Court. It is well-settled that income attracts tax as soon as it 25 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., accrues. The application or destination of the income has nothing to do with its accrual or taxability. It is also well settled that interest income is always of a revenue nature unless it is received by way of damages or compensation.” 2.12 In the case of Bokaro Steel Ltd. (supra), the Hon'ble Supreme Court, after considering the decision of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), held as under:— “The activities of the assessee in connection with first three receipts were directly connected with or were incidental to the work of construction of its plant undertaken by the assessee. Broadly speaking, these pertained to the arrangements made by the assessee with its contractors pertaining to the work of construction. To facilitate the work of the contractor, the assessee permitted the contractor to use the premises of the assessee for housing its staff and workers engaged in the construction activity of the assessee's plant. This was clearly to facilitate the work of construction. Had this facility not been provided by the assessee, the contractors would have had to make their own arrangements and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee had provided these facilities. The same was true of the hire charges for plant and machinery which was given by the assessee to the contractor for the assessee's construction work. The receipts in this connection also went to compensate the assessee for the wear and tear on the machinery. The advances which the assessee made to the contractor to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitches as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source. In case money is borrowed by a newly-started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets created as a 26 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., result of such expenditure. By the same reasoning if the assessee received any amounts which were inextricably linked with the process of setting up its plant and machinery, such receipts would go to reduce the cost of its assets. These were receipts of a capital nature and could not be taxed as income. The same reasoning would apply to royalty received by the assessee company for stones, etc., excavated from the assessee- company's land. The land had been allowed to be utilised by the contractors for the purpose of excavating stones to be used in the construction work of the assessee's steel plant. The cost of the plant to the extent of such royalty received, was reduced for the assessee. It was, therefore, rightly taken as a capital receipt.” 2.13 That the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), after considering the decisions in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and Bokaro Steel Ltd. (supra) at length, held as under:— “5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra ) is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head 'income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. 5.1 The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, 27 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set-up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the heads provided under section 14 in Chapter IV of the Act. For an income to be classified as income under the head "profit and gains of business or profession" it would have to be an activity which is in some manner or form connected with business. The word "business" is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd. v. CIT & EPT [1958] 34 ITR 368 (SC), and Narain Swdeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC). Once it is held that the assessee's income is an income connected with business, which would be so in the present case, in view of the finding of fact by the CIT(A) that the monies which were inducted into the joint venture company by the joint venture partners were primarily infused to purchase land and to develop infrastructure - then it cannot be held that the income derived by parking the funds temporarily with Tokyo Mitsubishi Bank, will result in the character of the funds being changed, inasmuch as, the interest earned from the bank would have a hue different than that of business and be brought to tax under the head 'income from other sources'. It is well- settled that an income received by the assessee can be taxed under the head "income from other sources" only if it does not fall under any other head of income as provided in section 14 of the Act. The head "income from other sources" is a residuary head of income. See S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) and CIT v. Govinda Choudhury & Sons [1993] 203 ITR 881 (SC). 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against preoperative expenses. In the case of Tuticorin 28 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., Alkali Chemicals & Fertilisers Ltd. (supra) it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources' . On the other hand in Bokaro Steel Ltd.'s case (supra) where the assessee had earned interest on advance paid to contractors during pre commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against preoperative expenses. 6. There is another perspective from which the present issue can be examined. Under section 208 of the Companies Act, 1956 a company can pay interest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in subsections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 7. In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decision of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra ) in the facts of the present case. In our opinion on account of the finding of fact returned by the CIT(A) that the funds infused in the assessee by the joint venture partner were inextricably linked with the setting up of the plant, the interest earned by the assessee could not be treated as income from other sources. In the result we answer the question as framed in favour of the assessee and against the revenue. These appeals are allowed and the impugned judgment is set aside.” 2.14 That the Hon'ble Delhi High Court in the case of Sasan Power Ltd (supra) following the 29 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., decision in case of Indian Oil Panipat Power Consortium Ltd. (supra), has held as under: “14. It is clear from the facts stated above that Commissioner of Income Tax (Appeals) and tribunal have specifically held that the interest income was on capital account. We have gone through the grounds of appeal and do not find any reason or justification to upset the said finding. The factual findings recorded by the CIT(Appeals) and tribunal are not under challenge. The CIT(Appeals) and the tribunal have held that in view of the factual position quoted above the decision of the Supreme Court in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 / 102 Taxman 94 was applicable as the Commitment Advance, which had been paid to PFC. This is not a case of surplus funds, which were available and investment were made in fixed deposits to earn interest. The interest paid to the power procurement utilities on commitment advances was capitalized. Interest paid and interest received were inextricably linked and have a commonality about their nature and character. The appellant cannot treat them differently. Commitment Advances and interest paid and received had reference to bidding process and linked to the project/purpose for which the respondent was set up. In view of the factual matrix, interest received on unutilized commitment advances cannot be taxed as revenue income and interest paid on commitment advance treated as a capital expense. This will be contradictory. The entire expenditure for inviting bids etc. and even documentation was paid to PFC. The amounts received from the prospective bidders on account of sale of tender documents was also transferred to PFC. As noticed above, Revenue has not challenged and has accepted the order of the tribunal deleting addition of Rs. 1,35,81,234/paid by the respondent-assessee to PFC for preparation of tender documents. In view of the factual matrix, the tribunal has rightly followed the ratio in Indian Oil Panipat power Consortium Ltd.'s case (supra).” 2.15 In a recent decision, the Delhi High Court in case of Pr. Commissioner of Income-tax v. Facor Power Ltd. [2016] 66 taxmann.com 178 (Delhi) following the decision in case of Indian Oil Panipat Power Consortium Ltd. (supra), has held as under: 30 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 11. From the above extract, it is evident that the test that is required to be employed is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the same. In the present case, findings of fact have been returned by the Commissioner of Income Tax (Appeals) and have been confirmed by the Income Tax Appellate Tribunal to the effect that the funds were inextricably connected with the setting up of the power plant of the assessee. The learned counsel for the revenue has also not been able to point out any perversity in such finding and, therefore, the factual findings have to be taken as those accepted by the Income Tax Appellate Tribunal which is the final fact finding authority in the income tax regime. That being the case, the decision of the Division Bench in Indian Oil Panipat Power Consortium Ltd. (supra) would squarely apply to the facts of the present case and the Tribunal was right in applying the same. 13. In the present case, there is a finding of fact that the money placed in the fixed deposit was inextricably linked with the setting up of the power plant. Thus, the revenue generated on account of interest on the said fixed deposits would be in the nature of a capital receipt and not a revenue receipt. This case has been decided on the basis of this principle and not on the basis that the source of the funds was through raising of share capital and not through borrowings.” 2.16 The Coordinate Bench in case of Adani Power Ltd. v. Assistant Commissioner of Income-tax, Range-1, Ahmedabad [2015] 61 taxmann.com 355 (Ahmedabad - Trib.) has held as under: “From the above, it is evident that the Hon'ble Delhi High Court has considered and interpreted the decisions of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) as well as Bokaro Steel Ltd. (supra). The conclusion of the Delhi High Court is in fact the law which emerges as per the decision of Hon'ble Apex Court. Therefore, in our opinion, the CIT(A) was not justified in ignoring the decision of Hon'ble Delhi High Court by simply mentioning that the issue is covered by the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). After considering these two decisions of the Hon'ble Apex Court and also 31 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., some other decisions of the Hon'ble Apex Court, their Lordships of the Delhi High Court arrived at the conclusion "it is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for the specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business, it was in the nature of capital receipt and hence was required to be set off against the pre-operative expenses." That, the ratio of the above finding of the Hon'ble Delhi High Court would be squarely applicable to the facts of the assessee's case, because admittedly in the case under appeal before us the share capital as well as loans were raised for the specific purpose of setting up of the power generation plants. The business of the assessee has not been commenced and therefore, as per above decision, the interest received in the period prior to commencement of business was in the nature of capital receipt and hence was required to be set off against the pre-operative expenses. The assessee has already set off the interest income against the preoperative expenses which is titled as "project development expenditure". In view of above, we are of the opinion that the interest income of Rs.1,35,87,158/- as well as Rs.1,64,07,481/- was a capital receipt not chargeable to tax during the year under consideration. Accordingly, Ground Nos. 1 of the assessee's appeal is allowed.” Further, we drawn guidance from the decision of Hon’ble Rajasthan High Court in case of Commissioner of Income-tax-I v. Kansara Modler Ltd. [2012] 20 taxmann.com 641 (Raj.) wherein it was held that: "13. In that view of the matter, what we are required to consider is, as to whether the Tribunal was legally justified in not applying the judgment rendered in Tuticorin's case (supra), or that, the Tribunal was justified in applying the judgments given in Bokaro Steel, and Karnal Cooperative Sugar Mill's case. If this question were to come originally before us, perhaps we might have taken a task of undertaking the exercise, as 32 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., to which of the views is required to be followed, and may be, that we might have come to any conclusion, either ways. In such circumstances, when the learned Tribunal, after examining all the three judgments, in Tuticorin's case (supra), Karnal Cooperative Sugar Mill's case (supra), and Bokaro Steel's case (supra), has examined the question, and found Karnal Cooperative's case (supra) to be the nearest, and latest case, on facts, in our view, it cannot be said, that the Tribunal was wholly wrong in adopting this course. It would have been equally the same situation, if the learned Tribunal would have adopted the other line of reasoning, following the judgment in Tuticorin's case (supra). 14. Therefore, when there are two sets of judgments of Hon'ble Supreme Court, proceeding on different lines of reasoning’s, and both stand on their own logical footing, and in that event, if the learned Tribunal has accepted one line of reasoning, supported by one set of judgments, it cannot be said, that the learned Tribunal was legally not justified in following the decision, as followed by it, simply because it might have been possible, or might be more appropriate to follow the other set of judgment, by following the other line of reasoning.” From the above, it is evident that there are two sets of judgments of Hon'ble Supreme Court, proceeding on different lines of reasoning’s. The Hon’ble Delhi High Court in case of Indian Oil Panipat Consortium Ltd (supra) has considered and interpreted the decisions of Hon’ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers (supra) as well as Bokaro Steel ltd (supra). After analyzing both the decisions of Hon’ble Supreme Court, it held that “the test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra ) is that if funds have been borrowed for setting up of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head 'income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) to our mind is that if income is earned, 33 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses.” The facts in the instant case are pari materia with the facts of the Indian Oil Panipat (supra) and the ratio decidendi of Hon’ble Delhi High Court in that case will squarely apply to the facts of the assessee. In the instant case, undisputedly, the funds have been borrowed for the specific purpose of execution of the mega road projects and as per the loan agreement executed between the consortium of bankers and the assessee dated 23.11.2005, all the disbursements shall be deposited in the trust and retention account which shall be subject to strict control and verification by the Senior lenders and all disbursements shall be utilised solely for the purposes of implementation of the project and no other purpose. The funds are thus inextricably linked to the setting up of the mega road projects and interest earned on such borrowed funds infused in the business could not be classified as income from other sources. We also note a distinguishing feature in the instant case that the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals & Fertilizers (supra) and the interest has to be used solely for the purposes of implementation of the specified projects only. The impugned interest receipt of Rs. 35,39,479/- on such borrowed funds relates to the mega road projects/stretches which were under construction and the completed road projects/stretches up to the date of commencement of commercial operations. Therefore, the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the preoperative expenditure capitalized under the head “Capital work-in-progress” and the same cannot be brought to tax under the head “income from other sources”. Hence, ground no. 1 of the assessee is allowed. 3. In ground No.2, the assessee has challenged the action of the Ld.AO in double taxation of interest income of Rs. 1,64,07,481/- 34 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 6. In the above mentioned law, the Hon’ble ITAT has discussed the law relied by the Ld. Representative of the assessee. The facts are not distinguishable at this stage also. In the instant case, the assessee company has been incorporated for setting up of infrastructure facilities being construction of toll road between Hazaribag and Ranchi which is under construction. The assessee earned the interest income upon the borrowed funds of Rs.46,03,457/- which was deducted from the borrowing cost to arrive at the figure of capital work-in-progress of Rs.1,86,25,83,284/-. The promoters of the company had introduced money by way of share capital and also obtained credit facilities from the banks and institutions. The total funds were exclusively meant for use for setting up of the infrastructure facility. The lenders disbursed the funds at specified intervals and the said funds were required to be used for the purpose of setting up of the project. Needless to say that the on account of the time difference, the funds may lies with the bank resultantly earning the interest income in dispute. These funds were deposit in the bank for a short period for the purpose of utilizing the same in the project. Eventually, raising the interest is clearly on account of business exigency. Taking into account, all the facts and circumstances, we are of the view that the finding of the CIT(A) is not justifiable hence the same is hereby ordered to be set aside and we treat the interest income as business income of the assessee. 9. In this view of the matter and consistent with view taken by the co-ordinate bench, we are of the considered view that interest earned from time deposits kept in banks out of surplus funds of project is rightly reduced from capital work-in-progress. Therefore, we direct the Ld. AO to delete additions made towards interest income under the head income from other sources.” 17. Respectfully following the above said decision, and even in this case we observe that assessee has entered into escrow agreement with original lenders (Axis Bank Limited) and Escrow Bank by Standard Chartered Bank, as per the terms of the agreement assessee has to 35 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., maintain reserve amounts as per clause (ii) of the construction of the Escrow Agreement as per which assessee has to maintain statutory Dues Account, Project Construction Account, Operation And Maintenance Account and the NHAI Account, Debt Payment Account and other similar accounts. Assessee was allowed to withdraw only through Escrow Account for withdrawal during construction period and also assessee was allowed to make investment only in permitted investments. 18. By respectfully following the terms of agreement assessee has made the investment through permitted investments and earned the interest income. The relevant data are submitted by the assessee as part of the Paper Book. It clearly shows that the operation of funds are relating to the same project as well as the interest earned through permitted investments are also part of the same project. As held in the above said case the interest earned by the assessee through Due Account and permitted investment are part of the same project and accordingly, we direct the Assessing Officer to allow the interest earned by the assessee as capital income and should be reduced from the capital work-in-progress of the project. Accordingly, Ground Nos. 3 and 4 raised by the assessee are allowed. 36 ITA NO.1507/MUM/2019 (A.Y: 2014-15) SP Jammu-Udhampur Highway Pvt Ltd., 19. Ground No.1 being general in nature and Ground No. 5 is an alternate plea of the assessee accordingly both these grounds are dismissed as stated above. With regard to Ground No. 2 as discussed in above paras we are in agreement with the directions of the tax authorities as the expenditure claimed are relating to Work-in-progress, accordingly, this ground of appeal is dismissed. 20. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 02 nd January, 2023 Sd/- Sd/- (SANDEEP SINGH KARHAIL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai /Dated 02.01.2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum