Urdbanedge Hotels & Holdings P Ltd., CHENNAI V. DCIT Corporate Circle 3(2), CHENNAI

ITA 1536/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5891 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 15-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT D R
• Assessee Lawyers: S SEETHARAMANC A
• Keywords: Business income; Business expenditure; Revenue expenditure
• Section: 37(1); 56

Judgement Text

, D/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL D/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.1536 /MDS./2017 ( ASSESSMENT YEAR : 2012-13 ) M/S.URBANEDGE HOTELS & HOLDINGS P LTD. 129,ESTATE MAIN ROAD, INDUSTRIAL ESTATE, PERUNGUDI, CHENNAI 600 096. VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -3(2), CHENNAI-600 034. PAN AAACU 9790 L ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.S.SEETHARAMAN,C.A / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 02.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 02.11.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-11, CHENN AI DATED 30.03.2017 PERTAINING TO ASSESSMENT YEAR 2012-13. ITA NO. 1536/MDS/2017 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR CONSIDERATION. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCES OF PERSONNEL, LEGAL & PROFESSIONA L EXPENSES AND ADDING INTEREST RECEIVED UNDER THE HEAD INCOME FR OM OTHER SOURCES MADE BY THE ASSESSING OFFICER. 2. THE LEARNED CIT(APPEALS) AND THE ASSESSING OFFIC ER ERRED IN COMING TO A CONCLUSION THAT BY APPLYING THE MATCHING PRINCIPLES WITHOUT CONSIDERING THE TRADE PRACTICE OF SETTING UP A BUSINESS AND ALS O ERRONEOUSLY APPLYING THE DECISION OF TUTICORIN ALKALI CHEMICALS CASE REN DERED BY THE APEX COURT SINCE IT WAS THE SURPLUS MONEY IN THAT CASE W AS BROUGHT TO TAXATION AND NOT OTHERWISE. 3. THE LEARNED CIT (APPEALS) FAILED TO APPRECIATE T HE FACT THAT UNIT WAS SET UP AND BUT FOR THE DELAY IN GETTING COMPLETION CERT IFICATE FROM MUNICIPAL AUTHORITIES, THE UNIT WOULD HAVE COMMENCED OPERATIO NS. 4. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING TH E INTEREST TAXED UNDER FIXED DEPOSITS PRIOR TO STARTING THE BUSINESS UNDER THE HEAD INCOME FROM OTHER SOURCES BY OVERLOOKING THE DECISION OF DELHI HIGH COURT IN NTPCS SAIL CASE WHICH IS THE LATEST DECISION AND IT CLEAR LY STATED THAT THE INTEREST EARNED ON FIXED DEPOSITS WILL ONLY GO TO R EDUCE THE COST OF PROJECT. 5. FOR THE ABOVE REASONS AND SUCH OTHER REASONS TO BE ADDUCED AT THE TIME OF HEARING YOUR APPELLANT PRAYS THAT THE ADDITION M ADE BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX MAY BE DELETED AN D JUSTICE RENDERED IN ACCORDANCE WITH LAW. 3. AS SEEN FROM THE ABOVE GROUND NOS.1 TO 3 IS WIT H REGARD TO EXPENSES RELATING TO PERSONNEL, LEGAL AND PROFESSIO NAL EXPENSES. 3.1 THE FACTS OF THE ISSUE ARE THAT THE AO DISALLO WED THE EXPENDITURE OF ` 94,64,729/- CLAIMED UNDER PERSONNEL, LEGAL AND ITA NO. 1536/MDS/2017 3 PROFESSIONAL EXPENSES ON THE GROUND THAT AO WAS NO T SATISFIED WITH MATCHING CONCEPT OF INCOME AND CORRESPONDING EXPEND ITURE BY PLACING RELIANCE IN THE DECISION OF SUPREME COURT I N THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT IN 227 ITR 172 (SC). HENCE, THE AO DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE TO THE TUNE OF ` 94,64,729/- AS EXPENDITURE TOWARDS EMPLOYEE BENEFITS AND OTHER EXPENSES. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 3.2 BEFORE THE LD.CIT(A), THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS CONSTRUCTING A HOTEL AT CHANDIGARH UND ER THE BRAND NAME OF ALOFT AND DURING THE RELEVANT YEAR CONSTRUC TION OF HOTEL WAS SUBSTANTIALLY COMPLETED. AS PER ORIGINAL PLAN, CONS TRUCTION OF HOTEL WAS TO BE COMPLETED BY JANUARY 2012, AND COMMERCIAL OPERATION WAS TO START FROM MARCH 2012. THERE WAS NO DELAY ON THE PART OF ASSESSEE. THOUGH CONSTRUCTION WAS COMPLETED SUBSTAN TIALLY, COMPLETION CERTIFICATE FROM ZIRCAPUR MUNICIPALITY C OULD NOT BE OBTAINED DURING THE RELEVANT YEAR DUE TO LEGAL ISSU E. THERE WAS A CIVIL CONTEMPT PETITION RELATING TO THE NON-COMPLIANCE WI TH THE DIRECTIONS ITA NO. 1536/MDS/2017 4 PASSED BY THE HONBLE HIGH COURT OF PUNJAB AND HARY ANA IN 1998, RELATING TO CERTAIN ALLEGED ILLEGAL ENCROACHMENT OF THE AREA APPURTENANT TO THE NATIONAL OF THE AFFIDAVIT FILED BEFORE THE HIGH COURT, CHANDIGARH AND ALSO COPY OF THE APPROVAL FROM MUNIC IPAL COUNCIL ZIRKAPUR. CHANDIGARH. FURTHER, IT WAS SUBMITTED THA T GOVERNMENT PERMISSION LETTER WAS DATED 26-03-2012, AND FINALLY , COMPLETION CERTIFICATE WAS OBTAINED BY THE ASSESSEE IN APRIL 2012. 3.3 THE ASSESSEE COMPANY UNDER THE LICENSE FROM ST ARWOOD HOTELS & RESTAURANTS, USA CONSTRUCTS THE HOTEL UNDER THE B RAND NAME ALOFT. IN TERMS OF LICENSE AGREEMENT WITH STARWOOD HOTELS DATED 10/11/2008, THE ASSESSEE COMPANY HOTEL MANAGERIAL S TAFF AND PERSONNEL HAVE TO BE PROPERLY TRAINED AS PER STANDA RDS AND PROCEDURES OF STARWOOD AND ALSO IT IS THE USUAL PRA CTICE IN THE HOSPITALITY INDUSTRY, STAFF IN ALL DEPARTMENTS HAVE TO BE ON BOARD FOR THE TRIAL RUN IN ALL THE DEPARTMENTS AT LEAST 3 MON THS PRIOR TO OPENING OF HOTEL. AS PER THE ORIGINAL PLAN, ALL THE STAFF H AVE TO BE ON BOARD IN JANUARY 2012, UNFORTUNATELY, DELAY IN GETTING COMPL ETION CERTTIFICATE FROM THE MUNICIPALITY, DRAGGED THE MATTER. EXPENSES DISALLOWED ARE: ITA NO. 1536/MDS/2017 5 A. EMPLOYEE COST RS 80,09, 7433/ B.OTHER EXPENSES RS 14,54,986/- 3.4 EMPLOYEE COST INCLUDES SALARIES, WAGES AND CON TRIBUTION TO PROVIDENT AND OTHER FUNDS. FURTHER PERSONNEL EMPLOY ED WERE ONLY OPERATIONAL STAFF THE BREAKUP OF STAFF EXPENSES ALO NG WITH DESIGNATION IS GIVEN. THE LD.A.R PLEADED BEFORE LD. CIT(A) THAT ALL PERSONNEL EMPLOYED RELATE TO OPERATIONAL. OTHER EXP ENSES INCLUDE DUTIES AND TAXES, LEGAL AND PROFESSIONAL CHARGES AN D AUDIT FEES. THE DECISION OF TUTICORIN ALKALI CHEMICALS RELIED ON BY THE ASSESSING OFFICER IS ERRONEOUS AS THE CASE DEALS WITH TREATME NT OF INTEREST RECEIVED DURING CONSTRUCTION PERIOD AND FACTS OF PR ESENT CASE IS TOTALLY DIFFERENT. IN THIS CONNECTION, THE ASSESSE E RELY ON THE DECISION OF CIT VS SAURASHFRA CEMENT& CHEMICAL INDUSTRIES LT D. (1973) 91 ITR 170 (GUJARAT) WHEREIN THE HONBLE HIGH COURT HE LD THAT AN ACTIVITY WHICH IS AN ESSENTIAL ACTIVITY IN THE COUR SE OF CARRYING ON THE BUSINESS, OR WHICH, IN OTHER WORDS, IS A BUSINESS A CTIVITY IS STARTED, THE ASSESSEE MUST BE HELD TO HAVE COMMENCED THE BUS INESS. TO TAKE ANY OTHER VIEW WOULD NOT ONLY BE ILLOGICAL BUT ALSO IRRATIONAL. ITA NO. 1536/MDS/2017 6 3.5 IT WAS SUBMISSION OF THE ASSESSEE THAT IN THIS CASE, THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND SALE OF CEMENT. FOR THIS PURPOSE, IT LEASED A QUARRY FOR EXTRACTION OF LIMESTONE FOR THE MANUFACTURE OF CEMENT. THE ACTIVITY OF QUARRYING TH E LEASED AREA OF LAND AND EXTRACTING LIMESTONE FROM IT WAS AS MUCH A N ACTIVITY IN THE COURSE OF CARRYING ON THE BUSINESS AS THE OTHER TWO ACTIVITIES OF MANUFACTURE OF CEMENT AND SALE OF MANUFACTURED CEME NT. THE BUSINESS COULD NOT IN FACT BE CARRIED ON WITHOUT TH IS ACTIVITY. THIS ACTIVITY CAME FIRST IN POINT OF TIME AND LAID THE F OUNDATION FOR THE SECOND ACTIVITY, AND THE SECOND ACTIVITY WHEN COMPL ETED, LAID THE FOUNDATION FOR THE THIRD ACTIVITY. THE BUSINESS CON SISTED OF A CONTINUOUS PROCESS OF THESE THREE ACTIVITIES AND WH EN THE FIRST ACTIVITY WAS STARTED WITH A VIEW TO EMBARKING UPON THE SECON D AND THE THIRD ACTIVITIES, IT CLEARLY AMOUNTED TO COMMENCEMENT OF THE BUSINESS. IT MIGHT BE THAT THE WHOLE BUSINESS WAS NOT SET UP WHE N THE ACTIVITY OF QUARRYING THE LEASED AREA OF LAND AND EXTRACTING LI MESTONE WAS STARTED. THAT WOULD BE SET UP ONLY WHEN THE PLANT A ND MACHINERY WAS INSTALLED, THE MANUFACTURE OF CEMENT STARTED AND AN ORGANISATION FOR SALE OF MANUFACTURED CEMENT WAS ESTABLISHED. BUT, T HE BUSINESS IS ITA NO. 1536/MDS/2017 7 NOTHING MORE THAN A CONTINUOUS COURSE OF ACTIVITIES AND ALL THE ACTIVITIES WHICH GO TO MAKE UP THE BUSINESS NEED NO T BE STARTED SIMULTANEOUSLY IN ORDER THAT THE BUSINESS MAY COMME NCE. THE BUSINESS WOULD COMMENCE WHEN THE ACTIVITY WHICH, IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE THE OTHER A CTIVITIES IS STARTED. 3.6 IT WAS CONTENDED BY ASSESSEE THAT AS SOON AS AN ACTIVITY WHICH IS AN ESSENTIAL ACTIVITY IN THE COURSE OF CAR RYING ON THE BUSINESS, OR WHICH, IN OTHER WORDS, IS A BUSINESS A CTIVITY IS STARTED, THE ASSESSEE MUST BE HELD TO HAVE COMMENCED THE BUS INESS. TO TAKE ANY OTHER VIEW WOULD NOT ONLY BE ILLOGICAL BUT ALSO IRRATIONAL. THE CONCLUSION REACHED BY THE TRIBUNAL COULD NOT, THERE FORE, BE SAID TO BE UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE AT ALL. THE ASSESSEE COMMENCED ITS BUSINESS WHEN IT STARTE D ACTIVITY OF EXTRACTION OF LIMESTONE BY QUARRYING LEASED AREA OF LAND 3.7 ACCORDING TO ASSESSEE, IN THE PRESENT CASE, TH E ASSESSEE COMPANY HAD SUBSTANTIALLY COMPLETED CONSTRUCTION OF HOTEL AND DUE TO UNFORESEEN SITUATION, COMPLETION DELAYED WITH CO RRESPONDING DELAY IN COMMENCEMENT OF OPERATIONS AND AS PER THE AGREEM ENT WITH STAR- ITA NO. 1536/MDS/2017 8 WOOD EMPLOYEES WERE RECRUITED. THE DELAY IN COMMENC EMENT OF BUSINESS DUE TO OUTSIDE FORCES ON WHICH THE APPELLA NT HAD NO CONTROL AND HENCE DISALLOWANCE OF ENTIRE EXPENSES IS INCORR ECT IN LAW AND UNREASONABLE. IN VIEW OF THE ABOVE FACTS AND CIRCUM STANCES OF THE CASE, THE ASSESSEE SUBMITS THAT EXPENSES BE ALLOWE D. 3.8 HOWEVER, LD.CIT(A) OBSERVED THAT THE AO HAS TREATED THE PRE- OPERATIVE EXPENSES UNDER LEAD PERSONAL, LEGAL AND PROFESSIONAL EXPENSES AS CAPITAL IN NATURE AND DISALLOWED THE A PPELLANTS CLAIM OF THE SAME AS REVENUE EXPENDITURE. ACCORDING TO LD.CI T(A), DUE TO DELAY IN GETTING THE COMPLETION CERTIFICATE FROM MU NICIPAL AUTHORITIES, THE APPELLANTS BUSINESS COULD NOT COMMENCE AND THE REFORE THE EXPENDITURE RELATED TO ADMINISTRATION SHOULD BE ALL OWED AS REVENUE EXPENDITURE. FURTHER, LD.CIT(A) OBSERVED THAT IT IS CLEAR FROM THE ASSESSEES SUBMISSION THAT IT HAS ADMITTED THAT THE AFORESAID EXPENDITURE WAS INDEED PRE-OPERATIVE EXPENDITURE IN CURRED BEFORE THE COMMENCEMENT OF BUSINESS. THE DECISION IN THE C ASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. ( 227 ITR 172 (SC) ) IS BRIEFLY MENTIONED BELOW: ITA NO. 1536/MDS/2017 9 SECTION 72 OF THE INCOME TAX ACT, 1961 LOSS SE T OFF AND CARRY FORWARD OF ASSESSEMENT YEAR 1980-81 WHETHER INTE REST INCOME EARNED ON SHORT-TERM DEPOSIT OF FUNDS BEFORE COMMEN CEMENT OF BUSMESS DUNNQ SETTING UP OF FACTORY COULD BE SET O FF AGAINST LOSS OF COMPANY HELD, NO. BESIDES THE ABOVE CASE LAW, THE AO HAS ALSO RELIED ON THE DECISIONS MENTIONED BELOW: A. AKZO NOBEL CAR REFINISHES INDIA (PJ LTD. VS. DC IT (ITAT, DEL) 25 SOT 226 B. ITO VS. OMNI GLOBE INFORMATION TECHNOLOGIES INDI A (P) LTD (ITAT, DEL) 131 LTD 280 C. ORIENT COSMETICS LTD. VS. DCIT (ITAT, MAD) 74 LT D 135 APART FROM THE ABOVE DECISIONS, LD.CIT(A) MENTIONED THE DECISION OF THE ITAT CHENNAI IN THE CASE OF MAC INDUSTRIAL PROD UCTS LTD. VS. ACIT [2006) 101 LTD 191 (CHENNAI) (TM) IN WHICH IT HAS HELD AS UNDER:- SECTION 37(1) OF THE INCOME-TAX ACT, 1961-BUSINESS EXPENDITURE ALLOWABILITY OF ASSESSMENT YEARS 1994-95 AND 1 995 -96- WHETHER WHERE ASSESSE COMPANY SET UP A NEW PROJECT WHICH WA S SEPARATE AND DISTINCT FROM ITS EXISTING BUSINESS, PRE-OPERATIVE EXPENSES, INTEREST ON TERM LOAN AND FINANCIAL CONSULTANCY CHARGES INCURRE D TOWARDS THE SAID PROJECT COULD BE ALLOWED AS REVENUE EXPENDITURE H ELD, NO,, ITA NO. 1536/MDS/2017 10 3.9 FURTHER, LD.CIT(A) OBSERVED THAT IN THE CASE OF CIT VS SAURASHTRA CEMENT& CHEMICAL INDUSTRIES LTD. (1973) 91 ITR 170 (GUJARAT) AND THE AFORESAID DECISION IS NOT APPLICA BLE TO FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE. IN THE SAID DECISION, THE ASSESSEE HAD IN FACT COMMENCED ITS BUSINESS OF EXTR ACTION OF LIMESTONE WHEREAS IN THE APPELLANTS CASE, IT HAS N OT COMMENCED ITS BUSINESS. IN VIEW OF ABOVE REMARKS AND DECISIONS RE LIED ON, THE AOS DISALLOWANCE IS UPHELD AND THE APPELLANTS GROUND O N THIS ISSUE IS DISMISSED. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE IT IS ADMITTED FACT THAT THE ASSESSEE HAS NOT COMMENCED THE BUSINESS OF IT, SO IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT CANNOT BE ALLOWED A S BUSINESS EXPENDITURE, WHEN THE ASSESSEE HAS NOT COMMENCED TH E BUSINESS. ACCORDINGLY, I DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE CIT(APPEALS) AND THE SAME IS CONFIRMED. HENCE, THIS GROUND OF AP PEAL RAISED BY THE ASSESSEE STANDS DISMISSED. ITA NO. 1536/MDS/2017 11 5. THE NEXT ISSUE IS WITH REGARD TO ASSESSMENT OF INTEREST INCOME FROM DEPOSITS AS INCOME FROM OTHER SOURCES. 6. THE FACTS OF THE ISSUE ARE THAT DURING THE ASSE SSMENT YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED INTEREST INCOME OF ` 4,10,925/- AND ADJUSTED IT AGAINST CAPITAL WORK IN PROGRESS. THE LD. ASSESSING OFFICER DISALLOWED THE SAID ADJUSTMENT AN D TREATED INTEREST AS INCOME FROM OTHER SOURCES BY RELYING ON VARIOUS APEX COURTS JUDGMENTS. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). BEFORE LD.CIT(A), THE ASSESSEE PLACED RELIANCE IN THE CASE OF NTPC SA IL POWER COMPANY PVT LTD. VS. CIT IN ITA NO.1238/2011 OF DEL HI HIGH COURT WHEREIN THE HONBLE HIGH COURT HAS CONSIDERED THE A PEX COURT DECISION OF TUTICORIN ALKALI CHEMICALS CASE AND ALS O BOKARO STEELS CASE AND CAME TO A CONCLUSION THAT THE INTEREST EAR NED ON DEPOSITS INEXTRICABLY LINKED WITH THE SETTING UP OF THE PROJ ECT WILL GO TO REDUCE THE PROJECT COST . WHATEVER INCOME EARNED WILL ONLY GO TO REDUCE THE COST OF THE PROJECT AND THE INCOME IS EXEMPTED FROM THE PURVIEW OF TAXATION. IN VIEW OF THE ABOVE DECISION, STAND OF T HE APPELLANT THAT ITA NO. 1536/MDS/2017 12 INTEREST EARNED ON MARGIN MONEY DEPOSITS TO BE NETT ED OFF PROJECT COST, BE ALLOWED. 6.1 THE LD.CIT(A) OBSERVED THAT THE AO NOTICED TH AT THE APPELLANT HAD DECLARED INTEREST INCOME WHICH WAS SET OFF AGAI NST CAPITAL WORK IN PROGRESS. THE AO HAS ASSESSED THE INTEREST ON BANK DEPOSITS DURING THE PRE-PRODUCTION PERIOD UNDER THE HEAD, INCOME FR OM OTHER SOURCES AND DENIED SET OFF AGAINST PRE-OPERATIVE EXPENSES U NDER THE HEAD, BUSINESS INCOME BY RELYING ON THE APEX COURTS DE CISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (CITED SUPRA). 6.2 LD.CIT(A) WAS OF THE CONSIDERED OPINION THAT THE ISSUE UNDER CONSIDERATION HAS BEEN SQUARELY COVERED IN FAVOUR O F REVENUE BY THE DECISION OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172. THE DE CISION OF THE APEX COURT IS BRIEFLY MENTIONED BELOW FOR READY REFERENC E: SECTION 56 OF THE INCOME-TAX ACT, 1961 - INCOME FR OM OTHER SOURCES CHARGEABLE AS - ASSESSMENT YEAR 1 980-81 - WHETHER INTEREST EARNED ON SHORT-TERM INVESTMENT OF FUNDS BORROWED FOR SETT ING-UP OF FACTORY DURING CONSTRUCTION OF FACTORY BEFORE COMMENCEMENT OF BUSINESS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND IT CANNOT BE SAID ITA NO. 1536/MDS/2017 13 THAT INTEREST INCOME IS NOT TAXABLE ON GROUND THAT IT WOULD GO TO REDUCE INTEREST ON BORROWED AMOUNT WHICH WOULD BE CAPITALI ZED - HELD, YES. SECTION 72 OF THE INCOME-TAX ACT, 1961 - LOSS - SET OFF AND CARRY FORWARD OF- ASSESSMENT YEAR 1980-81 - WHETHER INTER EST INCOME EARNED ON SHORT-TERM DEPOSIT OF FUNDS BEFORE COMMEN CEMENT OF BUSINESS DURING SETTING-UP OF FACTORY COULD BE SET OFF AGAINST LOSS OF THE COMPANY - HELD, NO 6.3 FURTHER, LD.CIT(A) OBSERVED THAT THE DECISION S RELIED ON BY THE APPELLANTS AR WERE NOT APPLICABLE TO THE FACTS A ND CIRCUMSTANCES OF THE APPELLANTS CASE. ACCORDING TO LD.CIT(A), IN VI EW OF THE ABOVE REMARKS AND IN LINE WITH THE APEX COURTS DECISION, THE ADDITION MADE BY THE LD. ASSESSING OFFICER IS TO BE SUSTAINED AN D THE APPELLANTS GROUND ON THIS ISSUE WAS DISMISSED. AGAINST THE OR DER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 7. BEFORE US, LD.A.R SUBMITTED THAT THE INTEREST I NCOME EARNED WAS LINKED WITH SETTING UP OF THE PROJECT AND IT HAS TO BE REDUCED FROM THE COST OF PROJECT. HOWEVER, THERE IS NO EVIDENCE BROU GHT ON RECORD BY THE ASSESSEE TO SHOW THAT THE ASSESSEE HAS MADE FIX ED DEPOSIT OUT OF MONEY BORROWED FOR THE PURPOSE OF SETTING UP THE PROJECT. 8. HENCE, I AM OF THE OPINION THAT THE JUDGEMENT OF SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. VS. ITA NO. 1536/MDS/2017 14 CIT (1997) 227 ITR 172(SC) IS SQUARELY APPLICABLE T O THE FACTS OF THE PRESENT CASE OF ASSESSEE WHEREIN IT WAS HELD THAT:- THE COMPANY HAD SURPLUS FUNDS IN ITS HANDS. IN ORD ER TO EARN INCOME OUT OF THE SURPLUS FUNDS, IT HAD INVESTED THE AMOUN T FOR THE PURPOSE OF EARNING INTEREST. THE INTEREST THUS EARNED WAS CLEA RLY OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE ACCOUNTANTS MIGHT HAVE TAKEN SOME OTHER VIEW BUT ACCOUNTANCY PR ACTICE WAS NOT NECESSARILY GOOD LAW. THIS WAS NOT A CASE OF DIVERS ION OF INCOME BY OVERRIDING TITLE. THE ASSESSEE WAS ENTIRELY AT LIBE RTY TO DEAL WITH THE INTEREST AMOUNT AS IT LIKED. THE APPLICATION OF THE INCOME FOR PAYMENT OF INTEREST WOULD NOT AFFECT ITS TAXABILITY IN ANY WAY. THE COMPANY COULD NOT CLAIM ANY RELIEF UNDER SECTION 70 OR SECT ION 71 SINCE ITS BUSINESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. IN SUCH A SITUATION, THE EXPENDIT URE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP ITS BUSINESS COULD NOT BE ALLOWED AS DEDUCTION, NOR COULD IT BE ADJUSTED AGAI NST ANY OTHER INCOME UNDER ANY OTHER HEAD. SIMILARLY ANY INCOME F ROM A NON- BUSINESS SOURCE COULD NOT BE SET OFF AGAINST THE LI ABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PL ANT AND MACHINERY EVEN BEFORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE. ITA NO. 1536/MDS/2017 15 IN VIEW OF THE ABOVE DECISION OF SUPREME COURT, I D O NOT FIND ANY INFIRMITY IN THE LD.CIT(A) AND THE SAME IS CONFIRME D. THIS GROUND OF APPEAL RAISED BY ASSESSEE STANDS DISMISSED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON 02 ND NOVEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 02 ND NOVEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF