I.T.O. Ward -1(1), RAIPUR (CG) V. M/S CMDC ICPL COAL LTD, RAIPUR (CG)

ITA 271/BIL/2014

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4176 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R B DOSHI
• Keywords: Depreciation; Capital receipt; Commercial expediency
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.271/RPR/2014 ASSESSMENT YEAR : 2011-12 ITO, WARD- 1(1), RAIPUR (CG). VS. CMDC ICPL COAL LTD., RAJBANDHA MAIDAN, G. E. ROAD, RAIPUR (CG). PAN : AADCC4374P (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI AJIT KUMAR LASKAR, DR ASSESSEE BY : SHRI R. B. DOSHI, CA DATE OF HEARING : 09-08-2018 DATE OF PRONOUNCEMENT : 12-10-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 02.07.2014 OF THE LD. CIT(A), RAIPUR (CG) RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER :- WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,22,54,520/- MADE BY THE AO ON ACCOUNT OF INTEREST EARNED IN SURPLUS FUNDS PARKED WITH BANKS, TREATING IT AS INCOME FROM OTHER SOURCES BEING A REVENUE RECEIPT? 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE COMPANY IS A JOINT VENTURE COMPANY BETWEEN CHHATTISGARH MINERAL DEVELOPMENT CO RPORATION LIMITED (CMDCL) AND IFFCO CHHATTISGARH POWER LIMITED (ICPL) . THE OBJECT OF THIS 2 ITA NO.271/RPR/2014 JOINT VENTURE IS TO UNDERTAKE MINING OF COAL FROM T ARA COAL BLOCK MINE IN SARGUJA DISTRICT OF CHHATTISGARH. THE ENTIRE SHARE CAPITAL OF THE ASSESSEE COMPANY IS JOINTLY HELD IN RATIO OF 51:49 BY ITS PR OMOTERS I.E. CMDCL AND ICPL RESPECTIVELY. THE RETURN OF INCOME FOR THE IM PUGNED ASSESSMENT YEAR WAS FILED ON 29.02.2012 DECLARING NIL INCOME. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE COMPANY EARNED INCOME FROM INTEREST ON SHORT TERM DEPOSITS ON THE FUNDS TEMPORARILY PARKED IN THE BANK WHICH ARE OUT OF THE FUNDS RECEIVED BY WAY OF SHARE CAPITAL. ON BEING QUESTIONED BY THE ASSESSING OFFICER, IT WAS SUBMITT ED THAT THE SHARE CAPITAL FUNDS WERE TEMPORARILY PARKED TO PRODUCTIVELY EXPLO IT THE FUNDS THEREBY EFFECTIVELY REDUCE THE COST OF PROJECT. IT WAS EXP LAINED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS IN TH E PROCESS OF OBTAINING MINING LEASE AND MINING RIGHTS FOR TARA COAL BLOCK PROJECT FOR WHICH VARIOUS ADMINISTRATIVE AND STATUTORY APPROVALS/ CLEARANCES WERE UNDER PROGRESS AND THE ASSESSEE HAD NOT STARTED ANY BUSINESS OR COMMERCIAL ACTIVITIES DURING THIS PERIOD. SINCE THE ASSESSEE EARNED INTEREST INCOME FROM THE SHORT TERM INVESTMENT MADE IN THE BANK FROM THE PARKING OF FUN DS WHICH ARE AWAITING ITS DISBURSEMENT FOR LAND ACQUISITION AND OTHER PURPOSE S/ ACTIVITIES, THE INCOME EARNED BY THE ASSESSEE FROM INTEREST IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE AS INCOME FROM OTHER SOURCES AND THE SAME WAS INEXTR ICABLY LINKED WITH THE 3 ITA NO.271/RPR/2014 PROCESS OF SETTING-UP OF ITS TARA COAL BLOCK PROJEC T AND SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS PROJECT AND PRE-OPERATIVE EX PENSES. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. RELYING ON VARIOUS DECISION S INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES CHEMICALS FERTILIZERS LTD. VS. CIT REPORTED IN 227 ITR 172, T HE ASSESSING OFFICER HELD THAT THE INTEREST OF RS.1,22,54,520/- EARNED BY THE ASSE SSEE FROM FIXED DEPOSITS KEPT IN VARIOUS BANKS DURING THE YEAR UNDER CONSIDERATIO N WAS AN INDEPENDENT INCOME BEING INTEREST ON INVESTMENT OF SURPLUS FUND S IN FIXED DEPOSITS ETC. WHICH IS CLEARLY A REVENUE RECEIPT LIABLE TO TAX. REJECTING THE VARIOUS EXPLANATION GIVEN BY THE ASSESSEE AND RELYING ON TH E DECISION OF THE HON'BLE SUPREME COURT CITED (SUPRA) AND VARIOUS OTHER DECIS IONS, THE ASSESSING OFFICER MADE ADDITION OF RS.1,22,54,520/- TO THE TOTAL INCO ME OF THE ASSESSEE. 5. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION B Y OBSERVING AS UNDER :- 7. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT OR DER AND WRITTEN SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS CLAIMED THAT THE I NTEREST INCOME ON SHORT TERM DEPOSITS IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX AND THE SAME HAS BEEN REDUCED FROM THE PRE-CONSTRUCTION EXPENSES. ON THE CONTRARY , ACCORDING TO THE A.O, THE INTEREST INCOME IS A REVENUE RECEIPT AND TAXABLE UN DER THE HEAD 'INCOME FROM OTHER SOURCES' AS THE SHARE CAPITAL FUND OF THE APPELLANT WAS NOT AND IS NOT MEANT FOR ANY SPECIFIC PURPOSE/PROJECT. 8. THE ISSUE TO BE DECIDED IN THE PRESENT CASE LIES IN A NARROW COMPASS, WHETHER THE 'INTEREST' EARNED BY THE APPELLANT FROM TERMS D EPOSITS WITH BANKS IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX OR A REVENUE RECEIPT TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES'? FOR DETERMINING THE NATURE OF RECEIPT AS AFORESAID, FIRSTLY, THE ISSUE THAT NEEDS TO BE DECIDED IS WHETHER OR NOT TH E SHARE CAPITAL FUNDS PARKED IN TERM DEPOSITS YIELDING INTEREST INCOME WERE INEXTRICABLY LINKED WITH THE SETTING UP OF ANY 4 ITA NO.271/RPR/2014 SPECIFIC PROJECT/PURPOSE. THIS AGAIN REQUIRES ASCER TAINMENT OF THE FACT WHETHER OR NOT THERE WAS ANY SPECIFIC PROJECT/PURPOSE. 9. IN THE FACTUAL BACKGROUND OF THE INSTANT CASE, IT IS PERTINENT TO ADVERT TO THE LEGAL POSITION EMERGING FROM THE PROVISIONS OF THE ACT AND JUDICIAL PRONOUNCEMENTS: SECTION 4 BRINGS TO CHARGE TAX ON TOTAL INCOME. PRI MA FACIE, IN ORDER TO COME WITHIN THE SCOPE OF THE CHARGING PROVISION, THE RECEIPT IN QUESTION SHOULD BEAR THE CHARACTER OF INCOME. IN THE ABSENCE OF ANY SPECIFIC PROVISION , LIKE THOSE PERTAINING TO CAPITAL GAINS, A CAPITAL RECEIPT SHALL BE OUTSIDE THE SCOPE OF SECTION 4. 10. WHILE DETERMINING THE NATURE OF A RECEIPT AS B EING A TRADING RECEIPT TAXABLE AS INCOME FROM BUSINESS OR PROFESSION OR OTHERWISE, ON E SHOULD BE GUIDED BY THE TERMS OF THE AGREEMENT GENUINELY ENTERED INTO BETWEEN THE PARTIES. THE REVENUE AUTHORITIES CANNOT IGNORE THE GENUINE AGREEMENTS. IN THE ABSENC E OF ANY SUGGESTION OR ALLEGATION OF COLLUSION, FRAUD OR CAMOUFLAGE, THE REVENUE CANN OT RESORT TO ANY ATTEMPT TO REWRITE THE AGREEMENT WITH A VIEW TO IMPOSING THE LEVY OF T AX ESPECIALLY WHEN THE TRANSACTIONS BETWEEN THE PARTIES ARE AT ARMS LENGTH. THIS HAS BE EN MADE CLEAR BY THE DELHI HIGH COURT IN D.S. BIST & SONS VS. CIT (1984) 149 ITR 27 6 (DEL) : TC14R.573 THEREIN IT WAS OBSERVED THAT' THE ACT DOES NOT CLOTHE THE TAXI NG AUTHORITY WITH ANY POWER OR JURISDICTION TO REWRITE THE TERMS OF AGREEMENT ENTE RED INTO, PARTICULARLY IN VIEW OF THE FINDING OF THE TRIBUNAL THAT THERE IS NOTHING TO SU GGEST THAT THE PARTIES WERE NOT DEALING WITH EACH OTHER AT ARMS LENGTH AND THERE IS NO SUGGESTION OF ANY COLLUSION ; THE COMMERCIAL EXPEDIENCY OF THE CONTRACT IS TO BE ADJUSTED BY THE CONTRACTING PARTY AS TO ITS TERMS.' IT WAS FURTHER MADE CLEAR THAT 'U NDER THE TAXING SYSTEM IT IS UPTO THE ASSESSEE TO CONDUCT HIS BUSINESS IN HIS WISDOM. THE ASSESSEE MAY ENTER INTO COMMERCIAL TRANSACTIONS WITH ANOTHER PARTY WHO IS A D IDEM WITH THE ASSESSEE AS TO TERMS AND CONDITIONS. IN THE ABSENCE OF THE ANY COL LUSION BETWEEN THE TWO, IT IS NOT POSSIBLE TO VARY THE TERMS. 11. I HAVE CAREFULLY GONE THROUGH THE LETTER FROM THE OFFICE OF MINISTRY OF COAL, GOVERNMENT OF INDIA DATED 14.08.2003 ADDRESSED TO T HE PRINCIPAL SECRETARY, DEPARTMENT OF MINING, COMMERCE, INDUSTRY AND PUBLIC UNDERTAKINGS, CHHATTISGARH DOWNLOADED FROM THE WEBSITE I.E. PUBLIC DOMAIN. FRO M THE PERUSAL OF SAID LETTER, IT IS SEEN THAT THE GOVERNMENT OF CHHATTISGARH HAD MADE A REQUEST TO THE MINISTRY OF COAL, GOVERNMENT OF INDIA AND IN PURSUANCE OF THE SAID RE QUEST, CONSENT WAS ACCORDED BY THE CENTRAL GOVERNMENT TO WORK THE TARA BLOCK IN TH E STATE OF CHHATTISGARH THROUGH CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITE D' IT IS ALSO SEEN THAT IN THE SAID LETTER ITSELF, A CONDITION WAS STIPULATED THAT THE MINING IN TARA COAL BLOCK WILL BE DONE BY JOINT VENTURE COMPANY WHEREIN CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITED (FOR SHORT 'CMDC) SHALL BE HOLD ING MORE THAN 50% OF VOTING EQUITY IN THE JOINT VENTURE, IT IS ALSO SEEN THAT T HERE IS AN EXPLICIT STIPULATION IN THE SAID LETTER WHEREBY CMDCL HAS TO SUPPLY COAL PRODUCED FR OM THE TARA COAL BLOCK MAINLY TO CHHATTISGARH STATE ELECTRICITY BOARD FOR THE PRO POSED POWER PLANT. 12. I HAVE ALSO CAREFULLY PERUSED THE MEMORANDUM O F UNDERSTANDING ENTERED IN TO BETWEEN THE GOVERNMENT OF CHHATTISGARH, CHHATTISGAR H STATE ELECTRICITY BOARD (CSEB) AND INDIAN FARMERS FERTILIZERS COOPERATIVE L IMITED OFFCO) DATED 04.06.2005. FROM THE PERUSAL OF SAID MEMORANDUM OF UNDERSTANDING, FOLLOWING FACTS ARE NOTED:- 5 ITA NO.271/RPR/2014 I. VIDE THIS MEMORANDUM OF UNDERSTANDING ITSELF, FO UNDATION WAS LAID FOR THE FORMATION OF THE APPELLANT COMPANY AS WELL AS IFFCO CHHATTISGARH POWER LIMITED (ICPL), IN FACT, IT IS A LSO SEEN THAT VIDE THIS MEMORANDUM OF UNDERSTANDING ITSELF A DECISION WAS TAKEN TO FORM A COMPANY TO BE RECKONED AS 'POWER COMPANY' TO BE N AMED AS IFFCO CHHATTISGARH POWER LIMITED (BEING A JOINT VEN TURE COMPANY WITH 26% EQUITY SHARE HOLDING OF CHHATTISGARH STATE ELECTRICITY BOARD AND 74% EQUITY SHARE HOLDING OF INDIAN FARMERS FERT ILIZERS COOPERATIVE LIMITED). IT IS SEEN THAT THE POWER PRO JECT WAS EXPECTED TO COMMISSION IN THE F.Y. 2009-10. II. IT IS ALSO SEEN THAT VIDE THE SAID MEMORANDUM O F UNDERSTANDING ITSELF, FOUNDATION WAS LAID FOR FORMATION OF THE APPELLANT COMPANY AND IT WAS AGREED BETWEEN GOVERNMENT OF CHHATTISGARH, CHHATTIS GARH STATE ELECTRICITY BOARD AND INDIAN FARMERS FERTILIZERS CO OPERATIVE LIMITED THAT A COMPANY TO BE RECKONED AS 'COAL COMPANY' WIL L BE INCORPORATED WITH 51% EQUITY SHARE HOLDING OF CHHAT TISGARH MINERAL DEVELOPMENT CORPORATION LIMITED AND 49% EQUITY SHAR E HOLDING OF THE POWER COMPANY NAMELY IFFCO CHHATTISGARH POWER L IMITED. III. VIDE THIS MEMORANDUM OF UNDERSTANDING ITSELF, IT WAS AGREED THAT REQUIREMENT OF COAL FOR THE POWER PROJECT WILL BE M ET FROM TARA COAL BLOCK ALLOTTED TO CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITED BY MINISTRY OF COAL. 13. I HAVE ALSO CAREFULLY PERUSED THE JOINT VENTURE AGREEMENT DATED 31.01.2008 BETWEEN CHHATTISGARH MINERAL DEVELOPMENT CORPORATIO N LIMITED AND IFFCO CHHATTISGARH POWER LIMITED. FROM THE PERUSAL OF PAR A 3.17 OF THE SAID AGREEMENT, IT IS SEEN THAT CHHATTISGARH MINERAL DEVELOPMENT CORPO RATION LIMITED AND IFFCO CHHATTISGARH POWER LIMITED HAD BOUND THEMSELVES BY THE SAID AGREEMENT AND IT WAS AGREED THAT TILL THE EXECUTION OF MINING LEASE IN F AVOUR OF THE COMPANY, THE COMPANY, INFACT THE APPELLANT COMPANY SHALL NOT UNDERTAKE AN Y ACTIVITY OTHER THAN THOSE REQUIRED FOR TIMELY IMPLEMENTATION OF THE PROJECT A ND THAT THE SAID JOINT VENTURE AGREEMENT SHALL HAVE OVERRIDING EFFECT OVER THE CON TENTS OF MEMORANDUM OF ASSOCIATION AND THUS, IN MY CONSIDERED VIEW, REGARD LESS OF WHAT IS STATED IN THE OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION, THE PARTIES TO THE SAID AGREEMENT NAMELY CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITE D AND IFFCO CHHATTISGARH POWER LIMITED HAD BOUND THEMSELVES AND TO MAKE EFFO RTS TOWARDS TIMELY IMPLEMENTATION OF THE PROJECT I.E. TARA COAL BLOCK PROJECT. 14. I HAVE ALSO TAKEN NOTE OF THE FACT THAT ONE OF THE JOINT VENTURE PARTNER NAMELY CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITE D WHICH IS ESSENTIALLY A HOLDING COMPANY OF THE APPELLANT COMPANY HAD ALREAD Y SPENT SUM OF RS.16.15 CRORES EVEN PRIOR TO THE FORMATION OF THE APPELLANT COMPAN Y I.E. BETWEEN 01.04.2002 TO 10.04.2008, IT IS ALSO SEEN THAT CHHATTISGARH MINER AL DEVELOPMENT CORPORATION LIMITED HAD SPENT ABOUT RS.6.62 CRORES IN THE FINAN CIAL YEAR 2006-07 ITSELF FOR LAND ACQUISITION. 15. I HAVE ALSO CAREFULLY PERUSED THE GAZETTE NOTI FICATION DATED 26.06.2009 AND VARIOUS CORRESPONDENCE BETWEEN MINISTRY OF ENVIRONM ENT AND FOREST AND 6 ITA NO.271/RPR/2014 GOVERNMENT OF CHHATTISGARH, SIMILARLY BETWEEN GOVER NMENT OF CHHATTISGARH AND THE PRIME MINISTER ETC. I HAVE ALSO PERUSED THE RETURN OF INCOME AND FINANCIAL STATEMENTS OF THE APPELLANT FOR THE PRECEDING ASSESSMENT YEARS & ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2009-10. ON A THOUGHTFUL CONSIDERATION OF THE ENTIRE MATERIAL ON RECORD BEFO RE ME WHICH WERE VERY WELL BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO, IT IS AN UNDISPUTED FACT THAT A MEMORANDUM OF UNDERSTANDING (MOU) WAS EXECUTED ON 4/6/2005 WITH AN OBJECTIVE OF SETTING UP POWER PROJECT AND AS ITS EXTENSION, C OAL PROJECT THROUGH TARA COAL BLOCK. 16. CUMULATIVELY CONSIDERING THE UNDERLYING FACTS AND HISTORY SINCE 2003, IN MY CONSIDERED VIEW, THE TERMS OF MEMORANDUM OF ASSOCIA TION CANNOT BE VIEWED IN ISOLATION, PARTICULARLY, WHEN THE CASE OF THE APPEL LANT, DIRECTLY OR INDIRECTLY, INVOLVES INVOLVEMENT OF MINISTRY OF COAL, GOVERNMENT OF INDI A AND GOVERNMENT OF CHHATTISGARH REGULATING USE OF COAL AND STIPULATION S HAVE BEEN LAID DOWN FOR SUPPLY OF COAL TO THE POWER PROJECT TO IFFCO CHHATTISGARH POWER LIMITED AND THEREFORE, I AM CONVINCED THAT THE APPELLANT COMPANY WAS FORMED TO UNDERTAKE A SPECIFIC PROJECT I.E. TARA COAL BLOCK PROJECT WHEREBY THE APPELLANT COMPANY WAS TO OBTAIN MINING LEASE AND MINING RIGHTS IN ITS FAVOUR AND THEREAFTE R SUPPLY COAL FROM TARA COAL BLOCK TO THE POWER PROJECT OF IFFCO CHHATTISGARH POWER LI MITED IN SURGUJA DISTRICT. 17. IT IS ALSO SEEN THAT THE APPELLANT COMPANY WAS CONSTITUTED WITH INITIAL EQUITY CONTRIBUTION OF RS.37.00 CRORES, OUT OF WHICH, RS.1 6.15 CRORES HAD ALREADY BEEN SPENT EVEN PRIOR TO THE FORMATION OF THE APPELLANT COMPAN Y AND THE SAID SUM I.E. RS.16.15 CRORES WAS SPENT EXCLUSIVELY FOR TARA COAL BLOCK PR OJECT BY THE HOLDING COMPANY NAMELY CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITED AS HAS BEEN CERTIFIED BY A CHARTERED ACCOUNTANT. 18. IT IS ALSO SEEN THAT THE SUM OF RS.37.00 CRORES WAS A MERE INITIAL EQUITY CONTRIBUTION AND THE APPELLANT COMPANY HAD TO RAISE ADDITIONAL SHARE CAPITAL IN THE SUBSEQUENT YEARS FOR OBTAINING STATUTORY CLEARANCES AND LAND ACQUISITION. KEEPING IN VIEW THE AFORESAID FACTS, I AM CONVINCED THAT THERE IS AN INEXTRICABLE LINK BETWEEN THE SHARE CAPITAL FUNDS AND TARA COAL BLOCK PROJECT, CO NVERSELY, THE SHARE CAPITAL FUNDS WERE INFUSED FOR SPECIFIC PROJECT I.E. TARA COAL BL OCK PROJECT IN THE INSTANT CASE. I AM CONVINCED THAT THE RIDER WAS IMPOSED BY THE MINISTR Y OF COAL, GOVERNMENT OF INDIA WAY BACK IN 2003 WHILE ALLOTTING TARA COAL BLOCK TO CHHATTISGARH MINERAL DEVELOPMENT CORPORATION LIMITED. 19. IT IS A SETTLED LAW THAT THE CONSTRUCTION OF A PARTICULAR DOCUMENT, I.E. THE MOA IN THE INSTANT CASE, DEPENDS UPON ITS PITH AND SUBS TANCE AND THE PARAMOUNT TEST IN THIS REGARD SHOULD BE THE PREDOMINANT INTENTION OF THE P ARTIES WHILE EXECUTING THAT PARTICULAR DOCUMENT. SUCH INTENTION HAS TO BE INFER RED FROM THE UNDERLYING CIRCUMSTANCES AND FACTUAL BACKGROUND OF THE CASE AN D ANY DOCUMENT SHOULD NOT BE READ IN ISOLATION. IN THE PRESENT CASE, IN MY CONSI DERED OPINION, THE OBJECT CLAUSE OF THE MOA HAS TO BE NECESSARILY VIEWED IN THE LIGHT O F THE CIRCUMSTANTIAL AND DOCUMENTARY EVIDENCES AND FACTUAL BACKGROUND, PARTI CULARLY, IN THE LIGHT OF THE RESTRICTIONS IMPOSED BY THE JVA DATED 31.1.2008 PRI OR TO FORMATION OF THE APPELLANT COMPANY WHEREIN THEY HAVE CATEGORICALLY CONFIRMED I N UNAMBIGUOUS TERMS AS REPRODUCED HERE-IN-BELOW:- 7 ITA NO.271/RPR/2014 3.17 CONDUCT OF BUSINESS TILL EXECUTION OF MINING L EASE. PARTIES AGREE THAT ON AND FROM THE DATE HEREOF AND TILL THE EXECUTION OF MINING LEASE IN FAVOUR OF THE COMPANY: 3.17.1 THE COMPANY SHALL NOT UNDERTAKE ANY ACTIVITY OTHER THAN THOSE REQUIRED FOR TIMELY IMPLEMENTATION OF THE PROJECT O R AS MAY HEREAFTER BE AGREED IN WRITING BY AND BETWEEN CMDC AND ICPL; 1.3 OVERRIDING EFFECT OF THE AGREEMENT 1.3.1 THE PARTIES AGREE THAT THEIR RIGHTS AND OBLIG ATIONS IN RELATION TO THE COMPANY INCLUDING THE OPERATION, CONTROL AND MANAGE MENT OF THE COMPANY SHALL BE INTERPRETED, ACTED UPON AND GOVERN ED BY THE PROVISIONS OF THIS AGREEMENT. 1.3.2 IN SO FAR AS CONTRACTUAL RELATIONSHIP INTER S E BETWEEN THE PARTIES IS CONCERNED, : A) THIS AGREEMENT SHALL PREVAIL AND HAVE AN OVERRID ING EFFECT, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER DOC UMENT OR AGREEMENT(S) INCLUDING THE MEMORANDUM OF ASSOCIATIO N AND THE ARTICLES OF ASSOCIATION OF THE COMPANY; B) THE UNDERSTANDING REFLECTED IN THIS AGREEMENT SH ALL PREVAIL IN CASE OF ANY AMBIGUITY OR INCONSISTENCY BETWEEN THIS AGREEME NT AND ANY OTHER DOCUMENT(S) OR AGREEMENTS OR THE MEMORANDUM OF ASSO CIATION AND THE ARTICLES OF ASSOCIATION OF THE COMPANY; AND, C) TO THE EXTENT POSSIBLE AND PERMISSIBLE, ANY SUCH AMBIGUITY / INCONSISTENCY (REFERRED TO IN B) ABOVE WILL BE REMO VED (AND THE PARTIES WILL SO ENDEAVOUR), BY CAUSING NECESSARY MODIFICATI ONS TO BE CARRIED OUT TO THE MEMORANDUM OF ASSOCIATION OR THE ARTICLE S OF ASSOCIATION OR OTHER RELEVANT DOCUMENT/S) OR AGREEMENTS), AS TH E CASE MAY BE, TO ENSURE THAT THE SAME ARE IN CONFORMITY WITH THE PRO VISIONS OF THIS AGREEMENT, TO THE EXTENT PERMITTED BY THE ACT.' 20. IN MY CONSIDERED OPINION, SUCH CLARIFICATION IS SUFFICIENT TO DRAW AN INFERENCE THAT THE APPELLANT COMPANY WAS NOT FREE TO UTILIZE THE FUNDS FOR ANY PURPOSE EXCEPT FOR TCB PROJECT, HOWEVER, THE AO, DESPITE THE SAID CLAR IFICATION AND OTHER DOCUMENTARY EVIDENCES FILED ON RECORD THEREBY CONSTITUTING VITA L AID IN CONSTRUCTION OF THE MOA, HAS NOT PROPERLY APPRECIATED THE PITH AND SUBSTANCE OF THE SAID EVIDENCES AND HAS REACHED AN ERRONEOUS CONCLUSION THAT THERE WAS NO S TRING ATTACHED TO THE SHARE CAPITAL OF THE APPELLANT COMPANY. IN MY CONSIDERED OPINION, THERE IS NO MERIT IN THE ACTION OF THE A.O IN TRYING TO FIND OUT THE STRINGS / RIDER ATTACHED TO THE SHARE CAPITAL UNDER THE PROVISIONS OF INCOME TAX ACT AND THE COMP ANIES ACT, 1956. FURTHERMORE, AS THE COMPANIES ACT AND INCOME TAX ACT IS COMMON F OR ALL, INCLUDING THE APPELLANT COMPANY AND INDIAN OIL PANIPAT POWER CONSORTIUM LIM ITED, IT IS NOT UNDERSTOOD AS TO WHAT MADE THE A.O ACCEPT STRINGS / RIDER ATTACHE D TO THE SHARE CAPITAL OF INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED AND ABSENCE OF ANY SUCH STRING / RIDER TO THE SHARE CAPITAL OF THE APPELLANT COMPANY. 21. THE A.O OUGHT TO HAVE APPLIED THE SAME BENCH MA RK WHILE CONSTRUING AND ANALYZING NEXUS OF SHARE CAPITAL FUND OF THE APPELL ANT WITH SPECIFIC PURPOSE / PROJECT WHICH HAS BEEN APPLIED BY THE A.O IN THE CASE OF NT PC SAIL POWER COMPANY LIMITED 8 ITA NO.271/RPR/2014 AS WELL AS INDIAN OIL PANIPAT POWER CONSORTIUM LIMI TED AND IFFCO CHHATTISGARH POWER LIMITED. IT IS SEEN THAT THE A.O HAS, EXCEPT REFERRING TO THE GENERALITY OF THE OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION OF THE A PPELLANT COMPANY, NOT BROUGHT ON RECORD ANY EVIDENCE WHICH CAN LEAD TO EVEN AN IO TA OF DOUBT THAT THE SHARE CAPITAL WAS MEANT FOR MULTIPLE PURPOSES AND NOT FOR SPECIFI C PURPOSE / PROJECT. IT IS NOT THE CASE OF THE A.O THAT THE APPELLANT EVER EVEN OCCASI ONALLY USED FUNDS FOR PURPOSES OTHER THAN TARA COAL BLOCK PROJECT. IT IS NOT THE C ASE OF THE A.O THAT THERE IS APPARENT AND MATERIAL DIFFERENCE IN THE MEMORANDUM OF ASSOCI ATION OF THE APPELLANT COMPANY AND OTHER COMPANIES VIZ, NTPC SAIL POWER COMPANY (P ) LIMITED, INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED AND IFFCO CHHATTISGARH POW ER LIMITED, AS FAR AS GENERALITY OF THE CONTENTS OF OBJECT CLAUSE IN MEMO RANDUM OF ASSOCIATION IS CONCERNED. I FIND THAT WHILE ARRIVING AT THE CONCLU SION THAT THERE WERE NO STRINGS ATTACHED TO THE SHARE CAPITAL OF THE APPELLANT COMP ANY AND THAT THE APPELLANT WAS FREE TO USE THE FUNDS AS PER ITS WILL AND THAT MEMORANDU M OF ASSOCIATION PERMITS THE APPELLANT TO PURSUE SOME OTHER BUSINESS/PURPOSE, TH E A.O MERELY RELIED UPON THE GENERALITY OF MEMORANDUM OF ASSOCIATION AND DISREGA RDED THE CHRONOLOGY OF FACTS OF THE CASE AS EMERGING FROM THE VARIOUS DOCUMENTARY E VIDENCES BROUGHT ON RECORD BY THE APPELLANT. 22. NOW, ADVERTING TO THE SUBMISSION OF THE APPELL ANT THAT THERE IS A DIRECT NEXUS EVEN BETWEEN THE INTEREST INCOME AND INTEREST COST ON COMPENSATION AGAINST LAND ACQUISITION, CONSIDERING THE FACT THAT THE GAZETTE NOTIFICATION U/S 4 OF THE LAND ACQUISITION ACT WAS PUBLISHED IN THE F.Y. 2009-10 I TSELF, PARTICULARLY, THE PROVISIONS OF SECTION 23 OF LAND ACQUISITION ACT PROVIDING FOR PAYMENT OF INTEREST ON COMPENSATION SINCE THE DATE OF PUBLICATION OF THE N OTIFICATION U/S 4, I AM CONVINCED THAT THERE IS A DIRECT NEXUS BETWEEN THE INTEREST I NCOME ON TERM DEPOSITS AND INTEREST COST ON COMPENSATION. I DO FIND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE APPELLANT THAT IF THE AWARD U/S 23 OF THE LAND ACQUISITION AC T HAD BEEN PASSED EARLIER AS WAS ENVISAGED IN THE MOU DATED 04.06.2005, THE APPELLAN T WOULD HAVE HAD TO MAKE PAYMENT AGAINST LAND ACQUISITION BY WAY OF COMPENSA TION MUCH EARLIER AND IN THAT EVENTUALITY, THE APPELLANT WOULD NOT HAVE BEEN LEFT WITH ANY FUNDS TO INVEST IN THE TERM DEPOSITS YIELDING INTEREST INCOME. IT IS ALSO SEEN THAT THE AWARD U/S 23 WAS FINALLY PASSED IN THE F.Y. 2011-12 AND THE APPELLANT COMPAN Y WAS ASKED TO PAY INTEREST SINCE F.Y. 2009-10, THE SUBMISSION OF THE APPELLANT THAT THE SUM OF RS.98.42 CRORES HAD BEEN SPENT UP TO F.Y. 2013-14 CANNOT BE IGNORED, TH IS IS CLEARLY IMPLIED THAT THE INITIAL EQUITY CONTRIBUTION WAS AWAITING DISBURSEMENT AGAIN ST LAND ACQUISITION AND OTHER ACTIVITIES RELATED TO TARA COAL BLOCK PROJECT. THER EFORE, I AM CONVINCED THAT THE SHARE CAPITAL FUNDS HAD TO BE EARMARKED BY THE APPE LLANT COMPANY TO ENSURE THAT IT SHOULD HAVE SUFFICIENT FUNDS / LIQUIDITY TO MAKE PA YMENT AGAINST LAND ACQUISITION AND OTHER PROJECT RELATED ACTIVITIES AND IN SUCH A CASE , THE EARNING OF INTEREST ON TEMPORARY PARKING OF FUNDS AND TERM DEPOSITS CANNOT BE SAID TO GIVE RISE TO AN INDEPENDENT SOURCE OF INCOME. I AM CONVINCED WITH T HE EXPLANATION OF THE APPELLANT WHILE DISTINGUISHING FOLLOWING DECISIONS RELIED UPO N BY THE A.O IN VIEW OF THE DIVERGENT FACTS, (I) TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V, CIT [1997] 227 ITR 172/93 TAXMAN 502; 9 ITA NO.271/RPR/2014 (II) M.P. STATE INDUSTRIES CORPN. LTD. V, CIT [1 968) 69 ITR 824; (III) BHARAT OMAN REFINERIES LTD. V. COMMISSIONER OF INCOME-TAX-I, [2013] 35 TAXMANN.COM 187 (MADHYA PRADESH); 23. I HAVE ALSO CAREFULLY GONE THROUGH THE LATEST D ECISION IN COMMISSIONER OF INCOME-TAX -IV V. INDIAN VACCINES CORPORATION LTD. REPORTED IN 44 TAXMANN.COM 130 (DELHI) DATED MARCH 5, 2014 DEALING WITH IDENTICAL ISSUE IN WHICH IT WAS HELD THAT: 'THE INVESTMENT OF THE FUNDS HAS NOTHING TO DO AND WAS NOT INEXTRICABLY LINKED WITH THE CONSTRUCTION OF THE PROJECT. IT WAS AN INV ESTMENT UNDER THE 'PORTFOLIO MANAGEMENT SCHEME' OPERATED BY BANKS UNDER WHICH AN ASSURED RETURN WAS GUARANTEED BY THE BANKS. IT WAS A CONSCIOUS ACT OF INVESTMENT OF FUNDS BY THE ASSESSEE AND IF SUCH INVESTMENT RESULTS IN INCOME, THE SAME MUST BE BROUGHT TO TAX UNDER THE RESIDUAL HEAD, EVEN IF THE COMPANY HA S NOT COMMENCED ITS BUSINESS. THE TRIBUNAL ERRED IN PLACING RELIANCE UP ON THE FACT THAT THE PRESENT CASE IS NOT ONE WHERE BORROWED FUNDS WERE USED FOR PARKING THEM TO EARN INTEREST AND THAT THE FUNDS WERE THOSE OF THE PROMO TERS. [PARA 7] THE TRIBUNAL PLACED UNDUE EMPHASIS ON THE SOURCE OF THE FUNDS INSTEAD OF FOCUSSING ITS ATTENTION TO THE UTILISATION OF THE F UND - WHETHER THEY WERE INVESTED IN ACTIVITIES WHICH ARE INEXTRICABLY LINKE D WITH THE CONSTRUCTION OF THE PROJECT. IN [ACT, THE ASSESSEE IN THE PRESENT CASE HAD INVESTED THE FUNDS UNDER THE SCHEME OPERATED BY THE BANKS FOR AN ASSURED RET URN. THAT HAD NOTHING TO DO WITH THE PROJECT AND THERE WAS NO INEXTRICABLY L INK BETWEEN THE INVESTMENT AND THE PROJECT. THE INTEREST INCOME COULD NOT, TH EREFORE, BE PERMITTED TO BE ADJUSTED AGAINST THE CAPITAL WORK-IN-PROGRESS ON PR E-OPERATIVE EXPENSES. BOTH THE ASSESSING OFFICER AND THE COMMISSIONER (APPEALS ) WERE RIGHT IN BRINGING THE INTEREST TO TAX UNDER THE HEAD 'INCOME FROM OTH ER SOURCES'. [PARA 7]' 24. HOWEVER, EVEN THE SAID DECISION IS ALSO NOT SUP PORTING THE CONTENTION OF THE A.O IN VIEW OF DIVERGENT FACTS INASMUCH AS, IN THE SAID CASE, THE HON'BLE HIGH COURT TOOK NOTE OF THE FACT THAT THE INVESTMENT OF THE FU NDS HAS NOTHING TO DO AND WAS NOT INEXTRICABLY LINKED WITH THE CONSTRUCTION OF THE PR OJECT, ON THE CONTRARY, IN THE CASE OF THE APPELLANT, FUNDS ARE INEXTRICABLY LINKED WITH T HE PROCESS OF SETTING UP OF THE PROJECT. SECONDLY, IN THE SAID CASE, THERE WAS AN I NVESTMENT UNDER THE 'PORTFOLIO MANAGEMENT SCHEME' (PMS) OPERATED BY BANKS UNDER WH ICH AN ASSURED RETURN WAS GUARANTEED BY THE BANKS, THUS, IT WAS A CONSCIOUS A CT OF INVESTMENT OF FUNDS BY THE ASSESSEE, WHEREAS, IN THE CASE OF THE APPELLANT, TH E INVESTMENT WAS IN SHORT TERM BANK DEPOSITS AWAITING DISBURSEMENT AGAINST LAND ACQUISI TION AND OTHER PROJECT RELATED COST, THE INVESTMENT WAS NOT BY CHOICE OF THE APPEL LANT BUT BY COMPULSION SO AS TO REDUCE THE PROJECT COST. THE INVESTMENT IN PMS PRE SUPPOSES LONGER PERIOD, THUS, IT IS A FAIR PRESUMPTION THAT THE SAID COMPANY HAD SUBSTA NTIAL SURPLUS FUNDS WITH NO IMMEDIATE NEED OF FUNDS, HOWEVER, NO SUCH FACTS ARC FOUND EXISTING IN THE CASE OF THE APPELLANT. MOREOVER, IN THE CASE OF THE APPELLANT, IT IS SEEN THAT THE LIABILITY OF THE APPELLANT TO PAY COMPENSATION AGAINST LAND ACQUISIT ION AND INTEREST THEREON HAD AROSE BY VIRTUE OF GAZETTE NOTIFICATION U/S 4 OF LA ND ACQUISITION ACT, 1894 DATED 26.6.2009. HENCE, I AM IN AGREEMENT WITH THE SUBMIS SION OF THE APPELLANT THAT THERE WAS A DIRECT NEXUS BETWEEN INTEREST EARNED BY THE A PPELLANT AND INTEREST PAYABLE ON COMPENSATION IN VIEW OF PROVISIONS OF SECTION 23 OF LAND ACQUISITION ACT, 1894. 10 ITA NO.271/RPR/2014 25. I AM CONVINCED THAT THE CASE OF THE APPELLANT IS CERTAINLY DERIVING STRENGTH FROM THE FOLLOWING DECISIONS:- (I) NTPC SAIL POWER COMPANY PVT. LTD VS. COMMISSIO NER OF INCOME TAX (2012) 210 TAXMAN 358 (DELHI) (II) INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS.. ITO (2009) 315ITR 255 (DEL.) (III) CIT VS. BOKARO STEEL LTD. (1999) 151 CTR (SC ) 276: (1999) 236 ITR 315 (SC) (IV) IFFCO CHHATTISGARH POWER LIMITED VS. INCOME T AX OFFICER IN ITA NO.6367/DEL/2012 26. I AM CONVINCED THAT THE CASE OF THE APPELLANT I S SQUARELY COVERED BY THE DECISION OF THE HON'BLE ITAT DELHI BENCH IN THE CAS E OF IFFCO CHHATTISGARH POWER LIMITED VS. INCOME TAX OFFICER IN ITA NO.6367/DEL/2 012 WHEREIN IT WAS HELD AS UNDER.- 'IN VIEW OF ABOVE, WE HAD NO HESITATION TO HOLD THA T IN THE PRESENT CASE, THE ASSESSEE EARNED INCOME FROM INTEREST ON TERM AND OT HER DEPOSITS. THIS INTEREST INCOME OF RS.1,22,96,974/- HAS BEEN EARNED ON THE F UNDS LYING IN THE BANK WHICH ARE OUT OF FUNDS RECEIVED BY WAY OF SHARE APP LICATION MONEY. BEFORE THE AUTHORITIES BELOW, THE ASSESSEE EXPLAINED THAT IT I S A COMMON PRACTICE AMONG THE BUSINESS UNDERTAKING TO PARK THE SURPLUS FUNDS TEMPORARILY AVAILABLE TO THEM WHILE SETTING UP NEW BUSINESS OR WHILE UNDERTA KING A DIVERSIFICATION / SUBSTANTIAL EXPANSION IN A MANNER SO AS TO DERIVE C ERTAIN INCOME THEREFROM, THEREBY EFFECTIVELY REDUCING THE COST OF CONSTRUCTI ON AND INTEREST INCURRED BEFORE THE COMMENCEMENT OF BUSINESS. IN THE PRESENT CASE, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS IN TH E PROCESS OF SETTING UP OF 1320 MW POWER PLANT IN THE SAME DISTRICT OF CHHATTI SGARH STATE OF INDIA FOR WHICH LAND ACQUISITION ACTIVITIES AS PER RELEVANT S TATE LAWS WERE UNDER PROGRESS AND THE ASSESSEE HAS NOT STARTED ANY BUSIN ESS OR COMMERCIAL ACTIVITY DURING THIS PERIOD. SINCE THE ASSESSEE EARNED INTER EST INCOME FROM THE INVESTMENT MADE IN THE BANKS AND OTHER INSTITUTIONS FROM PARKING OF FUNDS WHICH WERE AWAITING ITS DISBURSEMENT FOR LAND ACQUI SITION AND OTHER ACTIVITIES IN VIEW OF ABOVE, RESPECTFULLY FOLLOWING THE JUDGME NT OF HON'BLE APEX COURT IN THE CASE OF BOKARO STEEL LIMITED (SUPRA) AND RECENT JUDGMENT OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF NTPC SAIL POWER CO. L TD. (SUPRA) AND INDIAN OIL PAINPAT POWER CONSORTIUM LIMITED (SUPRA), WE HO LD THAT THE INCOME EARNED BY THE ASSESSEE FROM INTEREST IS NOT TAXABLE IN THE HANDS OF ASSESSEE AS INCOME FROM OTHER SOURCES AND THE SAME WAS INEXTRIC ABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY AND S UCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS AND PREOPERATIVE EXPE NSES. ACCORDINGLY, BOTH THE GROUNDS OF THE ASSESSEE ARE A LLOWED WITH A DIRECTION TO THE ASSESSING OFFICER THAT THE INCOME EARNED FROM I NTEREST ON TERM AND OTHER DEPOSITS DURING THE YEAR UNDER CONSIDERATION CANNOT BE TAXED AS INCOME FROM OTHER SOURCES BUT THE SAME CAN BE GIVEN TREATMENT F OR REDUCING THE COST OF ASSETS AND FOR SETTING OFF PREOPERATIVE EXPENSES. 11 ITA NO.271/RPR/2014 27. IT IS SEEN THAT THE CASE OF THE APPELLANT WAS ASSESSED IN A.Y 2009-10 AND THE APPELLANT DID SUBMIT THE LEDGER OF INTEREST INCOME BEFORE THE THEN A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3), VIDE R EPLY SUBMITTED BEFORE THE A.O. ON 24.10.2011, FROM THE PERUSAL OF LEDGER OF INTEREST INCOME, IT IS SEEN THAT THE INTEREST FOR THE ENTIRE YEAR WAS TRANSFERRED TO 'INCIDENTAL EXPENDITURE INCURRED DURING CONSTRUCTION PERIOD 2008-09 TRANSFERRED TO RESPECTI VE GROUP OF CWIP ACCOUNT'. IT IS ALSO SEEN THAT THE APPELLANT HAD, VIDE REPLY SUBMIT TED ON 19.12.2011 DURING THE COURSE OF PROCEEDINGS U/S 143(3) FOR A.Y. 2009-10, SUBMITTED THE LEDGER OF SALE OF TENDER FORM AND SUCH INCOME WAS ALSO TRANSFERRED TO 'INCIDENTAL EXPENDITURE INCURRED DURING CONSTRUCTION PERIOD 2008-09 TRANSFERRED TO R ESPECTIVE GROUP OF CWIP ACCOUNT'. IN THIS BACKGROUND, I AM INCLINED TO ACCE PT THE SUBMISSION OF THE APPELLANT THAT THE THEN A.O HAD DULY APPLIED HIS MIND ON TAXA BILITY OF INTEREST AND OTHER INCOME AND AFTER BEING SATISFIED THAT THE INTEREST AND OTH ER INCOME CONSTITUTES CAPITAL RECEIPTS NOT CHARGEABLE TO TAX, THE THEN A.O HAD ACCEPTED TH E NIL INCOME RETURNED BY THE APPELLANT, AS THE FACTS PREVAILING IN A.Y. 2009-10 AND DURING THE YEAR UNDER CONSIDERATION ARE IDENTICAL, I FIND NO REASON FOR T HE A.O TO TAKE A CONTRARY VIEW DURING THE YEAR UNDER CONSIDERATION. HENCE, THE ADD ITION MADE BY THE A.O DESERVES TO BE DELETED EVEN ON THIS GROUND. 28. I AM CONVINCED THAT THE INTEREST INCOME EARNED BY THE APPELLANT IS A CAPITAL RECEIPT AND RIGHTLY REDUCED BY THE APPELLANT FROM I TS PRE-CONSTRUCTION EXPENSES AS THE COMMERCIAL OPERATIONS HAVE NOT COMMENCED. LOOKING T O THE FACTS AND CIRCUMSTANCES OF THE CASE, AS ALSO DECISIONS CITED ABOVE, THE ADD ITION OF RS.1,22,54,520/- ON ACCOUNT OF 'INCOME FROM OTHER SOURCES' MADE BY THE A.O CANN OT BE SUSTAINED. HENCE, THE ADDITION IS DELETED. 6. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE A SSESSING OFFICER. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S IFFCO CHHATTISGARH POWER LTD. (SUPRA), THE LD. DR S UBMITTED THAT IN THAT CASE WHICH HAS BEEN RELIED ON BY THE LD. CIT(A) THE ASSE SSEE COMPANY WAS IN THE PROCESS OF SETTING UP OF 1320 MW POWER PLANT IN THE SAME DISTRICT OF CHHATTISGARH STATE OF INDIA FOR WHICH LAND ACQUISIT ION ACTIVITIES AS PER RELEVANT 12 ITA NO.271/RPR/2014 STATE LAWS WERE UNDER PROGRESS AND THE ASSESSEE HAS NOT STARTED ANY BUSINESS OR COMMERCIAL ACTIVITY DURING THIS PERIOD. HOWEVER, I N THE INSTANT CASE OF THE ASSESSEE, THE PROJECT HAS NOT STARTED IN THIS YEAR OR EVEN IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE ENTIRE ADDITION SH OULD BE CHARGED AS REVENUE RECEIPT AND THE ACTION OF THE ASSESSEE IN REDUCING SUCH INCOME FROM THE PRE- OPERATIVE EXPENSES IS NOT JUSTIFIED. THE INTEREST INCOME IS NOT INEXTRICABLY LINKED WITH THE PROJECT, THEREFORE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES CHEMICALS FERTILIZER S LTD. (SUPRA) IS CLEARLY APPLICABLE. 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE LD. CIT(A). HE SUBMITTED THAT THE LD. CIT(A) HAS CORRECTLY APPLIED THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF IFFCO CHHATTISGARH POWER LTD. (SUPRA). REFERRING TO PAGE 9 OF THE ORDER OF THE TRIBUNAL, HE SUBMITTED THAT IN THAT CASE ALSO THE A SSESSEE COMPANY WAS IN THE PROCESS OF SETTING-UP OF 1032 MW POWER PLANT IN THE STATE OF CHHATTISGARH FOR WHICH LAND ACQUISITION ACTIVITIES AS PER RELEVANT S TATE LAWS WERE UNDER PROGRESS AND THE ASSESSEE HAS NOT STARTED ANY BUSINESS OR CO MMERCIAL ACTIVITY DURING THIS PERIOD. THE TRIBUNAL RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND THE RECENT DE CISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF NTPC SAIL POWER CO. LTD. (SUPRA) AND INDIAN OIL 13 ITA NO.271/RPR/2014 PANIPAT POWER CONSORTIUM LIMITED (SUPRA) AND HELD T HAT THE INCOME EARNED BY THE ASSESSEE FROM INTEREST IS NOT TAXABLE AS INCOM E FROM OTHER SOURCES AND THE SAME WAS INEXTRICABLY LINKED WITH THE PROCESS OF SE TTING-UP ITS PLANT AND MACHINERY AND THIS RECEIPT WAS REDUCED FROM THE COS T OF ITS ASSETS AND PRE- OPERATIVE EXPENSES. SINCE IN THE INSTANT CASE ALSO NO OTHER ACTIVITY OTHER THAN COAL ACTIVITIES HAS TAKEN PLACE AND SUBSEQUENT TO C ANCELLATION OF COAL BLOCK BY THE HON'BLE SUPREME COURT, NO BUSINESS ACTIVITIES C OULD BE CARRIED OUT, THEREFORE, THE DECISION OF THE DELHI BENCH OF THE T RIBUNAL IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE, THE O RDER OF THE LD. CIT(A) SHOULD BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 9. THE LD. DR, IN HIS REJOINDER, SUBMITTED THAT IN THE INSTANT CASE THE PROJECT DID NOT COME UP THEREFORE, THE INTEREST INCOME FROM SURPLUS FUNDS HAS TO BE CHARGED TO TAX. HE SUBMITTED THAT IN THE CASE OF I FFCO CHHATTISGARH POWER LTD. (SUPRA) THE PROJECT HAS COME UP, HOWEVER, IN THE IN STANT CASE THE PROJECT HAS NEVER COME UP. THEREFORE, THE DECISION OF THE DELH I BENCH OF THE TRIBUNAL IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING O FFICER RELYING, ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F TUTICORIN ALKALIES 14 ITA NO.271/RPR/2014 CHEMICALS FERTILIZERS LTD. (SUPRA) AND VARIOUS OTHE R DECISIONS TAXED THE INTEREST INCOME OF RS.1,22,54,520/- EARNED BY THE ASSESSEE F ROM FIXED DEPOSITS KEPT IN VARIOUS BANKS DURING THE YEAR UNDER CONSIDERATION A S REVENUE RECEIPT LIABLE TO TAX DURING THE CURRENT YEAR. WE FIND, IN APPEAL, T HE LD. CIT(A), FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F BOKARO STEEL LTD. (SUPRA) AND THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF IFFCO CHHATTISGARH POWER LTD. (SUPRA) AND VARIOUS OTHER D ECISIONS HELD THE INCOME AS CAPITAL IN NATURE AND HAS TO BE REDUCED FROM ITS PR E-OPERATIVE EXPENSES AS THE COMMERCIAL OPERATIONS HAVE NOT COMMENCED. HE ACCOR DINGLY DELETED THE ADDITION. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, WE FIND THAT AN MOU DATED 04.06.2005 WAS ENTERED INTO BETWEEN GOVERNMENT OF C HHATTISGARH, CMDC AND IFFCO CHHATTISGARH POWER LTD. FOR IMPLEMENTING A PO WER PROJECT ON JOINT VENTURE, COPIES OF WHICH ARE PLACED AT PAGE 1 TO 3 OF THE PAPER BOOK. WE FIND A JOINT VENTURE AGREEMENT BETWEEN ICPL AND CMDCL WAS ENTERED INTO 31.01.2008, COPIES OF WHICH ARE PLACED AT PAGE 4 TO 37 OF THE PAPER BOOK. WE FIND THE MINISTRY OF ENVIRONMENT & FOREST, GOVERNME NT OF INDIA VIDE LETTER DATED 05.07.2011 HAS GRANTED STAGE 1 CLEARANCE, COP Y OF WHICH IS PLACED AT PAGE 48 TO 50 OF THE PAPER BOOK. WE FIND THE MINIS TRY OF ENVIRONMENT & FOREST, GOVERNMENT OF INDIA VIDE LETTER DATED 23.05 .2012 HAD GRANTED 15 ITA NO.271/RPR/2014 ENVIRONMENT CLEARANCE TO THE ASSESSEE, COPY OF WHIC H IS PLACED AT PAGE 51 TO 59 OF THE PAPER BOOK. WE FURTHER FIND FROM THE VARIOU S CORRESPONDENCES THAT THE ASSESSEE WAS DIRECTED TO DEPOSIT AN AMOUNT OF RS.6. 61 CRORES FOR LAND ACQUISITION COMPENSATION, COPIES OF WHICH ARE PLACE D AT PAGES 61 TO 67 OF THE PAPER BOOK. WE FURTHER FIND FROM THE LETTER ADDRES SED BY THE ASSESSEE TO CMDCL FOR ADVANCE AGAINST EQUITY CONTRIBUTION, COPY OF WHICH IS PLACED AT PAGES 68 TO 70 OF THE PAPER BOOK WHICH SHOWS THAT T HE FUNDS WERE NEEDED FOR LAND ACQUISITION. WE, THEREFORE, FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ABOVE EVIDENCES ESTABLISH THA T THE ASSESSEE WAS IN DIRE NEED OF FUNDS FOR LAND ACQUISITION. THE LAND ACQUISITIO N OFFICER KEPT ON PASSING ORDERS FOR LAND ACQUISITION AND ASSESSEE WAS NOT AB LE TO MAKE PAYMENT. SINCE PART PAYMENT WAS NOT POSSIBLE, THEREFORE, WE FIND M ERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE FUNDS WERE NE EDED TO BE POOLED AND KEPT READY. WE FURTHER FIND FROM THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE MINISTRY OF COAL HAS SOUGHT EXPLANATION FR OM CMDC LTD. FOR SLOW PROGRESS IN RESPECT OF TCB VIDE LETTER DATED 03.01. 2014. WE, THEREFORE, ARE OF THE VIEW THAT THE INTEREST EARNED ON DEPOSITS KEPT BY THE ASSESSEE OUT OF SURPLUS FUNDS IS INEXTRICABLY LINKED WITH THE PROCESS OF SE TTING-UP ITS ASSETS AND IT WILL GO TO REDUCE THE COST OF ASSETS. 16 ITA NO.271/RPR/2014 11. WE FIND THE HONBLE DELHI HIGH COURT IN THE CAS E OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO REPORTED IN 315 ITR 2 55 HAS HELD THAT INTEREST WHICH ACCRUED ON FUNDS DEPLOYED WITH THE BANK COULD NOT BE TAXED AS INCOME FROM OTHER SOURCES BUT CONSTITUTED CAPITAL RECEIPT LIABLE TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES AS THE SAID FUNDS WERE ESPECIALL Y EARMARKED FOR PURCHASE OF LAND AND DEVELOPMENT OF INFRASTRUCTURE. THE HON'BL E HIGH COURT WHILE HOLDING SO CONSIDERED THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF TUTICORIN ALKALIES CHEMICALS FERTILIZERS LTD. (SUPR A) AND BOKARO STEEL LTD. (SUPRA) AND VARIOUS OTHER DECISIONS. WE FIND THE H ON'BLE SUPREME COURT IN THE CASE OF CIT VS. KARNAL CO-OPERATIVE SUGAL MILLS LTD . REPORTED IN 243 ITR 2 FOLLOWING THE DECISION IN THE CASE OF BOKARO STEEL LTD. (SUPRA) HAS OBSERVED AS UNDER :- IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MO NEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON T HE MONEY SO DEPOSITED THAT SOME INTEREST HAS BEEN EARNED. THIS IS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSIT ED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY IN THE PRES ENT CASE IS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCI DENTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. IN THIS VIEW OF THE MATTER THE RATIO LAID DOWN BY THIS COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED V. CIT [1997] 227 ITR 172, WILL NOT BE ATTRACTED. THE MORE APPROPRIATE DECISION IN THE FACTUAL SITUATION IN T HE PRESENT CASE IS IN CIT V. BOKARO STEEL LTD. [1999] 236 ITR 315 (SC). THE APPEAL IS DISMISSED. THERE WILL BE NO ORDER AS TO COSTS. 17 ITA NO.271/RPR/2014 12. WE FIND THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF IFFCO CHHATTISGARH POWER LTD. (SUPRA) AFTER CONSIDERING T HE VARIOUS DECISIONS HAS HELD THAT INCOME EARNED BY THE ASSESSEE FROM INTEREST ON DEPOSITS WITH BANK IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE AS INCOME FROM OTHER SOURCES AND THE SAME WAS INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP OF ITS PLANT AND MACHINERY AND, THEREFORE, SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS AND PRE- OPERATIVE EXPENSES. THE RELEVANT OBSERVATION OF TH E TRIBUNAL FROM PARA 8 ONWARDS READS AS UNDER :- 8. AFTER CAREFUL CONSIDERATION OF ABOVE RIVAL SUBM ISSIONS, CONTENTIONS AND LEGAL PROPOSITIONS AND CITATIONS RELIED UPON BY BOTH THE PARTIES, WE OBSERVE THAT THE MAIN ISSUE IN THIS APPEAL IS THAT THE ONLY INCOME EARNED FROM INVESTMENT OF FUNDS BEFORE COMMENCEMENT OF BUSINESS IS AN INCOME IN THE HANDS OF ASSESSEE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 9. IN THE CASE OF BOKARO STEEL LIMITED (SUPRA), HON BLE APEX COURT ALSO CONSIDERED THE RATIO OF THE JUDGMENT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS C.I.T. (SUPRA) AND GODHRA ELECTRICITY COMPANY LTD. VS C.I.T.(1997) 225 ITR 746 (SC) AND HELD AS UNDER:- THE APPELLANT, HOWEVER, RELIED UPON THE DECISION OF THIS COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. V. CIT [1997] 227 ITR 172. THAT CASE DEALT WITH THE QUESTION WHETHER INVESTME NT OF BORROWED FUNDS PRIOR TO COMMENCEMENT OF BUSINESS, RESULTING IN EA RNING OF INTEREST BY THE ASSESSEE WOULD AMOUNT TO THE ASSESSEE EARNING ANY I NCOME. THIS COURT HELD THAT IF A PERSON BORROWS MONEY FOR BUSINESS PU RPOSES, BUT UTILISES THAT MONEY TO EARN INTEREST, HOWEVER TEMPORARILY, T HE INTEREST SO GENE RATED WILL BE HIS INCOME. THIS INCOME CAN BE UTILIS ED BY THE ASSESSEE WHICHEVER WAY HE LIKES. MERELY BECAUSE HE UTILISED IT TO REPAY THE INTEREST ON THE LOAN TAKEN, WILL NOT MAKE THE INTEREST INCOM E AS A CAPITAL RECEIPT. THE DEPARTMENT RELIED UPON THE OBSERVATIONS MADE IN THAT JUDGMENT (AT PAGE 179) TO THE EFFECT THAT 'IF THE COMPANY, EVEN BEFORE IT COMMENCES BUSINESS, INVESTS THE SURPLUS FUNDS IN ITS HANDS FO R PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SELLS IT AT PROFIT, THE GA IN MADE BY THE COMPANY WILL BE ASSESSABLE UNDER THE HEAD 'CAPITAL GAINS'. SIMILARLY, 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 PROPERTY. LIK EWISE, A COMPANY MAY HAVE INCOME FROM OTHER SOURCES. . . . THE COMPA NY MAY ALSO, AS IN 18 ITA NO.271/RPR/2014 THAT CASE, KEEP THE SURPLUS FUNDS IN SHORT TERM DEP OSITS IN ORDER TO EARN INTEREST. SUCH INTEREST WILL BE CHARGEABLE UNDER SE CTION 56 OF THE INCOME TAX ACT'. THIS COURT ALSO EMPHASISED THE FACT THAT THE COMPANY WAS NOT BOUND TO UTILISE THE INTEREST SO EARNED TO ADJUST I T AGAINST THE INTEREST PAID ON BORROWED CAPITAL. THE COMPANY WAS FREE TO USE TH IS INCOME IN ANY MANNER IT LIKED. HOWEVER, WHILE INTEREST EARNED BY INVESTING BORROWED CAPITAL IN SHORT TERM DEPOSITS IS AN INDEPENDENT SO URCE OF INCOME NOT CONNECTED WITH THE CONSTRUCTION ACTIVITIES OR BUSIN ESS ACTIVITIES OF THE ASSES SEE, THE SAME CANNOT BE SAID IN THE PRESENT CASE WH ERE THE UTILISATION OF VARIOUS ASSETS OF THE COMPANY AND THE PAYMENTS RECE IVED FOR SUCH UTILISATION ARE DIRECTLY LINKED WITH THE ACTIVITY O F SETTING UP THE STEEL PLANT OF THE ASSESSEE. THESE RECEIPTS ARE INEXTRICABLY L INKED WITH THE SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY. T HEY MUST, THEREFORE, BE VIEWED AS CAPITAL RECEIPTS GOING TO REDUCE THE COST OF CONSTRUCTION. IN THE CASE OF CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 IT R 167, THIS COURT EXAMINED THE QUESTION WHETHER INTEREST PAID BEFORE THE COMMENCEMENT OF PRODUCTION BY A COMPANY ON AMOUNTS BORROWED FOR THE ACQUISITION AND INSTALLATION OF PLANT AND MACHINERY WOULD FORM A PA RT OF THE ACTUAL COST OF THE ASSET TO THE ASSESSEE WITHIN THE MEANING OF THA T EXPRESSION IN SECTION 10(5) OF THE INDIAN INCOME TAX ACT, 1922, AND WHETH ER THE ASSESSEE WILL BE ENTITLED TO DEPRECIATION ALLOWANCES AND DEVELOPMENT REBATE WITH REFERENCE TO SUCH INTEREST ALSO. THE COURT HELD THAT THE ACCE PTED ACCOUNTANCY RULE FOR DETERMINING THE COST OF FIXED ASSETS IS TO INCL UDE ALL EXPENDITURE NECESSARY TO BRING SUCH ASSETS INTO EXISTENCE AND T O PUT THEM IN WORKING CONDITION. IN CASE MONEY IS BORROWED BY A NEWLY STA RTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON S UCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF T HE FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. BY THE SAME REASON ING IF THE ASSESSEE RECEIVES ANY AMOUNTS WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPTS W ILL GO TO REDUCE THE COST OF ITS ASSETS. THESE ARE RECEIPTS OF A CAPITAL NATU RE AND CANNOT BE TAXED AS INCOME 10. AT THIS POINT, IT IS WORTHY TO TAKE GUIDANCE FR OM THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN THE CASE OF INDIAN OIL PANIPAT PO WER CONSORTIUM LTD. VS ITO (SUPRA) WHEREIN PARA 5 READS AS UNDER:- IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED THE R ATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICO RIN ALKALI CHEMICALS & FERTILIZERS LTD. VS C.I.T. (SUPRA) AND THAT OF BO KARO STEEL LTD. (SUPRA). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF SU PREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS C. I.T. (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 T HEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INT EREST WILL BE TAXABLE 19 ITA NO.271/RPR/2014 UNDER THE HEAD INCOME FORM 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 WA Y 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 PREOPERATIVE EXPENSES. 11. IN ANOTHER RECENT JUDGMENT OF HONBLE HIGH COUR T OF DELHI IN THE CASE OF NTPC SAIL POWER COMPANY PVT. LTD. VS C.I.T.(SUPRA), THE CONTROVERSY IS NOW SETTLED WITH THE FOLLOWING OBSERVATIONS:- 9. THIS COURT, IN INDIAN OIL PANIPAT POWER CONS ORTIUM LTD VS. ITO (2009) 315 ITR 255 (DEL.) HELD THAT WHERE INTEREST ON MONEY RECEIVED AS SHARE CAPITAL IS TEMPORARILY PLACED IN FIXED DEPOSI T AWAITING ACQUISITION OF LAND, A CLAIM THAT SUCH INTEREST IS A CAPITAL RE CEIPT ENTITLED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES, IS ADMISSIBLE, AS T HE FUNDS RECEIVED BY THE ASSESSEE COMPANY BY THE JOINT VENTURE PARTNERS ARE 'INEXTRICABLY LINKED' WITH THE SETTING UP OF THE PLANT AND SUCH I NTEREST EARNED CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. THE REASON ING IN INDIAN OIL IS IN LINE WITH BOKARO STEEL LTD. SIMILARLY, THE SUPRE ME COURT IN CIT VS. KARNATAKA POWER CORPORATION, 247 L.T.R. 268 (SC) AN D BONGAIGAON V REFINERY AND PETRO CHEMICAL CO. LTD. VS. COMMISSION ER INCOME TAX 251 I.T.R. 329(SC) HELD THAT SUCH RECEIPTS ARE NOT INCO ME. 10. IT IS NO DOUBT CORRECT THAT THE PROVISO TO SECT ION 36(1)(III) OF THE INCOME TAX ACT ENACTS THAT ANY AMOUNT OF THE INTERE ST PAID TOWARDS ('IN RESPECT OF') CAPITAL BORROWED FOR ACQUISITION OF AN ASSET OR FOR EXTENSION OF EXISTING BUSINESS REGARDLESS OF ITS CAPITALIZATI ON 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 DE DUCTION. 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 TH EY WERE TAKEN, THIS COURT, AND INDEED THE SUPREME COURT HELD THAT IF TH E RECEIPT IS 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PROJ ECT, 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 F UNDS INVESTED BY THE ASSESSEE COMPANY AND THE INTEREST EARNED WERE INEXT RICABLY 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 W ERE NOT LIMITED TO THE CONSTRUCTION ACTIVITY CONNECTED TO THE EXPANSIO N OF THE BUSINESS BY WAY OF SETTING UP OF A NEW POWER GENERATION PLANT. 11. AS A RESULT OF THE ABOVE DISCUSSION, IT IS H ELD THAT THE TRIBUNAL AND THE LOWER AUTHORITIES FELL INTO ERROR IN HOLDING TH AT THE INTEREST EARNED ON 20 ITA NO.271/RPR/2014 FIXED DEPOSIT OF AMOUNTS BORROWED, WHICH IS THE SUB JECT 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 C ONSEQUENTLY ALLOWED. 12. IN VIEW OF ABOVE, WE HAVE NO HESITATION TO HOLD THAT IN THE PRESENT CASE, THE ASSESSEE EARNED INCOME FROM INTEREST ON TERM AND OT HER DEPOSITS. THIS INTEREST INCOME OF RS.1,22,96,974/- HAS BEEN EARNED ON THE F UNDS LYING IN THE BANK WHICH ARE OUT OF FUNDS RECEIVED BY WAY OF SHARE APPLICATION M ONEY. BEFORE THE AUTHORITIES BELOW, THE ASSESSEE EXPLAINED THAT IT IS A COMMON P RACTICE AMONG THE BUSINESS UNDERTAKING TO PARK THE SURPLUS FUNDS TEMPORARILY A VAILABLE TO THEM WHILE SETTING UP NEW BUSINESS OR WHILE UNDERTAKING A DIVERSIFICATION /SUBSTANTIAL EXPANSION IN A MANNER SO AS TO DERIVE CERTAIN INCOME THEREFROM, TH EREBY EFFECTIVELY REDUCING THE COST OF CONSTRUCTION AND INTEREST INCURRED BEFORE THE CO MMENCEMENT OF BUSINESS. IN THE PRESENT CASE, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS IN THE PROCESS OF SETTING UP OF 1320 MW POWER PLANT IN TH E SAME DISTRICT OF CHHATISGARH STATE OF INDIA FOR WHICH LAND ACQUISITION ACTIVITIE S AS PER RELEVANT STATE LAWS WERE UNDER PROGRESS AND THE ASSESSEE HAS NOT STARTED ANY BUSINESS OR COMMERCIAL ACTIVITY DURING THIS PERIOD. SINCE THE ASSESSEE EARNED INTE REST INCOME FROM THE INVESTMENT MADE IN THE BANKS AND OTHER INSTITUTIONS FROM PARKI NG OF FUNDS WHICH WERE AWAITING ITS DISBURSEMENT FOR LAND ACQUISITION AND OTHER ACT IVITIES, IN VIEW OF ABOVE, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE APEX CORUT IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND RECENT JUDGMENT OF HONBLE HIGH CO RUT OF DELHI IN THE CASE OF NTPC SAIL POWER CO. LTD. (SUPRA) AND INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED (SUPRA), WE HOLD THAT THE INCOME EARNED BY THE ASSE SSEE FROM INTEREST IS NOT TAXABLE IN THE HANDS OF ASSESSEE AS INCOME FROM OTHER SOURCES AND THE SAME WAS INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY AND SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS AND PREOPERATIVE E XPENSES. 13. ACCORDINGLY, BOTH THE GROUNDS OF THE ASSESSEE A RE ALLOWED WITH A DIRECTION TO THE ASSESSING OFFICER THAT THE INCOME EARNED FROM I NTEREST ON TERM AND OTHER DEPOSITS DURING THE YEAR UNDER CONSIDERATION CANNOT BE TAXED AS INCOME FROM OTHER SOURCES BUT THE SAME CAN BE GIVEN TREATMENT FOR REDUCING TH E COST OF ASSETS AND FOR SETTING OFF PREOPERATIVE EXPENSES. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 13. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD . COUNSEL FOR THE ASSESSEE IN THE PAPER BOOK ALSO SUPPORT THE CASE OF THE ASSESSE E. SINCE THE ASSESSEE IN INSTANT CASE IS NOT FREE TO USE THE FUNDS FOR ANY P URPOSE EXCEPT TCB PROJECT AND SINCE THERE IS NO ALLEGATION THAT ANY PART OF FUND HAS BEEN USED FOR ANY OTHER PURPOSES AND SINCE NO ADDITION WAS MADE BY THE ASSE SSING OFFICER ON THIS 21 ITA NO.271/RPR/2014 ACCOUNT IN ASSESSMENT YEAR 2009-10, COPY OF WHICH I S PLACED AT PAGE 170 AND 171 OF THE PAPER BOOK, THEREFORE, WE FIND NO INFIRM ITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSI NG OFFICER BY TREATING SUCH INTEREST INCOME FROM FIXED DEPOSITS AS CAPITAL RECE IPT WHICH WOULD GO TO REDUCE THE PRE-OPERATIVE EXPENDITURE. WE, THEREFORE, UPHO LD THE SAME AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH OCTOBER, 2018. SD/- SD/- (SUCHITRA KAMBLE) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12-10-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A) 5) THE DR, I.T.A.T., RAIPUR. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY ITAT, RAIPUR