URJANKUR SHREE DATTA POWER COMANY LTD, MUMBAI V. ITO 14(3)(3), MUMBAI

ITA 1816/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9795 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: DILIP LAKHANI
• Keywords: Business income; Business expenditure; Capital receipt
• Section: 234B; 37(1); 56

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -FBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./1816/MUM/2017, /ASSESSMENT YEAR: 2011-12 URJANKUR SHREE DATTA POWER COMPANY LIMITED THE IL&FS FINANCIAL CENTER, PLOT NO.C- 22,G-BLOCK, BANDRA KURLA COMPLEX BANDRA (E), MUMBAI-400 051. PAN:AAACU 9989 M VS. INCOME TAX OFFICER-14(3)(3) (ERSTWHILE INCOME TAX OFFICER-10(1)(4) MUMBAI. ( /APPELLANT) ( / RESPONDENT) ./I.T.A./1817/MUM/2017, /ASSESSMENT YEAR: 2011-12 URJANKUR SHREE TATASAHEB KORE WARANA POWER COMPANY LIMITED THE IL&FS FINANCIAL CENTER, PLOT NO.C- 22,G-BLOCK, BANDRA KURLA COMPLEX BANDRA (E), MUMBAI-400 051. PAN:AAABCU 0254 A VS. INCOME TAX OFFICER-14(3)(3) (ERSTWHILE INCOME TAX OFFICER-10(1)(4) MUMBAI. ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SMT. POOJA SWAROOP /ASSESSEE BY: SHRI DILIP LAKHANI / DATE OF HEARING: 22/06/2017 / DATE OF PRONOUNCEMENT: 23/08/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDERS DATED 25/01/2017 OF THE CIT (A)- 22,MUMBAI,THE ASSESSEES HAVE FILED ABOVE APPEALS FOR THE AY.2011-12.ASSESSEES ARE ENG AGED IN THE BUSINESS OF MANUFACTURING OF ELECTRICITY FROM BAGASSE,COAL AND OTHER FUELS.TH E DATES OF FILING OF RETURNS,DATE OF ASSESSMENTS,ASSESSED INCOMES IN BOTH THE CASES CAN BE TABULATED AS UNDER: ASSESSEE ROI FILED ON RETURNED INCOME ASSESSMENT DT. ASSESSED INCOME URJANKUR SHREE TATSAHEB KORE WARANA POWER CO.LTD. 20/09/2011 (LOSS) RS.8,05,546/- 24/03/2014 RS.2,63,07,600/- URJANKUR SHREE DATTA POWER COMPANY LIMITED 20/09/2011 (LOSS) RS.9,13,366/- 25/03/2014 RS.1,94,68,130/- AS THE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMM ON, THEREFORE, WE ARE ADJUDICATING THEM TOGETHER. ITA/1817/MUM/2017-AY.2011-12: 2. FIRST EFFECTIVE GROUND OF APPEAL (GOA-1 TO 7) IS AB OUT HEAD OF INCOME UNDER WHICH A SUM OF RS.2.63 CRORES HAS TO BE ASSESSED. IN THE GROUND S THE ASSESSEE HAS RAISED TWO ALTERNATIVE GROUNDS ALSO. 1816&1817/M/17(11-12) URJANKUR SHREE TATASAHEB KORE WARANA POWER CO.LTD. 2 DURING THE ASSESSMENT PROCEEDINGS,THE ASSESSING OFF ICER(AO)FOUND THAT BANK OF BARODA HAD CREDITED INTEREST ON TERM DEPOSITS OF RS. 2.63 CROR ES TO THE ACCOUNT OF THE ASSESSEE,THAT THE ASSESSEE HAD NOT OFFERED THE SAME FOR TAXATION AND HAD REDUCED THE SAME FROM ITS CAPITAL WORK IN PROGRESS.HE HELD THAT INTEREST INCOME ON FIXED D EPOSITS FROM BANKS FELL UNDER THE HEAD INCOME FROM OTHER SOURCES AS PER THE PROVISIONS OF SECTION 56(1)OF THE ACT. HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE SUM OF RS.2.63 CR ORES, BEING INTEREST EARNED ON FIXED DEPOSITS WHICH WAS REDUCED FROM CAPITAL WORK IN PRO GRESS (WIP) SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. AFTER CONSIDERI NG THE SUBMISSION OF THE ASSESSEE, DATED 26/02/2014, THE AO HELD THAT THE SUBMISSIONS MADE B Y THE ASSESSEE WERE FOUNDED ON WRONG NOTION, THAT IT WAS NOT ENTITLED FOR DEDUCTION UNDE R SECTION 57(III)OF THE ACT, THAT THE FUNDS WERE BORROWED FOR PURPOSE OF MANUFACTURING OF POWER AND PROCESS STEAM PROJECTS, THAT THE INTEREST PAID ON SUCH BORROWED FUNDS HAD TO BE DEAL T WITH AS PER THE PROVISIONS OF SECTION 36 OF THE ACT.ACCORDINGLY,A SUM OF RS.2,63,07,600/-WAS BROUGHT TO TAX AS INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES W ITHOUT GIVING A DEDUCTION UNDER SECTION 57(III)OF THE ACT. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS.IT RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD TH AT THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION,THAT I T HAD BORROWED FUNDS FOR PURPOSE OF SETTING ITS BUSINESS, THAT IT WAS IN PROCESS OF IMPLEMENTAT ION OF 44 MW BAGASSE BASED POWER PROJECT, THAT THE UNUTILISED SURPLUS FUNDS LYING IDLE WITH I T WERE KEPT IN FIXED DEPOSITS ON WHICH INTEREST INCOME OF RS. 2.63 CRORES WAS EARNED,THAT ASSESSEES RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BOKARO STEEL L TD.WAS MISPLACED, THAT THE ASSESSEE HAD SIMPLY PARKED ITS UNUTILISED IDLE SURPLUS FUNDS IN FIXED DEPOSITS AND HAD EARNED INTEREST THEREON. RELYING UPON THE JUDGMENT OF TUTICORIN ALK ALI CHEMICALS AND FERTILISERS LTD. (227 ITR 172) OF THE HONBLE APEX COURT, HE HELD THAT TH E AO HAD RIGHTLY TAXED THE SUM OF RS. 2.63 CRORES UNDER THE HEAD INCOME FROM OTHER SOURCE S,THAT THE INTEREST PAYABLE ON AMOUNT BORROWED FOR THE BUSINESS PURPOSES COULD NOT BE ADJ USTED AGAINST THE INTEREST INCOME. 2.2. BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) CONTEN DED THAT THERE WAS TIME LAG BETWEEN THE SANCTION OF LOAN AND THE ASSESSMENT, THAT TO RE DUCE TAX BURDEN THE ASSESSEE HAD PARKED THE FUNDS WITH THE BANK, THAT THE INTEREST EARNED BY TH E ASSESSEE SHOULD BE REDUCED FROM THE WORK IN PROGRESS, THAT TILL THE AY.2010-11,THE AO HAD AC CEPTED THE STAND TAKEN BY THE ASSESSEE, THAT IF THE DISPUTED AMOUNT WAS TO BE TAXED THEN IT SHOULD BE TAXED PROPORTIONATELY, THAT WORK 1816&1817/M/17(11-12) URJANKUR SHREE TATASAHEB KORE WARANA POWER CO.LTD. 3 IN PROGRESS SHOULD BE INCREASED PROPORTIONATELY.HE REFERRED TO THE CASES OF CHENNAI PROPERTIES AND INVESTMENTS LTD. (373ITR673);BOKARO STEEL LTD.(236ITR315);ROAD INFRASTRUC -TURE DEVELOPMENT COMPANY OF RAJASTHAN LTD.(ITA/628 /JP/2014,DTD.19.12.2016)AND ANDHRA PRADESH EXPRESSWAY LTD.(ITA/663/MUM/2015 AY-10-11,D T.19/7/16).THE DEPARTMENTAL REPRESENTATIVE (AR)SUPPORTED THE ORDER OF THE FAA A ND RELIED UPON THE CASES OF TUTICORIN ALKALI(SUPRA),COROMANDEL CEMENT (234 ITR 412),AUTOK AST LTD. (248 ITR 110) AND DR. V.P. GOPINATH (248 ITR 449). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD TAKEN LOAN FOR DEVELOPMENT, CONSTRUCTI ON AND OPERATION OF A 44MW POWER GENERATION PROJECT,THAT A CONSORTIUM OF BANKS HAD E NTERED INTO AN AGREEMENT WITH THE ASSESSEE (COMMON-LOAN AGREEMENT,DATED 11/02/2010) FOR FUNDIN G THE PROJECT,THAT THE LENDERS HAD AGREED TO PROVIDE THE LOAN OF RS. 198.39 CRORES TO THE ASSESSEE, THAT AS PER THE AGREEMENT TRUST AND RETENTION ACCOUNT (TRA)/ESCROW ACCOUNT HA D TO BE OPENED BY THE ASSESSEE WITH THE SCHEDULED BANK DESIGNATED AS SUCH AND ACCEPTABL E TO THE TRA AGENT, THAT THE RECEIVABLES AND OTHER REVENUES OF THE PROJECT HAD TO BE CREDITE D OR DEBITED IN THE TRA ACCOUNT, THAT BANK OF BARODA WAS DESIGNATED AS TRA BANK,THAT THE ASSES SEE HAD DEPOSITED LOAN AMOUNTS RECEIVED FROM THE CONSORTIUM WITH THE BANK OF BAROD A, THAT IT HAD EARNED INTEREST INCOME ON THE MONEY PARKED WITH THE BANK, THAT THE AO HELD TH AT INTEREST INCOME WAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THAT NO EXPE NDITURE WAS TO BE ALLOWED AGAINST SAID INCOME,THAT THE FAA HELD THAT JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI (SUPRA)WAS APPLICABLE TO THE FACTS OF THE CASE,THAT THE ASSESSEE HAS WRONGLY ARGUED THAT FACTS OF THE CASE UNDER CONSIDERATION W ERE IDENTICAL TO THE FACTS OF BOKARO STEEL (SUPRA). IN OUR OPINION,THE TEST THAT IS REQUIRED TO BE EMPL OYED,TO DECIDE THE ISSUE BEFORE US,IS AS TO 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 BUSINESS OR NOT.HERE,WE WOULD LIKE TO REFER TO THE CASE OF K & CO.(364 ITR 93).TH E FACTS OF THE CASE, NARRATED BY THE HONBLE COURT,WERE THAT THE ASSESSEE HAD TO PLACE CERTAIN FUNDS AS MARGIN MONEY IN ORDER TO OBTAIN THE BANK GUARANTEE WHICH WAS REQUIRED BY THE STATE GOVERNMENT OF SIKKIM FOR THE PURPOSE OF ENABLING IT TO CARRY ON THE BUSINESS OF PRINTING LOTTERY TICKETS AND FOR CONDUCTING LOTTERIES ON BEHALF OF THE STATE GOVERNMENT OF SIKK IM. THE FUNDS WHICH WERE PLACED AS MARGIN MONEY EARNED INTEREST.FRAMING THE QUESTION O F LAW AND DECIDING THE ISSUE THE HONBLE DELHI HIGH COURT HELD AS UNDER: 1816&1817/M/17(11-12) URJANKUR SHREE TATASAHEB KORE WARANA POWER CO.LTD. 4 THE QUESTION WHICH AROSE WAS WHETHER THESE AMOUNTS WOULD BE PLACED UNDER THE HEAD OF 'BUSINESS INCOME' OR UNDER THE HEAD OF 'INCOME FROM OTHER SOU RCES' UNDER SECTION 56 OF THE INCOME-TAX ACT, 1961. WE NEED NOT LABOUR MUCH ON THIS ISSUE INASMUC H AS THE LAW STANDS SETTLED IN SEVERAL DECISIONS INCLUDING THOSE OF THE SUPREME COURT AND THIS COURT . THE DECISIONS ARE : (1) CIT V. BOKARO STEEL LTD. [1999] 236 ITR 315 (SC ) ; (2) CIT V. KOSHIKA TELECOM LTD. [2006] 287 ITR 479 (DELHI) ; AND (3) CIT V. JAYPEE DSC VENTURES LTD. [2011] 335 ITR 132 (DELHI). THESE DECISIONS MAKE IT CLEAR THAT WHERE INCOME IS RECEIVED FROM DEPOSITS MADE BY THE ASSESSEE ARE DEPOSITS WHICH ARE INEXTRICABLY LINKED TO THE BUSI NESS OF THE ASSESSEE, SUCH INCOME CANNOT BE TREATED AS INCOME RECEIVED FROM OTHER SOURCES. IN THE PRESENT CASE, THE TRIBUNAL HAS HELD THAT THE INTEREST RECEI VED BY THE ASSESSEE WAS INEXTRICABLY LINKED TO THE BUSI NESS OF THE ASSESSEE. THIS IS SO BECAUSE THE MARGIN MONEY REQUIREMENT WAS AN ESSENTIAL ELEMENT FOR OBTA INING THE BANK GUARANTEE WHICH WAS NECESSARY FOR THE CONTRACT BETWEEN THE STATE GOVERNMENT OF SIKKIM AND THE RESPONDENT-ASSESSEE. IF THE RESPONDENT- ASSESSEE HAD NOT FURNISHED THE BANK GUARANTEE IT WO ULD NOT HAVE GOT THE CONTRACT FOR RUNNING THE SAID LOTTERY. THEREFORE, THE INTEREST RECEIVED ON THE FU NDS WHICH WERE KEPT BY WAY OF MARGIN MONEY FOR OBTAINING THE BANK GUARANTEE CANNOT BUT BE SAID TO BE INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE. CONSEQUENTLY, WE ANSWER THESE QUESTIONS I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 2.4. SIMILAR VIEWS HAVE BEEN EXPRESSED IN THE JUDGMENTS OF FACTOR POWER LTD.(380 ITR 474)AND KOSHIKA TELECOM LTD.(287 ITR 479).IN THE CA SE OF SISTER CONCERN OF THE ASSESSEE, NAMELY,ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF R AJASTHAN LTD. (SUPRA),THE TRIBUNAL HAS DELIBERATED UPON THE ISSUE AND DECIDED THE SAME AS FOLLOW: 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION FOR THE BOTH THE YEARS RE LATE TO TREATMENT OF THE INTEREST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCIAL OPERATIONS OF T HE SPECIFIED MEGA ROAD PROJECTS. AS PER THE REVENUE, THE SAME IS TO BE BROUGHT TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES.' AS PER THE ASSESSEE, IT IS IN THE NATURE OF CAPITAL RE CEIPT AND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPITALIZED UNDER THE HEAD 'CAPITAL WORK IN PROGRESS' AND THE SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD 'INCOM E FROM OTHER SOURCES.' THE SAID ISSUE HAS BEEN EXAMINED AT GREAT LENGTH BY THE COORDINATE BENCH IN ITS DECISION REFERRED SUPRA AND THEREIN THE DECISION OF THE HON'BLE SUPREME COURT I N CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS (227 ITR 172) AS WELL AS DECISION IN CA SE OF BOKARO STEEL LTD (236 ITR316) HAS BEEN DULY CONSIDERED. THE RELEVANT FINDINGS OF THE COORDINATE BENCH IN ASSESSEE'S OWN CASE IN ITA NO. 628/JP/2014 FOR A.Y. 2009-10 DATED 11.08 .2016 ARE REPRODUCED AS UNDER: '2.18 FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE TWO SETS OF JUDGEMENTS OF HON'BLE SUPREME COURT, PROCEEDINGS ON DIFFERENT LINES OF RE ASONINGS. 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 S TEEL LD. (SUPRA). AFTER ANALYZING BOTH THE DECISIONS OF HON'BLE SUPREME COURT, IT HEL D THAT 'THE TEST WHICH PREMEATES THROUGH THE JUDGEMENT OF THE SUPREME COURT IN TUTIC ORIN ALKALI CHEMICALS & FERTILIZERS LTD'S CASE (SUPRA) IS THAT IF FUNDS HAV E BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE 'SURPLUS' AND THEN BY VI RTUE 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 JUDGEMENT IN BOKARO STEEL LTD.'S CASE (SUPRA) TO OUR MIND IS THAT IF INCOME EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRICABLY LINKED' TO THE SETTING UP O F THE PLANT SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE- OPERAT IVE EXPENSES .' '2.19 THE FACTS IN THE INSTANT CASE ARE PARI MATERI A 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 EXEC UTION OF THE MEGA ROAD PROJECTS AND AS PER THE LOAN AGREEMENT EXECUTED BETWEEN THE CONSORTIUM OF BANKERS AND THE 1816&1817/M/17(11-12) URJANKUR SHREE TATASAHEB KORE WARANA POWER CO.LTD. 5 ASSESSEE DATED 23.11.2005, ALL THE DISBURSEMENTS SH ALL 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 UTILI SED 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 T HE 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 SP ECIFIED PROJECTS ONLY. THE IMPUNGED INTEREST RECEIPT OF RS. 35,39,479/- ON SUC H BORROWED FUNDS RELATES TO THE MEGA ROAD PROJECTS/STRETCHES WHICH WERE UNDER CONST RUCTION AND THE COMPLETED ROAD PROJECTS/STRETCHES UPTO THE DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS. THEREFORE, THE INTEREST RECEIVED PRIOR TO COMMENCEM ENT OF COMMERCIAL OPERATIONS OF THE SPECIFIED MEGA ROAD PROJECTS WILL BE IN THE NAT URE OF CAPITAL RECEIPT AND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EX PENDITURE CAPITALIZED UNDER THE HEAD 'CAPITAL WORK IN PROGRESS' AND THE SAME CANNOT BE B ROUGHT TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. HENCE, GROUND NO. 1 OF THE ASSE SSEE IS ALLOWED.' 5. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. NO CONTRARY AUTHORITY HAS BEEN BROUGHT TO OUR NOTICE SUBSEQUENT TO ABOVE DECISION OF THE COORDINATE BENCH OR THE FACT THAT SAID DECISION OF THE COORDIN ATE BENCH HAS BEEN STAYED BY THE HON'BLE HIGH COURT. IN VIEW OF THE SIMILAR FACTS AND CIRCUM STANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH IN ASSES SEE'S OWN CASE (SUPRA), WE HOLD THAT THE INTEREST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCI AL OPERATIONS OF THE SPECIFIED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECE IPT AND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPITALIZED UNDER THE HEAD 'CAPITAL WORK IN PROGRESS' AND THE SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD 'INCOM E FROM OTHER SOURCES'. CONSIDERING THE FACT THAT THE LOAN WAS INEXTRICABLY LINKED WITH THE COMMISSIONING OF THE POWER PROJECT-AS EVIDENCED FROM THE AGREEMENT-WE AR E OF THE OPINION THAT THE INCOME EARNED BY THE ASSESSEE CANNOT BE TAXED UNDER THE HEAD INCO ME FROM OTHER SOURCES AND THAT IT HAS TO BE SET OFF AGAINST THE WIP.IN OTHER WORDS,WE HOLD T HAT THE MONEY PLACED IN THE FIXED DEPOSIT WAS INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT AND THAT THE REVENUE GENERATED ON ACCOUNT OF INTEREST ON THE SAID FIXED DEPOSITS W OULD BE IN THE NATURE OF A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT.REVERSING THE ORDER OF THE FA A,WE DECIDE THE FIRST GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 3. SECOND GROUND OF APPEAL DEALS WITH EXPENDITURE INCU RRED UNDER THE HEAD BUSINESS LOSS OF RS.5.05 LAKHS.ON PERUSAL OF THE P&L ACCOUNT OF THE ASSESSEE, THE AO FOUND THAT IT HAD INCURRED TOTAL LOSS OF RS.39.08 LAKHS,THAT IT HAD C LAIMED BUSINESS LOSS OF RS.8,05,546/-.THE AO OBSERVED THAT THE ASSESSEE WAS IN THE PROCESS O F IMPLEMENTATION OF POWER PROJECT, THAT POWER PLANT WAS UNDER CAPITALIZATION STAGE, THAT TH E ASSESSEE HAD NOT COMMENCED BUSINESS, THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE PA RT OF CAPITAL WORK IN PROGRESS ,THAT THE PRE- CONDITION FOR ALLOWING EXPENDITURE U/S. 37(1) OF T HE ACT WAS THAT SAME SHOULD BE IN RESPECT OF BUSINESS CARRIED OUT BY THE ASSESSEE,THAT THERE WERE NO CORRESPONDING RECEIPTS TO THE 1816&1817/M/17(11-12) URJANKUR SHREE TATASAHEB KORE WARANA POWER CO.LTD. 6 EXPENDITURE WHICH RESULTED INTO BUSINESS LOSS, THAT THE CLAIM OF EXPENDITURE WAS AGAINST THE MATCHING PRINCIPLES OF ACCOUNTANCY.FINALLY,HE DISA LLOWED THE CLAIM MADE BY THE ASSESSEE . 3.1 .BEFORE THE FAA THE ASSESSEE MADE SUBMISSIONS IN TH AT REGARD.AFTER CONSIDERING THE SAME THE FAA HELD THAT THE ASSESSEE WAS CORPORATE ENTIT Y, THAT SOME STATUTORY EXPENSES WERE TO BE INCURRED FOR MAINTAINING ITS CORPORATE STATUS, HE A LLOWED THE AUDIT FEE PAID BY THE ASSESSEE AMOUNTING TO RS.3 LAKHS AND BALANCE AMOUNT OF RS.5 .05 LAKHS WAS DISALLOWED. 3.2. BEFORE US,THE AR STATED THAT ASSESSEE HAD ON ITS O WN DISALLOWED MAJOR PORTION OF THE EXPENDITURE, THAT THE DETAILS OF EXPENDITURE INCUR RED BY IT WERE FURNISHED BY BOTH LOWER AUTHORITIES, THAT THE EXPENDITURE RELATED TO ADMINI STRATIVE AND OTHER OVERHEADS THAT WERE NOT DIRECTLY CONNECTED TO THE PROJECTS. THAT RATES AND TAXES, DIRECTORS SITTING FEES,LEGAL AND PROFESSIONAL FEE AND TRAVELLING CONVEYANCE ETC. WER E NOT DIRECTLY RELATED WITH THE PROJECT. THE DR SUPPORTED THE ORDER OF THE FAA. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.39,08,679/- T O THE P&L ACCOUNT AND HAD VOLUNTARILY DISALLOWED AS SUM OF RS.31.03 LAKHS,THAT OUT OF THE BALANCE AMOUNT THE FAA ALLOWED RS.3 LAKHS FOR THE AUDIT FEE PAID BY THE ASSESSEE.WE FIN D THAT HE HAS NOT GIVEN ANY REASON AS TO WHY OTHER EXPENSES MENTIONED BY US IN THE EARLIER P ARAGRAPH WERE NOT RELATED TO MAINTAIN THE CORPORATE ENTITY.IN OUR OPINION,ALL THE EXPENSES HA D NO DIRECT CONNECTION WITH THE IMPLEMENT - TATION OF THE POWER PROJECT.IN OTHER WORDS,THEY WER E ROUTINE EXPENDITURE OF ADMINISTRATIVE NATURE OR WERE NECESSARY FOR THE MAINTENANCE OF STA TUS OF THE COMPANY.SO, REVERSING HIS ORDER,WE DECIDE EFFECTIVE GROUND OF APPEAL (GOA-7& 8) IN FAVOUR OF THE ASSESSEE . 4. NEXT TWO GROUNDS DEAL WITH PAYMENT OF INTEREST U/S . 234B AND 234D OF THE ACT.BOTH THE ISSUES,BEING CONSEQUENTIAL IN NATURE,ARE NOT BEING ADJUDICATED. ITA/1816/MUM/2017,A.Y 2011-12: 5. BOTH THE EFFECTIVE GROUNDS OF APPEAL RAISED BY URJA NKUR SHREE DATTA POWER COMPANY LIMITEDDEAL WITH THE IDENTICAL ISSUES WHICH WE HAVE ALREADY ADJUDICATED WHILE PASSING THE ORDER IN THE CASE OF I.E. TREATMENT TO BE GIVEN TO THE INTEREST INCOME (RS.1.94 CRORES ) UNDER THE HEAD INCOME FROM OTHER SOURCES; AND DISALLOWANC E OF BUSINESS EXPENDITURE (RS.5.13 LAKHS). EXCEPT FOR THE AMOUNTS INVOLVED THE ISSUE R AISED BY THE ASSESSEE ARE IDENTICAL TO THE FACTS OF EARLIER YEAR. SO, FOLLOWING THE SAME WE AL LOW BOTH THE GROUNDS 6. REMAINING TWO GROUNDS DEALING WITH INTERESTS U/S. 234 ARE CONSEQUENTIAL IN NATURE. 1816&1817/M/17(11-12) URJANKUR SHREE TATASAHEB KORE WARANA POWER CO.LTD. 7 AS A RESULT APPEALS FILED BY BOTH THE ASSESSES STAN D ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2017. 23 , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 23.08.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR F BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.