Indian Synthetic Rubber Pvt. Ltd., New Delhi V. ITO, WARD- 12(2), New Delhi

ITA 4827/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3757 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 28-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P N SHASTRY
• Keywords: Business income; Capital receipt
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G , NEW DELHI BEFORE SHRI R.S.SYAL , VICE PRESIDENT AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 4 827 /DEL/201 7 AY: 20 1 3 - 14 INDIAN SYNTHETIC RUBBER PVT.LTD. 10 TH FLOOR, CORE 2 NORTH TOWER SCOPE MINAR LAXMI NAGAR DISTRICT CENTRE DELHI 110 092 NEW DELHI VS . ITO, WARD 12(2) C.R.BUILDING NEW DELHI (APPELLANT) (RESPONDENT) APPELLAN T BY SH. M . P . RASTOGI, AR & SH. PN SHASTRY, AR RESPONDENT BY SMT. SIMRAN BHULLA R , CIT,DR DATE OF HEARING 23.01.2018 DATE OF PRONOUNCEMENT 07.02.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER P RESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER DATED 04 TH MAY , 2017 PASSED BY LD.CIT(A) - 18 FOR ASSESSMENT YEAR 2013 - 14 ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD.CIT HAS ERRED IN HOLDING THAT DECISION OF THE SUPREME COURT IN TUTICORIN ALKA LIES & FERTILIZERS LTD. 227 ITR 172 WOULD APPLY TO INTEREST EARNED DURING THE PERIOD OF SETUP OF INDUSTRY RATHER THAN THE SUBSEQUENT DECISIONS OF THE SUPREME COURT IN CIT ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 2 VS. BOKARO STEELS LTD. 236 ITR 315 AND BONGAIGOAN REFINERY & PETROCHEMICALS LTD. 251 ITR 329 WHICH WERE FOLLOWED BY THE JURISDICTIONAL HIGH COURT OF DELHI IN A NUMBER OF CASES. 2. THE LD.CIT SHOULD HAVE CLEARLY HELD THAT THE FIGURE OF INTEREST EARNED DURING THE YEAR IS HIGHER BY RS.3,62,05,644/ - AND IT SHOULD BE REDUCED. 3. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE APPELLANT SEEKS LEAVE TO ADD, AMEND, ALTER, ABANDON OR SUBSTITUTE ANY OF THE ABOVE GROUNDS DURING THE HEARING OF APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER . A SSESSEE FILED ITS RETURN OF INCOME ON 28/11/13 DECLARING NIL INCOME. THE RETURN WAS PROCESSED AND CASE WAS SELECTED FOR SCRUTINY. ACCORDINGLY NOTICES UNDER SECTION 143(2) AND 142(1) WAS ISSUED TO ASSESSEE. IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIV ES OF ASSESSEE APPEARED BEFORE LD.AO FROM TIME TO TIME AND FILED NECESSARY DETAILS AS CALLED FOR. 2.1. LD. AO OBSERVED THAT DURING THE YEAR ASSESSEE EARNED INTEREST INCOME FROM BANKS ON FD AND CAPITALISED AN AMOUNT OF RS.20,05,96,284/ - IN PRE - OPERATIVE EXPENSES AS PER N OTE 12 ANNEXED TO THE BALANCE SHEET. FROM THE DETAILS FILED B Y ASSESSEE LD.AO OBSERVED THAT ASSESSEE HAS EARNED INTEREST OF RS. 26.35 LACS FROM THE DEPOSIT OF RS. 4.99 CRORES. HE OBSERVED THAT THE DEPOSITS ARE UNDER L IEN FOR VARIOUS BG GI VEN TO 3 RD PARTIES AND GOVERNMENT AGENCIES FOR CAPITAL JOB OR ACCOMPLISHMENT OF VARIOUS PURPOSES FOR THE PROJECT. IT WAS OBSERVED THAT THE INTEREST EARNED WAS DEDUCTED FROM CAPITAL WORK IN PROGRESS SINCE THE PROJECT IS UNDER CONSTRUCTION AND THERE WAS NO I NCOME FROM OPERATIONS. ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 3 THE SURPLUS MONEY WAS DEPOSITED IN SHORT - TERM DEPOSITS WITH BA N K. 2.2 . LD. AO AFTER CONSIDERING THE RELEVANT DETAILS FILED BY ASSESSEE DISALLOWED THE INTEREST EARNED ON FDS AMOUNTING TO RS.20,05,96,284/ - AND TREATED THE SAME AS INCO ME FROM OTHER SOURCES. HOWEVER THE AMOUNT OF RS. 26.35 LAKH WHICH WAS EARNED ON BANK GUARANTEE IS OUT OF RS. 4.99 CRORES WAS ALLOWED AS BUSINESS INCOME AS THE SAME WAS DIRECTLY LINKED WITH THE BUSINESS ACTIVITY. 2.3 . AGGRIEVED BY THE ORDER OF LD. AO ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO CONFIRMED THE ADDITION MADE BY LD. AO. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW. 2.4 . LD. COUNSEL SUBMITTED THAT ASSESSEE COMPANY WAS INCORP ORATED ON 06/07/10. IT IS SUBMITTED THAT ASSESSEE HAD ENTERED INTO A JOINT VENTURE WITH; A COMPANY IS CO - OWNED BY INDIAN O IL CORPORATION LTD PSU OWNED PRIMA RILY BY THE GOVERNMENT OF INDIA; MARUBRNI CORPORATION OF JAPAN ; AND TRIMURTI HOLDING CORPORATION O F TAIWAN . 2.5. LD. COUNSEL SUBMITTED THAT THE JOINT VENTURE WAS FORMED FOR THE PURPOSE OF SETTING UP A MANUFACTURING FACILITY AT PANI PA T FOR PRODUCTION OF STYRENE BUTADIENE RUBBER BY USING PETROLEUM BY - PRODUCTS . IT HAS BEEN SUBMITTED THAT THE COMPANY FROM ITS INCEPTION RIGHT UP TO THE END OF FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , WAS IN THE PROCESS OF SETTING UP ITS MANUFACTURING FACILITY, AND THEREFORE ALL CAPITAL INVESTMENTS IN PLANT AND MACHINERY AND OTHER ASSETS WERE ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 4 TREA TED AS CAPITAL WORK IN PROGRESS WHICH WAS CAPITALISED , AND/OR TO BE AMORTISED AFTER THE START OF COMMERCIAL PRODUCTION IN ACCORDANCE TO THE ACCEPTED PRINCIPLES OF ACCOUNTING AND APPLICABLE PROVISIONS OF LAW. LD. COUNSEL SUBMITTED THAT ASSESSEE HAD BANK D EPOSITS WHICH WERE PLEDGED TO THE BANK AS MARGIN FOR LC ETC; SUPPLIERS AND CONTRACTORS AS ORDER ADVANCES OR AS SECURITY DEPOSITS WITH AUTHORITIES IN CONNECTION WITH SETTING UP OF MANUFACTURING FACILITY. IT WAS SUBMITTED THAT ASSESSEE HAD KEPT TEMPORARI LY , SURPLUS FUNDS OUT OF FUNDS RAISED AS SHARE CAPITAL AND BORROWINGS FOR SETTING UP THE FACTORY AS BANK DEPOSITS , TILL THEY WERE ACTUALLY DEFRAYED. SMALL ADVANCES WERE ALSO GIVEN TO EMPLOYEES AS PER SERVICE RULES , AGAINST WHICH THE INTEREST EARNED HAS BEEN ULTIMATELY CREDITED TO THE EXPENSE DURING CONSTRUCTION ACCOUNT. LD. AR SUBMITTED THAT SIMILAR AND IDENTICAL TREATMENT OF DEPOSITS WERE ACCEPTED DURING THE PRECEDING ASSESSMENT YEAR BEING 2012 - 13 IN THE REGULAR SCRUTINY ASSESSMENT, A COPY OF WHICH HAS BEEN ENCLOSED IN THE PAPER BOOK AT PAGE 5. 2.6 . LD.AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE EARNED A TOTAL INTEREST OF RS.1643.90 LACS ON THE MONEY IS KEPT AS DEPOSITS WHICH WAS CREDITED TO EXPENSES DURING THE CONSTRUCTION/CWIP. HE S UBMITTED THAT AFTER THE CREDIT OF INTEREST EARNED DURING THE YEAR ASSESSEE CAPITALISED THE NET EXPENSES OF RS.230.33 LACS AS EXPENSES DURING CONSTRUCTION WHICH WAS ULTIMATELY TREATED AS A PART OF CAPITAL WORK IN PROGRESS TO BE CAPITALISED AND AMORTISED ON THE START OF COMMERCIAL PRODUCTION. HE SUBMITTED THAT INTEREST EARNED RS. 1643.90 LACS WERE TO BE TREATED AS CAPITAL IN NATURE , TO BE SET OFF AGAINST ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 5 EXPENSES DURING CONSTRUCTION/CWIP IN ACCORDANCE WITH THE ACCOUNTING STANDARDS. THE LD.AR PLACED RELIAN CE UPON DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL POWER CONSORTIUM LTD VERSUS ITO REPORTED IN 315 ITR 255. 2.7. ON THE CONTRARY LD. DR SUBMITTED THAT CERTAIN FUNDS WERE BROUGHT IN BY PROMOTERS TO THE TUNE OF RS.17,88,31,000/ - AS SHARE CAPITAL , AND ONE OF THE PROMOTERS GRANTED LOAN OF RS. 50 LACS, WHICH HAS BEEN INVESTED WITH THE BANKS UNDER THE PORTFOLIO MANAGEMENT SCHEME , WHICH GAVE AN ASSURED EARNING GU ARANTEE. SHE THUS SUBMITTED THAT INTEREST RECEIVED FROM THESE FUNDS COULD NOT BE CONSIDERED TO BE INEXTRICABLY LINKED WITH THE SETTING UP OF MAN UFACTURING ACTIVITY OF ASSESSEE AS THESE AMOUNTED TO SYSTEMATIC PLANNED INVESTMENTS, WITH INTENTION TO EARN INTE REST. 3. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 3.1. THE ADVANCES AND DEPOSITS RECEIVED BY ASSESSEE MOST APPROPRIATE LY RECORDED IN THE AUDITED ACCOUNTS ARE AS UNDER: NOTE 16 : CASH AND BA NK BALANCES AS AT 31.3.2013 AS AT 31.3.2012 CASH AND CASH EQUIVALENTS BALANCE WITH BANKS SHORT TERM DEPOSIT 3,17,50,00,000 69,00,00,000 FIXED DEPOSIT HELD AS MARGIN 4,99,40,400 22,15,000 ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 6 ON SUCH DEPOSITS ASSESSEE DERIVED INTEREST AS PER NOTE 18 IN THE AUDITED ACCOUNTS AT PAGE 21 OF PAPER BOOK, WHICH IS AS UNDER. NOTE 18 OTHER CURRENT ASSETS AS AT 31.3.2013 AS AT 31.3.2012 INTEREST ACCRUED BUT NOT DUE ON SHORT TERM DEPOSITS AND ADVANCES 3,48,75,906 5,29,358 INTEREST ACCRUED ON MOBILIS ATION ADVANCE 34,21,131 OTHER RECOVERABLE 2,63,071 TOTAL 3,85,60,108 5,29,368 THESE INTEREST INCOME HAS BEEN, INTER ALIA, CAPITALISED BY THE ASSESSEE AS SHOWN IN NOTE 12 UNDER THE HEAD CAPITAL WORK IN PROGRESS. AS AT 31.3.2013 FOR THE YEAR ENDED 31.3.2013 AS AT 31.3.2012 D. INCOME FROM: INTEREST INCOME AS SHORT TERM DEPOSITS (20,05,96,284) (16,43,90,640) (3,62,05,644) INTEREST RECEIVED ON ADVANCES (8,15,33,393) (5,01,36,400) (3,13,96,993) OTHER RECEIPTS (4,28,830) (4,28,830) - ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 7 SALE OF SCRAP (22,77,129) (22K,77,129) - TOTAL(D) (28,48,35,636) (21,72,32,999) (6,76,02,637) THUS THE INTEREST EARNED FROM THESE FUNDS H AS BEEN CONSIDERED BY LD. AO TO BE INCOME FROM OTHER SOURCES . INTEREST ON DEPOSIT AS MARGINS & TEMPORARY SURPLUS FUNDS RS.1 6,43,90,640/ - LESS: INTEREST RECEIVED FROM BANK GUARANTEE RS.26,35,000/ - TAXABLE INCOME (INCOME FROM OTHER SOURCES) RS.16,17,55,640/ - 3.2. IT IS OBSERVED THAT LD.AO ALLOWED INTEREST TO THE TUNE OF RS. 26.35 LACS , AS THESE WERE UTILISED UNDER L IEN FOR VARIOUS BANK GUARANTEE S GIVEN TO 3 RD PARTIES AND GOVERNMENT AGENCIES FOR CAPITAL JOB OR ACCOMPLISHMENT OF VARIOUS PURPOSES FOR THE PROJECT. HOWEVER WHAT HAS BEEN DISALLOWED BY LD. AO IS RS.20,05,96,284 OUT OF THE TOTAL RS. 16,43,90,640/ - . IT IS OBSERV ED THAT INTEREST TO THE EXTENT OF RS.20,05,96,284 HAVE BEEN EARNED OUT OF TEMPORARY SURPLUS FUNDS BEING SHARE CAPITAL AND THE BORROWINGS RAISED FOR SETTING UP OF THE FACTORY AS BANK DEPOSITS. 3.3 . LD. AR DISTINGUISHED THE DECISIONS BY HON BLE DELHI HIGH CO URT RELIED UPON BY LD. CIT (A) IN THE CASE OF CIT VS. MADHYA BHARAT ENERGY CORPORATION LTD REPORTED IN 20 T AXMAN.COM 557 . HE SUBMITTED THAT TH IS DECISION IS DISTINGUISHABLE ON FACTS , AS IN THESE CASES DEPOSITS WERE RETURNED WHICH WERE KEPT AS FIXED DEPOSIT. 3.4 . IN OUR CONSIDERED OPINION, DECISION OF CIT VS. MADHYA BHARAT E NERGY CORPORATION LTD (SUPRA) ARE FACTUALLY DIFFERENT FROM THE FACTS OF THIS CASE. HOWEVER, HON BLE DELHI HIGH COU RT IN ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 8 THE CASE OF INDIAN O IL POWER CONSORTIUM LTD VERSUS ITO (SUPRA) HAS HELD AS UNDER: 12. 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 CONNEC TED TO THE SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN SECTION 3 OF THE ACT WHICH STATES THAT FOR NEWLY SET UP BUSINESS THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS. THEREFORE, AS PER THE PROVISI ON OF SECTION 4 OF 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 CHARGEABLE TO TAX DEPENDING ON WHETHER IT IS OF A REVENUE NATURE OR CAPITAL RECEIPT. THE INCOM E 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 SECTION 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 ACTIVITY WHICH IS IN SOME MANNER OR FORM CONN ECTED WITH BUSINESS. THE WORD ' BUSINESS' IS OF WIDE IMPORT WHICH WOULD ALSO INCLUDE ALL SUCH ACTIVITIES WHICH COALESCE INTO SETTING UP OF THE BUSINESS. SEE MAZAGAO N DOCK LTD. V. CIT/EXCESS PROFITS TAX [1958] 34 ITR 368 (SC) AND NARAIN SWADESHI WEAVING MILLS V. COMMISSIONER OF EXCESS PROFITS TAX [1954] 26 ITR 765 (SC). WHERE IT IS HELD THAT THE ASSESSEE'S INCOME IS - AN INCOME CONNECTED WITH BUSINESS, W HICH WOULD BE SO IN THE PRESENT CASE, IN VIEW OF THE FINDING OF FACT BY THE COMMISSIONER OF INCOME - TAX (APPEALS) THAT THE MONIES WHICH WERE INDUCTED INTO THE JOINT VENTURE COMPANY BY THE JOINT VENTURE PARTNERS WERE PRIMARILY INFUSED TO' PURCHASE LAND AND TO DEVELOP INF RASTRUCTURE THEN IT CANNOT BE HELD THAT THE INCOME DERIVED BY - PARKING THE FUNDS TEMPORARILY WITH TOKYO MITSUBISHI BANK, WILL RESULT IN THE CHARACTER OF THE FUNDS BEING 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 ' INCOME FROM OTHER SOURCES' . IT IS WELLSETTLED THAT AN INCOME RECEIVED BY THE ASSESSEE CAN BE TAXED UNDER THE HEAD' INCOME F ROM OTHER SOURCES' ONLY IF IT DOES NOT FALL UNDER ANY OTHER HEAD OF ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 9 INCOME AS PROVIDED IN SECTION 14 OF THE ACT. THE HEAD' INCOME FROM OTHER SOURCES' IS A RESIDUARY HEAD OF INCOME. SEE S. G. MERCANTILE CORPORATION P. LTD. V. CIT [1972] 83 ITR 700 (SC) AND CIT V. GOVINDA CHOUDHURY AND SONS [1993] 203 ITR 881 (SC). 13. IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COU LD NOT HAVE - BEEN CLASSIFIED AS INCOME 'FROM OTHER SOURCES. SINCE THE IN COME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAIN ST PRE - OPERATIVE E XPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS [1997] 227 ITR 172 IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE SU RPLUS AND THEREFORE, THE SUPREME COURT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS HAVE TO BE TREATED AS INCOME FROM OTHER SOURCES . ON THE OTHER HAND IN BOKARO STEEL LTD. [1999] 236 I TR 315 (SC) WHERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE - COMMENCEMENT PERIOD WAS FOUND TO - BE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT OF T H E ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE - OPERAT I VE EXPENSES. 3.5. LD.CIT (A) HAS PLACED RELIANCE UPON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VERSUS MADHYA BHARAT ENERGY CORPORATION LTD WHEREIN IT WAS HELD THAT INTEREST EARNED ON FDRS CANNOT BE SET OFF AS PREOPERATIVE EXPENSES. THE FACTS IN THE PRESE NT CASE ARE DISTINGUISHABLE. ASSESSEE HAD PARTICIPATED IN A BID CALLED FOR BY THE MADHYA PRADESH STATE ELECTRICITY BOARD (M PSEB) UNDER WHICH A SECURITY DEPOSIT OF RS. 11.65 CRORES WAS TO BE DEPOSITED WITH M PSEB. ASSESSEE BY AN AGREEMENT REQUESTED AND INV ESTING COMPANY TO REMIT THE AMOUNT BUT DUE TO DELAY IN REMITTANCE THE BID OF ASSESSEE WAS REJECTED. ASSESSEE THEREIN HAD ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 10 RAISED CLAIMS AGAINST THE INVESTING COMPANY FOR THE LOSS CAUSED DUE TO DISQUALIFICATION BY MPSEB. AN AMOUNT OF RS. 6 CRORE SUBMITTED BY ASSESSEE TO MPSEB WAS RETURNED BY MPSEB AMOUNTING TO RS. 5.65 CRORES. ASSESSEE THEN GOT ISSUED 10 FIXED DEPOSITS OF 1 CRORE EACH, INTEREST ON WHICH WAS ADJUSTED AGAINST PREOPERATIVE EXPENSES. IT WAS UNDER THESE CIRCUMSTANCES THAT THE T RIBUNAL HAD HELD TH AT THE INCOME EARNED WOULD BE REVENUE IN NATURE AND WAS LIABLE TO BE TREATED AS INCOME FROM OTHER SOURCES. THE ORDER OF THE T RIBUNAL THEREIN WAS UPHELD BY HON BLE DELHI HIGH COURT SUBSEQUENTLY. 3.6. IN THE FACTS OF THE PRESENT CASE ASSESSEE REDUCED THE CAPITAL WORK IN PROGRESS BY SETTING OF THE INTEREST EARNED FROM THE DEPOSITS. LD. AO APPLIED THE RATIO LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI C HEMICALS AND F ERTILISERS LTD V S. CIT REPORTED IN 2 2 7 ITR 172 , AND TREATED THE INTEREST AS INCOME FROM OTHER SOURCES. ON A CAREFUL PERUSAL OF THE FACTS PLACED BEFORE US WE OBSERVE THAT THE BORROWED FUNDS, AS WELL AS FUNDS RECEIVED AS SHARE CAPITAL FROM PROMOTERS WERE TEMPORARILY PLACED WITH BANK HAS TO BE TREATED AS INCOME FROM BUSINESS OR PROFESSION. HON BLE SUPREME COURT IN THE CASE OF CIT VERSUS BOKARO STEEL LTD., REPORTED IN 236 ITR 315 HAS HELD THAT INTEREST EARNED WAS INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY WILL GO TO REDUCE THE COST OF ASSETS AND THESE ARE RECEIPTS OF CAPITAL IN NATURE. IN THE PRESENT CASE THE ASSESSEE THE DOMINANT PURPOSE OF THE SHARE CAPITAL AND LOAN RECEIVED FROM PROMOTERS IS FOR THE PURPOSES OF CONSTRUCTION OF SETTING UP A NEW PLANT AND MACHINERY. ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 11 3.7. HON BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS. ITO, REPORTED IN 315 ITR 255 HAS HELD THAT WHERE INTEREST ON MONEY RECEIVED AS SHARE CAPITAL IS TEMPORARILY PLACED IN FIXED DEPOSITS AWAITING ACQ UISITION OF LAND CLAIM THAT SUCH INTEREST IS A CAPITAL RECEIPT ENTITLED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES IS ADMISSIBLE AS THE FUNDS RECEIVED BY ASSESSEE COMPANY BY THE JOINT VENTURE PARTNERS ARE INEXTRICABLY LINKED WITH SETTING UP OF THE PLANT A ND SUCH INTEREST EARNED CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. 3.8. THAT TEST THAT PERMEATES THROUGH THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF TUTICORIN A LKALI C HEMICALS (SUPRA) IS THAT IF FUNDS HAVE BEEN BORROWED FOR SETTING UP OF A P LANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCES THEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES ON THE OTHER HAND, THE RATIO OF HON BLE SUPREM E COURT IN THE CASE OF B OKARO STEEL LTD (SUPRA) TO OUR MIND IS THAT IF INCOME IS 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, SUCH INCOME IS REQUIRED TO BE CAPITA LISED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES. THE TEST THUS TO BE APPLIED TO THE FACTS OF THE PRESENT CASE IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP THE BUSINESS AND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF PLANT. IN THE PRESENT CASE THE PROMOTERS HAS ADVANCED FUNDS BY WAY OF SHARE CAPITAL AND LOAN FOR THE PURPOSES OF SETTING UP OF PLANT WHICH IS DIRECTLY LINKED WITH THE BUSINESS ACTIVITY OF ASSESSEE. ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 12 3.9. THUS APPLYING THE ABOVE PRINCIPLES LAID DOWN B Y HON BLE SUPREME COURT AND HON BLE DELHI HIGH COURT WE ARE INCLINED TO AGREE WITH THE ARGUMENTS ADVANCED BY LD. COUNSEL REGARDING THE INTEREST EARNED FROM TEMPORARY DEPOSITS ARE INEXTRICABLY LINKED WITH THE CONSTRUCTION OF PLANT AND MANUFACTURING UNIT. AC CORDINGLY WE DELETE THE ADDITION MADE BY LD. AO IN RESPECT OF THE INTEREST AS INCOME FROM OTHER SOURCES AND HOLD THE SAME AS INCOME FROM BUSINESS TO BE ADJUSTED AGAINST CAPITAL WORK - IN - PROGRESS. 3.10 . ACCORDINGLY GROUND NO. 1 OF ASSESSEE STANDS ALLOWED . 3.11. GROUND NO. 2 IS IN RESPECT OF THE FIGURE OF INTEREST EARNED DURING THE YEAR BEING WRONGLY CONSIDERED BY LD. AO BY INCLUDING THE INTEREST PERTAINING TO ASSESSMENT YEAR 2012 - 13. AS WE HAVE ALLOWED THE INTEREST EARNED AS INEXTRICABLY LINKED WITH THE BU SINESS ACTIVITY OF ASSESSEE WE DO NOT FIND IT NECESSARY TO PASS ANY DIRECTION TO LD. AO FOR CORRECTING THE SAME AS THE ENTIRE ADDITION STANDS DELETED. 3.12 . ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS INFRUCTUOUS. 4. IN THE RESULT APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.02.2018. SD/ - SD/ - ( R.S.SYAL ) (BEENA A PILLAI) VICE PRESIDENT JUDICIAL MEMBER DT. 07.02.2018 *MV ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 13 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO.4827/DEL/2017 A.Y.2013 - 14 INDIAN SYNTHETIC RUBBER P.LTD. VS. ITO 14 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON 23.01.18 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER