M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD., JAIPUR V. INCOME TAX OFFICER, JAIPUR

ITA 491/JPR/2018

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6373 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 06-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RONNI PAL JCIT DHK
• Keywords: Business expenditure; Capital receipt; Capital expenditure; Set aside
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES B, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA -@ ITA NO. 491/JP/2018 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2014-15 M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD., SHIPRA PATH, SECTOR-5, MANSAROVAR, JAIPUR. CUKE VS. I.T.O., WARD 2(2), JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAHCS 6572 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RONNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04/11/2019 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 19/11/2019 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 05/02/2018 OF LD. CIT(A)-I, FOR THE A.Y. 2014-15. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE FINDING OF AO THAT INTEREST EXPENDITURE OF RS.1,17,54,531/- INCURRED ON TERM LOAN OF RS.10 CRORE OBTAINED FROM RAJASTHAN FINANCIAL CORPORATION FOR CONSTRUCTION OF HOSPITAL BUILDING SHOULD BE CAPITALIZED INSTEAD OF ALLOWING SUCH EXPENDITURE AGAINST THE INTEREST INCOME OF RS.1,22,28.082/- RECEIVED ON UTILIZATION OF SUCH LOAN AND THEREBY CONFIRMING THE DISALLOWANCE OF THE INTEREST EXPENSES. 1.1 THE LD. CIT(A) HAS FURTHER ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF AO IN ASSESSING THE INTEREST INCOME OF RS.1,22,28,082/- ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 2 EARNED ON LOAN ADVANCE TO M/S SUPER PRIME CONSTRUCTION PVT. LTD. AS INCOME FROM OTHER SOURCES WITHOUT ALLOWING THE INTEREST EXPENDITURE OF RS.1,17,54,531/- INCURRED FOR EARNING SUCH INTEREST INCOME. U/S 57(III) OF THE ACT BY NOT ACCEPTING THE CONTENTION OF ASSESSEE THAT THERE IS A DIRECT NEXUS BETWEEN THE LOAN TAKEN BY IT FROM RAJASTHAN FINANCIAL CORPORATION AND THE AMOUNT ADVANCED TO M/S SUPER PRIME CONSTRUCTION PVT. LTD. 2. THE ASSESSEE CRAVES TO AMEND, ALTER AND MODIFY ANY OF THE GROUNDS OF APPEAL. 3. THE APPROPRIATE COST BE AWARDED TO THE ASSESSEE. 2. THE ASSESSEE COMPANY WAS INCORPORATED OM THE YEAR 1993 WITH MAIN OBJECT OF RUNNING HOSPITAL. FOR LAST MANY YEARS, THE ASSESSEE COMPANY HAS BEEN RUNNING HOSPITAL LOCATED AT SECTOR-5, MAIN SHIPRA PATH, MANSAROVAR, JAIPUR. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DECIDED TO DEMOLISH OLD HOSPITAL AND CONSTRUCT A NEW HOSPITAL. FOR CONSTRUCTION OF NEW HOSPITAL BUILDING, THE ASSESSEE OBTAINED LOAN FROM RAJASTHAN FINANCIAL CORPORATION (IN SHORT, THE RFC) TO THE TUNE OF RS. 10.00 CRORES SANCTIONED ON 26/6/2013. THE SAID AMOUNT WAS ADVANCED TO M/S SUPER PRIME CONSTRUCTION PVT. LTD. ON WHICH THE ASSESSEE EARNED INTEREST AT RS. 1,22,28,082/-. IN THE RETURN OF INCOME, THE ASSESSEE HAS DECLARED INCOME FROM OTHER SOURCES ON ACCOUNT OF INTEREST INCOME AFTER CLAIMING DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE OF RS. 1,17,54,531/-. THE A.O. WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) HAS DISALLOWED ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 3 THE CLAIM OF DEDUCTION OF INTEREST EXPENDITURE U/S 57(3) OF THE ACT AND HELD THAT THE SAID LOAN WAS TAKEN BY THE ASSESSEE FOR CONSTRUCTION OF HOSPITAL AND THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME. ACCORDINGLY, THE A.O. CAPITALIZED THE INTEREST EXPENDITURE TO THE HOSPITAL BUILDING ACCOUNT AND ASSESSED THE ENTIRE INTEREST INCOME TO TAX. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THERE IS A DIRECT NEXUS BETWEEN THE LOAN OBTAINED FROM THE RFC AND ADVANCE GIVEN TO M/S SUPER PRIME CONSTRUCTION PVT. LTD.. HE HAS REFERRED TO THE DATES OF LOAN RECEIVED FROM RFC AND THE ADVANCE GIVEN TO M/S SUPER PRIME CONSTRUCTION PVT. LTD. AND SUBMITTED THAT THE ASSESSEE HAS UTILIZED LOAN TO GIVE THE ADVANCE BECAUSE THERE WAS A DELAY IN SANCTION OF THE SITE PLAN OF THE HOSPITAL BY THE LOCAL AUTHORITIES. THE LD AR HAS THUS CONTENDED THAT AS THE LOAN AMOUNT FROM INCEPTION WAS NOT UTILIZED FOR CONSTRUCTION PURPOSE AND WAS ADVANCED TO M/S SUPER PRIME CONSTRUCTION PVT. LTD. ON WHICH THE INTEREST IS RECEIVED, THEREFORE, THE INTEREST PAID BY THE ASSESSEE ON THE LOAN AMOUNT AS NO RELATION WITH THE CONSTRUCTION AND CANNOT BE CAPITALIZED TO THE COST OF BUILDING. ACCORDINGLY, THE ASSESSEE HAS RIGHTLY CLAIMED THE SAME AS DEDUCTION AGAINST INTEREST SO RECEIVED. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS: ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 4 (I) M/S BARMER LIGNITE MINING CO. LTD. VS DCIT IN ITA NO. 534 & 510/JP/2017 (II) CIT VS SHREE RAMA MULTI TECH LTD. 403 ITR 426. (III) NTPC SAIL POWER COMPANY PVT.LTD. VS CIT [2012] 25 TAXMANN.COM 401 (DELHI) (IV) VODAFONE SOUTH LTD. VS CIT 378 ITR 410. (V) YOGENDDRA GARG VS ITO IN ITA NO. 149/JP/2016. (VI) SHRISTI HOTEL PVT. LTD. VS DCIT (2018) 53 CCH 0372 (KOL TRIB) THE LD AR HAS FURTHER CONTENDED THAT THE A.O. AS WELL AS THE LD. CIT(A) HAS RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997] 93 TAXMAN 502 (SC). HOWEVER, IN THE SAID CASE, INTEREST EARNED BY THE ASSESSEE AND INTEREST PAID BY THE ASSESSEE WAS PRIOR TO THE COMMENCEMENT OF THE BUSINESS AND FURTHER FROM THE DEPOSITS MADE WITH BANKS, THEREFORE, ALL SPECIFIC FACTS, THE HONBLE SUPREME COURT HELD THAT INTEREST INCOME IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND INTEREST PAYABLE ON AMOUNT BORROWED DURING THE PERIOD WILL GO TO INCREASE THE COST OF PROJECT. WHEREAS IN THE INSTANT CASE OF THE ASSESSEE, THE ASSESSEE HAS BEEN DOING THIS BUSINESS SINCE MANY YEARS AND FOR THE A.Y. 2006-07 THE ASSESSMENT WAS COMPLETED U/S 143(3) AND LOSS DECLARED BY THE ASSESSEE WAS ACCEPTED BY THE A.O., THEREFORE, THIS IS NOT A CASE OF INTEREST EXPENDITURE PRIOR TO COMMENCEMENT OF BUSINESS. THUS, THE LD AR HAS SUBMITTED THAT THE DECISION RELIED UPON BY HIM ARE APPLICABLE ON THE FACTS ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 5 OF THE PRESENT CASE WHEN THERE IS A DIRECT NEXUS BETWEEN THE LOAN RAISED AND ADVANCE GIVEN. 4. ON THE OTHER HAND, THE LD DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE INTEREST PAID ON THE BORROWED FUND TAKEN FOR CONSTRUCTION OF THE HOSPITAL BUILDING CANNOT BE ALLOWED TILL THIS SAID BUILDING WAS PUT TO USE AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. FURTHER SINCE THE LOAN WAS TAKEN FOR SPECIFIC PURPOSE OF CONSTRUCTION AND IT WAS ALSO SANCTIONED FOR THE CONSTRUCTION OF THE HOSPITAL BUILDING THEN IT CANNOT BE SAID THAT THERE IS A DIRECT NEXUS BETWEEN THE EXPENDITURE INCURRED BY THE ASSESSEE AND THE INTEREST INCOME EARNED BY DIVERTING THE SAID FUND. THEREFORE, THE SAID EXPENDITURE IS NOT ALLOWABLE U/S 57(III) OF THE ACT AND CONSEQUENTLY THE SAME HAS TO BE CAPITALIZED TO THE HOSPITAL BUILDING ACCOUNT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT (SUPRA). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE INTEREST EXPENDITURE ON THE LOAN TAKEN BY THE ASSESSEE FOR CONSTRUCTION OF HOSPITAL BUILDING IS NOT ALLOWABLE U/S 36(1)(III) OF THE ACT PRIOR TO THE DATE ON WHICH SUCH ASSET IS PUT TO USE. EVEN THE ASSESSEE ALSO DID NOT CLAIM THE INTEREST PAID AS ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 6 BUSINESS EXPENDITURE. THE DISPUTE IS ONLY REGARDING THE ALLOWABILITY OF THE INTEREST EXPENDITURE AGAINST THE INTEREST INCOME EARNED BY THE ASSESSEE BY GIVING THE SAID AMOUNT TO M/S SUPER PRIME CONSTRUCTION PVT. LTD. U/S 57(III) OF THE ACT. THE A.O. APPLIED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT (SUPRA) FOR DISALLOWING THE CLAIM OF DEDUCTION AND CAPITALIZING THE SAME TO THE BUILDING ACCOUNT. AT THE OUTSET, WE NOTE THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S BARMER LIGNITE MINING CO. LTD. VS DCIT (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE IN PARA 5.3 AND 5.4 AS UNDER: 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER MADE ADDITION ON THE BASIS THAT THE ASSESSEE EARNED INTEREST ON FDR OF SUM OF RS. 13,40,90,000/-. THIS AMOUNT WAS CREDITED BY THE ASSESSEE COMPANY AS CAPITAL WORK IN PROGRESS ON THE GROUND THAT IT IS PURELY WITH REGARD TO MINING PROJECT AS CORRESPONDING INTEREST COST INCURRED BY THE COMPANY FOR EARNING SUCH INTEREST IS ALSO FORMING PART OF CAPITAL WORK IN PROGRESS IN SHORT CWIP. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THIS ACT OF THE AUTHORITIES BELOW IS CONTRARY TO THE JUDGMENTS OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF THE CIT VS. BOKARO STEELS LTD. 236 ITR 315. LD. CIT(A) WHO CONFIRMED THIS ADDITION BY FOLLOWING THE JUDGMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICAL & FERTILIZERS LTD. VS. 227 ITR 172. FURTHER, LD. CIT(A) FOLLOWED THE JUDGMENTS OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. AUTOCAST LTD. 248 ITR 110 (SC). THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE AMOUNT SO CREDITED IS INTEREST EARNED ON MONEY ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 7 WHICH WAS GIVEN BY THE ASSESSEE TO RAJASTHAN STATE MINES AND MINERALS LTD. IN SHORT RSMML A GOVERNMENT OF RAJASTHAN UNDERTAKING. WE ARE UNABLE TO ACCEPT THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, IN VIEW OF THE JUDGMENTS OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA), CIT VS. AUTOCAST LTD. (SUPRA) HONBLE SUPREME COURT IN THE CASE OF CIT VS. AUTOCAST LTD. 248 ITR 110 (SC) FOLLOWING THE RATIO LAID IN THE CASE OF M/S TUTICORIN ALKALI CHEMICALS & FERTILIZERS VS. CIT HELD AS UNDER:- THE QUESTION THAT WAS BEFORE THE HIGH COURT (SEE [1998] 229 ITR 789) READ THUS (PAGE 790) WHETHER, ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE INTEREST INCOME IS NOT ASSESSABLE TO TAX IN THE HANDS OF THE APPELLANT? THE HIGH COURT ANSWERED THE QUESTION AGAINST THE REVENUE. THE REVENUE IS IN APPEAL BY SPECIAL LEAVE. IT IS NOT NOW IN DISPUTE THAT THE APPEAL MUST SUCCEED, HAVING REGARD TO THE JUDGMENT OF THIS COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT [1997] 227 ITR 172. THE CIVIL APPEAL IS ACCORDINGLY ALLOWED. THE JUDGMENT AND ORDER UNDER CHALLENGE IS SET ASIDE. THE QUESTION IS ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE REVENUE. IN OTHER WORDS, THE INTEREST INCOME IS ASSESSABLE TO TAX IN THE HANDS OF THE ASSESSEE. NO ORDER AS TO COSTS. 5.4 IN VIEW OF THE ABOVE JUDGMENT, THE SUBMISSIONS OF THE ASSESSEE THAT INTEREST EARNED ON DEPOSIT SHOULD NOT BE TAXED AS THE INCOME FROM OTHER SOURCES IS DEVOID OF ANY MERIT, HENCE REJECTED. ANOTHER SUBMISSIONS OF THE ASSESSEE AS GROUND NO. 2, IT IS CONTENDED BY THE ASSESSEE THAT IN EARNING THIS INCOME THE ASSESSEE HAS INCURRED EXPENDITURE THAT WHICH ALLOWABLE U/S 57 OF THE ACT. IT IS CONTENDED THAT ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 8 THE INTEREST COST INCURRED BY THE ASSESSEE OF SUCH BORROWING IS RS. 17.94 CRORES WHEREAS THE INTEREST EARNED IS ONLY RS. 12.64 CRORES. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THIS SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE HAS PER SECTION 57 OF THE ACT. AS PER SECTION 57 OF THE ACT INCOME CHARGEABLE UNDER THE HEAD INCOME FROM THE OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE DEDUCTIONS OF EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THEREFORE, THE ASESSEE IS REQUIRED TO DEMONSTRATE FOR THE PURPOSE OF CLAIMING DEDUCTION OF EXPENDITURE THAT SUCH EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED OR EXPENDED FOR EARNING SUCH INCOME. THE ASSESSEE IS REQUIRED TO PROVE NEXUS BETWEEN THE EXPENDITURE AND THE INCOME SO EARNED. UNDER THESE FACTS, WE DEEM IT PROPER AND IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE CLAIM OF THE ASSESSEE THAT IT HAD INCURRED EXPENDITURE FOR EARNING INCOME WHICH HAS BEEN TAXED BY THE AO UNDER THE HEAD INCOME FROM THE OTHER SOURCES. GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. THEREFORE, THE COORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT THE INTEREST EARNED ON THE BORROWED MONEY DEPOSITED IN THE BANK IS ASSESSABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND CORRESPONDING EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF PAYMENT OF INTEREST ON THE BORROWED FUND IS ALLOWABLE IF THE SAME IS LAID OUT OR EXPANDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. WE FIND THAT WHEN THERE IS NO DISPUTE THAT THE LOAN WAS TAKEN FOR CONSTRUCTION OF THE HOSPITAL I.E. FOR BRINGING AN ASSET INTO EXISTENCE THEN THE INTEREST ON SUCH LOAN TILL THE ASSET IS PUT TO USE HAS TO BE CAPITALIZED AS PER THE ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 9 DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT (SUPRA). ON SIMILAR FOOTINGS, WHEN THE SAID AMOUNT WAS TO REMAIN IDEAL WITH THE ASSESSEE DUE TO THE REASON THAT THERE WAS A DELAY IN SANCTION OF THE BUILDING PLAN AND BORROWED FUND COULD NOT BE USED FOR CONSTRUCTION OF THE HOSPITAL THEN THE INTEREST RECEIVED BY THE ASSESSEE HAS A DIRECT NEXUS WITH THE CONSTRUCTION OF THE HOSPITAL AND CONSEQUENTLY IT WOULD BE CAPITALIZED AND TO BE USED TO REDUCE THE COST OF CONSTRUCTION OF THE HOSPITAL. THE HONBLE DELHI HIGH COURT IN THE CASE OF NTPC SAIL POWER CO. PVT. LTD. VS CIT (SUPRA) WHILE CONSIDERING AN IDENTICAL ISSUE AND HELD IN PARA 10 AS UNDER: 10. IT IS NO DOUBT CORRECT THAT THE PROVISO TO SECTION 36(1)(III) OF THE INCOME TAX ACT ENACTS THAT ANY AMOUNT OF THE INTEREST PAID TOWARDS ('IN RESPECT OF') CAPITAL BORROWED FOR ACQUISITION OF AN ASSET OR FOR EXTENSION OF EXISTING BUSINESS REGARDLESS OF ITS CAPITALIZATION IN THE BOOKS OR OTHERWISE, 'FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE' WOULD NOT QUALIFY AS DEDUCTION. HOWEVER, IN ALL THESE CASES, WHEN THE INTEREST WAS RECEIVED BY THE ASSESSEE TOWARDS INTEREST PAID FOR FIXED DEPOSITS WHEN THE BORROWED FUNDS COULD NOT BE IMMEDIATELY PUT TO USE FOR THE PURPOSE FOR WHICH THEY WERE TAKEN, THIS COURT, AND INDEED THE SUPREME COURT HELD THAT IF THE RECEIPT IS 'INEXTRICABLY LINKED' TO THE SETTING UP OF THE PROJECT, IT WOULD BE CAPITAL RECEIPT NOT LIABLE TO TAX BUT ULTIMATELY BE USED TO REDUCE THE COST OF THE PROJECT. BY THE SAME LOGIC, IN THIS CASE TOO, THE FUNDS INVESTED BY THE ASSESSEE COMPANY AND THE INTEREST EARNED WERE INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT. IT MAY BE ADDED THAT THE TRIBUNAL HAS NOT FOUND THAT THE DEPOSITS MADE AS MARGIN MONIES WERE NOT LIMITED TO THE CONSTRUCTION ACTIVITY CONNECTED TO THE EXPANSION OF THE BUSINESS BY WAY OF SETTING UP OF A NEW POWER GENERATION PLANT. ITA 491/JP/2018_ M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD. VS ITO 10 ACCORDINGLY, WHEN THE NET OF THE INTEREST RECEIVED AND INTEREST PAYMENT WOULD BE FINALLY CAPITALIZED THEN THE INCOME OFFERED BY THE ASSESSEE TO TAX AS NET INTEREST INCOME CANNOT BE DISTURBED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, THE DISALLOWANCE AND ADDITION MADE BY THE A.O. IS DELETED AND THE NET INCOME OFFERED BY THE ASSESSEE TO TAX IS ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER, 2019. SD/- SD/- FOE FLAG ;KNO FOT; IKY JKO (VIKRAM SINGH YADAV) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 19 TH NOVEMBER, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S SAVILLE HOSPITAL & RESEARCH CENTRE PVT. LTD., JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE I.T.O., WARD 2(2), JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 491/JP/2018) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR