M/S. GANPATI GLOBAL PRIVATE LTD., JAIPUR V. ITO, WARD1(4), JAIPUR

ITA 302/JPR/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1381 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 23-09-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MONISHA CHOUDHARY JCIT A
• Keywords: Business income; Depreciation; Business expenditure; Capital receipt; Capital expenditure; Capital Gains
• Section: 251; 13; 22; 56

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 302/JP/2020 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 M/S GANPATI GLOBAL (P) LTD., FLAT NO. B-9, SECOND FLOOR, GANPATI ENCLAVE, NEAR CIVIL LINES METRO STATION, AJMER ROAD, JAIPUR. CUKE VS. THE ITO, WARD-1(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCM 6367 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI ANOOP BHATIA (CA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. MONISHA CHOUDHARY (JCIT) A LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 05/04/2021 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 30/06/2021 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-I, JAIPUR DATED 30.01.2019 RELEVANT FOR THE ASSESSMENT YEAR 2013-14 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUND OF APPEAL:- 1. ON FACTS AND IN CIRCUMSTANCE OF THE CASE, THE L D. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDITION MADE B Y TREATING THE INTEREST OF RS. 3,05,430/- EARNED DURING THE PR E-OPERATIVE SPAN AS BEING INTEREST FROM OTHER SOURCES'. APPELL ANT PRAYS THAT SUCH TREATMENT BEING UNJUSTIFIED AND AGAINST T HE JUDICIAL PRONOUNCEMENTS, DESERVES TO BE DELETED; ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 2 2. THAT THE LD.CIT(A) HAS FURTHER ERRED IN NOT CONS IDERING THE EXPLANATIONS/DOCUMENTARY EVIDENCES FILED BY ASSESSE E, IN SUPPORT OF ITS CLAIM THAT THE RECEIPTS WERE IN FACT CAPITAL RECEIPTS, EARNED DURING THE PRE-OPERATIVE PERIOD AN D THUS THE APPELLANT PRAYS THAT ADDITION SO MADE DESERVES TO BE DELETED. WITHOUT PREJUDICE AND IN THE ALTERNATE- 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD . CIT(A) HAS GROSSLY ERRED IN NOT ALLOWING THE CORRESPONDING INTEREST BORNE BY THE APPELLANT ON THE BORROWED FUNDS, WHICH WERE UTILIZED IN MAKING THE SHORT TERM DEPOSITS. APPELLA NT PRAYS THAT SUCH EXPENDITURE BEING INCURRED IN RELATION TO EAR NING OF SAID INTEREST INCOME, DESERVES TO BE ALLOWED AS DEDUCTI ON FROM INCOME TREATED AS INCOME FROM OTHER SOURCES. 2. IN GROUND NOS. 1 AND 2, THE ASSESSEE HAS CHALLEN GED THE ADDITION BY TREATING THE INTEREST OF RS. 3,05,430/- RECEIVED ON STDR MADE IN THE PRE-COMMENCEMENT PERIOD AS BEING INCOME FROM OTHER SOURCES. 3. IN THIS REGARD, THE LD AR SUBMITTED THAT THE ASS ESSEE COMPANY WAS REGISTERED WITH THE OBJECTIVE TO CARRY OUT THE BUSINESS OF CULTIVATORS, GROWERS, PROCESSORS, PRODUCERS, MANUFA CTURERS, IMPORTERS, EXPORTERS, BUYERS, SELLERS, TRADERS, AGENTS, AND DE ALERS IN PRODUCTS OR BY-PRODUCTS OF CHEMICAL, LAC, SHELIAC, RESIN, GUM, TANNIN, CUTCH, GUAR SEEDS, GUAR SPLITS, GUAR MEAL, GUAR GUM, GUAR POWDE R, INDUSTRIAL AND HOUSEHOLD GUMS AND ALL SORT OF FOREST PRODUCE AND P RODUCE OF SOIL AND TREES AND TO BUY AND SELL, DISPOSE OFF AND DEAL IN ANY SUCH COMMODITIES, THINGS PREPARED, MANUFACTURED OR IN RAW STATE. ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 3 4. IT WAS SUBMITTED THAT THE ASSESSEE WAS SANCTIONE D A TERM LOAN FROM STATE BANK OF INDIA AS PROJECT FINANCE OF AROU ND RS. 5.0 CRORES FOR ERECTION OF PLANT AND CONSTRUCTION OF FACTORY BUILD ING ETC. FOR CARRYING ON INDUSTRIAL UNDERTAKING. OUT OF THE SAID LOAN UPTO 3 1.03.2013, THE LOAN AMOUNT DISBURSED WAS APPROXIMATELY RS. 3.59 CRORES. THE PURPOSE OF SUCH LOAN WAS TO ESTABLISH A GUAR GUM PRODUCTION UN IT. THE SAID FINANCE WAS DISBURSED TO THE APPELLANT IN INSTALMENTS, BASE D ON PROGRESS OF THE PROJECT. AS A RESULT, THERE WAS TIME GAP BETWEEN AV AILABILITY OF FUNDS AND ACTUAL UTILIZATION IN THE PROJECT. THEREFORE, T O MINIMIZE ITS INTEREST BURDEN, THE APPELLANT HAD PARKED THE INTERIM EXCESS IN SHORT TERM DEPOSIT RECEIPT (STDR) WITH THE SAID BANK ONLY. ON SUCH INVESTMENTS THE APPELLANT EARNED INTEREST OF RS. 3,05,432/- DUR ING THE RELEVANT YEAR. THIS INTEREST WAS SHOWN IN THE PROFIT AND LOSS STAT EMENT OF THE RELEVANT YEAR AS PRE-OPERATIVE INCOME. FURTHER SINCE THERE WERE SUBSTANTIAL PRE- COMMENCEMENT (OR PRE-OPERATIVE) EXPENSES OF RS. 39. 92 LAKH HENCE THE AFORESAID PRE-OPERATIVE INCOME OF RS.3,05,432 /- WAS ADJUSTED AGAINST THE PRE-OPERATIVE EXPENSES AND BALANCE AMO UNT OF RS.35.32 LAKH WAS SHOWN FORMING PART OF CAPITAL WORK IN PROG RESS. 5. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) AS ALSO AO RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD VS. CIT (1997) 141 CT R SC 387 AND THE DECISION OF ITAT LUCKNOW IN THE CASE OF ACIT VS. Z SQUARE SHOPPING MALL P LTD HELD THE INTEREST EARNED AS BEING INCOM E FROM OTHER SOURCES THE ASSESSEE HAD PLACED RELIANCE ON DECISIONS OF VA RIOUS HIGH COURTS AS ALSO THE DECISION OF HONBLE SUPREME COURT IN THE C ASE CIT VS. BOKARO STEEL LIMITED 236 ITR 315 TO SUPPORT ITS CONTENTION THAT THE SAID FUNDS ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 4 WERE TEMPORARILY AVAILABLE IDLE FUNDS WHICH WERE IN VESTED IN SHORT TERM DEPOSITS, BEFORE THEY COULD BE USED IN THE SETTING- UP OF BUSINESS/ CONSTRUCTION OF ASSETS FOR BUSINESS PURPOSES. 6. IT WAS SUBMITTED THAT THE LD. CIT(A) WHILE TRYIN G TO DISTINGUISH THE CASE OF BOKARO STEEL LTD WITH TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD OBSERVED THAT IN THE CASE OF BOKARO STEEL LTD, IT WAS A GOVERNMENT COMPANY, WHICH DURING THE PERIOD OF CONS TRUCTION OF ITS PLANT HAD ADVANCED MONEY TO CONTRACTORS ON WHICH IT WAS EARNING INTEREST, RECEIVED RENT FROM QUARTERS LET OUT TO EM PLOYEES AND HAD RECEIVED HIRE CHARGES ON PLANT LET OUT TO CONTRACTO RS ALSO ROYALTY ON STONES REMOVED FROM ITS LAND. AS AGAINST THIS, THE APPELLANT HAD INVESTED FUNDS IN TDRS, THUS THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD WAS DIRECTLY APPLICABLE TO THE APPE LLANT. APPELLANT HUMBLY SUBMITS THAT THIS OBSERVATION IS VAGUE AND NOT RELE VANT, AS WHAT IS TO BE DIFFERENTIATED IS THE NATURE / CHARACTER OF FUNDS T HAT WERE UTILIZED TO EARN SUCH INCOME, WHETHER THESE FUNDS INVESTED WERE INEXTRICABLY LINKED TO THE BUSINESS OF ASSESSEEE OR WERE SURPLUS AND IDLE FUNDS, WHICH BY THE WAY WERE INVESTED TO EARN CERTAIN INCO ME. THUS, THE OBSERVATION THAT SINCE THE ASSESSEE UTILIZED THE TE RM LOAN TO INVEST IN TERM DEPOSIT, THE RATIO OF DECISION IN THE CASE OF BOKARO STEEL SHALL NOT APPLY IS ABSOLUTELY VAGUE, AND DESERVES TO BE IGNOR ED. 7. THE LD AR FURTHER SUBMITTED THAT IT IS NOT UNCOM MON FOR THE NEWLY INCORPORATED BUSINESS ENTERPRISES AND START- UPS TO TEMPORARILY PARK THEIR SHARE CAPITAL CONTRIBUTIONS AND/OR BORRO WED FUNDS IN BANK ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 5 FIXED DEPOSITS OR OTHER SIMILAR INVESTMENT AVENUES TO EARN INTEREST OR OTHER SIMILAR INCOME PRIOR TO THE COMMENCEMENT OF B USINESS/ COMMERCIAL PRODUCTION, IN ORDER TO AUGMENT AND OPTI MIZE THEIR PROJECT RESOURCES OR TO MINIMIZE THEIR PROJECT COSTS. AS A MATTER OF FACT, THE REVENUE AUTHORITIES TEND TO CONSIDER THE EXPENDITU RE INCURRED BY BUSINESS ENTERPRISES OR START-UPS DURING THE P RE-COMMENCEMENT BUSINESS PERIOD AS CAPITAL IN NATURE, BUT THE SAME VIEW IS NOT APPLIED FOR INCOMES EARNED DURING THIS PERIOD- AS BEING CAP ITAL IN NATURE BY FOLLOWING THE CONCEPT OF CONSISTENCY. IN DOING SO, THE AUTHORITIES MOST OFTEN QUOTE THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD VS. CIT REPORTED IN 227 ITR 172. 8. IT WAS SUBMITTED THAT IN THE SAID CASE OF TUTIC ORIN ALKALI CHEMICALS [1997] 227 ITR 172, IT WAS FOUND BY THE AUTHORITIES THAT THE BORROWED FUNDS, BEING SURPLUS AND IDLE, WERE UTILIZ ED BY THE ASSESSEE IN INVESTING IN FIXED DEPOSITS TO EARN INTEREST INCOME AND, THEREFORE, THE HONBLE SUPREME COURT HAVE HELD THAT THE INTEREST E ARNED ON SURPLUS BORROWED FUNDS, WOULD HAVE TO BE TREATED AS INCOME FROM OTHER SOURCES. HOWEVER, IN NUMEROUS SUBSEQUENT JUDGEMENT S OF THE HONBLE SUPREME COURT AND THE HONBLE HIGH COURTS, IN THE C ASES OF : (I) BOKARO STEEL LTD. [1999] 236 ITR 315 (SC); (II) CIT VS KARNAL CO-OPERATIVE SUGAR MILLS LTD 243 ITR 2 (SC); (III) CIT VS KARNATAKA POWER CORPORATION 247 ITR 26 8 (SC); (IV) BONGAIGAONREFINARY AND PETROCHEMICALS LTD. V. COMMISSIONER OF INCOME-TAX, [2001] 251 ITR 329 (SC); ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 6 (V) INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS. ITO 315 ITR 255 (DELHI HIGH COURT); (VI) CIT VS JAYPEE DSC VENTURES LTD IN ITA NO. 357/ 2010 (DELHI HIGH COURT);AND (VII) PCIT VS FACOR POWER LTD (2016) 66 TAXMANN.COM (DELHI HIGH COURT), IT HAS BEEN CATEGORICALLY HELD THAT IF THE INCOME I S EARNED WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON THE FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO SETTING UP OF THE PLANT FOR BUSINESS PURPOSE, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES. 9. IT WAS FURTHER SUBMITTED THAT IN THE CASE OF IN DIAN OIL PANIPAT POWER CONSORTIUM LTD VS. ITO 315 ITR 255, THE HONB LE DELHI HIGH COURT HAS HELD AS UNDER:- 5. IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED TH E RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICO RIN ALKALI CHEMICALS (SUPRA) AND THAT OF BOKARO STEEL LTD. (SU PRA). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS (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 THEY ARE IN VESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ON THE O THER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO S TEEL LTD. (SUPRA) TO OUR MIND IS THAT IF INCOME IS EARNED, WH ETHER BY WAY ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 7 OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH A RE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PR E-OPERATIVE EXPENSES. 5.2. IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOU ND BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHA RE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AN D THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE, THE INTER EST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINES S COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF CAPITAL RECEIPT AN D HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENS ES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 22 7 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 COURT HELD THAT THE INTEREST EARNED ON SURPLUS FUND S WOULD HAVE TO BE TREATED AS INCOME FROM OTHER SOURCES. ON TH E 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 FOUND TO BE INEXTRICABLY L INKED TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HEN CE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES. ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 8 10. IT WAS SUBMITTED THAT THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEM ICALS (SUPRA) AND THAT OF BOKARO STEEL LTD. (SUPRA), NEEDS TO BE DI STINGUISHED IN THEIR ACTUAL SENSE AS DONE IN THE ABOVE JUDGEMENT OF THE HONBLE DELHI HIGH COURT. THE REAL TEST WHICH PERMEATES THROUGH THE JU DGMENT OF THE HONBLE SUPREME COURT IN TUTICORIN ALKALI CHEMICAL S (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 THE Y ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INT EREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ON THE O THER HAND, THE RATIO OF THE HONBLE SUPREME COURT JUDGMENT IN BOKA RO STEEL LTD. (SUPRA) IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICA BLY LINKED TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. THEREFORE, IN THE CASE OF ASSESSEE, THE PROJECT FINANCE SO DISBURSED IN INSTA LLMENTS DEPENDING UPON THE STAGE OF COMPLETION OF PROJECT, IF INVESTE D IN STDR DURING THE GAP BETWEEN RECEIPT OF FUNDS AND ACTUAL INCURRENCE THEREOF IN THE ON- GOING PROJECT CANNOT BE TERMED AS BEING SURPLUS AN D IDLE FUNDS AND THUS THE RATIO APPLIED IN THE CASE OF TUTICORIN ALK ALI CHEMICALS (SUPRA) IS NOT APPLICABLE IN THE CASE OF THE APPELLANT. AND TH E INTEREST EARNED ON SUCH STDR BEING INEXTRICABLY RELATED TO THE SETTING -UP OF BUSINESS ARE ELIGIBLE TO BE NETTED-OFF AGAINST EXPENDITURE INCUR RED DURING THE PRE- COMMENCEMENT STAGE AND HENCE DESERVE TO BE CAPITALI ZED. 11. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) WH ILE CONFIRMING THE ADDITION MADE BY LD.AO HAS OBSERVED AT PARA 3.1.2 C LAUSE (V) THAT THE ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 9 ACCOUNTING POLICIES ADOPTED BY THE APPELLANT ITSELF - MENTIONS ALLOCATION OF THE PRE-OPERATING EXPENSES TOWARDS FIXED ASSETS AND THERE IS NO MENTION OF NETTING OFF OF PRE-OPERATIVE INCOME AGAI NST PRE-OPERATIVE EXPENSES. THUS, THE APPELLANT IS NOT EXPECTED TO GO BEYOND THE ACCOUNTING POLICIES ADOPTED BY IT. IN THIS REGARD, IT WAS SUBMITTED THAT THE SAID ACCOUNTING POLICY DULY QUOTES THE AMOUNT O F PRE-OPERATING EXPENSES TO BE CAPITALIZED AT RS. 35,32,902/- WHICH IS ARRIVED AT AFTER NETTING OFF THE INCOME EARNED DURING THE PRE-OPERAT IVE SPAN AND THUS DULY SUPPORTS THE VERSION OF APPELLANT THAT THE INT EREST ON STDR WAS INDEED A PRE-OPERATIVE INCOME, EARNED ON FUNDS PARK ED DURING THE IDLE TIME-SPAN OF PRE-CONSTRUCTION PERIOD AND THUS DESER VES TO BE CAPITALIZED AND PRAYS ACCORDINGLY. 12. IN RESPECT OF GROUND NO. 3, THE LD AR SUBMITS T HAT IN THE EVENT SUCH INTEREST IS HELD TO BE INCOME FROM OTHER SOURC ES THEN THE INTEREST ACCRUED ON SUCH BORROWED FUNDS, INVESTED IN STDR MA Y KINDLY BE ALLOWED TO BE DEDUCTED FROM INTEREST INCOME BY VIRT UE OF PROVISIONS OF SEC 57(1) OF THE ACT, AS THE SAME IS EXPENDITURE IN CURRED BY THE APPELLANT IN RELATION TO EARNING OF SUCH INCOME. EV EN OTHERWISE ACCOUNTING POLICIES ASSIST THE PREPARATION AND READ ING OF FINANCIAL STATEMENTS AND CANNOT PLAY A ROLE IN CHANGING THE N ATURE OF A PARTICULAR INCOME OR EXPENDITURE, AS ALSO ARE NOT A LAW TO DET ERMINE TAXABILITY. SINCE THE INTEREST RATE ON BORROWED FUNDS WAS HIGHE R THAN THE INTEREST ON STDR THIS WOULD ULTIMATELY RESULT IN NO ADDITION IN THE HANDS OF ASSESSEE AT ALL. BASED ON ABOVE IT IS SUBMITTED TH AT THE AMOUNT INVESTED IN STDR WERE NOT SURPLUS AND IDLE FUNDS BU T WERE INVESTED BY ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 10 APPELLANT DURING THE TIME GAP AVAILABLE BETWEEN PRO JECT FUNDS DISBURSED AND ACTUAL UTILIZATION FOR SETTING UP OF BUSINESS. THEREFORE, DECISION IN THE CASE OF BOKARO STEEL LIMITED SQUARELY APPLIES T O THE FACTS OF THE APPELLANT, AND THE INTEREST RECEIVED ON STDR MAY KI NDLY BE DIRECTED TO BE NETTED OFF AGAINST PRE-OPERATIVE EXPENSES CAPITA LIZED DURING THE PRE- CONSTRUCTION PERIOD AND CONSEQUENTLY THE ADDITION M ADE MAY KINDLY BE DIRECTED TO BE DELETED. 13. PER CONTRA, THE LD. DR RELIED ON THE DECISION O F HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS AND FER TILIZERS LTD. VS. CIT (SUPRA) AS WELL AS DECISION OF THE COORDINATE BENCH IN CASE OF THERMAL POWERTECH CORPORATION INDIA LTD. VS. DCIT [2017] 81 TAXMANN.COM 168. IT WAS SUBMITTED THAT THE COORDINATE BENCH IN THE S AID DECISION HAS EXHAUSTIVELY CONSIDERED AND ANALYSED THE DECISION O F HONBLE SUPREME COURT IN CASE OF TUTICORIM ALKALI CHEMICALS AND FER TILIZERS LTD. VS. CIT AS WELL AS ITS SUBSEQUENT DECISIONS IN CASE OF CIT VS . BOKARO STEEL LIMITED (SUPRA) AND BONGAIGAON REFINERY AND PETROCHEMICALS LTD VS. ITO 251 ITR 329 (SC) AS WELL AS THE DECISION OF HONBLE DEL HI HIGH COURT IN CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS. ITO AS RELIED UPON BY THE LD AR. IT WAS SUBMITTED THAT IN CASE OF CIT VS. BOKARO STEEL LIMITED, THERE WAS ALSO AN ISSUE WITH REGARD TO TREATMENT OF INTEREST INCOME RECEIVED BY THE COMPANY ON SHORT TERM DEPOSIT WITH BANK OUT OF THE AMOUNTS BORROWED FOR CONSTRUCTION WORK WHICH WERE N OT IMMEDIATELY REQUIRED AND IN THAT CONTEXT, THE HONBLE SUPREME C OURT HAS MADE A REFERENCE THAT THE SAME IS NOW CONCLUDED BY ITS EAR LIER DECISION IN CASE OF TUTICORIM ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT. IT WAS FURTHER SUBMITTED THAT THE ISSUE OF TREATMENT OF INTEREST R ECEIVED FROM ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 11 CONTRACTOR AND INTEREST INCOME RECEIVED FROM THE BA NKS ON ACCOUNT OF SHORT TERM DEPOSITS WAS AGAIN DISCUSSED BY THE HON BLE SUPREME COURT IN CASE OF BOKARO STEEL LTD AT PARA 7 OF ITS DECISI ON AND IT WAS HELD THAT THE COMPANY, MAY ALSO IN THAT CASE KEEP THE SURPLU S FUNDS IN SHORT TERMS DEPOSITS IN ORDER TO EARN INTEREST AND SUCH I NTEREST WILL BE CHARGEABLE UNDER SECTION 56 OF THE ACT. THIS COURT ALSO EMPHASIZED THE FACT THAT THE COMPANY WAS NOT BOUND TO UTILIZE THE INTEREST SO EARNED TO ADJUST AGAINST THE INTEREST PAID ON BORROWED CAPITA L. THE COMPANY WAS FREE TO USE THIS INCOME IN ANY MANNER IT LIKED AND THEREFORE INTEREST EARNED BY INVESTING BORROWED CAPITAL IN SHORT TERM DEPOSIT IS AN INDEPENDENT SOURCE OF INCOME NOT CONNECTED WITH CON STRUCTION ACTIVITIES. IT WAS ACCORDINGLY SUBMITTED THAT THE DECISION OF CIT VS. BOKARO STEEL LIMITED AS RELIED UPON BY THE LD. AR I N FACT SUPPORTS THE STAND TAKEN BY THE REVENUE AND IS CONSISTENT WITH T HE EARLIER DECISION IN CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZE RS LTD. VS. CIT. 14. REGARDING THE ISSUE OF CLAIM OF INTEREST PAID A GAINST SUCH INTEREST INCOME U/S 57(III) OF THE ACT, THE LD DR HAS RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN CASE OF CONSOLIDATED FIBRES AND CHEMICALS LTD VS CIT [2005] 146 TAXMAN 14 (CAL). 15. FURTHER, THE LD. DR RELIED ON THE FINDING OF TH E LOWER AUTHORITIES AND OUR REFERENCE WAS DRAWN TO THE FINDINGS OF THE LD CIT(A) WHICH ARE CONTAINED AT PARA 3.1.2 OF THE APPELLATE ORDER WHIC H READS AS UNDER:- (I) FROM THE FACTS OF THE CASE, IT IS SEEN THAT TH E APPELLANT RECEIVED INTEREST ON STDR AMOUNTING TO RS. 3,05,432 /- IN PRE-OPERATING PERIOD. THE APPELLANT SET OFF THIS IN COME AGAINST THE PREOPERATIVE EXPENSES AND NO INCOME WAS ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 12 OFFERED FOR TAXATION. THE AO DID NOT ALLOW THE SET OFF OF SUCH INCOME AND TAXED THE SAME BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE REPLY OF THE AR OF THE ASSESSEE AND NOT FOUND TENABLE BECAUSE IN USUAL COU RSE, INTERESTS RECEIVED BY THE COMPANY FROM BANK DEPOSIT S AND LOANS WOULD BE TAXABLE AS INCOME UNDER THE HEAD 'IN COME FROM OTHER SOURCES' U/S 56 OF THE ACT,. IN THE OTHE R WORDS, IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILISED FAR INCOME GENERATED WILL BE OF REVENUE NATURE AND NOT ACCRETI ON OF CAPITAL AND SUCH INTEREST INCOME WILL HAVE TO BE TA XED IN ACCORDANCE WITH LAW. THE INTEREST DERIVED BY THE AS SESSEE COMPANY FROM THE BORROWED FUNDS WHICH WERE INVESTED IN SHORT-TERM DEPOSITS WOULD BE CHARGEABLE TO TAX UNDE R THE HEAD 'INCOME FROM OTHER SOURCES' OR WOULD GO TO RED UCE THE INTEREST PAYABLE BY THE ASSESSEE ON TERM LOAN SECUR ED BY THE ASSESSEE FROM FINANCIAL INSTITUTIONS, WHICH WOULD B E CAPITALIZED AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION. IN THE CASE OF ACT VS. Z. SQUARE SHOPPING MALL PVT. LTD. T HE HON'BLE ITAT, LUCKNOW OBSERVED AS UNDER:- THE ASSESSEE INVESTED THE BORROWED FUND IN FOR & M UTUAL FUND, AS THERE IS NO NEED OF FUND IN CONSTRUCTION PROCESS DURING THAT SPECIFIC PERIOD. THEREFORE, FUND INVESTED IS NOT IN EXTRICABLY LINKED TO THE SETTING UP OF THE CONSTRUCTION ACTIVITIES AN D IT IS RIGHTLY TREATED BY THE AO. FURTHER, THE HON'BLE IT AT, LUCKNOW PLACED RELIANCE UPON THE JUDGEMENT OF HON'BLE APEX COURT IN THE CASE OF TUTI CORIN ALKALI CHEMICALS AND FERTILIZAERS LTD. VS.C1T (1997) 141 C TR SC 387 IN WHICH THE SUPREME COURT OF INDIA TREATED INTEREST I NCOME AS INCOME FROM OTHER SOURCES AND MADE THE ADDITION. (II) DURING THE APPELLATE PROCEEDINGS, THE APPELLAN T FILED THE FINAL ACCOUNTS FOR THE FY 2013-14. IT WAS SPECI FICALLY ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 13 MENTIONED IN NOTES IN ACCOUNTS THAT THE COMPANY COMMENCED ITS COMMERCIAL PRODUCTION ON 30TH NOV, 2013. REGARDING CAPITALIZATION OF PREOPERATIVE EXPE NSES, THE NOTES ON ACCOUNTS READS AS UNDER:- 2. CAPITALIZATION & PRE-OPERATIVE EXPENSES: ALL THE FIXED ASSETS HAVE BEEN CAPITALIZED ON THE D ATE OF COMMERCIAL PRODUCTION, I.E., 30TH OF NOVEMBER, 2013 (EXCEPT VEHICLE & COMPUTER), SINCE THIS DATE HAS BE EN CONSTRUED TO BE THE DATE OF PUT TO USE FOR ALL THE ASSETS. PRE-OPERATIVE EXPENSES INCURRED TILL 30TH OF NOVEMB ER, 2013 HAVE BEEN APPORTIONED TO THE FIXED ASSETS OF THE CO MPANY ON VALUE WISE PRO-RATA BASIS ON THE SAME DATE. EXPE NSES INCURRED DURING THE IMPLEMENTATION PERIOD OF THE PR OJECT AND DURING TRIAL RUNS HAVE BEEN CAPITALIZED, WHEREA S INCOME EARNED OUT OF TRIAL RUNS HAVE BEEN NETTED FROM PRE- OPERATIVE EXPENSES.' (III) THE APPELLANT MAINLY RELIED ON THE JUDGMENT O F HON'BLE APEX COURT IN THE CASE OF CIT VS. M/S BOKAR O STEEL LTD. [1999] 236 ITR 315 (SC). HOWEVER, THE FA CTS OF THE APPELLANT CASE ARE DIFFERENT FROM THE CASE OF M /S BOKARO STEEL LTD. [IN CIT V BOKARO STEEL LTD (SUPRA ), A GOVERNMENT COMPANY, WHICH DURING THE PERIOD OF CONSTRUCTION OF THE PLANT HAD ADVANCED MONEY TO CON TRACTORS ON WHICH IT WAS EARNING INTEREST, RECEIVED RENT FRO M QUARTERS LET OUT TO EMPLOYEES. IT ALSO RECEIVED HIRE CHARGES ON PLANT LET OUT TO CONTRACTORS AND RECEIVED ROYALTY ON STONES R EMOVED FROM ITS LAND.] HOWEVER, IN THE CASE OF THE APPELLA NT, THE FUNDS WERE INVESTED IN TO BANK TDRS AND INTEREST WA S EARNED. THE JUDGEMENT OF HON'BLE APEX COURT RELIED ON BY TH E AO IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZ ERS LTD. VS. CIT [1997] 141 CTR 387 (SC) IS DIRECTLY APPLICABLE TO THE FACTS OF THE CASE. ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 14 (IV) FURTHER, FROM THE SUBMISSIONS OF THE APPELLANT , IT IS SEEN THAT THE SIGNIFICANT ACCOUNTING POLICIES BEING PART OF FINAL ACCOUNTS FOR FY 2012-13 CLEARLY MENTIONS REGARDING TREATMENT OF PRE-OPERATING SPAN AS UNDER:- II OTHER NOTES TO ACCOUNT: 1.PRE-OPERATIVE SPAN: THE COMPANY IS PRESENTLY OPER ATING IN PRE- OPERATIVE SPAN. THEREFORE, ALL THE EXPENDITURE INCU RRED TOWARDS EXECUTING THE PROJECT ARE TREATED AS PRE-OPERATIVE EXPENDITURES, THE YEAR-END BALANCE OF WHICH AGGREGATES TO RS. 35, 32,902/- WHICH WOULD BE ALLOCATED OVER THE COMPLETED FIXED A SSETS ON SUITABLE AND RATIONAL BASIS AT THE TIME OF CAPITALI ZATION.' (V) THUS, THE ACCOUNTING POLICIES ADOPTED BY THE AP PELLANT ITSELF MENTIONING ALLOCATION OF THE PRE-OPERATIVE EXPENSES TOWARDS FIXED ASSETS AND THERE IS NO MENTION OF NETTING OF PRE-OP ERATIVE INCOME AGAINST PRE-OPERATIVE EXPENSES. THE APPELLANT IS NO T EXPECTED TO GO BEYOND THE ACCOUNTING POLICIES ADOPTED BY IT. (VI) CONSIDERING THE ABOVE FACTS AND JUDICIAL PRONOUNCEMENTS DISCUSSED IN THE ORDER, NO INTERFERE NCE IS CALLED FOR AND THE ADDITION MADE BY THE AO IS UPHEL D. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTED FACTS BORNE OUT OF THE RECORDS ARE THAT THE ASSESSEE COMPANY HAS AVAILED TERM LOAN FROM STA TE BANK OF INDIA FOR THE PURPOSES OF ERECTION OF PLANT AND CONSTRUCT ION OF A FACTORY BUILDING. BASED ON THE PROGRESS OF THE PROJECT, THE FUNDS WERE DISBURSED BY THE BANK TO THE ASSESSEE IN INSTALLMEN TS FROM TIME TO TIME. GIVEN THE TIME GAP BETWEEN THE AVAILABILITY OF FUND S AND ACTUAL UTILIZATION IN THE PROJECT, THE ASSESSEE COMPANY HA S PARKED THESE FUNDS IN SHORT TERM DEPOSITS WITH THE BANK AND HAS EARNED INTEREST INCOME THEREON. ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 15 17. THE CLAIM OF THE LD AR ON BEHALF OF THE ASSESSE E IS THAT IN ORDER TO MINIMIZE ITS INTEREST BURDEN, THE ASSESSEE COMPA NY HAS PARKED THE INTERIM/EXCESS FUNDS IN SHORT TERM DEPOSIT RECEIPTS WITH THE BANK AND THE INTEREST SO RECEIVED WILL GO TO REDUCE PRE-OPER ATIVE EXPENSES AND CANNOT BE TAXED AS INCOME FROM OTHER SOURCES AS H AS BEEN DONE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT( A). IN THE ALTERNATE, IT HAS BEEN CONTENDED THAT INTEREST ON BORROWED FUN DS TO THE EXTENT INVESTED IN STDR MAY BE ALLOWED TO BE DEDUCTED FROM INTEREST INCOME U/S 57(1)(III) OF THE ACT. IN SUPPORT OF ITS CONTE NTION, THE ASSESSEE HAS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF BOKARO STEEL LIMITED AND THE DECISION OF HONBLE DELHI HIGH COUR T IN CASE OF INDIAN OIL PANIPAT POWER CONSTRUCTION LTD. 18. PER CONTRA, THE LD. DR SUBMITTED THAT THE SURPL US FUNDS WERE INVESTED IN SHORT TERMS DEPOSITS IN ORDER TO EARN I NTEREST INCOME AND SUCH INTEREST INCOME HAS RIGHTLY BEEN BROUGHT TO TA X AS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THER E IS NO BASIS FOR CLAIM OF INTEREST EXPENDITURE UNDER SECTION 57(1)(I II) OF THE ACT. THE LD DR HAS RELIED ON THE DECISION OF HONBLE SUPREME CO URT IN CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. AS WELL AS DECISION IN CASE OF BOKARO STEEL LIMITED AND SUBMITTED THAT THERE IS NO INCONSISTENCY IN THESE TWO DECISIONS AND IN THE LATTER DECISION, THE HONBLE SUPREME COURT HAS REAFFIRMED THE VIEW TAKEN EARLIER IN CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. (SUPRA). THE LD. DR HAS ALSO RELIED UPON DECISION OF HONBLE CALCUTTA HIGH COURT IN CASE OF CONSOLIDATED FIBRES ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 16 AND CHEMICALS LTD VS CIT AND THE COORDINATE BENCH D ECISION IN CASE OF THERMAL POWERTECH CORPORATION INDIA LTD. 19. WE FIND THAT IN CASE OF THERMAL POWERTECH CORPO RATION INDIA LTD., THE FACTS OF THE CASE WERE THAT FOR THE PURPOSE OF SETTING UP OF THE PROJECT, THE ASSESSEE HAS BORROWED CERTAIN FUNDS FR OM THE BANKS AND HAS INVESTED A PART OF THE BORROWED FUNDS WHICH WER E NOT IMMEDIATELY REQUIRED IN SHORT TERM DEPOSITS WITH AN INTENTION T O EARN INTEREST OSTENSIBLY TO REDUCE THE INTEREST LIABILITY. THE QU ESTION WHICH AROSE FOR CONSIDERATION BEFORE THE COORDINATE BENCH WAS WHETH ER THE INTEREST INCOME OF RS. 22,35,48,281/- RECEIVED BY THE ASSESS EE ON TEMPORARY DEPOSIT OF FUNDS WITH BANKS WAS ASSESSABLE AS INCOM E OF THE ASSESSEE OR IT WOULD GO TO REDUCE THE COST OF BORROWINGS. WE THEREFORE FIND THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE COORDINATE BENCH HAS EXAMINED THE MATTER OF TAXABILITY OF INTEREST I NCOME AND HAS TAKEN INTO CONSIDERATION VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AS WELL AS DECISIONS OF VARIOUS HONBLE HIGH COURTS IN CLUDING THE HONBLE DELHI HIGH COURT WHICH HAVE ALSO BEEN REFERRED TO B Y BOTH THE PARTIES BEFORE US. IT WOULD THEREFORE BE RELEVANT TO REFER TO THE FINDINGS OF THE COORDINATE BENCH WHICH ARE CONTAINED AT PARA 16 TO 27 OF ITS ORDER WHICH READ AS UNDER:- 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY THE ASSESS EE IS IN THE PROCESS OF SETTING UP OF POWER PROJECT. FOR THE PUR POSE OF SETTING UP OF THE PROJECT THE ASSESSEE HAS AVAILED FUNDS FR OM BANKS. ADMITTEDLY, THE ASSESSEE INVESTED A PART OF THE BOR ROWED FUNDS FROM BANKS, WHICH WAS NOT IMMEDIATELY REQUIRED IN S HORT TERM DEPOSITS WITH AN INTENTION TO EARN INTEREST OSTENSI BLY TO REDUCE THE INTEREST LIABILITY. THE QUESTION ARISES FOR CONSIDE RATION IS WHETHER THE ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 17 INTEREST INCOME OF RS. 22,35,48,281/- RECEIVED BY T HE ASSESSEE ON TEMPORARY DEPOSIT OF FUNDS IN WITH BANKS IS ASSESSA BLE AS INCOME OF THE ASSESSEE OR IT WOULD GO TO REDUCE THE COST OF B ORROWINGS? IN OTHER WORDS, WHETHER THE INTEREST AMOUNT OF RS. 22, 35,48,281/- RECEIVED BY THE ASSESSEE WOULD BE SET OFF AGAINST T HE INTEREST PAYMENT OF RS. 127,84,98,794/- ON THE BORROWED FUND S. AS RIGHTLY SUBMITTED BY THE LEARNED CIT DR, THE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPR A) HAD EXAMINED AN IDENTICAL SITUATION. THE QUESTION WHICH WAS REFERRE D TO THE SUPREME COURT IS AS FOLLOWS: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, INTEREST DERIVED BY THE ASSESSEE FROM BORROWED FUND S WHICH WERE INVESTED IN SHORT TERM DEPOSITS WITH BANKS WOULD BE CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES' OR W OULD GO TO REDUCE THE INTEREST PAYABLE BY THE ASSESSEE ON THE TERM LOAN SECURED BY THE ASSESSEE FROM FINANCIAL INSTITUTIONS WHICH WOULD BE CAPITALISED AFTER COMMENCEMENT OF COMMERCIAL PRODUC TION?' 17. IN THE CASE BEFORE THE APEX COURT, THE ASSESSEE FOR THE PURPOSE OF SETTING UP OF A FACTORY HAS TAKEN TERM LOANS FRO M VARIOUS BANKS AND FINANCIAL INSTITUTIONS. A PART OF THE BORROWED FUND WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE WAS KEPT I NVESTED IN SHORT TERM DEPOSITS WITH BANKS. THE ASSESSEE CLAIMED BEFO RE THE ASSESSING OFFICER THAT THE INTEREST OF RS.2,92,440 RECEIVED ON THE TERM DEPOSIT WITH BANKS WOULD GO TO REDUCE THE PRE- PRODUCTION EXPENSES SUCH AS INTEREST AND FINANCIAL CHARGES WHI CH WOULD ULTIMATELY BE CAPITALISED. ACCORDINGLY THE ASSESSEE CLAIMED THAT THE INTEREST OF RS.2,92,440 WAS NOT EXIGIBLE TO TAX. HO WEVER, THE ITO REJECTED THE CLAIM OF THE ASSESSEE. THE CIT(A) AS W ELL AS THE TRIBUNAL CONFIRMED THE ORDER OF THE ASSESSING OFFIC ER. HOWEVER, THE TRIBUNAL FOUND THAT THERE WERE CONFLICTING JUDGMENT S OF THE MADRAS HIGH COURT IN CIT V. SESHASAYEE PAPER & BOARDS LTD. [1985] 156 ITR 542 AND A.P. HIGH COURT IN CIT V. NAGARJUNA STEELS LTD . [1988] 171 ITR 663/38 TAXMAN 229 . ACCORDINGLY A REFERENCE WAS MADE TO THE APEX COURT. THE APEX COURT AFTER EXAMINING THE FACTS OF THE ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 18 CASE AND THE JUDGMENT OF THE MADRAS HIGH COURT IN S ESHASAYEE PAPER & BOARDS LTD. (SUPRA) AND ANDHRA PRADESH HIGH COURT IN NAGARJUNA STEELS LTD. (SUPRA) CONFIRMED THE JUDGMEN T OF THE MADRAS HIGH COURT. THE APEX COURT HAS SPECIFICALLY OBSERVED AS FOLLOWS AT PAGES 180 AND 181 OF THE REPORT: 'IT IS TRUE THAT THE COMPANY WILL HAVE TO PAY INTER EST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A GROUND FOR EXE MPTION OF INTEREST EARNED BY THE COMPANY BY UTILIZING THE BOR ROWED FUNDS AS ITS INCOME. IT WAS RIGHTLY POINTED OUT IN THE CASE OF KEDAR NARAIN SINGH V. CIT [1938] 6 ITR 157 (ALL) THAT 'ANYTHING WHICH CAN PROPERLY BE DESCRIBED AS INCOME IS TAXABLE UNDER TH E ACT UNLESS EXPRESSLY EXEMPTED '. THE INTEREST EARNED BY THE AS SESSEE IS CLEARLY ITS INCOME AND UNLESS IT CAN BE SHOWN THAT ANY PROV ISION LIKE SECTION 10 HAS EXEMPTED IT FROM TAX, IT WILL BE TAXABLE. TH E FACT THAT THE SOURCE OF INCOME WAS BORROWED MONEY DOES NOT DETRAC T FROM THE REVENUE CHARACTER OF THE RECEIPT. THE QUESTION OF A DJUSTMENT OF INTEREST PAYABLE BY THE COMPANY AGAINST THE INTERES T EARNED BY IT WILL DEPEND UPON THE PROVISIONS OF THE ACT. THE EXP ENDITURE WOULD HAVE BEEN DEDUCTIBLE AS INCURRED FOR THE PURPOSE OF BUSINESS IF THE ASSESSEE'S BUSINESS HAD COMMENCED. BUT THAT IS NOT THE CASE HERE. THE ASSESSEE MAY BE ENTITLED TO CAPITALISE THE INTE REST PAYABLE BY IT. BUT WHAT THE ASSESSEE CANNOT CLAIM IS ADJUSTMENT OF THIS EXPENDITURE AGAINST INTEREST ASSESSABLE UNDER SECTI ON 56. SECTION 57 OF THE ACT SETS OUT IN ITS CLAUSES (I) TO (III) THE EXPENDITURES WHICH ARE ALLOWABLE AS DEDUCTION FROM INCOME ASSESSABLE U NDER SECTION 56. IT IS NOT THE CASE OF THE ASSESSEE THAT THE INT EREST PAYABLE BY IT ON TERM LOANS IS ALLOWABLE AS DEDUCTION UNDER SECTI ON 57 OF THE ACT. IF THAT BE SO, UNDER WHICH OTHER PROVISION OF LAW C AN THE ASSESSEE CLAIM DEDUCTION OR SET-OFF OF HIS INCOME FROM OTHER SOURCES AGAINST INTEREST PAYABLE ON THE BORROWED FUNDS? THERE ARE SPECIFIC PROVISIONS IN THE INCOME-TAX ACT FOR SETTING OFF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SO URCE UNDER THE ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 19 SAME HEAD OF INCOME (SECTION 70), AS WELL AS SETTIN G OFF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER (SECTION 71). IN THE FACTS OF THIS CASE THE COMPANY CANNOT CLAIM ANY RELIEF UNDER EITHER OF THESE TWO SECTIONS, SINCE ITS BUSINESS HAD NOT STARTED AN D THERE COULD NOT BE ANY COMPUTATION OF BUSINESS INCOME OR LOSS INCUR RED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR. IN SUCH A SITUATION, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF SETTING UP ITS BUSINESS CANNOT BE ALLOWED AS DEDUCTION, NOR CA N IT BE ADJUSTED AGAINST ANY OTHER INCOME UNDER ANY OTHER HEAD. SIMI LARLY, ANY INCOME FROM A NON-BUSINESS SOURCE CANNOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY EVEN BEFORE COMMENC EMENT OF THE BUSINESS OF THE ASSESSEE.' 18. NO DOUBT, THE APEX COURT FOUND THAT IT IS NOT T HE CASE OF THE ASSESSEE THAT THE INTEREST PAYABLE BY IT ON TERM LO AN IS ALLOWABLE AS DEDUCTION U/S. 57 OF THE ACT. THE APEX COURT AFTER REFERRING TO THE JUDGMENT OF THE ORISSA HIGH COURT IN CIT V. ELECTRO CHEM ORISSA LTD. [1995] 211 ITR 552/78 TAXMAN 209 AND THE JUDGMENT OF THE MADRAS HIGH COURT IN SESHASAYEE PAPER & BOARDS LTD. (SUPRA) DISAPPROVED THE READING OF THE JUDGMENT OF THE MADR AS HIGH COURT IN SESHASAYEE PAPER & BOARDS LTD. (SUPRA) BY THE OR ISSA HIGH COURT. IN FACT, THE APEX COURT HAS OBSERVED AS FOLL OWS: 'OUR ATTENTION WAS DRAWN TO TWO OTHER DECISIONS WHE RE THE VIEW OF THE ANDHRA PRADESH HIGH COURT WAS FOLLOWED. IN THE CASE OF CIT V. ELECTROCHEM ORISSA LTD. [1995] 211 ITR 552 , THE ORISSA HIGH COURT PREFERRED THE VIEW EXPRESSED BY THE HIGH COURT OF A NDHRA PRADESH TO THE VIEW EXPRESSED BY THE MADRAS HIGH COURT IN S ESHASAYEE PAPER AND BOARDS LTD.'S CASE [1985] 156 ITR 542 ON THE GROUND THAT THE MADRAS CASE WAS BASED ON A FINDING OF FACT THAT THERE WAS NO DIRECT CONNECTION BETWEEN THE INTEREST PAID AND THE INTEREST RECEIVED. IN OUR VIEW, IT WILL NOT BE RIGHT TO READ THE JUDGMENT IN SESHASAYEE PAPER AND BOARDS LTD.'S CASE [1985] 156 ITR 542 (MAD) IN THAT WAY. THE COURT'S FINDING IN SESHASAYEE PAPE R AND BOARDS LTD.S CASE [1985] 156 ITR 542 (MAD) WAS THAT THE INTEREST EARNED ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 20 BY THE ASSESSEE FROM THE BANK DEPOSITS HAD TO BE AS SESSED UNDER THE HEAD ' OTHER SOURCES '. CONSEQUENTLY, THE INTER EST PAID ON THE BORROWINGS FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY COULD NOT BE ALLOWED OR ADJUSTED AGAINST THIS INCOM E UNDER SECTION 57(III) NOR WERE SUCH ADJUSTMENTS PERMISSIBLE UNDER SECTION 70 OR 71 OF THE ACT BECAUSE THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED. THE MADRAS HIGH COURT (SEE [1985] 156 ITR 542 ) CATEGORICALLY HELD: 'IN THIS CASE, ADMITTEDLY, THE BORROWING HAS NOT BE EN MADE EXCLUSIVELY AND SOLELY FOR THE PURPOSE OF EARNING I NTEREST IN WHICH CASE ALONE IT SHOULD BE TAKEN AS AN INCOME WHICH SH OULD BE DEDUCTED FROM THE INTEREST RECEIPTS.' AN ASSESSEE-COMPANY MAY HAVE RAISED ITS CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORROWING. BUT WHEN THAT CAPITA L OR A PORTION OF IT WAS UTILISED FOR WHATEVER REASON, EVEN FOR A SHO RT PERIOD, TO EARN INTEREST, THAT INTEREST MUST BE TREATED AS REVENUE RECEIPT AND WILL HAVE TO BE TAXED ACCORDINGLY. ANY SET OFF OR DEDUCT ION OF ANY EXPENDITURE CAN ONLY BE MADE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT.' IN VIEW OF THE OBSERVATION OF THE APEX COURT, IT IS OBVIOUS THAT THE APEX COURT IS CONSCIOUS OF THE PROVISION OF SECTION 57(III) AND IT WAS HELD THAT WHEN THE ASSESSEE BORROWED THE FUNDS FOR BUSINESS, THE INTEREST EARNED ON SHORT TERM DEPOSIT OF SUCH FUNDS CANNOT BE ALLOWED AS DEDUCTION. 19. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF THE MADRAS HIGH COURT IN SESHASAYEE PAPER BOARDS LTD. (SUPRA). THE ASSESSEE COMPANY INVESTED ITS PAID-UP SHARE CAPITAL AND LOAN S OBTAINED FROM BANKS AND RECEIVED INTEREST INCOME. THE INTEREST IN COME RECEIVED BY THE ASSESSEE WAS ADJUSTED TOWARDS THE INTEREST P AYABLE ON ITS LOAN. ACCORDINGLY THE INTEREST RECEIVED BY THE ASSE SSEE WAS NOT OFFERED AS INCOME FOR TAXATION. THE CLAIM OF THE AS SESSEE THAT THE INTEREST INCOME RECEIVED BY THE ASSESSEE WOULD GO T O REDUCE THE INTEREST PAYMENT ON BORROWED FUNDS WAS REJECTED BY THE INCOME- ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 21 TAX AUTHORITIES. HOWEVER, THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. ON A REFERENCE TO THE MADRAS HIGH COURT, AFTER REFERRING TO THE JUDGMENT OF THE APEX COURT IN CIT V. RAJENDR A PRASAD MOODY [1978] 115 ITR 519 AND VARIOUS OTHER JUDGMENTS OF THE HIGH COURTS, FOUND THAT THE BORROWING HAS NOT BEEN EXCLU SIVELY AND SOLELY FOR THE PURPOSE OF EARNING INTEREST IN WHICH CASE ALONE IT SHOULD BE TAKEN AS INCOME WHICH SHOULD BE DEDUCTED FROM THE INTEREST RECEIPT. THIS JUDGMENT OF THE MADRAS HIGH COURT IN SESHASAYEE PAPER AND BOARDS LTD. (SUPRA) WAS SPECIF ICALLY TAKEN NOTE OF BY THE APEX COURT AND IT WAS OBSERVED THAT INTEREST PAID ON BORROWINGS FOR THE PURPOSE OF PURCHASE OF PLANT AND MACHINERY COULD NOT BE ALLOWED OR ADJUSTED AGAINST THE INCOME U/S. 57(III) OF THE ACT. THE APEX COURT FINALLY CONCLUDED THAT THE VIEW EXPRESSED BY THE MADRAS HIGH COURT IN SESHASAYEE PAPER AND BO ARDS LTD. IS CORRECT AND THE VIEWS EXPRESSED IN OTHER CASES ARE ERRONEOUS. FROM THE ABOVE IT IS OBVIOUS THAT EVEN THOUGH THE APEX C OURT FOUND THAT THE ASSESSEE IN THE CASE OF TUTICORIN ALKALI CHEMIC ALS & FERTILIZERS LTD. (SUPRA) HAS NOT SPECIFICALLY MADE ANY CLAIM U/ S. 57 OF THE ACT FOR SETTING OFF OF THE INTEREST RECEIVED ON THE FD WITH INTEREST PAYMENT ON BORROWED FUND, THE APEX COURT AFTER REFE RRING TO THE JUDGMENT IN THE CASE OF SESHASAYEE PAPER AND BOARDS LTD. (SUPRA) OF THE MADRAS HIGH COURT FOUND THAT THE CLAIM OF TH E ASSESSEE CANNOT BE ALLOWED EVEN U/S. 57(III) OF THE ACT. IN OUR OPINION, THE JUDGMENT OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) ON IDENTICAL SET OF FACT S HAS ANSWERED A SIMILAR QUESTION AGAINST THE ASSESSEE. THEREFORE, T HE INTEREST RECEIVED BY THE ASSESSEE ON TEMPORARY DEPOSIT OF FU NDS WHICH ARE NOT REQUIRED IMMEDIATELY HAS TO BE ASSESSED AS 'INC OME FROM OTHER SOURCES' AND IT CANNOT BE SET OFF AGAINST THE INTER EST PAYABLE BY THE ASSESSEE ON BORROWED FUNDS. 20. ADMITTEDLY DEPOSIT OF FUNDS IN THE BANK IS NOT THE BUSINESS OF THE ASSESSEE. THE ASSESSEE BORROWED THE FUNDS FOR T HE PURPOSE OF ESTABLISHING THE POWER PROJECT. SO LONG AS THE ASSE SSEE USES THE FUNDS IN THE PROCESS OF SETTING UP OF THE PROJECT, WE CAN SAY THAT THE ASSESSEE HAS UTILISED THE FUNDS FOR THE PURPOSE OF BUSINESS. IN ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 22 THIS CASE THE ASSESSEE HAS DEPOSITED THE FUNDS IN F D FOR A TEMPORARY PERIOD, SINCE THE SAME WAS NOT REQUIRED I MMEDIATELY. AS OBSERVED BY THE MADRAS HIGH COURT IN THE CASE OF SE SHASAYEE PAPER AND BOARDS LTD. (SUPRA) WHICH WAS APPROVED AND CONF IRMED BY THE APEX COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZ ERS LTD. (SUPRA) THE INTEREST EARNED BY THE ASSESSEE BY INVESTING TH E BORROWED FUND WHICH WAS NOT REQUIRED IMMEDIATELY IN FIXED DEPOSIT HAS NOTHING TO DO WITH THE ACTUAL BORROWING. THE PAYMENT OF INTERE ST HAS NO CONNECTION WITH THE RECEIPT OF INTEREST. ADMITTEDLY THE BORROWING HAS NOT BEEN MADE FOR THE PURPOSE OF EARNING INTERE ST INCOME IN WHICH CASE ALONE THE INTEREST RECEIVED BY THE ASSES SEE CAN BE DEDUCTED FROM THE INTEREST PAYABLE. IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF SESHASAYEE PAPER A ND BOARDS LTD. (SUPRA) AND THE JUDGMENT OF THE APEX COURT IN THE C ASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), WE ARE UNABLE TO UPHOLD THE CONTENTION OF THE ASSESSEE. THE DISTINCTION SOU GHT TO BE MADE BY CATEGORISING THE FUNDS AS COMMITTED FUNDS AND SU RPLUS FUNDS, IN OUR VIEW, CANNOT BE ACCEPTED AS IN BOTH THE EVENTS THE NATURE OF FUND IS THE THEY ARE NOT REQUIRED IMMEDIATELY FOR T HE PROJECT. 21. IN THIS REGARD, IT IS INTERESTING TO NOTE THAT IN ALL THE MENTIONED DECISIONS BY ASSESSEE, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BOKARA STE EL LTD. (SUPRA). FURTHER, IN ALL SUCH CASES, VARIOUS JUDICIAL AUTHOR ITIES HAVE TRIED TO DIFFERENTIATE THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPR A) WITH THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BOKARA STEE L LTD. (SUPRA) HOWEVER, IN REALITY, THE PROPOSITION OF LAW LAID DO WN BY HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS & FERTILIZERS LTD. (SUPRA) HAS NOT BEEN OVERRULED OR DISTINGUISHE D BY HON'BLE SUPREME COURT IN ITS OWN DECISION IN THE CASE OF BO KARA STEEL LTD. (SUPRA). ON THE OTHER HAND, IN THE CASE OF BOKARA S TEEL LTD. (SUPRA) THE HON'BLE SUPREME COURT HAS ONCE AGAIN REITERATED AND SUPPORTED ITS DECISION IN THE CASE OF TUTICORIN ALKALI CHEMIC ALS & FERTILIZERS LTD. (SUPRA) WITH REGARD TO THE ISSUE OF TREATMENT OF IN TEREST EARNED ON SHORT TERM DEPOSITS MADE OUT OF BORROWED FUNDS DURI NG THE PERIOD ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 23 PRIOR TO THE COMMENCEMENT OF THE BUSINESS OF THE AS SESSEE. IN THE CASE OF BOKARA STEEL LTD. (SUPRA), THAT COMPANY REC EIVED CERTAIN INCOME FROM THE CONTRACTOR WHO WAS ASSIGNED THE JOB OF CONSTRUCTING THE FACTORY. DURING THE COURSE OF CONS TRUCTION ACTIVITIES CARRIED ON BY THE CONTRACTOR, THE CONTRACTOR HAD AV AILED CERTAIN FACILITIES AND SERVICES FROM THE COMPANY AND PAID C ERTAIN CONSIDERATION TO THE COMPANY. THE NATURE OF THE SER VICES AND CONSIDERATION/INCOME RECEIVED BY THE COMPANY FROM T HE CONTRACTOR ARE NOTED AS BELOW : I. LET OUT OF ITS DWELLING UNITS TO THE CONTRACTOR WHI CH WERE USED FOR THE PURPOSE OF HOUSING THE WORKERS/LABOURERS AN D STAFF FOR CONSTRUCTION WORK; II. HIRE CHARGES RECEIVED BY THE COMPANY FROM THE CONTR ACTOR IN CONNECTION WITH HIRING OF THE PLANT AND MACHINERY O WNED BY THE COMPANY TO THE CONTRACTOR WHICH WERE USED BY THE CONTRACTOR IN THE CONSTRUCTION WORK III. INTEREST RECEIVED BY THE COMPANY FROM THE CONTRACTO R ON ACCOUNT OF ADVANCES MADE TO THE CONTRACTOR WHICH WE RE USED FOR THE PURPOSE OF CONSTRUCTION WORK OF THE FACTORY BY THE CONTRACTOR; AND IV. ROYALTY RE CEIVED BY THE COMPANY FROM THE CONTRACTOR IN CONNECTION WITH PERMITTING THE CONTRACTOR TO EXCAVA TE/MINE THE STONES FROM THE LAND OWNED BY; THE COMPANY WHIC H WERE USED IN THE CONSTRUCTION ACTIVITY OF THE COMPANY. IN THIS CONNECTION, THE HON'BLE SUPREME COURT HELD THAT THE INCOME RECEIVED BY THE COMPANY IE. FROM THE CONTRAC TOR UNDER VARIOUS SOURCES MENTIONED ABOVE IS INEXTRICABLY LIN KED WITH THE SETTING UP OF THE FACTORY BUILDING/CAPITAL STRUCTUR E OF THE COMPANY AND, THEREFORE, SUCH INCOME HAS TO BE TREATED AS CA PITAL RECEIPT GOING TO REDUCE THE COST OF CONSTRUCTION OF THE ASS ESSEE COMPANY. ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 24 22. HOWEVER, IN THE SAME CASE OF BOKARA STEEL LTD. (SUPRA), THERE WAS AN ISSUE WITH REGARD TO TREATMENT OF INTEREST I NCOME RECEIVED BY THE COMPANY ON SHORT TERM DEPOSITS MADE WITH BAN KS OUT OF THE AMOUNTS BORROWED BY IT FOR THE CONSTRUCTION WORK WH ICH WERE NOT IMMEDIATELY REQUIRED. ON THIS ISSUE, THE AO TREATED THE INTEREST RECEIVED AS INCOME OF THE ASSESSEE FROM 'OTHER SOUR CES' AND BROUGHT TO TAX ACCORDINGLY. HOWEVER, AS OBSERVED BY THE HON'BLE SUPREME COURT, THE ASSESSEE HAD ACCEPTED THE SAME A ND NOT FILED ANY APPEAL AGAINST SUCH FINDING AND DECISION OF LOW ER AUTHORITIES BEFORE SUPREME COURT. IN VIEW OF THIS, HON'BLE SUPR EME COURT MADE A MENTION IN ITS JUDGEMENT AT PARA NO.4 STATIN G THAT 'WE WERE NOT CALLED UPON TO EXAMINE THIS ISSUE' AND FUR THER MADE A REFERENCE THAT IN ANY' CASE, THIS QUESTION NOW CONC LUDED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TU TICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA). THE RELEVANT PORTION OF THE DECISION AT PARA NO.4 IS AS UNDER:: 'DURING THESE ASSESSMENT YEARS, THE RESPONDENT-ASSE SSEE HAD INVESTED THE AMOUNTS BORROWED BY IT OR THE CONSTRUC TION WORK WHICH WERE NOT IMMEDIATELY REQUIRED, IN SHORT-TERM DEPOSI TS AND EARNED INTEREST. IT HAS BEEN HELD IN THESE PROCEEDINGS THA T THE RECEIPT OF INTEREST AMOUNTS TO INCOME OF THE ASSESSEE FROM OTH ER SOURCES. THE ASSESSEE HAS NOT FILED ANY APPEAL (ROM THIS FINDING WHICH IS GIVEN AGAINST IT. IN ANY CASE, THIS QUESTION IS NOW CONCL UDED BY A DECISION OF THIS COURT INTUTICORIN ALKALI CHEMICALS & FERTIL IZERS LTD. V. CIT [1997] 227 ITR 172 (SQ. HENCE, WE ARE NOT CALLED UPON TO EXAMINE THAT ISSUE.' (EMPHASIS SUPPLIED) THIS ISSUE OF DIFFERENCE BETWEEN THE TREATMENT OF I NCOME RECEIVED FROM CONTRACTOR AND THE INTEREST INCOME RECEIVED FR OM THE BANKS ON ACCOUNT OF SHORT TERM DEPOSITS IS ONCE AGAIN HIGHLI GHTED BY HON'BLE SUPREME COURT IN THE CASE OF BOKARA STEEL LTD. (SUP RA) AT PARA NO.7. THE RELEVANT PORTION OF THE SAME IS REPRODUCE D BELOW: 'THE APPELLANT, HOWEVER, RELIED UPON THE DECISION O F THIS COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. CASE (SUPRA). THAT CASE DEALT WITH THE QUESTION WHETHER THE INVESTMENT OF B ORROWED FUNDS ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 25 PRIOR TO COMMENCEMENT OF BUSINESS, RESULTING IN EAR NING OF INTEREST BY THE ASSESSEE, WOULD AMOUNT TO THE ASSESSEE EARNI NG ANY INCOME. THIS COURT HELD THAT IF A PERSON BORROWS MO NEY FOR BUSINESS PURPOSES, BUT UTILISES THAT MONEY TO EARN INTEREST, HOWEVER, TEMPORARILY, THE INTEREST SO GENERATED WILL BE HIS INCOME. THIS INCOME CAN BE UTILISED BY THE ASSESSEE WHICHEVER WA Y HE LIKES. MERELY BECAUSE HE UTILISED IT TO REPAY THE INTEREST ON THE LOAN TAKEN WILL NOT MAKE THE INTEREST INCOME AS A CAPITAL RECE IPT. THE DEPARTMENT RELIED UPON THE OBSERVATIONS MADE IN THA T JUDGMENT (AT PAGE 179) TO THE EFFECT THAT IF THE COMPANY, EVEN B EFORE IT COMMENCES BUSINESS, INVESTS SURPLUS FUNDS IN ITS HA NDS FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SELLS IT AT PROFIT, THE GAIN MADE BY THE COMPANY WILL BE ASSESSABLE UNDER T HE HEAD 'CAPITAL GAINS'. SIMILARLY, IF A COMPANY PURCHASES RENTED HOUSE AND GETS RENT, SUCH RENT WILL BE ASSESSABLE TO TAX UNDE R SECTION 22 AS INCOME FROM HOUSE PROPERTY. LIKEWISE, THE COMPANY M AY HAVE INCOME FROM OTHER SOURCES. THE COMPANY MAY ALSO, AS IN THAT CASE, KEEP THE SURPLUS FUNDS IN SHORT-TERM DEPOSITS IN OR DER TO EARN INTEREST. SUCH INTEREST WILL BE CHARGEABLE UNDER SE CTION 56 OF THE ACT. THIS COURT ALSO EMPHASIZED THE FACT THAT THE C OMPANY 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 THIS INCOME IN ANY MANNER IT LIKED. HOWEVER, WHILE INTER EST EARNED BY INVESTING BORROWED CAPITAL IN SHORT-TERM DEPOSITS I S AN INDEPENDENT SOURCE OF INCOME NOT CONNECTED WITH THE CONSTRUCTIO N ACTIVITIES OR BUSINESS ACTIVITIES OF THE ASSESSEE THE SAME CANNOT BE SAID IN THE RESENT CASE WHERE THE UTILISATION OF VARIOUS ASSETS OF THE COMPANY AND THE PAYMENTS RECEIVED FOR SUCH UTILISATION ARE DIRECTLY LINKED WITH THE ACTIVITY OF SETTING UP THE STEEL PLANT OF THE ASSESSEE. THESE RECEIPTS ARE INEXTRICABLY LINKED WITH THE SETTING U P OF THE CAPITAL STRUCTURE OF THE ASSESSEE-COMPANY. THEY MUST, THERE FORE, BE VIEWED AS CAPITAL RECEIPTS GOING TO REDUCE THE COST OF CONSTRUCTION. IN THE CASE OF CHALLAPALLI SUGARS LTD. V. CIT [1975] 98 ITR 167 (SC) , THIS COURT EXAMINED THE QUESTION WHETHER INTEREST P AID BEFORE THE COMMENCEMENT OF PRODUCTION BY A COMPANY ON AMOUNTS BORROWED ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 26 FOR THE ACQUISITION AND INSTALLATION OF PLANT AND M ACHINERY WOULD FORM A PART OF THE ACTUAL COST OF THE ASSET TO THE ASSESSEE WITHIN THE MEANING OF THAT EXPRESSION IN SECTION 10(5) OF THE INDIAN INCOME TAX ACT, 1922 AND WHETHER THE ASSESSEE WILL BE ENTI TLED TO DEPRECIATION ALLOWANCES AND DEVELOPMENT REBATE WITH REFERENCE TO SUCH INTEREST ALSO. THE COURT HELD THAT THE ACCEPTE D ACCOUNTANCY RULE FOR DETERMINING COST OF FIXED ASSETS IS TO INC LUDE ALL EXPENDITURE NECESSARY TO BRING SUCH ASSETS INTO EXISTENCE AND T O PUT THEM IN WORKING CONDITION. IN CASE MONEY IS BORROWED BY A N EWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMEN T OF PRODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF THE FIXED ASSETS CREATED AS A RESULT OF SUCH EXP ENDITURE. BY THE SAME REASONING IF THE ASSESSEE RECEIVES ANY AMOUNTS WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS. THESE ARE RECEIPTS OF A CAPITAL NATURE AND CANNOT B E TAXED AS INCOME.' (EMPHASIS SUPPLIED) 23. UNDER THE FACTS AND CIRCUMSTANCES, IT CANNOT BE CONSTRUED THAT THE INTEREST EARNED ON ACCOUNT OF PARKING THE UN UT ILIZED BORROWED FUNDS IS INEXTRICABLY LINKED WITH THE SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY, INASMUCH AS SUCH INTEREST INCOME IS NOT RECEIVED FROM THE CONTRACTOR TO WHOM THE ASSESSEE HAS ASSIGNED THE CONSTRUCTION WORK OF ITS POWER PRO JECT. IN VIEW OF THIS, THE RATIO LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF BOKARA STEEL LTD. (SUPRA)IS NOT APPLICABLE TO THE F ACTS OF THE ASSESSEE'S CASE. AS SUCH, IN VIEW OF THE SIMILAR SE T OF FACTS AND CIRCUMSTANCES INVOLVED IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. (SUPRA), THE PROPOSITION OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THAT CASE IS SQUARELY APPLICABLE WITHOUT ANY DEVIATION. 24. FURTHER, A CLEAR-CUT DIFFERENTIATION BETWEEN TR EATMENT OF INTEREST INCOME FROM SHORT TERM DEPOSITS MADE OUT OF BORROWE D FUNDS AND OTHER CATEGORIES OF INCOME RECEIVED DURING THE PERI OD PRIOR TO THE ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 27 COMMENCEMENT OF BUSINESS, MORE SO, INCOME RECEIVED FROM THE CONTRACTOR UNDERTAKING THE WORK OF SET UP OF THE BU SINESS OF THE ASSESSEE, HAS ONCE AGAIN BEEN MADE OUT BY THE HON'B LE SUPREME COURT IN ITS LATER DECISION IN THE CASE OF BONGAIGA ON REFINERY AND PETROCHEMICALS LTD. (SUPRA). IN THIS JUDGMENT, THE HON'BLE SUPREME COURT HAS REITERATED THE LAW THAT EXCLUDING INTERES T DERIVED BY THE ASSESSEE DURING THE PERIOD PRIOR TO THE COMMENCEMEN T OF BUSINESS, OTHER ITEMS OF INCOME SUCH AS HIRE CHARGES FOR IT E QUIPMENT AND RECOVERIES FROM CONTRACTORS ON ACCOUNT OF WATER AND ELECTRICITY CHARGES SHALL BE ADJUSTED AGAINST THE PROJECT COST OR THE BUSINESS OF OIL REFINERY AND PETRO CHEMICALS. AS SUCH, IN REGAR D TO INTEREST INCOME EARNED PRIOR TO COMMENCEMENT OF THE BUSINESS , IT IS ONCE AGAIN REITERATED BY THE HON'BLE SUPREME COURT AS IN COME UNDER 'OTHER SOURCES' BY REITERATING THE LAW LAID DOWN IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPR A). THE RELEVANT PORTION OF - THE SAID DECISION OF HON'BLE SUPREME C OURT IS REPRODUCED BELOW: 'THE HIGH COURT HAS ALREADY HELD THAT THE INTEREST INCOME DERIVED BY THE ASSESSEE DURING ITS FORMATIVE PERIOD WAS TAX ABLE INCOME. WHAT REMAINS FOR CONSIDERATION IS THE INCOME WHICH THE ASSESSEE DERIVED FROM HOUSE PROPERTY, ITS GUEST HOUSE, CHARG ES FOR EQUIPMENT AND RECOVERIES FROM THE CONTRACTORS ON AC COUNT OF WATER AND ELECTRICITY SUPPLY. THESE ITEMS ARE COVERED BY THE DECISION IN BOKARO STEEL LTD.S CASE (SUPRA). TO THE EXTENT THAT IT RELATES TO THESE ITEMS, I.E., ITEMS EXCLUDING INTEREST, THE QU ESTION MUST BE ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE AS SESSEE. THE ORDER UNDER CHALLENGE WILL STAND MODIFIED TO THAT E XTENT'. 25. ALSO, IT IS PERTINENT TO NOTE THAT IN THE CASE OF TOTGARS COOPERATIVE SALE SOCIETY LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS ONCE AGAIN HELD THAT INTEREST EARNED ON INVESTM ENT OF SURPLUS FUNDS ON HAND NOT IMMEDIATELY REQUIRED IN SHORT TER M DEPOSITS AND SECURITIES WOULD NOT FALL UNDER BUSINESS INCOME BUT INCOME FROM OTHER SOURCES. ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 28 26. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMEN T OF THE DELHI HIGH COURT IN INDIAN OIL PANIPAT POWER CONSORTIUM L TD. (SUPRA). THE HON'BLE DELHI HIGH COURT DISTINGUISHED THE JUDGMENT OF APEX COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (S UPRA) ON THE GROUND THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE IN FUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND DEVELOPMENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON F UNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS 'INCOME FROM OTHER SOURCES'. AFTER REFERRING TO THE JUDGMENT OF APEX COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZ ERS LTD. (SUPRA), THE HON'BLE DELHI HIGH COURT FOUND THAT THE INTERES T ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHE R SOURCES'. WE FIND THAT THE MADRAS HIGH COURT ON ANOTHER OCCASION , IN SOUTH INDIA SHIPPING CORPN. V. CIT [1999] 105 TAXMAN 660 , CONSIDERED AN IDENTICAL SITUATION AND AFTER REFERRING TO THE APEX COURT JUDGMENT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD. (SUPRA) OBSERVED S FOLLOWS AT PAGE 31 OF THE REPORT: 'COMING NOW TO THE QUESTIONS THAT HAVE BEEN REFERRE D TO US AT THE INSTANCE OF THE REVENUE, THESE QUESTIONS ARE REQUIR ED TO BE ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE A SSESSEE, IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CA SE OF TUTICORIN ALKALI CHEMICALS AN FERTILIZERS LTD. [1997] 227 ITR 172 , WHEREIN THE APEX COURT, INTER ALIA, HELD THAT IN VIEW OF SECTIO N 57(III) OF THE INCOME-TAX ACT, INTEREST PAID ON OVERDRAFT OBTAINED FOR THE PURPOSE OF BUSINESS COULD NOT BE DEDUCTED FROM THE INTEREST EARNED ON MONIES KEPT IN FIXED DEPOSITS AS SUCH INCOME DERIVE D BY WAY OF INTEREST ON FIXED DEPOSITS WAS TO BE TAXED UNDER TH E HEAD 'INCOME FROM OTHER SOURCES. WE, HOWEVER, MAKE IT CLEAR THAT THOUGH THE ASSESSEE MAY NOT BE ENTITLED TO HAVE INTEREST PAID BY IT ON OVERDRAFT T O THE BANK, DEDUCTED FROM THE INTEREST RECEIVED BY IT ON THE SH ORT-TERM FIXED DEPOSITS, THE ASSESSEE IS ENTITLED TO DEDUCTION OF THE SAME FROM ITS BUSINESS INCOME.' ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 29 27. IN VIEW OF THIS JUDGMENT OF THE MADRAS HIGH COU RT AND THE JUDGMENT OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), AND OTHER JUDGMENTS OF HON'BLE SUPREME COURT, IN OUR OPINION, THE JUDGMENT OF THE DELHI HI GH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (S UPRA) AND OTHER CASE RELIED ON BY LD. COUNSEL IN HIS ARGUMENTS MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. IN VIEW OF TH E ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LO WER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 20. DRAWING SUPPORT FROM THE ANALYSIS SO DONE BY TH E COORDINATE BENCH OF VARIOUS AUTHORITIES ON THE SUBJECT, WITH W HICH WE FIND NO REASON BUT TO FOLLOW AND ENDORSE, WE AGREE WITH THE CONTENTION ADVANCED BY THE LD. DR THAT IN THE INSTANT CASE, TH E MATTER IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE SERIES OF DECIS IONS OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD., BOKARA STEEL LTD. AS WELL AS BONGAIGAON REFINERY AN D PETROCHEMICALS LTD. IN THE INSTANT CASE, THE ASSESSEE COMPANY HAS INVESTED BORROWED FUNDS, AVAILABLE DURING THE PERIOD STARTING DISBURS EMENT AND AVAILABILITY OF FUNDS, AND ACTUAL UTILIZATION FOR THE PURPOSES T HE FUNDS WERE BORROWED, AND THEREFORE SURPLUS IN THE INTERVENING PERIOD, IN SHORT TERM INTEREST BEARING DEPOSITS WITH THE BANK. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE COMPANY WAS BOUND TO UTIL IZE THE INTEREST SO EARNED ON SUCH SHORT TERM DEPOSITS TO ADJUST AGAINS T THE INTEREST PAID ON BORROWED CAPITAL AND THERE WERE ANY END-USE REST RICTIONS AND IT WAS THEREFORE FREE TO USE THE INTEREST INCOME IN ANY MA NNER IT LIKED AND THEREFORE INTEREST EARNED BY INVESTING BORROWED CAP ITAL IN SHORT TERM DEPOSIT IS AN INDEPENDENT SOURCE OF INCOME NOT IN A NY MANNER ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 30 CONNECTED WITH CONSTRUCTION ACTIVITIES WHICH RIGHTL Y BEEN BROUGHT TO TAX AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . 21. EVEN THE GROUND RELATING TO SETTING OFF OF INTE REST EXPENSES ON BORROWED FUNDS U/S 57(III) AGAINST THE INTEREST INC OME HAS BEEN DISCUSSED BY THE COORDINATE BENCH IN DECISION REFER RED SUPRA AND RELYING ON THE HONBLE SUPREME COURT DECISION IN CA SE OF SESHASAYEE PAPER & BOARDS LTD. HAS DECIDED THE SAME AGAINST TH E ASSESSEE. WE FIND THAT THE HONBLE CALCUTTA HIGH COURT IN CASE O F CONSOLIDATED FIBRES AND CHEMICALS LTD HAS ALSO TAKEN A SIMILAR VIEW AND HAS HELD AS UNDER: 24. WE NEED NOT DILATE ON THIS QUESTION BECAUSE O F THE DISTINCTION WE HAVE ALREADY MADE, NAMELY, UNTIL THE BUSINESS COMMENCES THE INTEREST PAID ON THE BORROWED CAPITAL FOR ACQUIRING ASSET IS INCLUDIBLE IN THE ACTUAL COST WI THIN THE MEANING OF EXPLANATION 8 TO SECTION 43(1) AND IT WOULD NOT BE A BUSINESS EXPENDITURE TILL THE ASSET IS FIRST PUT TO USE AND UNTIL THE BUSINESS COMMENCES THE INTEREST RECEIVED ON INVESTMENT OF UN UTILISED FUNDS WILL NOT BE A BUSINESS INCOME, WHEN SUCH INTE REST, UNTIL THE BUSINESS COMMENCES, IS IN THE NATURE OF CAPITAL EXP ENDITURE AND IS ELIGIBLE FOR BEING CAPITALISED. THE PURPOSE OF T HE BORROWING WAS FOR THE PURPOSE OF CONSTRUCTION OF THE PROJECT AND THE INTEREST WOULD HAVE BEEN PAID EVEN IF IT WOULD NOT HAVE BEEN INVESTED. THEREFORE, THIS INTEREST COULD NOT BE SAID TO HAVE BEEN LAID OUT OR EXPENDED FOR THE PURPOSE OF EARNING THE INCOME PART ICULARLY WHEN THE INTEREST PAID IS ELIGIBLE FOR BEING CAPITA LISED, THE EXPENDITURE THAT HAS BEEN INCURRED BEING IN THE NAT URE OF CAPITAL EXPENDITURE, AND AS SUCH IT WOULD NOT COME WITHIN T HE PURVIEW OF SECTION 57(III). ITA NO. 302/JP/2020 M/S GANPATI GLOBAL (P) LTD. VS. ITO 31 THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THE INT EREST INCOME HAS TO BE BROUGHT TO TAX WITHOUT ALLOWING ANY DEDUCTION U/ S 57(III) TOWARDS INTEREST ON BORROWED CAPITAL. 22. IN LIGHT OF AFORESAID DISCUSSION AND IN THE ENT IRETY OF FACTS AND CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE LOWER AUT HORITIES AND THE MATTER IS DECIDED AGAINST THE ASSESSEE AND IN FAVOU R OF THE REVENUE. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/06/2021. SD/- SD/- LANHI XKSLKBZ FOE FLAG ;KNO ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 30/06/2021. *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S GANPATI GLOBAL (P) LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-1(4), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 302/JP/2020} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR