The ITO, Ward-1(1), Ahmedabad V. M/s. Adani Power Maharashtra Ltd., Ahmedabad

ITA 2401/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8191 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Diversion of income; Capital receipt; Capital expenditure
• Section: 143(3); 56

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2401/AHD/2014 WITH CROSS OBJECTION NO. 286/AHD/2014 ( ASSESSMENT YEAR : 2010-11) ITO, WD.1(1), AHMEDABAD / VS. M/S. ADANI POWER MAHARASHTRA LIMITED ADANI HOUSE, NR. MITHAKHALI SIX ROAD, NAVRANGPURA, AHMEDABAD 380015 ./ ./ PAN/GIR NO. : AAGCA4102J ( APPELLANT / RESPONDENT ) .. ( RESPONDENT / CROSS OBJECTOR ) / REVENUE BY : SHRI LALIT P. JAIN, SR. D.R. / ASSESSEE BY : SHRI S. N. SOPARKAR, A.R. DATE OF HEARING 13/12/2018 ! / DATE OF PRONOUNCEMENT 31/12/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-6, AHMEDABAD (CIT(A) IN SHORT), DATED 2 4.07.2014 ARISING IN THE ASSESSMENT ORDER DATED 25.03.2013 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING ASSESSMENT YEAR 2010-11. ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 2 - 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN T HE REVENUES APPEAL AS CAPTIONED ABOVE. ITA NO. 2401/AHD/2014 (REVENUES APPEAL) 3. THE GROUNDS OF APPEAL RAISED BY THE REVENUE REA DS AS UNDER:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.4,57,53,424/- MADE BY THE AO ON ACCOUNT OF INTER EST INCOME U/S 56 OF THE ACT. 4. BRIEFLY STATED, THE ASSESSEE COMPANY IS SUBSIDIA RY COMPANY OF ADANI POWER LTD. (APL) WHICH OWNS MAJORITY OF THE I SSUED SHARE CAPITAL IN IT. THE ASSESSEE COMPANY IS ENGAGED IN POWER SECTOR AND HAS UNDERTAKEN A PROJECT OF CONSTRUCTION OF POWER P LANT TO GENERATE ELECTRICITY. THE POWER PLANT WAS STATED TO BE IN T HE PROCESS OF BEING SET UP DURING THE YEAR. THE ASSESSEE COMPANY THUS H AS NOT BEGUN ANY COMMERCIAL ACTIVITIES WHATSOEVER DURING THE YEAR. THE EXPENSES INCURRED FOR THE PURPOSE OF SETTING UP OF PROJECT W ERE SHOWN IN THE BALANCE SHEET AS PROJECT DEVELOPMENT EXPENDITURE AND CAPITAL WORK IN PROGRESS. THE EXPENDITURE INCURRED WERE CAPITA LIZED AND INCOME GENERATED WERE REDUCED FROM THE COST OF PROJECT. THE RETURN WAS THUS FILED BY THE ASSESSEE DECLARING THE TOTAL INCOME OF RS. NIL. THE RETURN SO FILED FOR AY 2010-11 WAS SUBJECTED TO SCRUTINY A SSESSMENT. ON SCRUTINY OF THE PROJECT DEVELOPMENT EXPENDITURE AND CAPITAL WORK IN PROGRESS, THE AO INTER ALIA NOTICED THAT THE AS SESSEE HAS MADE ADJUSTMENT OF INTEREST INCOME OF RS.7,19,89,318/- A GAINST FINANCIAL CHARGES (PROJECT DEVELOPMENT EXPENDITURE) OF RS.98, 44,60,069/-. THE INTEREST INCOME OF RS.7,19,89,318/- COMPRISED OF IN TEREST INCOME OF THE CURRENT YEAR OF RS.6,77,37,328/- AND RS.42,51,9 90/- RELATING TO PRECEDING YEAR. IT WAS NOTICED IN THE COURSE OF TH E ASSESSMENT THAT CERTAIN DEPOSITS WERE PARKED BY THE ASSESSEE COMPAN Y WITH MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. TOWARDS MARGIN ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 3 - MONEY AGAINST BANK GUARANTEES FOR WORK CONTRACT FOR PROJECT PURPOSE AND INTEREST WAS EARNED THEREON. SIMILARLY, THE AS SESSEE ALSO PLACED TEMPORARY DEPOSITS WITH ADANI WELSPUN EXPLORATION L TD. (AWEL) AND SOME FIXED DEPOSITS WERE RETAINED IN THE BANK TO ME ET VARIOUS CONTINGENCIES. IT WAS THE CASE OF THE ASSESSEE THA T SUCH FIXED DEPOSITS ARE INEXTRICABLY LINKED WITH HIGHLY CAPITAL INTENSI VE POWER PROJECT AS SUCH MEGA PROJECTS REQUIRE USE OF STATE OF ART TECH NOLOGY, SUBSTANTIAL IMPORTS, PLANNING AND EXECUTION OF INSTALLATION AND COMMISSION OVER A SUBSTANTIAL LONG PERIOD OF TIME. IT WAS CLAIMED TH AT THE ASSESSEE HAS ALSO INTER ALIA INCURRED VERY HEAVY INTEREST COSTS ON BORROWED FUN DS TO THE TUNE OF RS.98,44,60,069/-. THE ASSESSEE THUS C LAIMED THAT BOTH INTEREST INCURRED ON BORROWED FUNDS AND INTEREST IN COME DERIVED FROM TEMPORARY DEPOSITS FORM PART OF PROJECT DEVELOPMENT EXPENDITURE AND BOTH OUTGO AND RECEIPT BEARS THE CHARACTER OF CAPIT AL ITEM. THE AO HOWEVER HELD THAT INTEREST EARNED ON TEMPORARY DEPO SITS AMOUNTING TO RS.4,57,53,424/- GIVEN TO AWEL AND INTEREST INCOME AMOUNTING TO RS.47,04,267/- DERIVED FROM FIXED DEPOSITS PLACED W ITH BANK ARE IN THE NATURE OF REVENUE INCOME AND THUS CANNOT BE REDUCED FROM PROJECT COSTS OF CAPITAL NATURE. WHILE HOLDING SO, THE AO DENIED NEXUS BETWEEN THE DEPOSITS MADE AND SETTING UP OF PLANT / ACQUISITION OF ASSETS. THE AO ACCORDINGLY ASSESSED AGGREGATE INTE REST INCOME OF RS.5,04,57,691/- AS INDEPENDENT REVENUE INCOME OF T AXABLE NATURE AND DENIED ITS SET OFF AGAINST THE PROJECT DEVELOPMENT EXPENDITURE (CAPITAL WORK IN PROGRESS). 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 6. THE CIT(A) REVISITED THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOUND MERIT IN THE PLEA OF THE ASSESSEE FOR ADJUSTM ENT OF INTEREST INCOME TO THE EXTENT OF RS.4,57,53,424/- AS ADJUSTI ABLE AGAINST THE PROJECT AND DEVELOPMENT EXPENDITURE (CAPITAL WORK I N PROGRESS). IT WAS CONSEQUENTLY HELD THAT THE INTEREST INCOME SO D ERIVED TO THE ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 4 - AFORESAID EXTENT WOULD GO TO REDUCE THE CUMULATIVE PROJECT DEVELOPMENT EXPENDITURE OF CAPITAL NATURE WHICH ALS O INTER ALIA INCLUDES INTEREST EXPENDITURE TO THE TUNE OF RS.98. 44 CRORE. THE CIT(A) HOWEVER DID NOT AGREE WITH THE PLEA OF THE ASSESSEE TOWARDS REDUCTION OF INTEREST INCOME DERIVED FROM FIXED DEP OSITS AMOUNTING TO RS.47,04,267/- FROM THE PROJECT DEVELOPMENT EXPENDI TURE AGGREGATING TO RS.140.31 CRORE (INCLUDING INTEREST COSTS RS.98. 44 CRORES) ON THE GROUND THAT ASSESSEE FAILED TO DEMONSTRATE THAT INT EREST EARNED IS INEXTRICABLY LINKED WITH THE SETTING UP OF POWER PL ANT. 7. IT WILL BE APT TO REPRODUCE THE RELEVANT PARAS D EALING WITH THE CONTROVERSY: 2.3 INTEREST INCOME ON FIXED DEPOSITS KEPT FROM SU RPLUS FUNDS PENDING UTILIZATION RS.47,04,267/-: 2.3.1 DURING THE YEAR UNDER CONSIDERATION THE APPEL LANT COMPANY HAS ALSO EARNED INTEREST INCOME ON FIXED DEPOSITS W ITH AXIS BANK AND STATE BANK OF INDIA OF RS.47,04,267. BREAK UP OF THE INTEREST INCOME EARNED IS AS UNDER: PARTICULARS AMOUNT (IN RS.) INTEREST INCOME ON FDS PLACED WITH AXIS BANK 25,11,666 INTEREST INCOME ON FDS PLACED WITH STATE BANK OF IN DIA 21,92,601 TOTAL 47,04,267 THE A.O. HAS CHARACTERIZED THE INTEREST INCOME ON F IXED DEPOSITS PLACED WITH THE ABOVE BANKS AS REVENUE RECEIPT AND THEREFORE HE HAS NOT ALLOWED SETTING OFF OF THE INTEREST INCOME AGAI NST PROJECT DEVELOPMENT EXPENSES. IN THIS RESPECT THE APPELLANT COMPANY WOULD LIKE TO SUBMIT THAT THE ABOVE DEPOSITS WERE MADE FR OM THE FUNDS RECEIVED AS SHARE CAPITAL AND/OR TEMPORARY PARKING OF BORROWED FUNDS AWAITING UTILIZATION FOR THE INTENDED PURPOSE OF CONSTRUCTION OF POWER PLANT. THE A.O. HAD INCORRECTLY STATED THAT T HE IMPUGNED INTEREST INCOME HAS BEEN RECEIVED BY THE APPELLANT FROM MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. (MSEDC). TH E LD. A.O HAS MAINLY REJECTED THE CONTENTION OF THE APPELLANT ON THE GROUND THAT THE DEPOSITS MADE WITH THE BANKS ON WHICH INTEREST INCOME HAS BEEN EARNED ARE NOT INEXTRICABLY LINKED WITH SETTING UP OF POWER PLANT. 2.3.2 FURTHER, THE APPELLANT WOULD LIKE TO STATE THAT THE APPELLANT HAD MADE FIXED DEPOSITS FROM SURPLUS FUNDS PENDING UTILIZATION WITH ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 5 - THE AFORESAID BANKS. THE APPELLANT IS ENGAGED IN TH E BUSINESS OF GENERATION OF POWER FOR WHICH IT IS INVOLVED IN SET TING UP OF POWER PLANT AT TIRODA, MAHARASHTRA. PROJECTS SUCH AS SETT ING UP OF POWER PLANT AND ITS OPERATION REQUIRE FINANCE ON A HUGE S CALE. MOREOVER ONCE FUNDS ARE ARRANGED FROM VARIOUS SOURCES FOR IN VESTMENT, THEIR APPLICATION CANNOT BE IMMEDIATE I.E. ON ONE HAND FU NDS ARE PROCURED AND ON THE OTHER HAND THEY ARE IMMEDIATELY DISSEMIN ATES FOR PURCHASING PLANT AND MACHINERY AND OTHER PROJECT RE LATED WORKS. AS SETTING UP OF POWER PLANT IS HIGHLY CAPITAL INTENSI VE, INVESTMENTS IN PLANT AND MACHINERY AND CONSTRUCTION OF THE POWER P LANT SPAN IN HUNDREDS OF CRORES OF RUPEES, THEREFORE, DECISIONS TO INVEST CANNOT BE TAKEN IN SPUR OF A MOMENT. THERE A LOT OF TECHNICAL ITIES, FEASIBILITY STUDIES AND INVESTMENT PROPOSALS REQUIRED TO BE PON DERED UPON. HENCE, THERE IS A BUFFER TIME BETWEEN THE PROCUREME NT OF FUNDS AND THEIR ULTIMATE UTILIZATION. DURING SUCH PERIOD, THE APPELLANT IS VESTED WITH SURPLUS FUNDS PENDING UTILIZATION AND AS ANY O RGANIZATION WOULD TRY TO CASH IN ON ANY OPPORTUNITY AVAILABLE TO MAXI MIZE ITS GAINS; THE APPELLANT DURING SUCH TIME PARKED SUCH FUNDS AS FDS WITH AFORESAID BANKS. IT WOULD BE PERTINENT TO NOTE THAT WHEN THE APPELLANT RECEIVED MONEY IN FORM OF SHARE CAPITAL IT COULD NOT IMMEDIA TELY USE THE SAME TO FINANCE ITS BUSINESS; THEREFORE, A CERTAIN OPPOR TUNITY COST WOULD BE INVOLVED DURING THE TIME THE FUNDS ARE PENDING U TILIZATION. HENCE, THE APPELLANT PARKED THE SAME AS FDS WITH THE AFORE SAID BANKS. 2.3.3 THE APPELLANT WOULD ALSO LIKE TO SUBMIT TH AT THE INTENTION OF THE APPELLANT IS REQUIRED TO BE SEEN FOR DEDUCING W HETHER THE INTEREST ON FUNDS PARKED INTO FD IS INEXTRICABLY LINKED WITH THE BUSINESS OF THE APPELLANT. IT IS PERTINENT TO NOTE THAT AFTER M ATURITY OF THE FDS, THE PROCEEDS THEREOF WERE INVESTED IN THE BUSINESS OF THE APPELLANT. IN THIS REGARDS, THE APPELLANT WOULD LIKE TO PROVID E THE UTILIZATION OF FUNDS ON MATURITY OF CERTAIN FDS EXEMPLIFYING THAT THE FUNDS ON MATURITY OF ALL FDS GENERATING AN AGGREGATE INTERES T INCOME OF RS. 47,04,2677- HAS BEEN ULTIMATELY USED FOR THE PURPOS E OF BUSINESS. A) AXIS BANK FD , MATURITY DATE: 22.08.2009 , INTEREST AMOUNT: RS. 4,35,876/ -, DOC NO. 8100001894 DATE DOC NO. PURPOSE AMOUNT (IN LACS OF RS.) 22.08.2009 8100001791 SECURITY DEPOSIT FOR PROJECT REGISTRATION CUSTOMS 30.00 25.08.2009 8100001819 AXIS BANK - TRF TO SB/ AHMEDABAD 85.00 22.08.2009 8100001789 EMD REFUND TO SHREE LAXMI C & F P LTD ON 22.8.2009 5.00 ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 6 - 24.08.2009 1500000420 EMD REFUND TO AGARWAL CARRIERS CORP ON 24.8.2009 5.00 24.08.2009 1500000422 PROF FEEES OF CIRCULATION OF DRAFT 4.43 28.08.2009 1500000439 EMD REFUND TO BLR LOGISTICS ON 28/8/2009 5.00 28.08.2009 1500000440 EMD REFUND TO DAMAN/ SHIPPING ON 28/8/2009 5.00 TOTAL 140 B) AXIS BANK FD , MATURITY DATE: 15.08.2009, INTEREST AMOUNT: RS. 2,03,970/- , DOC NO. 8100002041 DATE DOC NO. PURPOSE AMOUNT (IN LACS OF RS.) 18.08.2009 2000001968 J.P. MACHINE TOOLS PVT.LTD. 11.61 18.08.2009 2000001966 MUDRA INTERIORS 9.30 18.08.2009 8100001689 AMOUNT PAID TO MERC FOR LICENCE FEES 6.00 19.08.2009 2000001987 PAYMNT TO PIL FOR SUPPLY 70.32 21.08.2009 2000002051 PYMNT TO PIONEER SURVE 7.84 TOTAL 108 C) SBI FD, MATURITY DATE: 15.03.2010 , INTEREST AMOUNT: RS. 2,46,575/-, DOC NO. 8100003683 DATE DOC NO. PURPOSE AMOUNT (IN LACS OF RS.) 15.03.2010 1500001021 PD TO SYNDICATE BANK 11.03 15.03.2010 1500001018 PD TO UNION BANK OF INDIA 11.03 15.03.2010 1500001017 PD TO CORPORATION BANK LTD -BG COMM CHGS 330.90 15.03.2010 1500001019 PD TO UNION BANK OF INDIA -BG COMM CHGS 110.30 ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 7 - 15.03.2010 1500001022 PD TO SYNDICATE BANK - BG COMM CHGS 165.45 15.03.2010 8100003672 MARGIN MONEY FOR PERFORMANCE BG FOR MSEDCL 1,000.00 TOTAL 1502 IT IS SUBMITTED THAT ON PERUSAL OF THE ABOVE IT IS CLEARLY INDICATED THAT THE FUNDS THOUGH PARKED TEMPORARILY INTO FDS ARE ULTIMATELY UTILIZED FOR THE PURPOSE OF BUSINESS AND THEREFORE ANY INTEREST INCOME EARNED FROM SUCH TEMPORARY PARKING OF FUNDS IS SAID TO BE INEXTRICABLY LINKED WITH THE BUSINESS OF THE APPELLANT AND SHALL GO TO REDUCE THE EXPENSES CAPITALIZED UNDER THE HEA D 'PROJECT DEVELPOMENT EXPENDITURE'. THE APPELLANT SEEKS RELIA NCE ON THE DECISION OF NTPC SAIL POWER COMPANY (P.) LTD VS CIT (2012) 25 TAXMANN.COM 401 (DELHI HIGH COURT) FROM THE HEAD NOTE 'SECTION 4 OF THE INCOME-TAX ACT, 1961 - INCOME -CH ARGEABLE AS - ASSESSEE-COMPANY WAS IN BUSINESS OF RUNNING PO WER PLAN - UNDER ITS EXPANSION PLAN IT RAISED TERM LOAN FOR SE TTING UP NEW PLANT - ASSESSEE WORKED OUT AMOUNT OF INTEREST PAYA BLE OR PAID RELATING TO BORROWING UTILIZED FOR EXPANSION PURPOS ES - IT ALSO WORKED OUT EARNING OF INTEREST ON TEMPORARY DEPOSIT S OF SURPLUS FUND AND INTEREST ON MARGINS/ADVANCES MADE FOR PURPOSES OF EXPANSION WHETHER FUNDS INVESTED BY ASS ESSEE- COMPANY AND INTEREST EARNED WERE INEXTRICABLY LINKE D WITH SETTING UP OF NEW POWER PLANT AND, THEREFORE, INTER EST EARNED WAS TO BE TREATED AS CAPITAL RECEIPT, NOT LIABLE TO TAX - HELD, YES [IN FAVOUR OF ASSESSEE]' AS DISCUSSED AT LENGTH IN THE PRECEDING PARAGRAPHS, THE INTEREST INCOME EARNED OF RS. 47,04,267/- IS A CAPITAL RECEI PT AND ADDITION MADE FOR THE SAME UNDER THE HEAD 'INCOME FROM OTHER SOURCES' DESERVES TO BE OBLITERATED. 3. INTEREST INCOME ON DEPOSIT WITH ADANI WELSPUN EXPLO RATION LTD.- RS. 4,57,53,424/- 3.1 DURING THE YEAR UNDER CONSIDERATION, THE APPEL LANT COMPANY RECEIVED AN AMOUNT OF RS. 100 CRORES FROM ITS SHARE HOLDER APL FOR THE PURPOSE OF CONSTRUCTION OF THE POWER PL ANT AT TIRODA PROJECT. THE SAID FUNDS WERE RECEIVED BY THE APPELLANT COMPANY ON 15-10-2009. ON THE VERY SAME DAY, THESE FUNDS WERE ADVANCED BY THE APPELLANT COMPANY TO AWEL FOR A BRIEF PERIOD OF 5-6 MONTHS. THESE FUNDS WERE TO BE UTILIZ ED FOR THE PURPOSES OF CONSTRUCTION OF THE POWER PLANT. HOWEVE R, FOR A TEMPORARY PERIOD OF TIME, AWAITING THE PAYMENT TO B E MADE FOR ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 8 - CONSTRUCTION AND SETTING UP OF THE POWER PLANT, VIZ . TO THE CONTRACTORS, MACHINERY SUPPLIERS, AND TO THE COMPAN IES FOR SECURING COAL LINKAGE/COAL SUPPLY FOR SMOOTHENING T HE WORK OF THE POWER PLANT. THEREFORE, AWAITING THE UTILIZATIO N FOR THE AFORESAID PURPOSES, THE APPELLANT COMPANY HAD TEMPO RARILY PLACED IT AS A DEPOSIT WITH ITS GROUP COMPANY AWEL, ON WHICH IT HAD EARNED INTEREST INCOME OF RS. 45753424. THE A.O. HAS NOT DOUBTED THAT THE FUNDS RECEIVED FROM APL I.E. T HE SHAREHOLDER OF THE APPELLANT COMPANY OF RS. 100 CRO RES ON 15-10-2009, WERE NOT EVENTUALLY UTILIZED FOR THE AFOREMENTIONED PURPOSES I.E. PAYMENT TO THE CONTRAC TORS, MACHINERY SUPPLIERS, AND TO THE COMPANIES FOR SECUR ING COAL LINKAGE/COAL SUPPLY. THE APPELLANT COMPANY HAD ALSO INFORMED THE A.O. THAT AGAINST THE FUNDS RECEIVED AS SHARE C APITAL, THE APPELLANT COMPANY HAD ALLOTTED THE EQUITY SHARES WI THIN 15 DAYS OF THE RECEIPT OF SUCH FUNDS. THE SHARES WERE ISSUED TO APL ON 30-10-2009. 3.2 IT IS ALSO NOT BEING DISPUTED BY THE A.O. THAT THE FUNDS RECEIVED AS SHARE CAPITAL FROM THE SHARE HOLDERS OF THE APPE LLANT COMPANY ARE NOT INEXTRICABLY LINKED WITH THE SETTIN G UP OF THE POWER PLANT AT TIRODA, MAHARASHTRA. 3.3 AWEL REDEEMED THE DEPOSITS OF RS. 52 CRORES ON 30-4-2010 WHICH WAS ADVANCED TO VYOM TRADE LINK PVT. LTD. WHI CH IS ENGAGED IN TRADING OF COAL. FURTHER, THE BALANCE AMOUNT OF RS. 50 CRORES WAS RE DEEMED BY AWEL ON 12-5-2010 AGAINST WHICH IMMEDIATELY A PAYME NT WAS MADE TO POWER GEN INFRA LTD. [PIL] OF RS. 49.22 CRORES A GAINST THE CONTRACTS FOR CONSTRUCTION OF THE POWER PLANT. PIL IS A COMPANY WHICH HAS BEEN APPOINTED BY THE APPELLANT COMPANY F OR CONSTRUCTION OF POWER PLANT, AT TIRODA. INSPITE OF THE ABOVE FAC TS, THE A.O. HAS NOT APPRECIATED THE FACTUAL POSITION THAT THE FUNDS HAV E, IN EFFECT, BEEN UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF THE POW ER PLANT AND IT WAS NOT A CASE WHERE THE SHARE CAPITAL OF RS. 700 CRORE S RECEIVED BY THE APPELLANT COMPANY WAS A SURPLUS FUND AVAILABLE WITH IT, NOT TO BE UTILIZED FOR THE PURPOSES OF CONSTRUCTION OF THE PO WER PLANT. CONSIDERING THE ABOVE FACTUAL POSITION, THE INTERES T INCOME OF RS. 45753424 FROM THE DEPOSITS WITH AWEL BE CONSIDERED AS CAPITAL RECEIPT AND NOT AS A REVENUE RECEIPT AND ACCORDINGL Y, YOUR GOODSELVES MAY DIRECT THE A.O.' 4.3 IN THE ASSESSMENT ORDER, A.O. OBSERVED THAT THE APPELLANT COMPANY IS A SUBSIDIARY OF ADANI POWER LTD; IT IS E NGAGED IN THE BUSINESS OF POWER GENERATION; THE POWER PLANT PROJE CT IN MAHARASHTRA WAS IN THE IMPLEMENTATION STAGE; NO INC OME WAS OFFERED BY THE APPELLANT; NO P&L ACCOUNT WAS DRAWN AS NO AC TIVITY HAD STARTED; THE EXPENDITURE INCURRED WAS SHOWN IN THE IN THE BALANCE SHEET AS PROJECT DEVELOPMENT EXPENDITURE AND CAPITA L WORK-IN- PROGRESS; DURING THE YEAR APPELLANT HAD EARNED INTE REST INCOME OF ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 9 - RS. 6,77,37,328/-; OUT OF THE SAID AMOUNT RS. 47,04 ,267/- WAS INTEREST INCOME ON THE FIXED DEPOSIT WITH MAHARASHT RA STATE ELECTRICITY DISTRIBUTION CO. LTD.; THE SAID INCOME CANNOT BE LINKED TO SETTING UP OF PROJECT; IT IS TAXABLE U/S 56; APPELL ANT HAD RECEIVED RS. 4,57;53,424/- BY WAY OF INTEREST FROM M/S ADANI WEL SPUN. EXPLORATION LTD. ON THE TEMPORARY ADVANCE OF RS. 10 0 CRORES GIVEN TO IT; SAID INCOME IS ALSO ASSESSABLE AS INCOME FROM ' OTHER SOURCES' AND THEREFORE THESE TWO SUMS WERE BEING ADDED AS INCOME FROM 'OTHER SOURCES'. 4.4 THE CONTENTIONS OF THE APPELLANT ARE THAT THE I NTEREST INCOME OF RS. 47,04,267/- WAS EARNED ON THE F.DS. WITH AXIS B ANK AND SBI; A.O. HAD INCORRECTLY STATED THAT THE INTEREST WAS E ARNED ON THE DEPOSIT WITH MAHARASHTRA STATE ELECTRICITY DISTRIBU TION CO. LTD; THE DEPOSITS WITH THE BANK WERE MADE OUT OF THE SHARE C APITAL OF THE APPELLANT CO. AND BORROWED FUNDS AWAITING UTILIZATI ON FOR CONSTRUCTION OF POWER PLANT AND THEREFORE, THE INTE REST EARNED WAS A CAPITAL RECEIPT. AS REGARDS THE INTEREST OF RS. 4,5 7,53,424/-, IT WAS CONTENDED THAT THE APPELLANT CO. HAD RECEIVED RS. 1 00 CRORES BY WAY OF SHARE CAPITAL FROM ADANI POWER LTD.[APL] ON 10-0 5-2009 FOR CONSTRUCTION OF POWER PLANT; ON THE SAME DAY FUNDS WERE ADVANCED BY THE APPELLANT COMPANY TO ADANI WELSPUN EXPLORATION LTD.[AWEL] FOR A BRIEF PERIOD; THIS AMOUNT WAS SUBSEQUENTLY UTILIZ ED FOR CONSTRUCTION OF POWER PROJECT; AWEL REPAID RS. 50 C RORES ON 30-04- 2010, WHICH WAS ADVANCED TO VYOM TRADE LINK PVT, LT D., WHICH IS ENGAGED TRADING OF COAL; FURTHER AMOUNT OF RS. 50 C RORES WAS RE-PAID BY AWEL ON 12-05-2010, OUT OF WHICH RS. 49.22 CRORE S WAS PAID TO POWER GEN INFRA LTD.[PIL] AGAINST THE CONTRACTS FOR CONSTRUCTION OF THE POWER PLANT AND CONSEQUENTLY THE INTEREST EARNE D IS CAPITAL RECEIPT AND NOT A REVENUE RECEIPT. 4.5 I HAVE CONSIDERED THE FACTS OF THE MATTER . IMPUGNED ADDITION CONSISTS OF TWO COMPONENTS . MY FINDINGS I SSUE-WISE ARE AS UNDER: (I) INTEREST OF RS. 47,04,267/-: IN THE ASSESSMENT ORDER A.O. HAD MISTAKENLY OBSERVE D THAT THIS WAS INTEREST EARNED ON THE FIXED DEPOSIT WITH MAHARASHT RA STATE ELECTRICITY DISTRIBUTION CO. LTD. ACTUALLY THIS IS THE INTEREST EARNED ON THE FIXED DEPOSITS WITH AXIS BANK AND SBI. APPEL LANT HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE DEPOSITS WERE SUBSEQUE NTLY UTILIZED FOR CONSTRUCTION OF THE POWER PLANT. THE INTEREST INCOM E EARNED CANNOT BE SAID TO BE INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT. THEREFORE, A.O. CORRECTLY ASSESSED THE INCOM E AS INCOME FROM OTHER SOURCES. A.O.'S ACTION IS UPHELD. (II) INTEREST OF RS. 4,57,53,424/-: THIS INTEREST INCOME WAS EARNED ON THE ADVANCE GIVE N TO ADANI WELSPUN EXPLORATION LTD. WHILE MAKING THE ADDITION A.O. RELIED ON ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 10 - THE SUPREME COURT DECISIONS IN THE CASE OF CIT. VS. BOKARO STEEL LTD.[ 236 ITR 315] & TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. [227 ITR 174]. AT PARA 6.4 AND 6.9 OF THE ASSESSMEN T ORDER, A.O. OBSERVED THAT THE INTEREST EARNED ON THE SURPLUS FU NDS OF THE APPELLANT WAS NOT LINKED TO THE SETTING UP OF POWER PLANT AND THEREFORE, IT WAS ASSESSABLE AS INCOME FROM OTHER S OURCES. THE LD. A.R. CONTENDED THAT DELHI HIGH COURT, AFTER REFERRI NG TO TWO SUPREME COURT DECISIONS RELIED ON BY THE A.O. DISTINGUISHED THE DECISIONS. IN THE CASE-LAW RELIED ON BY THE LD. A.R. NAMELY NTPC SAIL POWER COMPANY PVT. LTD. VS. CIT 25 TAXMANN.CORN 401 [DELH I] [2012], IT WAS HELD AS UNDER: '8. IN TUT/CONN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) THE SUPREME COURT HELD AS FOLLOWS: 'IF THE COMPANY, EVEN BEFORE IT COMMENCES BUSINESS, INVESTS THE SURPLUS FUNDS IN ITS HANDS FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SELLS IT AT PROFIT, THE GAIN MADE BY THE COMP ANY WILL BE ASSESSABLE UNDER THE HEAD 'CAPITAL GAINS'. SIMILARL Y, IF A COMPANY PURCHASES A RENTED HOUSE AND GETS RENT, SUCH RENT W ILL BE ASSESSABLE TO TAX UNDER SECTION 22 AS INCOME FROM HOUSE PROPER TY. LIKEWISE, A COMPANY MAY HAVE INCOME FROM OTHER SOURCES......... ..THE COMPANY MAY A/SO, AS IN THAT CASE, KEEP THE SURPLUS FUNDS I N SHORT TERM DEPOSITS IN ORDER TO EARN INTEREST SUCH INTEREST WI LL BE CHARGEABLE UNDER SECT/ON 56 OF THE INCOME-TAX ACT'. THE SUPREME COURT, SUBSEQUENTLY, IN BOKARO STEEL LT D. (SUPRA) HELD THAT: 'HOWEVER, WHILE INTEREST EARNED BY INVESTING BORROW ED CAPITAL IN SHORT-TERM DEPOSITS IS AN INDEPENDENT SOURCE OF INC OME NOT CONNECTED WITH THE CONSTRUCTION ACTIVITIES OR BUSIN ESS ACTIVITIES OF THE ASSESSEE, THE SAME CANNOT BE SAID IN THE PRESEN T CASE WHERE THE UTILIZATION OF VARIOUS ASSETS OF THE COMPANY AND TH E PAYMENTS RECEIVED FOR SUCH . UTILIZATION ARE DIRECTLY LINKED WITH THE ACTIVITY OF SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE -COMPANY. THEY MUST, THEREFORE, BE VIEWED AS CAPITAL RECEIPTS GOIN G TO REDUCE THE COST OF CONSTRUCTION.' 9. THIS COURT, IN INDIAN OIL PANIPAT POWER CONSORTI UM LTD. V. ITO [2009] 315 ITR 255/181 TAXMAN 249 (DELHI) HELD THAT WHERE INTEREST ON MONEY RECEIVED AS SHARE CAPITAL IS TEMP ORARILY PLACED IN FIXED DEPOSIT AWAITING ACQUISITION OF LAND, A CLAIM THAT SUCH INTEREST IS A CAPITAL RECEIPT ENTITLED TO BE A SET OFF AGAIN ST PRE-OPERAFIVE EXPENSES, IS ADMISSIBLE AS THE FUNDS RECEIVED BY TH E ASSESSEE COMPANY BY THE JOINT VENTURE PARTNERS ARE 'INEXTRIC ABLY LINKED' WITH THE SETTING UP OF THE PLANT AND SUCH INTEREST EARNE D CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. THE REASONING IN INDI AN OIL IS IN LINE WITH BOKARO STEEL LTD. SIMILARLY, THE SUPREME COURT IN CIT V. KARNAFAKA POWER CORPN. [2001J 247 ITR 268/[2000] 11 2 TAXMAN 629 (SC) AND BONGAIGAON REFINARY & PETROCHEMICALS C O. LTD. V. CIT ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 11 - [2001] 251 ITR 329/ 119 TAXMAN 488 (SC) HELD THAT S UCH RECEIPTS ARE NOT INCOME. 10. IT IS NO DOUBT CORRECT THAT THE PROVISO TO SECT ION 36(LJ(IIIJ OF THE INCOME TAX ACT ENACTS THAT ANY AMOUNT OF THE IN TEREST PAID TOWARDS ('IN RESPECT OF') CAPITAL BORROWED FOR ACQU ISITION OF AN ASSET OR FOR EXTENSION OF EXISTING BUSINESS REGARDLESS OF ITS CAPITALIZATION IN THE BOOKS OR OTHERWISE, 'FOR ANY PERIOD BEGINNIN G FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF T HE ASSET FILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE' WOUL D NOT QUALIFY AS DEDUCTION. HOWEVER, IN ALL THESE CASES, WHEN THE IN TEREST WAS RECEIVED BY THE ASSESSEE TOWARDS INTEREST PAID FOR FIXED DEPOSITS WHEN THE BORROWED FUNDS COULD NOT BE IMMEDIATELY PU T TO USE FOR THE PURPOSE FOR WHICH THEY WERE TAKEN, THIS COURT, AND INDEED THE SUPREME COURT HELD THAT IF THE RECEIPT IS 'INEXTRIC ABLY LINKED' TO THE SETTING UP OF THE PROJECT, IF WOULD BE CAPITAL RECE IPT NOT LIABLE TO TAX BUT ULTIMATELY BE USED TO REDUCE THE COST OF THE PR OJECT. BY THE SAME LOGIC, IN THIS CASE TOO, THE FUNDS INVESTED BY THE ASSESSEE COMPANY AND THE INTEREST EARNED WERE INEXTRICABLY LINKED WI TH THE SETTING UP OF THE POWER PLANT. IF MAY BE ADDED THAT THE TRIBUN AL HAS NOT FOUND THAT THE DEPOSITS MADE AS MARGIN MONIES WERE NOT LI MITED 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 HOLDIN G THAT THE INTEREST EARNED ON FIXED DEPOSIT OF AMOUNTS BORROWED, WHICH IS THE SUBJECT MATTER OF THE PRESENT APPEAL, WOULD HAVE TO BE TREA TED AS REVENUE RECEIPT. THE ANSWER IS GIVEN IN FAVOR OF THE ASSESS EE; THE APPEAL IS CONSEQUENTLY ALLOWED.' IN VIEW OF THE ABOVE MENTIONED DELHI HIGH COURT DEC ISION THE INTEREST EARNED ON SURPLUS FUNDS TEMPORARILY ADVANC ED, BUT ULTIMATELY USED FOR CONSTRUCTION OF THE POWER PROJE CT IS TO BE HELD A CAPITAL RECEIPT NOT LIABLE TO TAX [BUT WILL GO TO R EDUCE THE COST OF THE PROJECT]. THE CONTENTIONS OF THE LD. A.R ARE THAT T HE ADVANCE GIVEN TO AWEL ON 10-05-2009 WAS RETURNED BACK ON 30-04-2010 AND ON 12- 05-2010 AND THE FUNDS WERE UTILIZED IN CONNECTION W ITH THE SETTING UP OF POWER PLANT. A.O IS DIRECTED TO VERIFY THESE CON TENTIONS, IF THEY ARE FOUND TO BE CORRECT, ADDITION OF THE INTEREST S HALL BE DELETED. 8. THE CIT(A) ACCORDINGLY ACCEPTED THE GRIEVANCE OF THE ASSESSEE AFFIRMATIVELY IN PART IN TERMS OF PRECEDING PARAS. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), BOTH REVEN UE AND ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. WHILE THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN ACCEPTING TH E PLEA OF THE ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 12 - ASSESSEE THAT INTEREST RS.4,57,53,324/- EARNED ON T EMPORARY DEPOSITS WITH AWEL WOULD GO TO REDUCE THE PROJECT DEVELOPMEN T EXPENDITURE (RS.140.31 CRORE) AND THUS, IS NOT LIABLE TO BE TRE ATED AS TAXABLE INCOME OF REVENUE NATURE. THE ASSESSEE, ON THE OTH ER HAND, HAS QUESTIONED THE STAND OF THE CIT(A) IN CONFIRMING TH E ACTION OF THE AO THAT INTEREST INCOME AMOUNTING TO RS.47,04,264/- DE RIVED FROM FIXED DEPOSITS PLACED WITH BANKS IS TAXABLE INCOME OF REV ENUE NATURE AND NOT LIABLE TO BE REDUCED AGAINST THE ONGOING POWER PROJECT DEVELOPMENT COSTS. 10. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEA RNED DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AO AND SUBMITT ED THAT THE INTEREST EARNED ON MONEY PARKED WITH AWEL AND BANKS PENDING ITS UTILIZATION IN SET UP THE POWER PLANT CANNOT BE CLA IMED FOR ADJUSTMENT AND REDUCTION FROM THE PROJECT COSTS IN THE LIGHT O F THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 (SC). 11. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, PROFESSED THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. BOKARO STEEL LTD. (1999) 236 ITR 315 (SC) A ND KARNATAKA POWER CORPORATION 247 ITR 268 (SC). TO BUTTRESS IT S CLAIM ON MERITS THAT ACCRUED INTEREST ON EARMARKED FUNDS WOULD GO T O REDUCE THE COST OF THE PROJECT AND DOES NOT REPRESENT REVENUE NATUR E AND CHARGEABLE NATURE, THE LEARNED AR SUBMITTED THAT ON THE SIMILA R ANALOGY, ASSESSEE HAS SIMULTANEOUSLY CAPITALISED INTEREST COSTS OF RS .98.44 CRORE AND ADDED THE SAME TO THE CAPITAL COSTS INCURRED FOR DE VELOPMENT OF POWER PROJECT OF HIGHLY CAPITAL INTENSIVE NATURE INVOLVIN G LONG GESTATION PERIOD. THE LEARNED AR SUBMITTED THAT THERE IS NO REASON TO TREAT INTEREST COSTS AND INTEREST INCOME ON DIFFERENT FOO TINGS IN THE SIMILARLY PLACED CIRCUMSTANCES. THE LEARNED AR THEREAFTER AD VERTED OUR ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 13 - ATTENTION TO THE DECISION OF THE CO-ORDINATE BENCH RENDERED IN THE CASE OF HOLDING COMPANY IN THE IDENTICAL FACTS IN DCIT V S. ADANI POWER LTD. ITA NO. 1663/AHD/2014. THE LEARNED AR POINTED OUT THAT THE CO- ORDINATE BENCH IN THE AFORESAID CASE HAS ADJUDICATE D THE ISSUE IN FAVOUR OF THE ASESSEE AND UPHELD THE ACTION OF THE CIT(A) AFTER TAKING NOTE OF HOST OF JUDICIAL PRECEDENTS. IT WAS THUS C ONTENDED THAT THE ISSUE IS NO LONGER RES INTEGRA. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ESSENTIAL CONTROVERSY INVOLVED IN THE INSTANT CASE IS; WHETHER INTEREST INCOME DERIVED FROM CERTAIN DEPOSITS PLACED WITH GR OUP CONCERNS AND BANKS [WHILE THE POWER PROJECT CONSTRUCTION IS UNDE R PROGRESS AND IN THE PROCESS OF BEING SET UP AND HAS NOT COMMENCED G ENERATING ELECTRICITY] CAN BE SET OFF AGAINST THE ONGOING POW ER PROJECT COSTS INCURRED OF CAPITAL NATURE AND CONSEQUENTLY; WHETHE R SUCH INTEREST INCOME WOULD GO TO REDUCE THE PROJECT COSTS PRIOR T O ITS COMMENCEMENT OR NOT. 13. IT IS THE CASE OF THE ASSESSEE THAT WHILE THE A O COMMITTED ERROR IN CHARACTERIZING INTEREST INCOME OF RS.4,57,53,424 /- EARNED ON ADVANCES GIVEN TO AWEL AND INTEREST EARNED RS.47,04 ,267/- ON FIXED DEPOSITS PENDING UTILIZATION AS INDEPENDENT RECEIPT OF REVENUE NATURE LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES U NDER S.56 OF THE ACT, THE CIT(A) WAS PARTLY RIGHT TO THE EXTENT OF H OLDING THAT THE INTEREST INCOME EARNED AMOUNTING TO RS.4,57,53,424/- BEARS T HE CHARACTER OF CAPITAL NATURE AND WOULD CONSEQUENTLY GO TO REDUCE THE POWER PROJECT COSTS BEING SET UP. THE ASSESSEE HOWEVER HAS SIMULTANEOUSLY FAULTED THE CIT(A) IN NOT ALLOWING THE INTEREST INCOME OF R S.47,04,267/- TO BE REDUCED FROM THE PROJECT COSTS. IT IS PRIMARILY TH E CASE OF THE ASSESSEE THAT BOTH INTEREST EXPENDITURE (AMOUNTING TO RS.98.44 CRORE) AS WELL AS IMPUGNED INTEREST INCOME ARE INEXTRICABLY LINKED TO THE PROJECT BEING SET UP. HENCE, WHERE THE INTEREST EXPENDITURE HAS BEEN REGARDED ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 14 - AS CAPITAL EXPENDITURE FOR THE PURPOSES OF PROJECT, SAME PRINCIPLE REQUIRES TO BE ACKNOWLEDGED FOR TREATMENT OF INTERE ST INCOME. PENDING COMPLETION OF POWER PROJECT, THE INTEREST INCOME TH US IS ALSO ON THE SAME PEDESTAL (CAPITAL NATURE) SIMILAR TO INTEREST OUTGO. IT IS THUS THE CASE OF THE ASSESSEE THAT WHILE THE INTEREST OUTGO HAS BEEN ADDED TO THE CAPITAL COSTS ON POWER PROJECT IN PROGRESS; INTERES T INCOME SO EARNED ON ADVANCES GIVEN TO AWEL AND DEPOSITS PLACED WITH BANKS HAVE BEEN RIGHTLY REDUCED FROM THE PROJECT DEVELOPMENT EXPEN DITURE INCURRED FOR SET UP OF POWER PLANT IN THE SAME MEASURE. WE FIND THAT THE IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE CO -ORDINATE BENCH IN A GROUP CASE IN A SIMILARLY PLACED SITUATION. 14. IT WILL BE APT TO REPRODUCE THE RELEVANT OPERAT IVE PARA OF THE DECISION IN ADANI POWER LTD. (SUPRA) RELIED UPON BY THE ASSESEE: 16. NEXT QUESTION RELATES TO QUANTIFICATION OF INT EREST INCOME AVAILABLE WITH THE ASSESSEE FOR SET OFF AGAINST PRE -OPERATIVE EXPENDITURE IN POWER PROJECT IMPLEMENTATION. WE FIN D THAT THE LD.CIT(A) HAS NOT INDEPENDENTLY EXAMINED ANY ISSUE IN THIS ORDER, RATHER FOLLOWED ORDER OF HIS PREDECESSOR IN THE ASS ESSMENT YEAR 2008-09. THE ITAT DID NOT APPROVE THE ORDER OF THE LD.CIT(A) IN THE ASSESSMENT YEAR 2008-09 AND RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT IN THE ASSESSMENT YEAR 2008-09, WE ARE OF THE VIEW THAT INTEREST INCOME OF RS.8,17,60,319/- IS AVAILABLE WITH THE AS SESSEE FOR SET OFF AGAINST PRE-OPERATIVE EXPENDITURE WHICH IS TITLED A S 'PROJECT DEVELOPMENT EXPENDITURE'. DISCUSSION MADE BY THE TR IBUNAL IN THE ASSESSMENT YEAR 2008-09 ON THIS ISSUE READS AS UNDE R: '18. WE FIND THAT BOTH THE PARTIES HAVE RELIED UPON THE DECISIONS OF THE HON'BLE APEX COURT AND IN ADDITION , THE ASSESSEE HAS RELIED UPON THE DECISION OF HON'BLE DE LHI HIGH COURT. THEREFORE, IT WOULD BE APPROPRIATE TO FIRST REFER TO THOSE DECISIONS. IN THE CASE OF TUTICORIN ALKALI CH EMICALS & FERTILIZERS LTD. (SUPRA), THE HON'BLE APEX COURT HE LD AS UNDER:- '...THAT THE COMPANY HAD SURPLUS FUNDS IN ITS HANDS . IN ORDER TO EARN INCOME OUT OF THE SURPLUS FUNDS, IT H AD INVESTED THE AMOUNT FOR THE PURPOSE OF EARNING INTE REST. THE INTEREST THUS EARNED WAS CLEARLY OF REVENUE NAT URE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE ACCOUNTANTS MIGHT HAVE TAKEN SOME OTHER VIEW BUT ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 15 - ACCOUNTANCY PRACTICE WAS NOT NECESSARILY GOOD LAW. THIS WAS NOT A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE ASSESSEE WAS ENTIRELY AT LIBERTY TO DEAL WITH T HE 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 SECTION70 OR SECTION 71 SINCE ITS BUSI NESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTAT ION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. IN SUCH A SITUATION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF SETTING UP ITS BUSINESS COULD NOT BE ALLOWED AS DEDUCTION, NOR COULD IT BE ADJUSTED AGAINST ANY OTH ER INCOME UNDER ANY OTHER HEAD. SIMILARLY ANY INCOME F ROM A NON-BUSINESS SOURCE COULD NOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY EVEN BEF ORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE.' 19. IN THE CASE OF BOKARO STEEL LTD. (SUPRA), THE H ON'BLE APEX COURT, AFTER CONSIDERING THE DECISION OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), HELD AS UNDER :- '..., DISMISSING THE APPEAL, THAT THE FIRST THREE H EADS OF INCOME WERE (I) THE RENT CHARGED BY THE ASSESSEE TO ITS CONTRACTORS FOR HOUSING WORKERS AND STAFF EMPLOYED BY THE CONTRACTOR FOR THE CONSTRUCTION WORK OF THE ASS ESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE, (II) HIRE ITA NO. 2755/AHD/2011 ADANI POW ER LTD VS. ACIT AYS 2008-09CHARGES FOR PLANT AND MACHINERY WHICH WAS GIVEN TO THE CONTRACTORS BY THE ASSESSEE FOR USE IN THE CONSTRUCTION WORK OF THE AS SESSEE, AND (III) INTEREST FROM ADVANCES MADE TO THE CONTRA CTORS BY THE ASSESSEE FOR THE PURPOSE OF FACILITATING THE WORK OF CONSTRUCTION. THE ACTIVITIES OF THE ASSESSEE IN CONNECTION WITH ALL THESE THREE RECEIPTS WERE DIREC TLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRU CTION OF ITS PLANT UNDERTAKEN BY THE ASSESSEE. THE ADVANC ES WHICH THE ASSESSEE MADE TO THE CONTRACTORS TO FACIL ITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOGETHER A VER Y LARGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINANCIAL HITCH A S TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE M ADE BETWEEN THE ASSESSEE-COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENT S WHICH WERE INTRINSICALLY CONNECTED WITH THE CONSTRU CTION 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, THEREFOR E, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOM E OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE.' ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 16 - 20. IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILLS LTD. (SUPRA), THEIR LORDSHIPS OF HON'BLE APEX COURT, AFT ER APPLYING THE DECISION OF BOKARO STEEL LTD. (SUPRA), HELD AS UNDER:- 'HELD, THAT, IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP I TS PLANT IN TERMS OF THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOM E INTEREST HAD BEEN EARNED. THIS WAS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH WAS LYI NG IDLE HAD BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY IN THE PRESE NT CASE WAS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT WAS INCIDENTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. THE INTEREST WAS A C APITAL RECEIPT, WHICH WOULD GO TO REDUCE THE COST OF ASSET . ' 21. IN THE CASE OF KARNATAKA POWER CORPORATION (SUP RA), THEIR LORDSHIPS OF HON'BLE APEX COURT, FOLLOWING THE DECI SION OF BOKARO STEEL LTD. (SUPRA), HELD AS UNDER:- '...ALSO, (I) THAT THE TRIBUNAL WAS RIGHT IN LAW IN UPHOLDING THE ORDER OF THE COMMISSIONER (APPEALS) W HO DELETED THE ADDITION OF RS.1,30,44,518/- BEING INTE REST RECEIPTS AND HERE CHARGES FROM CONTRACTORS BY HOLDI NG THAT THE SAME WERE IN THE NATURE OF CAPITAL RECEIPT S WHICH WOULD GO TO REDUCE CAPITAL COST.' 22. IN THE CASE OF BONGAIGAON REFINERY & PETROCHEMI CALS LTD. (SUPRA), THE HON'BLE APEX COURT, AFTER CONSIDERING THE DECISION OF BOKARO STEEL LTD. (SUPRA), HELD AS UNDER:- ' REVERSING THE DECISION OF THE HIGH COURT IN RELAT ION TO THESE ITEMS OF INCOME, THAT THESE ITEMS OF RECEIPTS WERE NOT TAXABLE INCOME BUT WERE TO BE ADJUSTED AGAINST THE PROJECT COST FOR THE BUSINESS OF OIL REFINERY AND P ETRO- CHEMICALS.' 23. THAT THE HON'BLE DELHI HIGH COURT IN THE CASE O F INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), AFTER CO NSIDERING THE DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMI CALS & FERTILIZERS LTD. (SUPRA) AND BOKARO STEEL LTD. (SUP RA) AT LENGTH, HELD AT PAGES 258, 259 AND 260 OF REPORT, I .E., 315 ITR 255, AS UNDER:- 5. IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE C ASE OF TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 AND T HAT OF BOKARO STEEL LTD. [1999] 236 ITR 315. THE TEST W HICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 17 - TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 IS TH AT 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 TH E INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXAB LE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD. [1999] 236 ITR 315 TO OUR MIND IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE 'INEXTRIC ABLY LINKED' TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E- OPERATIVE EXPENSES. 5.1 THE TEST, THEREFORE, TO OUR MIND IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BU SINESS AND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN S. 3 OF THE ACT WHICH STATES T HAT FOR NEWLY SET UP BUSINESS THE PREVIOUS YEAR SHALL BE TH E PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008 - 09 BUSINESS. THEREFORE, AS PER THE PROVISION OF S. 4 OF THE ACT WHICH IS THE CHARGING SECTION INCOME WHICH ARISES TO AN ASSESSEE FROM THE DATE OF SETTING OF T HE BUSINESS BUT PRIOR TO COMMENCEMENT IS CHARGEABLE TO TAX DEPENDING ON WHETHER IT IS OF A REVENUE NATURE OR C APITAL RECEIPT. THE INCOME OF A NEWLY SET UP BUSINESS, POS T THE DATE OF ITS SETTING UP CAN BE TAXED IF IT IS OF A R EVENUE NATURE UNDER ANY OF THE HEADS PROVIDED UNDER S. 14 IN CHAPTER IV OF THE ACT. FOR AN INCOME TO BE CLASSIFI ED AS INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION' IT WOULD HAVE TO BE AN ACTIVITY WHICH I S IN SOME MANNER OR FORM CONNECTED WITH BUSINESS. THE WO RD 'BUSINESS' IS OF WIDE IMPORT WHICH WOULD ALSO INCLU DE ALL SUCH ACTIVITIES WHICH COALESCE INTO SETTING UP OF THE BUSINESS. SEE MAZAGAON DOCK LTD. VS. CIT/CEPT (1958 ) 34 ITR 368 (SC) AND NARAIN SWADESHI WEAVING MILLS V S. CEPT (1954) 26 ITR 765 (SC). ONCE IT IS HELD THAT T HE ASSESSEE'S INCOME IS AN INCOME CONNECTED WITH BUSIN ESS, WHICH WOULD BE SO IN THE PRESENT CASE, IN VIEW OF T HE FINDING OF FACT BY THE CIT(A) THAT THE MONIES WHICH WERE INDUCTED INTO THE JOINT VENTURE COMPANY BY THE JOIN T VENTURE PARTNERS WERE PRIMARILY INFUSED TO PURCHASE LAND AND TO DEVELOP INFRASTRUCTURE THEN IT CANNOT B E HELD THAT THE INCOME DERIVED BY PARKING THE FUNDS TEMPOR ARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHAR ACTER OF THE FUNDS BEING CHANGED, IN AS MUCH AS THE INTER EST EARNED FROM THE BANK WOULD HAVE A HUE DIFFERENT THA N THAT OF BUSINESS AND BE BROUGHT TO TAX UNDER THE HE AD 'INCOME FROM OTHER SOURCES'. IT IS WELL-SETTLED THA T AN ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 18 - INCOME RECEIVED BY THE ASSESSEE CAN BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ONLY IF IT DOES NO T FALL UNDER ANY OTHER HEAD OF INCOME AS PROVIDED IN S. 14 OF THE ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESIDUARY HEAD OF INCOME. SEE S.G. MERCANTILE CORPORATION (P) LTD. VS. CIT1972 CTR (SC) 8 : (1972 ) 83 ITR 700 (SC) AND CIT VS. GOVINDA CHOUDHURY & SON S (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC). 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUN D BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHA RE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQU IRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFO RE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSI FIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINES S IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENS ES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 227 I TR 172 IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE 'SURP LUS' AND, THEREFORE, THE SUPREME COURT HELD THAT THE INT EREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHER SOURCES'. ON THE OTHER HAND IN BOKARO STEEL LTD. [1999] 236 ITR 315 (SC) WHERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUN D TO BE 'INEXTRICABLY LINKED' TO THE SETTING UP OF TH E PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST P RE- OPERATIVE EXPENSES. (UNDERLINED OURS TO SUPPLY EMPHASIS) 24. 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 CHEMICAL S & FERTILIZERS LTD. (SUPRA) AS WELL AS BOKARO STEEL LT D. (SUPRA). THE CONCLUSION OF THE DELHI HIGH COURT IS IN FACT T HE LAW WHICH EMERGES AS PER THE DECISION OF HON'BLE APEX C OURT. THEREFORE, IN OUR OPINION, THE CIT(A) WAS NOT JUSTI FIED IN IGNORING THE DECISION OF HON'BLE DELHI HIGH COURT B Y SIMPLY MENTIONING THAT THE ISSUE IS COVERED BY THE DECISIO N OF HON'BLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICAL S & FERTILIZERS LTD. (SUPRA). AFTER CONSIDERING THESE T WO DECISIONS OF THE HON'BLE APEX COURT AND ALSO SOME OTHER DECIS IONS OF THE HON'BLE APEX COURT, THEIR LORDSHIPS OF THE DELHI HI GH COURT ARRIVED AT THE CONCLUSION 'IT IS CLEAR UPON A PERUS AL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT THE FU NDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTUR E. ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 19 - THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY B ROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSI FIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EAR NED 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 SQ UARELY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE, BEC AUSE ADMITTEDLY IN THE CASE UNDER APPEAL BEFORE US THE S HARE CAPITAL AS WELL AS LOANS WERE RAISED FOR THE SPECIFIC PURPO SE 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 COMMEN CEMENT OF BUSINESS WAS IN THE NATURE OF CAPITAL RECEIPT AND H ENCE WAS REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EX PENSES. THE ASSESSEE HAS ALREADY SET OFF THE INTEREST INCOME AG AINST THE PRE-OPERATIVE EXPENSES WHICH IS TITLED AS 'PROJECT DEVELOPMENT EXPENDITURE'. IN VIEW OF ABOVE, WE ARE OF THE OPINI ON THAT THE INTEREST INCOME OF RS.1,35,87,158/- AS WELL AS RS.7 ,91,51,306/- WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, GROUND NOS. 2 AND 4 OF THE ASSESSEE'S APPEAL ARE ALLOWED.' 17. THERE IS NO DISPARITY ON FACTS. THE LD.CIT(A) H AS SIMPLY FOLLOWED THE ORDER OF THE LD.CIT(A) IN THE ASSESSMENT YEAR 2 008-09. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT IN THE ASSESSMENT YEAR 2008-09, WE REJECT THE GROUND OF APPEAL TAKEN BY TH E REVENUE AND ALLOW THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE. 15. APART FROM THE DECISION OF CO-ORDINATE BENCH AD JUDICATING THE ISSUE IN FAVOUR OF THE ASSESSEE, WE ALSO TAKE NOTIC E OF THE PROCESS OF REASONING APPLIED BY CIT(A) AND APPROVE HIS ACTION AFFIRMATIVELY IN SO FAR AS INTEREST GENERATED ON TEMPORARY ADVANCES GIVEN TO GROUP CONCERN. THE CIT(A) HAS RIGHTLY HELD THAT INTEREST INCOME TO BE OF CAPITAL NATURE LINKED WITH THE PROCESS OF SETTING U P OF ITS POWER PLANT AND SUCH RECEIPTS WOULD GO TO REDUCE THE COST OF TH E PROJECT WHICH ALSO INCLUDES HUGE INTEREST COSTS AS CAPITALIZED. FOR CO MING TO SUCH CONCLUSION, THE CIT(A) HAS TAKEN COGNIZANCE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BOKARO STEEL L TD. (SUPRA), KARNATAKA CORPORATION SUGAR MILLS LTD. & BONGAIGAON REFINERY & PETRO CHEMICALS LTD. VS. CIT [2001] 251 ITR 329 WH ICH IN TURN DISTINGUISH THE DECISION OF THE HONBLE SUPREME COU RT IN TUTICORIN ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 20 - ALKALI CHEMICALS FERTILIZERS LTD. (SUPRA). THUS, W E FIND OURSELVES IN COMPLETE AGREEMENT WITH THE ACTION OF THE CIT(A) IN UPHOLDING THE ACTION OF AO TO REDUCE INTEREST INCOME ARISING FROM SHORT TERM ADVANCES PLACED WITH SISTER CONCERN OUT OF PROJECT DEVELOPMENT EXPENDITURE AND IN REVERSING THE ACTION OF THE AO I N TREATING THE SAME AS REVENUE INCOME DE HORS THE PROJECTS DEVELOPMENT IN PROGRESS. THE GRIEVANCE OF THE REVENUE THUS IS BEREFT OF ANY MERI TS. 16. THE APPEAL OF THE REVENUE IS DISMISSED. 17. WE NOW ADVERT TO THE CROSS OBJECTION FILED BY T HE ASSESSEE TO IMPUGNE THE ACTION OF THE CIT(A) IN SUSTAINING THE INTEREST INCOME ON FUNDS KEPT AS FIXED DEPOSITS PENDING UTILIZATION AM OUNTING TO RS.47,04,267/- TO BE REVENUE INCOME AND CONSEQUENTL Y NOT LIABLE TO BE SET OFF AGAINST PROJECT DEVELOPMENT COSTS. IN THIS REGARD, WE TAKE NOTE OF THE SIGNIFICANT PLEA ON BEHALF OF THE ASSESSEE T HAT IT HAS NOT CARRIED OUT ANY ACTIVITY OTHER THAN CONSTRUCTION OF THE POW ER PLANT AND THEREFORE THE MAKING OF DEPOSIT IS INEVITABLY LINKE D WITH THE SETTING OF THE PROJECT. THE DEPOSITS HAVE BEEN PLACED OUT OF FUNDS MOBILIZED BY WAY OF EQUITY AS WELL AS BY WAY OF BORROWED FUNDS O NLY FOR THE PURPOSES OF SETTING UP OF THE POWER PLANT. THIS BE ING SO, WHERE THE INTEREST ON BORROWED FUNDS (RS.794.32 CRORE) ARE TO BE TREATED AS COST OF THE PROJECT I.E. CAPITAL EXPENDITURE, THE INTERE ST INCOME ON FIXED DEPOSITS ALSO REQUIRES TO BE TREATED IN THE IDENTIC AL MANNER I.E. INCOME OF CAPITAL NATURE DESERVING TO BE SET OFF AGAINST T HE PROJECT COSTS. THE CIT(A) IN OUR VIEW, HAS FAILED TO TAKE NOTICE OF TH E PLEA THAT INTEREST EXPENDITURE AND INTEREST INCOME ARISE FROM THE SAM E SOURCE I.E. BORROWED FUNDS. THE INCOME AND EXPENDITURE ARE THU S INEXTRICABLY LINKED. WE THUS ARE OF THE VIEW THAT WHEN THE FACT S ARE SEEN IN PERSPECTIVE, THE ACTION OF THE CIT(A) APPEARS TO SU FFER FROM THIS CARDINAL ERROR. IN THE ABSENCE OF ANY OTHER ACTIVI TY OTHER THAN THE ITA NO. 2401/AHD/14 WITH CO NO. 286/AHD/2014 [ITO VS. M/S. ADANI POWER MAHARASHTRA LTD.] A.Y. 20 10-11 - 21 - CONSTRUCTION OF POWER PLANT, THE INTEREST EXPENDITU RE ON BORROWED FUNDS AND INCIDENTAL INCOME BY WAY OF INTEREST MOBI LIZED ARE REQUIRED TO BE TREATED AT PAR. THE INTEREST INCOME THEREFOR E IN OUR VIEW IS ELIGIBLE FOR SET OFF AGAINST THE CORRESPONDING INTE REST COSTS AND CONSEQUENTLY, SUCH INCOME SHOULD BE REDUCED OUT OF INTEREST COSTS WHICH ALSO FORM PART OF THE CAPITAL EXPENDITURE. I N THIS VIEW OF THE MATTER, WE SET ASIDE THE ACTION OF THE CIT(A) AND D IRECT THE AO TO DELETE THE ADDITION MADE ON THIS SCORE. 18. IN THE RESULT, CROSS OBJECTION FILED BY THE ASS ESSEE IS ALLOWED. 19. IN THE COMBINED RESULT, REVENUES APPEAL IS DIS MISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 31/12/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 9 / GUARD FILE. BY ORDER / 3 /4 ()!3 45' THIS ORDER PRONOUNCED IN OPEN COURT ON 31/12/201 8