Adani Power Ltd., Ahmedabad V. The ACIT.,Range-1, Ahmedabad

ITA 2755/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9676 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGHSR D R
• Assessee Lawyers: P M MEHTA
• Keywords: Business income; Diversion of income; Question of law; Capital receipt
• Section: 56

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ././ ./ ITA NO. 2755/AHD/2011 / ASSESSMENT YEAR: 2008-09 ADANI POWER LTD, SHIKHAR, MITHAKHALI SIX ROADS, NAVRANGPURA, AHMEDABAD PAN : AABCA 2957 L V/S. ACIT, RANGE-1, AHMEDABAD / // / (APPELLANT) / // / (RESPONDENT) ASSESSEE(S) BY : SHRI S.N. SOPARKAR WITH VARTIK CHOKSHI & P.M. MEHTA REVENUE BY : SHRI NARENDRA SINGH, SR. DR !' # $%&/ // / DATE OF HEARING : 22/07/2015 '( # $%& / // / DATE OF PRONOUNCEMENT: 27/07/2015 )* )* )* )*/ // / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-6, AHMEDABAD D ATED 07.09.2011 FOR ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL BY THE ASSESSEE, FOLLOWING GROUN DS WERE RAISED:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING GROU ND NO. 1 OF THE APPELLANT'S APPEAL CHALLENGING THE VALIDITY OF THE ASSESSMENT ORDER IMPUGNED BEFORE HIM, ON THE GROUND THAT IT WAS GENE RAL IN NATURE NOT REQUIRING ANY ADJUDICATION BY HIM. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING ADDIT ION OF RS.1,35,87,158 TO THE APPELLANT'S RETURNED INCOME MADE BY THE LEAR NED ASSESSING OFFICER ON ACCOUNT OF INTEREST INCOME WHICH, ON ACCOUNT OF ITS PECULIAR NATURE OF BEING A CAPITAL RECEIPT, HAD NOT BEEN OFFERED TO BE TAXED BY THE APPELLANT. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT THE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 2 APPELLANT'S CASE IN RESPECT OF THIS PARTICULAR ITEM OF INTEREST WAS BASED ON THE RATIO OF THE DECISION OF THE SUPREME COURT IN C IT V. KARNAL CO- OPERATIVE SUGAR MILLS LTD. (243 ITR 2) AND BEING SU CH, IT WAS NOT OPEN TO HIM TO UPHOLD THE IMPUGNED ADDITION ON THE GROUN D THAT THE SAME WAS TAXABLE IN TERMS OF THE DECISION OF THE SUPREME COU RT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S CASE (227 ITR 172) . 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE L EARNED ASSESSING OFFICER'S REJECTION OF THE APPELLANT'S CLAIM MADE I N WRITING DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT OF THE IN TEREST INCOME OF RS.7,91,51,306 WHICH THE APPELLANT HAD OFFERED FOR TAX (TOTAL INTEREST INCOME OF RS.9,31,33,148 MINUS INTEREST INCOME NOT OFFERED FOR TAX RS.1,39,81,841), INTEREST INCOME OF RS.2,03,36,936 WAS SUCH IN NATURE AS TO BE COVERED BY THE RATIO OF THE DECISION OF THE D ELHI HIGH COURT IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V. ITO (31 5 ITR 255) WHICH HAD BEEN RENDERED AFTER DUE CONSIDERATION OF THE DE CISION OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S CASE (227 ITR 172) AND THAT THE SAME WAS NOT ASSESSABLE TO TAX. T HE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT IT CANN OT BE OPEN TO HIM TO UPHOLD THE IMPUGNED REJECTION OF THE APPELLANT'S CL AIM BY SUGGESTING (VIDE PARA 4.3 OF THE IMPUGNED APPELLATE ORDER): (A) FIRSTLY, THAT IT WAS NOT IN DISPUTE THAT THE FACTS OF EARNING INTEREST ON TEMPORARY SURPLUS IN THE CASE OF THE APPELLANT AS W ELL AS IN THE CASE OF THE ASSESSEE BEFORE THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S CASE (227 ITR 172) ARE SIMIL AR ALTHOUGH, WHEN IT WAS THE APPELLANT'S SPECIFIC CASE BEFORE HIM THA T ITS CASE WAS VERY MUCH COVERED BY THE DECISION OF THE DELHI HIGH COUR T WHICH HAD BEEN ARRIVED AT AFTER CONSIDERING THE DECISION OF THE SU PREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S C ASE (227 ITR 172), SUCH A SUGGESTION WAS ENTIRELY MISPLACED; AND (B) SECONDLY, THAT THE DECISION OF THE SUPREME COUR T IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S CASE (227 ITR 172) CANNOT BE IGNORED JUST BECAUSE DELHI HIGH COURT HAD DISTINGUISHED THE CASE BEFORE IT FROM THE CASE BEFORE THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S CASE (227 TR 172); (B) THAT WHEN THE APPELLANT HAD SO ELABORATELY EXPLAINE D AS TO HOW ITS CASE WAS COVERED BY THE DECISION OF THE DELHI HIGH COURT WHICH HAD ITSELF BEEN ARRIVED AT AFTER CONSIDERATION OF THE DECISION OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD.'S CASE (227 ITR 172), IT CANNOT BE OPEN TO HIM TO SUMMARILY DIS MISS THE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 3 APPELLANT'S CASE BY MERELY MAKING GENERAL OBSERVATI ONS AT PARA 4.3 OF THE IMPUGNED APPELLATE ORDER. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING THE APPELLANT'S CLAIM (MADE VIDE GROUND NO. 4 OF ITS APPEAL BEFORE HIM) T HAT FOR THE ELABORATE REASONS EXPLAINED IN THE STATEMENT OF FACTS ACCOMPA NYING THE APPELLANT'S APPEAL (INCLUDING THOSE IN THE ARTICLE 'SUPREME COU RT DECISION IN TUTICORIN ALKALI CHEMICALS' CASE (227 ITR 172) - CR AVES FOR AN URGENT REVIEW' [151 CTR -ARTICLES 240] A COPY WHEREOF HAD BEEN ATTACHED AS AN ANNEXURE TO THE STATEMENT OF FACTS), THE REMAINING AMOUNT OF INTEREST INCOME OF RS.7,91,51,306 (RS.9,31,33,147 MINUS RS.1 ,39,81,841) (AND NOT MERELY RS.2,03,36,936) FORMING PART THEREOF FOR WHICH THE APPELLANT HAD MADE A CLAIM DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS, DESERVED TO BE REGARDED TO BE OF CAPITAL NATURE REQ UIRED TO BE SET OFF AGAINST THE CAPITAL COST OF THE APPELLANT'S PROJECT AND, THEREFORE, AS NOT TAXABLE. 5. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING GROU ND NO.5 OF THE APPELLANTS APPEAL BEFORE HIM CHALLENGING INITIATIO N OF PENALTY PROCEEDINGS U/S. 271(1)(C) BY TREATING IT AS PRE-MA TURE. HE OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THERE BEING ABSOLUTELY NO WARRANT /JUSTIFICATION FOR INITIATING THE PENALTY PROCEEDINGS, HE OUGHT TO HAV E ORDERED FOR THEIR BEING DROPPED, THEREBY SAVING BOTH THE APPELLANT AN D THE DEPARTMENT FROM LONG DRAWN UNNECESSARY LITIGATION. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND/OR ALT ER THE GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF H EARING OF THE APPEAL. 3. WITH REGARD TO GROUND NOS. 1, 5 & 6, NO ARGUMENT WAS ADVANCED AT THE TIME OF HEARING; ACCORDINGLY, THESE GROUNDS ARE TREATED AS NOT PRESSED AND REJECTED AS SUCH. 4. GROUND NOS. 2, 3 AND 4 ARE INTERRELATED AS ALL T HESE THREE GROUNDS ARE RELATING TO CHARGEABILITY OF INTEREST INCOME WHICH IS CLAIMED TO BE CAPITAL RECEIPT BY THE ASSESSEE AND SET OFF AGAINST THE PRO JECT DEVELOPMENT EXPENDITURE. THEREFORE, ALL THESE THREE GROUNDS A RE CONSIDERED TOGETHER. ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 4 5. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPING, OPERATING , MAINTENANCE OF POWER PROJECTS AND SALE OF POWER. ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANYS PROJECTS WERE UNDER IMPLEMENTATION AND HAS NOT STARTED ANY COMMERCIAL ACTIVITIES. ACC ORDINGLY, NO PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION HAS B EEN PREPARED. THE EXPENDITURE DURING THE CONSTRUCTION PERIOD IS SHOWN IN THE BALANCE-SHEET AS PROJECT DEVELOPMENT EXPENDITURE AND CAPITAL WORK IN PROGRESS. AS PER SCHEDULE VI OF THE ASSESSEES BALANCE-SHEET AS ON 3 1 ST MARCH 2008, THE TOTAL PROJECT DEVELOPMENT EXPENDITURE WAS RS.178.56 CRORE S. AFTER SETTING OFF THERE FROM RS.16.11 CRORES, THE ASSESSEE CARRIED FO RWARD A SUM OF RS.162.45 CRORES IN ITS BALANCE-SHEET AS PROJECT DEVELOPMENT EXPENDITURE. THE INCOME OF RS. 16.11 CRORES INCLUDED INTEREST INCOME OF RS. 11,66,14,614/-. THE INTEREST INCOME UP TO 31.03.2007 WAS RS.2,34,81,466 /-. THUS, THE INTEREST INCOME PERTAINING TO THE ACCOUNTING YEAR RELEVANT T O ASSESSMENT YEAR UNDER CONSIDERATION WAS RS.9,31,33,148/- (RS.11,66,14,614 - RS.2,34,81,466). IN THE RETURN OF INCOME, THE ASSESSEE OFFERED THE INCOME O F RS.7,91,51,306/- AND THE DETAILS OF WHICH IS AS UNDER:- INTEREST INCOME OFFERED FOR TAX PARTICULARS AMOUNT RS. INTEREST ON ICD 58,814,370 INTEREST ON GENERAL PURPOSE INVESTMENT 1,765,955 INTEREST ON GENERAL PURPOSE INVESTMENT 6,829,678 INTEREST FROM SECURITIES 11,739,986 INTEREST RECEIVABLE ON N.S.C. 1,317 TOTAL 79,151,306 6. HOWEVER, THE ASSESSEE CLAIMED THE INTEREST INCOM E OF RS.1,39,81,841/- TO BE CAPITAL RECEIPT NOT LIABLE TO BE TAXED AND TH E DETAILS OF WHICH IS AS UNDER:- ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 5 INTEREST INCOME NOT OFFERED FOR TAX PURPOSE FD AMT RATE OF INT. INT. RECEIVABLE GUVNL - BID BOND 40,000,000 8.25% 3,012,276 GUVNL-BID BOND 37,500,000 7.75% 3,433,559 HPGCL BID BOND 72,000,000 8.50% 2,186,349 HPGCL BID BOND 13,500,000 8.50% 409,940 MSEDCL - BG 30,000,000 8.25% 284,016 MSEDCL - BG 30,000,000 8.25% 284,016 MSEDCL - BG 30,000,000 8.25% 284,016 GUVNL-BID BOND 17,500,000 9.15% 1,681,897 CHHATTISGARH BID BIND 60,000,000 7% 1,004,839 MARGIN MONEY LC DALIAN INSULAR 30,000,000 3.50% 3,94,683 MARGIN MONEY COAL MINING 90,000,000 8.75% 1,006,250 TOTAL 13,981,841 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE LETTER DATED 24.08.2010 CLAIMED THAT OUT OF INTEREST INCOM E OF RS.7,91,51,306/- WHICH IS OFFERED AS INTEREST INCOME IN THE RETURN O F INCOME, A SUM OF RS.2,03,36,936/- FROM FDS AND GOVT. SECURITIES TO B E EXEMPT. THE ASSESSING OFFICER ACCEPTED THE ASSESSEES CLAIM ONLY WITH REG ARD TO THE INTEREST INCOME OF RS.3,94,683/- WHICH WAS THE INTEREST EARNED FROM THE MARGIN MONEY OF RS. 3 CRORES. THUS, OUT OF THE SUM OF RS.1,39,81,84 1/- CLAIMED AS EXEMPT IN THE RETURN OF INCOME, THE ASSESSING OFFICER ACCEPTE D THE ASSESSEES CLAIM ONLY FOR THE SUM OF RS.3,94,683/- AND MADE THE ADDI TION OF RS.1,35,87,158/-. WITH REGARD TO INTEREST INCOME OFFERED BY THE ASSES SEE FOR TAX AT RS.7,91,51,306/-, THE ASSESSING OFFICER DID NOT ACC EPT THE ASSESSEES CONTENTION THAT THE SUM OF RS.2,03,36,936/- IS CAPI TAL RECEIPT; ACCORDINGLY, HE ASSESSED THE ENTIRE SUM OF RS.7,91,51,306/- AS OFFE RED BY THE ASSESSEE IN THE RETURN OF INCOME. 8. THE ASSESSEE, AGGRIEVED WITH THE ORDER OF THE AS SESSING OFFICER, FILED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE CLAIMED THE ENTIRE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 6 INTEREST INCOME TO BE CAPITAL RECEIPT. VIDE GROUND NO.2, THE ASSESSEE CLAIMED INTEREST INCOME OF RS.1,35,87,158/- TO BE N ON-TAXABLE AND VIDE GROUND NO.4 THE ASSESSEE CLAIMED THE ENTIRE REMAINI NG INTEREST INCOME OF RS.7,91,51,306/- TO BE NON-TAXABLE. THE CIT(A) REJE CTED GROUND NO.2 OF THE ASSESSEES APPEAL WHICH WAS WITH REGARD TO ASSESSEE S CLAIM FOR NON- TAXABILITY OF RS.1,35,87,158/- WITH THE FOLLOWING F INDING IN HIS ORDER:- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANTS BUSINESS FROM THE ABOVE IT IS CLEAR THAT APART FROM INVESTME NT OF TEMPORARY SURPLUS FUNDS, THE DEPOSIT WITH ELECTRICITY BOARD O R LOAN TO EMPLOYEE'S ALSO PROVIDED INTEREST INCOME WHICH WAS NOT CONSIDERED A PART OF THE PROJECT BUT TREATED AS REVENUE RECEIPT TAXABLE UNDER SECTION 56 OF IT ACT. IN THE CASE OF APPELLANT ALSO THE INVESTMENT IN BONDS MIGHT BE REQ UIRED FOR THE PURPOSE OF ENTERING INTO POWER PURCHASES AGREEMENT BUT REVENUE IS FLOWING FROM INVESTMENT IN BONDS AND NOT FROM THE IMPLEMENTATION OF PROJECTS OR PURCHASES OF PLANT AND MACHINERY. LC MARGIN MONEY I NTEREST WAS CONSIDERED INEXTRICABLY LINKED TO THE PROJECT BY THE ASSESSING OFFICER AND ACCORDINGLY HE ALLOWED THE SAME TO BE REDUCED FROM PROJECT COST. A PART FROM THIS NO OTHER INTEREST INCOME IS DIRECTLY COMING FROM IMPLEMENTAT ION OF THE PROJECT OR PURCHASES OF PLANT AND MACHINERY. POWER PURCHASES A GREEMENT MAY REQUIRE SOME SECURITY IN THE FORM OF BOND BUT THAT DOES NOT MEAN THAT INVESTMENT WAS LINKED TO THE IMPLEMENTATION OF PROJECT. SINCE HONOURABLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES CHEMICALS A ND FERTILISERS LTD HAD CONSIDERED EVEN INTEREST ON DEPOSIT WITH ELECTRICIT Y BOARD AS TAXABLE INCOME, THERE IS NO BASIS FOR NOT OFFERING THE SAME AS TAXA BLE IN OTHER SOURCES HEAD. NONE OF THE DECISION REFERRED BY THE APPELLANT HAS OVERRULED THE LANDMARK DECISION OF SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES CHEMICALS AND FERTILISERS LTD. IN VIEW OF THIS, UNLESS THE INCOME IS INEXTRICABLY LINKED TO THE IMPLEMENTATION OF THE PROJECT, THE SAME CANNOT BE R EDUCED FROM THE COST OF THE PROJECT AND ACCORDINGLY THE INCOME WILL BE FAXE D. THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF BOKARO STEE L LTD AND KARNAL CORPORATE SUGAR MILLS LTD DO NOT SUPPORT THE APPELL ANT'S CLAIM SINCE IN BOTH THE CASES, INTEREST INCOME WAS DIRECTLY COMING FROM THE IMPLEMENTATION OF THE PROJECT. IN THE APPELLANT'S CASE, THE SAME IS F ROM INVESTMENT IN BOND REQUIRED AS SECURITY FOR PPA AND NOT FOR SETTING UP THE PROJECT. PPA IS NOT FOR IMPLEMENTATION OF THE PROJECT BUT THE SAME IS F OR SAFE OF ELECTRICITY AFTER COMMENCEMENT OF BUSINESS. THEREFORE APPELLANT DOES NOT GET BENEFIT FROM THESE DECISIONS. THE OTHER DECISIONS RELIED UPON BY THE APPELLANT ARE ON THE INTERPRETATION OF APEX COURT DECISIONS REFERRED EAR LIER. SINCE FACTS OF THE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 7 APPELLANTS CASE ARE SIMILAR TO THE DECISION OF APE X COURT, APPELLANT IS LIABLE FOR TAX ON INTEREST. THE ADDITION MADE BY THE ASSE SSING OFFICER IS ACCORDINGLY CONFIRMED. 9. GROUND NO.4 OF THE ASSESSEES APPEAL, WHICH WAS WITH REGARD TO NON- TAXABILITY OF SUM OF RS.7,91,51,306/-, WAS ALSO REJ ECTED BY THE CIT(A) WITH THE FOLLOWING FINDING:- 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND A PPELLANTS SUBMISSION. APPELLANT EARNED INTEREST ON INTER-CORPORATE DEPOSI TS DEPLOYED OUT OF SURPLUS FUND AVAILABLE. THE SAID INTEREST WAS DULY OFFERED FOR TAX IN OTHER SOURCES HEAD. THE SAID INCOME WAS NEVER CLAIMED AS EXEMPT D URING ASSESSMENT PROCEEDINGS. ONLY IN APPEAL CLAIM WAS MADE THAT THI S INTEREST INCOME IS NOT TAXABLE IN VIEW OF DELHI HIGH COURT DECISION IN THE CASE OF INDIAN OIL CORPORATION LTD AND ANOTHER DECISION IN THE CASE OF JAYPEE DSC VENTURES LTD. I HAVE GONE THROUGH BOTH THE DECISIONS AND NON E OF THE DECISION APPLIES TO THE FACTS OF THE APPELLANT. APPELLANT USED THE SURPLUS FUND IN INTER- CORPORATE DEPOSITS AND EARNED INTEREST INCOME ON TH E SAME. THE EARNING OF INTEREST INCOME IS NOT INEXTRICABLY LINKED TO THE C ONSTRUCTION OF PROJECT. IN THE IDENTICAL FACTS, HONOURABLE SUPREME COURT HELD THAT INTEREST INCOME EARNED FROM TEMPORARY DEPLOYMENT OF SURPLUS FUND IS TAXABLE IN OTHER SOURCES HEAD. IN VIEW OF THE DECISION OF HONOURABLE SUPREME COURT, THIS GROUND WHICH IS TAKEN FOR THE FIRST TIME IN APPEAL IS NOT SUSTAINABLE. ACCORDINGLY THE SAME IS DISMISSED. 10. THE ASSESSEE, AGGRIEVED WITH THE ORDER OF THE C IT(A), IS IN APPEAL BEFORE US. 11. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITT ED BY THE LD. COUNSEL THAT ADMITTEDLY DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS IN THE PROCESS OF SETTING UP OF THE POWER PLANT AND ITS BU SINESS HAD NOT COMMENCED. HE REFERRED TO PARAGRAPH 3 OF THE ASSESS MENT ORDER AND POINTED OUT THAT THE ASSESSING OFFICER HAS ALSO ADM ITTED THAT THE ASSESSEE HAS NOT STARTED ANY COMMERCIAL ACTIVITY. HE, THEREF ORE, SUBMITTED THAT THE LIMITED QUESTION IN ALL THE GROUNDS RAISED BY THE A SSESSEE IS WHETHER THE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 8 INTEREST EARNED BY THE ASSESSEE FROM THE SURPLUS FU ND, WHICH WAS ADMITTEDLY COLLECTED BY THE ASSESSEE FOR THE PURPOS E OF IMPLEMENTATION OF THE POWER PROJECT, IS A CAPITAL RECEIPT LIABLE TO B E ADJUSTED AGAINST THE PROJECT DEVELOPMENT EXPENDITURE. IN THE AUDIT REPORT, THE ASSESSEE HAS ADJUSTED THE INTEREST RECEIPT AGAINST THE PROJECT DEVELOPMENT EX PENDITURE. HE REFERRED TO PARAGRAPH 6 OF THE SCHEDULE TO THE AUDIT REPORT. HE STATED THAT THE ASSESSING OFFICER AS WELL AS CIT(A) HAS SOLELY RELIED UPON TH E DECISION OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICAL S & FERTILIZERS LTD. VS. CIT, (1997) 227 ITR 172 (SC), IGNORING THE NUMBER O F SUBSEQUENT DECISIONS OF HONBLE APEX COURT. HE REFERRED TO FOLLOWING DE CISIONS OF HONBLE APEX COURT:- I. CIT VS. BOKARO STEEL LTD, (1999) 236 ITR 0315 II. CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD., (2000) 243 ITR 0002 III. CIT VS. KARNATAKA POWER CORPORATION, (2001) 24 7 ITR 0268 IV. BONGAIGAON REFINERY & PETROCHEMICALS LTD. VS. CIT (2001) 251 ITR 0329 12. HE FURTHER REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS . ITO, (2009) 315 ITR 0255 AND POINTED OUT THAT IN THIS CASE THE HONBLE DELHI HIGH COURT HAS MADE A COMPARATIVE ANALYSIS OF THE DECISION OF HON BLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. (SUPRA) AND SUBSEQUENT DECISION OF BOKARO STEEL LTD. (SUPRA) AND THEN POIN TED OUT THAT WHAT IS THE POSITION OF LAW AFTER CONSIDERING BOTH THESE DECISI ONS. THAT THE HONBLE DELHI HIGH COURT, AFTER CONSIDERING BOTH THE DECISI ONS, HAS ARRIVED AT THE CONCLUSION THAT THE INTEREST EARNED PRIOR TO COMMEN CEMENT OF BUSINESS ON THE FUNDS BROUGHT IN BY WAY OF SHARE CAPITAL FOR SP ECIFIC PURPOSE IS CAPITAL RECEIPT WHICH IS LIABLE TO BE SET OFF AGAINST PRE-O PERATIVE EXPENSES. THAT THE FACTS OF THE ASSESSEES CASE SQUARELY FALL WITHIN T HE AMBIT OF THE LAW LAID ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 9 DOWN BY THE HONBLE DELHI HIGH COURT. HE STATED THA T THE CIT(A) DENIED TO APPLY THE DECISION OF HONBLE DELHI HIGH COURT ON T HE GROUND THAT WHEN THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HO NBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. (SUPRA), THE DECISION OF HONBLE HIGH COURT CANNOT BE CONSIDERED AND APPLIED . HE STATED THAT THE HONBLE DELHI HIGH COURT HAS INTERPRETED THE DECISI ON OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. (SUPRA) AND ALSO THE SUBSEQUENT DECISION OF HONBLE APEX CO URT IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND HAS POINTED OUT WHAT IS THE CORRECT LAW AS LAID DOWN BY THE HONBLE APEX COURT. HE, THEREFORE, SUBM ITTED THAT THE INTERPRETATION OF THE HONBLE DELHI HIGH COURT WITH REGARD TO DECISION OF HONBLE APEX COURT IS TO BE PREFERRED IN COMPARISON TO THE INTERPRETATION OF THE LD. CIT(A). HE FURTHER POINTED OUT THAT IN THE SUBSEQUENT FOLLOWING DECISIONS THE HONBLE DELHI HIGH COURT REITERATED T HE SAME VIEW:- A. NTPC SAIL POWER COMPANY (P) LTD. VS. CIT, 25 TAX MANN.COM 401 (DELHI); B. CIT VS. SASAN POWER LTD, 18 TAXMANN.COM 182 (DE LHI) 13. HE, THEREFORE, SUBMITTED THAT THE ENTIRE INTERE ST INCOME RECEIVED BY THE ASSESSEE WAS OUT OF THE FUNDS BROUGHT IN FOR TH E PURPOSE OF POWER PROJECTS. THAT PART OF THE FUNDS WAS INVESTED IN T HE SECURITIES AND BONDS WHICH WERE REQUIRED FOR GIVING BANK GUARANTEE OR FO R GIVING AS MARGIN MONEY. THESE INVESTMENTS WERE NECESSARY AND INTEGRA L TO THE IMPLEMENTATION OF POWER PROJECTS. SOME INTEREST IN COME WAS EARNED OUT OF TEMPORARY AVAILABILITY OF FUNDS WHICH WERE BROUGHT IN FOR THE PURPOSE OF POWER PROJECTS AND UTILIZED FOR EARNING OF INTEREST INCOME TILL THE FUND WAS ACTUALLY UTILIZED IN THE IMPLEMENTATION OF POWER PR OJECTS. HE SUBMITTED THAT THERE IS NO DISPUTE THAT THE ENTIRE CAPITAL RAISED BY THE ASSESSEE AND THE ENTIRE MONEY BORROWED BY THE ASSESSEE WAS ONLY FOR THE SPECIFIC PURPOSE OF SETTING UP OF THE POWER PROJECTS. HE, THEREFORE, SU BMITTED THAT IN VIEW OF ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 10 CATENA OF ABOVE DECISIONS OF THE HONBLE APEX COURT , WHICH IS SUBSEQUENT TO THE DECISION OF TUTICORIN ALKALI CHEMICALS & FER TILIZERS LTD. (SUPRA), AS INTERPRETED BY THE HONBLE DELHI HIGH COURT, THE IN TEREST EARED PRIOR TO COMMENCEMENT OF THE BUSINESS ON THE FUNDS BROUGHT I N FOR SPECIFIC PURPOSE IS CAPITAL RECEIPT WHICH IS LIABLE TO BE SET OFF AG AINST PRE-OPERATIVE EXPENSES. HE REITERATED THAT THE ENTIRE RECEIPT OF INTEREST H AS BEEN SET OFF AGAINST THE PROJECT DEVELOPMENT EXPENDITURE AND THE AUDITORS HA VE NOT POINTED OUT ANY MISTAKE IN THE ABOVE ACCOUNTING BY THE ASSESSEE. HE , THEREFORE, SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) SHOULD BE ALLOWED. 14. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS CIT(A ). HE SUBMITTED THAT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF T UTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) IS VERY CLEAR AND IT SAYS THAT THE INTEREST EARNED PRIOR TO COMMENCEMENT OF BUSINESS IS ASSESSA BLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THAT, THE ASSESSEE IT SELF HAS TREATED THE SUM OF RS.7,91,51,306/- AS TAXABLE AND OFFERED THE SAME IN THE RETURN OF INCOME. IT IS ONLY BEFORE THE CIT(A) THE ASSESSEE CLAIMED THE SUM OF RS.7,91,51,306/- TO BE CAPITAL RECEIPT. HE, THEREFORE, SUBMITTED THAT WHEN THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE APEX COURT, THE SAME IS BINDING UPON ALL THE LOWER AUTHORITIES, INCLUDING THE ASSESSING OFFICER, CIT(A) AND ITAT. HE STATED THAT THE CIT(A) RIGHTLY SUSTAINED THE ADD ITION FOLLOWING THE DECISION OF HONBLE APEX COURT AND THEREFORE, HIS O RDER SHOULD BE SUSTAINED. 15. IN THE REJOINDER, IT IS STATED BY THE LD. COUNS EL THAT WHETHER ANY RECEIPT IS TAXABLE OR NOT IS PURELY A LEGAL QUESTIO N AND THEREFORE, THE ASSESSEE WAS FULLY ENTITLED TO CLAIM BEFORE THE CIT(A) THAT THE INTEREST INCOME WAS ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 11 CAPITAL RECEIPT NOT LIABLE TO BE TAXED. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, (1998) 229 ITR 383. HE FUR THER SUBMITTED THAT THE CIT(A) HAS ALSO NOT DISPUTED THAT THE ASSESSEE IS N OT ENTITLED TO RAISE THIS QUESTION BEFORE HIM BUT HE REJECTED THE ASSESSEES CLAIM ON MERIT. THE REVENUE IS NEITHER IN APPEAL NOR IN CROSS-OBJECTION AGAINST THE ORDER OF THE CIT(A) AND THEREFORE, AT THIS STAGE, THE REVENUE CA NNOT CLAIM THAT THE ASSESSEE COULD NOT HAVE RAISED THIS ISSUE BEFORE TH E CIT(A). HE, THEREFORE, SUBMITTED THAT THE ISSUE OF TAXABILITY OF THE INTER EST MAY BE DECIDED ON MERIT. 16. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSEE BY WAY OF GROUND NO.1 HAS DISPUTED THE TAXABILITY OF INTEREST INCOME OF R S.1,35,87,158/- WHICH WAS CLAIMED TO BE CAPITAL RECEIPT IN THE RETURN OF INCO ME. BY WAY OF GROUND NO.2, THE ASSESSEE HAS DISPUTED THE TAXABILITY OF I NTEREST INCOME OF RS.2,03,36,936/- WHICH WAS DISCLOSED AS INCOME IN T HE RETURN OF INCOME BUT DURING THE COURSE OF ASSESSMENT PROCEEDINGS CLAIMED TO BE CAPITAL RECEIPT. GROUND NO.4 IS WITH REGARD TO TAXABILITY OF INTERES T INCOME OF RS.7,91,51,306/- WHICH WAS OFFERED AS INCOME IN THE RETURN OF INCOME BUT CLAIMED TO BE CAPITAL RECEIPT BEFORE THE CIT(A). B EFORE WE PROCEED FURTHER, WE WOULD LIKE TO POINT OUT HERE THAT GROUND NOS. 2 & 3 ARE OVERLAPPING. THE SUM OF RS.2,03,36,936/- IS PART OF SUM OF RS.7, 91,51,306/-. THEREFORE, IF GROUND NO.4 IS CONSIDERED FOR DECISION ON MERIT, NO SEPARATE ADJUDICATION OF GROUND NO.3 IS REQUIRED. THE LD. DEPARTMENTAL R EPRESENTATIVE HAS DISPUTED THE ADJUDICATION OF THE GROUND NO.4 ON MER IT BY WAY OF POINTING OUT THAT THIS AMOUNT WAS OFFERED AS INCOME IN THE R ETURN OF INCOME. HOWEVER, WE FIND THAT THE ASSESSEE HAS RAISED THIS GROUND BEFORE THE CIT(A) WHO HAS ADMITTED THIS GROUND AND ADJUDICATED ON MER IT. SINCE ON MERIT HE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 12 DECIDED AGAINST THE ASSESSEE, THE ASSESSEE IS IN AP PEAL. REVENUE IS NEITHER IN APPEAL NOR IN CROSS-OBJECTION CHALLENGING THE CONSI DERATION OF THIS GROUND BY THE CIT(A). THEREFORE, AT THIS STAGE, THE LD. DE PARTMENTAL REPRESENTATIVE CANNOT DISPUTE THAT THE ASSESSEE IS NOT PERMITTED T O RAISE THIS GROUND BEFORE THE ITAT. MOREOVER, WE FIND THAT THIS ISSUE IS SETT LED BY THE HONBLE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD . (SUPRA). IN THE SAID CASE, THE ASSESSEE HAD OFFERED THE INTEREST INCOME IN THE RETURN OF INCOME AND DID NOT DISPUTE THE TAXABILITY OF INTEREST INCO ME BEFORE THE CIT(A) AND EVEN BEFORE THE TRIBUNAL IN THE GROUNDS OF APPEAL. HOWEVER, DURING THE COURSE OF HEARING BEFORE THE ITAT, ADDITIONAL GROUN D WAS RAISED CHALLENGING THE TAXABILITY OF INTEREST INCOME. THE ITAT REFUSED TO ENTERTAIN THE SAID GROUND. ON APPEAL, THE HONBLE APEX COURT HELD THAT TRIBUNAL HAD JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARO SE FROM THE FACTS AS FOUND BY THE IT AUTHORITIES AND HAVING A BEARING ON THE TAX LIAB ILITY OF THE ASSESSEE. THEREFORE, THE ASSESSEE CAN RAISE THE GROUND FOR THE FIRST TIM E BEFORE THE TRIBUNAL EVEN IF THE INTEREST WAS OFFERED AS INCOME IN THE RETURN OF INCOME PROVIDED RELEVANT FACTS FOR ADJUDICATION OF THE SAID GROUND ARE AVAILABLE ON RECORD. ADMITTEDLY, IN THIS CASE ALL THE RELEVANT FACTS ARE AVAILABLE ON RECORD AND WERE CONSIDERED BY THE ASSESSING OFFICER. MOREOVER, AS WE HAVE ALREADY POINTED OUT, THIS GROUND WAS RAISED BEFORE THE CIT( A) AND WHO HAS ADJUDICATED ON MERIT. IN VIEW OF ABOVE FACTUAL AND LEGAL POSITION, WE ARE OF THE OPINION THAT THE GROUND NO.4 AS RAISED BY THE A SSESSEE NEEDS TO BE ADJUDICATED ON MERIT. IN THE GROUND NO.4, THE ASSE SSEE HAS DISPUTED THE TAXABILITY OF INTEREST INCOME OF RS.7,91,51,306/- WHICH INCLUDED THE INTEREST INCOME OF RS.2,03,36,936/-; THEREFORE, IN OUR OPINI ON, GROUND NO.3 DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 13 17. IN OUR OPINION, GROUND NO.2 AS WELL AS GROUND NO.4, WHICH REQUIRE ADJUDICATION, ARE SIMILAR. THEREFORE, WE PROCEED T O ADJUDICATE BOTH THESE GROUNDS TOGETHER. 18. WE FIND THAT BOTH THE PARTIES HAVE RELIED UPON THE DECISIONS OF THE HONBLE APEX COURT AND IN ADDITION, THE ASSESSEE HA S RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT. THEREFORE, IT WOULD BE APPROPRIATE TO FIRST REFER TO THOSE DECISIONS. IN THE CASE OF TUT ICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), THE HONBLE 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 HAD INVESTED THE AMOUN T FOR THE PURPOSE OF EARNING INTEREST. THE INTEREST THUS EARNED WAS CLEA RLY OF REVENUE NATURE AND WOULD HAVE TO BE TAXED ACCORDINGLY. THE ACCOUNTANTS MIGHT HAVE TAKEN SOME OTHER VIEW BUT ACCOUNTANCY PRACTICE WAS NOT NECESSA RILY GOOD LAW. THIS WAS NOT A CASE OF DIVERSION OF INCOME BY OVERRIDING TIT LE. THE ASSESSEE WAS ENTIRELY AT LIBERTY TO DEAL WITH THE INTEREST AMOUN T AS IT LIKED. THE APPLICATION OF THE INCOME FOR PAYMENT OF INTEREST WOULD NOT AFF ECT ITS TAXABILITY IN ANY WAY. THE COMPANY COULD NOT CLAIM ANY RELIEF UNDER SECTION70 OR SECTION 71 SINCE ITS BUSINESS HAD NOT STARTED AND THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCURRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEARS. IN SUCH A SITUATION, THE EXPENDITURE INCURRE D BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP ITS BUSINESS COULD NOT BE ALL OWED AS DEDUCTION, NOR COULD IT BE ADJUSTED AGAINST ANY OTHER INCOME UNDER ANY OTHER HEAD. SIMILARLY ANY INCOME FROM A NON-BUSINESS SOURCE COU LD NOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY EVEN BEFORE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE. 19. IN THE CASE OF BOKARO STEEL LTD. (SUPRA), THE H ONBLE APEX COURT, AFTER CONSIDERING THE DECISION OF TUTICORIN ALKALI CHEMIC ALS & FERTILIZERS LTD. (SUPRA), HELD AS UNDER:- , DISMISSING THE APPEAL, THAT THE FIRST THREE HEA DS 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 WOR K OF THE ASSESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE, (II) HIRE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 14 CHARGES 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 CONTRACTORS BY THE ASSESS EE FOR THE PURPOSE OF FACILITATING THE WORK OF CONSTRUCTION. THE ACTIVITI ES OF THE ASSESSEE IN CONNECTION WITH ALL THESE THREE RECEIPTS WERE DIREC TLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSEE. THE ADVANCES WHICH THE ASSESSEE MADE TO THE CONTRAC TORS TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOGETHER A VERY LA RGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED W ITHOUT ANY FINANCIAL HITCH AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESSEE-COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WIT H THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS HAD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONS TRUCTION. THEY HAD, THEREFORE, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AN D NOT INCOME OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE. 20. IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILLS LTD. (SUPRA), THEIR LORDSHIPS OF HONBLE APEX COURT, AFTER 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 ITS PLANT IN TERMS OF THE ASSESSEES AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAD BEEN EARN ED. THIS WAS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WH ICH WAS LYING IDLE HAD BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNI NG INTEREST. THE DEPOSIT OF MONEY IN THE PRESENT 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 PLA NT AND MACHINERY. THE INTEREST WAS A CAPITAL RECEIPT, WHICH WOULD GO TO R EDUCE THE COST OF ASSET. 21. IN THE CASE OF KARNATAKA POWER CORPORATION (SUP RA), THEIR LORDSHIPS OF HONBLE APEX COURT, FOLLOWING THE DECISION OF BO KARO STEEL LTD. (SUPRA), HELD AS UNDER:- ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 15 ALSO, (I) THAT THE TRIBUNAL WAS RIGHT IN LAW IN U PHOLDING THE ORDER OF THE COMMISSIONER (APPEALS) WHO DELETED THE ADDITION OF RS.1,30,44,518/- BEING INTEREST RECEIPTS AND HERE CHARGES FROM CONTRACTORS BY HOLDING THAT THE SAME WERE IN THE NATURE OF CAPITAL RECEIPTS WHICH WOULD GO TO REDUCE CAPITAL COST. 22. IN THE CASE OF BONGAIGAON REFINERY & PETROCHEMI CALS LTD. (SUPRA), THE HONBLE 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 TAXAB LE INCOME BUT WERE TO BE ADJUSTED AGAINST THE PROJECT COST FOR THE BUSINESS OF OIL REFINERY AND PETRO- CHEMICALS. 23. THAT THE HONBLE DELHI HIGH COURT IN THE CASE O F INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), AFTER CONSIDERING TH E DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (S UPRA) AND BOKARO STEEL LTD. (SUPRA) 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 CASE OF TUTICORIN ALKALI C HEMICALS [1997] 227 ITR 172 AND THAT OF BOKARO STEEL LTD. [1999] 236 ITR 31 5. THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE 'SURPLUS AND TH EN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS TH E INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD 'IN COME FROM OTHER SOURCES. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JU DGMENT IN BOKARO STEEL LTD. [1999] 236 ITR 315 TO OUR MIND IS THAT IF INCO ME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHI CH ARE OTHERWISE 'INEXTRICABLY LINKED TO THE SETTING UP OF THE PLAN T, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 5.1 THE TEST, THEREFORE, TO OUR MIND IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLA NT. THE CLUE IS PERHAPS AVAILABLE IN S. 3 OF THE ACT WHICH STATES THAT FOR NEWLY SET UP BUSINESS THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH TH E DATE OF SETTING UP OF THE ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 16 BUSINESS. THEREFORE, AS PER THE PROVISION OF S. 4 O F THE ACT WHICH IS THE CHARGING SECTION INCOME WHICH ARISES TO AN ASSESSEE FROM THE DATE OF SETTING OF THE BUSINESS BUT PRIOR TO COMMENCEMENT IS CHARGE ABLE TO TAX DEPENDING ON WHETHER IT IS OF A REVENUE NATURE OR CAPITAL RECEIP T. THE INCOME OF A NEWLY SET UP BUSINESS, POST THE DATE OF ITS SETTING UP CAN BE TAXED IF IT IS OF A REVENUE NATURE UNDER ANY OF THE HEADS PROVIDED UNDER S. 14 IN CHAPTER IV OF THE ACT. FOR AN INCOME TO BE CLASSIFIED AS INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IT WOULD HAVE TO BE AN ACTI VITY WHICH IS IN SOME MANNER OR FORM CONNECTED WITH BUSINESS. THE WORD 'B USINESS' IS OF WIDE IMPORT WHICH WOULD ALSO INCLUDE 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 VS. CEPT (1954) 26 ITR 765 (SC). ONCE IT IS HELD THAT THE ASSESSEES INCOM E IS AN INCOME CONNECTED WITH BUSINESS, WHICH WOULD BE SO IN THE PRESENT CAS E, IN VIEW OF THE FINDING OF FACT BY THE CIT(A) THAT THE MONIES WHICH WERE IN DUCTED INTO THE JOINT VENTURE COMPANY BY THE JOINT VENTURE PARTNERS WERE PRIMARILY INFUSED TO PURCHASE LAND AND TO DEVELOP INFRASTRUCTURE THEN IT CANNOT BE HELD THAT THE INCOME DERIVED BY PARKING THE FUNDS TEMPORARILY WIT H TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHARACTER OF THE FUNDS BEI NG CHANGED, IN AS MUCH AS THE INTEREST EARNED FROM THE BANK WOULD HAVE A HUE DIFFERENT THAN THAT OF BUSINESS AND BE BROUGHT TO TAX UNDER THE HEAD 'INCO ME FROM OTHER SOURCES. IT IS WELL-SETTLED THAT AN INCOME RECEIVED BY THE A SSESSEE CAN BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' ONLY IF IT DOE S NOT 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. ME RCANTILE CORPORATION (P) LTD. VS. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (S C) AND CIT VS. GOVINDA CHOUDHURY & SONS (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 SHARE CAPITAL WERE IN FUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUC TURE. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFU SION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURC ES. 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 OF F AGAINST PRE-OPERATIVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 2 27 ITR 172 IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILAB LE WITH THE ASSESSEE IN THAT CASE WERE 'SURPLUS AND, THEREFORE, THE SUPREME COU RT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHER SOURCES. ON THE OTHER HAND IN BOKARO STEEL LTD. [1 999] 236 ITR 315 (SC) WHERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE P AID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUND TO BE 'INEXTRICAB LY LINKED TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 17 WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE-OPERA TIVE EXPENSES. (UNDERLINED OURS TO SUPPLY EMPHASIS) 24. FROM THE ABOVE, IT IS EVIDENT THAT THE HONBLE DELHI HIGH COURT HAS CONSIDERED AND INTERPRETED THE DECISIONS OF HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (S UPRA) AS WELL AS BOKARO STEEL LTD. (SUPRA). THE CONCLUSION OF THE DELHI HI GH COURT IS IN FACT THE LAW WHICH EMERGES AS PER THE DECISION OF HONBLE APEX C OURT. THEREFORE, IN OUR OPINION, THE CIT(A) WAS NOT JUSTIFIED IN IGNORING T HE DECISION OF HONBLE DELHI HIGH COURT BY SIMPLY MENTIONING THAT THE ISSU E IS COVERED BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF TUTIC ORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). AFTER CONSIDERING THESE TWO DECISIONS OF THE HONBLE APEX COURT AND ALSO SOME OTHER DECISIONS OF THE HONBLE APEX COURT, THEIR LORDSHIPS OF THE DELHI HIGH COURT ARRI VED AT THE CONCLUSION IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND BY TH E AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE S PECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COUL D NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EA RNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS, IT WAS IN THE NATURE OF C APITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EX PENSES. THAT, THE RATIO OF THE ABOVE FINDING OF THE HONBLE DELHI HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE, BEC AUSE ADMITTEDLY IN THE CASE UNDER APPEAL BEFORE US THE SHARE CAPITAL AS WELL AS LOANS WERE RAISED FOR THE SPECIFIC PURPOSE OF SETTING UP OF THE POWER GENERAT ION PLANTS. THE BUSINESS OF THE ASSESSEE HAS NOT BEEN COMMENCED AND THEREFOR E, AS PER ABOVE DECISION, THE INTEREST RECEIVED IN THE PERIOD PRIOR TO COMMENCEMENT OF BUSINESS WAS IN THE NATURE OF CAPITAL RECEIPT AND H ENCE WAS REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENSES. THE ASS ESSEE HAS ALREADY SET OFF THE INTEREST INCOME AGAINST THE PRE-OPERATIVE EXPEN SES WHICH IS TITLED AS ITA NO. 2755/AHD/2011 ADANI POWER LTD VS. ACIT AYS 2008-09 18 PROJECT DEVELOPMENT EXPENDITURE . IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE INTEREST INCOME OF RS.1,35,87,158/- AS WEL L AS RS.7,91,51,306/- WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX DURING THE YE AR UNDER CONSIDERATION. ACCORDINGLY, GROUND NOS. 2 AND 4 OF THE ASSESSEES APPEAL ARE ALLOWED. 25. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 27 TH JULY, 2015 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 27/07/2015 BIJU T., PS )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ !- / CONCERNED CIT 4. !- ( ) / THE CIT(A) 5. +01 $ , , / DR, ITAT, AHMEDABAD 6. 13 4' / GUARD FILE . )*! )*! )*! )*! / BY ORDER, TRUE COPY 5 55 5/ // / 6 6 6 6 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD