Sugam Vanijya Holdieng P.Ltd, Bengluru V. DCIT, Circle-24(2), New Delhi

ITA 6722/DEL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7504 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 07-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: HARPREET AJMANI; KANCHAN KAUSAL; Deepak Chopra
• Keywords: Business income; Depreciation; Transfer pricing; Business expenditure; International transaction; Source of fund; Question of law; Capital receipt; Revenue expenditure; Set aside
• Section: 37; 56; 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.6722/DEL/2017 ASSESSMENT YEAR: 2013-14 SUGAM VANIJYA HOLDING P. LTD., VR BENGALURU, NO.11B, SURVEY NO.40/9, DYVASANDRA INDUSTRIAL AREA, 2 ND STAGE, KR PURAM HOBLI, BENGALURU. PAN: AAACS1883J VS DCIT, CIRCLE-24(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, SHRI KANCHAN KAUSHAL, CAS & SHRI HARPREET AJMANI, ADVOCATE REVENUE BY : SHRI S.S. RANA, CIT, DR DATE OF HEARING : 07.05.2019 DATE OF PRONOUNCEMENT : 26.07.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 25.09.2017 PASSED U/S 143(3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961, RELATING TO ASSESSMENT YEAR 2013-14. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION OF MIXED COMMERCIAL DEVELO PMENT PROJECTS AT WHITEFIELD, ITA NO.6722/DEL/2017 2 BANGALORE. IT FILED ITS RETURN OF INCOME ON 26.11.2 013 DECLARING THE TOTAL INCOME AT RS.13,24,24,139/-. SINCE THE ASSESSEE HAD ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS, THE ASSESSING OFFICER REFERRED THE MA TTER TO THE TPO FOR DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION. THE TPO SUGGESTED ENHANCEMENT OF RS.3,50,95,614/- ON ACCOUNT OF ADJUSTMENT TO ARMS LENGTH PRICE. ACCORDINGLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS.3,50,95,61 4/- AS SUGGESTED BY THE TPO. 3. THE ASSESSING OFFICER, DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS DISCLOSED AN AMOUNT OF RS.61,95,19 ,044/- AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF INTEREST ON FIXED DEPOSITS IN BANK. THE INCOME HAS BEEN SET OFF AGAINST BUSINESS LOSS OF THE CURRENT YEAR OF RS.49,43,63,47 8/-. HE NOTED THAT WHILE COMPUTING THE BUSINESS LOSS FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.61,93,34,362/- AS INTEREST ON FULLY COMPULSORILY CONVERTIBLE DEBENTURES. HE NOTED THAT THE ASSESSEE HAS ALSO OT HER INTEREST RECEIPTS APART FROM INTEREST ON FIXED DEPOSITS. THE TOTAL INTEREST DIS CLOSED BY THE ASSESSEE IN THE P & L ACCOUNT WAS RS.76,46,90,621/-. HE NOTED THAT WHILE AN AMOUNT OF RS.61,95,19,944/- HAS BEEN TREATED AS INCOME FROM OTHER SOURCES, TH E BALANCE AMOUNT OF INTEREST AMOUNTING TO RS.13,79,02,237/- HAS BEEN TREATED AS BUSINESS INCOME BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS ALSO DISCLOSED CAPITAL GA IN OF RS.72, 68,440/- IN ITS ACCOUNTS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE FA ILED TO SUBSTANTIATE AS TO HOW THE INTEREST INCOME IS BUSINESS INCOME. ACCORDING TO H IM, THE ASSESSEE IS A REAL ESTATE ITA NO.6722/DEL/2017 3 DEVELOPER AND ITS PROJECT IS UNDER CONSTRUCTION. T HE ASSESSEE HAS NOT EARNED ANY REVENUE FROM THE PROJECT TILL DATE. THE INTEREST I S ON THE SHORT-TERM DEPOSIT OF SURPLUS FUNDS LYING WITH THE BANKS. THE ACTUAL NATURE OF R ECEIPTS ACCORDING TO THE ASSESSING OFFICER APPEARED TO BE FROM PRE COMMENCEMENT INCOME TAXABLE AS INCOME FROM OTHER SOURCES. HE NOTED THAT THE ASSESSEE IS INVOLVED I N THE BUSINESS OF DEVELOPMENT OF REAL ESTATE. ALL THE COSTS INCURRED FOR REAL ESTATE DEV ELOPMENT HAS BEEN CAPITALIZED EXCEPT FOR A FEW ITEMS. HE OBSERVED THAT AS PER NOTE 22 T O THE NOTES TO THE ACCOUNTS, THE ASSESSEE HAS STATED THE FOLLOWING CAPITAL WORK IN P ROGRESS:- 'CAPITAL WORK IN PROGRESS THE COMPANY IS IN THE PROCESS OF CONSTRUCTION OF HO TEL & COMMERCIAL BUILDING AT BANGALORE. EXPENDITURE INCURRED, WHICH IS DIRECT LY RELATED TO THE CONSTRUCTION OF THE ABOVE MENTIONED PROJECT, HAS BEEN DISCLOSED AS PART OF 'CAPITAL WORK-IN- PROGRESS'. COSTS INCURRED IN THIS REGARD COMPRISE:- PARTICULARS AS AT 31 MARCH 2012 ADDITIONS AS AT 31 MARCH 2013 ADMINISTRATION EXPENSES 1,26,84,931 87,98,469 2,14,83,400 CONSTRUCTION COST 36,79,79,588 28,02,18,872 64,81,98,460 DEVELOPMENT COST 1,02,58,095 3,66,38,825 4,68,96,920 PROJECT CONSULTANCY 14,35,06,871 5,08,46,471 19,43,53,342 SANCTION FEE 1,84,46,010 9 7,46,120 2,81,92,130 PREOPERATIVE EXPENSES PENDING CAPITALIZATION 47,66,533 - 47,66,533 PAYROLL 1,14,59,745 2,06,87,034 3,21,46,779 ZONE - CWIP - 47,56,636 47,56,636 TOTAL 56,91,01,773 41,16,92,427 98,07,94,200 4. THE FACTS OF THE MATTER IS THAT THE COMPANY WAS INCORPORATED ON 08.09.1987 BUT THERE WAS NO ACTIVITY TILL THE FINANCIAL YEAR 2 003-04. IN THE YEAR 2004-05 THE COMPANY ACQUIRED LAND ADMEASURING 17140 SQ MTRS IN BANGALORE FOR RS. 378.24 ITA NO.6722/DEL/2017 4 LACS, WHICH WAS FUNDED AGAINST LOAN TAKEN FROM EICH ER GOODEARTH LTD. (SECURED AGAINST MORTGAGE OF THE SAID LAND). IN THE YEAR 200 7-08 THE COMPANY RAISED RS.19,96,80,000/- BY ALLOTTING 3840 SHARES OF RS. 1 0/- PER EACH AT A PREMIUM OF RS. 51,990/- TO VIRTUOUS RETAIL LTD., MAURITIUS FOR REP AYMENT OF LOAN OF EICHER GOODEARTH LTD., AND START PROJECT OF CONSTRUCTING THE COMMERC IAL BUILDING ON THE LAND ACQUIRED BY IT WITH THE OBJECT OF OPERATION OF THE COMMERCIAL B UILDING ON LEASE AFTER COMPLETION OF THE SAME. AFTER MAKING REPAYMENT OF L OAN TO EICHER GOODEARTH LTD., THE COMPANY INVESTED THE BALANCE FUND IN MUTUAL FUN DS ON TEMPORARY BASIS. IN THE YEAR 2010-11 THE COMPANY RAISED RS. 1,40,00,00,000/ - BY ALLOTTING 5600 SHARES OF RS. 10/- EACH AT A PREMIUM OF RS. 2,49,990/- TO VIRTUOU S RETAIL LTD., AND IN THE YEAR 2011- 12 THE COMPANY FURTHER RAISED RS.1,90,22,75,000/- B Y ALLOTTING 19,02,27,500 FCDS OF RS.10/- EACH TO VASSAM LTD., OF CYPRUS AND RS. 4,70 ,67,75,160 BY ALLOTTING 47,06,77,516 FCDS TO VIRTUOUS RETAIL PTE LTD., OF S INGAPORE AND REPAID DEBENTURE APPLICATION MONEY OF RS. 4,70,67,75,160/- TO VASSAM LTD OF CYPRUS. THE COMPANY ALSO EXECUTED SALE DEEDS FOR PURCHASE OF LAND RIGHT S FOR EXECUTION OF MIXED COMMERCIAL DEVELOPMENT PROJECT AT CHENNAI AND IS CU RRENTLY EXECUTING CONSTRUCTION OF MIXED COMMERCIAL DEVELOPMENT PROJECT AT BANGALORE, WORK FOR WHICH IS UNDER PROGRESS. 5. THE DETAILS OF FUNDS RAISED BY THE ASSESSEE FROM ALL THE SOURCES DURING THE YEAR UNDER CONSIDERATION IS AS BELOW: ITA NO.6722/DEL/2017 5 S. NO. SOURCE OF FUNDS AMOUNT (RS.) L. EQUITY WITH SHARE PREMIUM 159,97,85,500 2. FCCDS 660,90,50,160 3. BANK OVERDRAFT 79,50,90,896 TOTAL 900,39,26,556 AND OUT OF THE ABOVE THE ASSESSEE MADE INVESTMENT A MOUNTING TO RS. 812,36,57,276 DURING THE YEAR UNDER CONSIDERATION. THE DETAILS OF INVESTMENT MADE BY THE ASSESSEE AND INTEREST INCOME THEREON IS AS BELOW: S. NO. INVESTMENT INVESTMENT AS ON 31 MARCH 2013 (RS.) INTEREST INCOME (RS.) 1. INVESTMENT IN FIXED DEPOSIT 692,36,57,276 61,60,67,889 2. INVESTMENT IN CERTIFICATE OF DEPOSIT - 13,78,70,654 3 . PROFIT ON REDEMPTION OF MUTUAL FUNDS - 72,68,440 4 . INVESTMENT IN INTER-CORPORATE DEPOSIT 120,00,00,000 34,52,055 TOTAL 812,36,57,276 76,46,59,038 5.1 THE INTEREST PAID DURING THE YEAR BY THE ASSESS EE WAS AS BELOW: S. NO. SOURCE OF FUNDS AMOUNT (RS.) INTEREST PAID (RS.) 1. EQUITY WITH SHARE PREMIUM 159,97,85,500 - 2. FCCDS 660,90,50,160 61,93,34,362/ - 3. BANK OVERDRAFT 79,50,90,896 45,13,743/- TOTAL 900,39,26,556 62,38,48,105/- 6. RELYING ON VARIOUS DECISIONS, THE ASSESSING OFFI CER HELD THAT THE INTEREST INCOME ON THE INVESTMENTS MADE BY THE ASSESSEE OUT OF THE BORROWED FUNDS, WHILE THE BUSINESS OF THE ASSESSEE OF CONSTRUCTION OF THE SAI D COMMERCIAL COMPLEX HAD NOT COMMENCED OR THE SAID FUNDS HAD NOT BEEN UTILIZED F OR THE CONSTRUCTION OF THE SAID COMMERCIAL COMPLEX AND DURING THE PERIOD WHEN THE F UNDS WERE LYING IDLE COULD NOT BE CONSIDERED AS BUSINESS INCOME AND WAS TAXABLE UN DER THE HEAD INCOME FROM OTHER SOURCES. SIMILARLY, THE INTEREST PAID ON THE BORR OWED FUNDS WAS NOT ALLOWED TO BE SET ITA NO.6722/DEL/2017 6 OFF AGAINST THE SAID INTEREST INCOME IN TERMS OF TH E PROVISIONS OF SECTION 57 OF THE ACT SINCE THE FUNDS INVESTED BY THE ASSESSEE WERE OUT O F BORROWED FUNDS WHICH THOUGH WERE TAKEN FOR THE PURPOSE OF THE BUSINESS OF THE A SSESSEE WERE LYING IDLE AND COULD NOT BE CONSIDERED TO HAVE A DIRECT NEXUS WITH THE B USINESS INCOME OF THE ASSESSEE. THE ASSESSING OFFICER SIMILARLY DISALLOWED VARIOUS OTHE R EXPENSES DEBITED TO THE P&L ACCOUNT. IN THE DRAFT ORDER, THE ASSESSING OFFICER ALSO DISALLOWED DEPRECIATION ON VARIOUS ASSETS. 7. THE ASSESSEE APPROACHED THE DRP. HOWEVER, THE D RP CONCURRED WITH THE FINDINGS GIVEN BY THE ASSESSING OFFICER SO FAR AS T HE TREATMENT OF THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND NON-SETTING OFF OF INTEREST PAID ON BORROWED FUNDS FROM SUCH INTEREST INCOME IS CONCERNED. SO FAR AS THE DISALLOWANCE OF VARIOUS EXPENSES DEBITED TO P&L ACCOUNT IS CONCERNED, THE D RP ALLOWED THE SAME AS BUSINESS EXPENDITURE EXCEPT MARKET RESEARCH EXPENDITURE, WHI CH IS DIRECTLY RELATED TO THE PROJECTS, ON THE GROUND THAT THE BUSINESS PROCESS O F THE ASSESSEE IS ONGOING AND CERTAIN LEGITIMATE EXPENSES ARE ALLOWABLE AS BUSINESS EXPEN DITURE. THE DRP, HOWEVER, DIRECTED THE ASSESSING OFFICER TO DISALLOW DEPRECIA TION OF RS.5,21,411/- OUT OF THE TOTAL DEPRECIATION CLAIMED AT RS.14,51,646/- AND ALLOWED BALANCE DEPRECIATION ON FURNITURE AND FIXTURES, COMPUTERS, OFFICE EQUIPMENTS AND LEAS EHOLD IMPROVEMENTS. THE ASSESSING OFFICER, THEREAFTER PASSED FINAL ORDER DE TERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.75,86,71,015/-. ITA NO.6722/DEL/2017 7 8. AGGRIEVED WITH SUCH ORDER OF THE A.O./TPO/DRP, T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND S:- L. ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO, FOLLOWING THE DIRECTIONS OF HONBLE DISPUTE RESOLUT ION PANEL-2, NEW DELHI (HONBLE DRP), ERRED IN ASSESSING THE INCOME OF T HE APPELLANT AT RS. 75,86,71,020 AS AGAINST THE RETURNED INCOME OF RS. 13,24,24,139. GROUND NO. 2: VALIDITY OF THE ASSESSMENT ORDERS 2.1 ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE DRAFT ASSESSMENT ORDER DATED 28 DECEMBER 2016 PASSED BY THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 24, NEW DELHI (LD. ADDL. CIT ) IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AND SO MAY KINDLY BE ORDERED T O BE QUASHED. 2.2 WITHOUT PREJUDICE TO GROUND NO. 2.1 ABOVE, ON F ACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, ORDER DATED 2 5 SEPTEMBER 2017 PASSED BY THE LD. AO (ALLEGED FINAL ASSESSMENT ORDER) IS ILLE GAL, BAD IN LAW, AND WITHOUT JURISDICTION AS IT IS CONSEQUENTIAL TO THE DRAFT AS SESSMENT ORDER PASSED BY THE LD. ADDL. CIT WHICH WAS ITSELF ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION AND SO MAY ORDERED TO BE QUASHED. GROUND NO. 3: DISALLOWANCE AND CAPITALIZATION OF IN TEREST PAID ON FULLY AND COMPULSORILY CONVERTIBLE DEBENTURES (FCCDS) INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE APP ELLANT (ON A WITHOUT PREJUDICE BASIS) 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS CHALLENGI NG THE VALIDITY OF THE ASSESSMENT ORDERS, ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ HONBLE DRP HAS ERRED IN DISALLOWING AND CAPITA LIZING THE INTEREST OF RS. 61,93,34,362 PAYABLE ON FCCDS, EVEN AFTER ACCEPTING THAT THE FUNDS WERE RAISED AND UTILIZED FOR THE PURPOSES OF THE ONGOING PROJEC T (WHICH CONSTITUTED THE BUSINESS OF THE APPELLANT), WITHOUT APPRECIATING TH AT THE INTEREST EXPENSE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE APPELLANT AND IS AN ALLOWABLE EXPENDITURE UNDER THE PROVISION S OF SECTION 37/ 36(I)(III) OF THE ACT. 'GROUND NO. 4: DISALLOWANCE OF INTEREST PAID ON FCC DS UNDER SECTION 57 OF THE ACT (ON A WITHOUT PREJUDICE BASIS) 4.1 WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON FACT S IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ HONBLE DRP HAS ER RED IN NOT ALLOWING DEDUCTION FOR THE INTEREST PAYABLE ON FCCDS UNDER S ECTION 57 OF THE ACT AGAINST THE INTEREST INCOME OFFERED TO TAX UNDER SECTION 56 OF THE ACT. ITA NO.6722/DEL/2017 8 4.2 ON FACTS IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO/ HONBLE DRP HAS FAILED TO APPRECIATE THAT THERE IS A DIRECT NEXUS B ETWEEN INTEREST EXPENSE AND INTEREST INCOME OF THE APPELLANT AS THE INTEREST IN COME WAS EARNED FROM TEMPORARY INVESTMENT OF THE SAME FUNDS ON WHICH THE INTEREST EXPENSE WAS INCURRED BY THE APPELLANT AND THUS THE INTEREST EXP ENSE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME. GROUND NO. 5: NETTING OFF THE INTEREST INCOME WITH THE INTEREST EXPENSES (ON A WITHOUT PREJUDICE BASIS) 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ HONBLE DRP HAS ERRED IN NOT APPRECIATING THAT IF THE INTEREST EXPENSE WAS TO BE CAPITALIZED IN THE C OST OF THE ONGOING PROJECT, THE INTEREST INCOME, BEING INEXTRICABLY LINKED WITH THE ONGOING PROJECT, WAS TO BE ALLOWED TO BE SET OFF AGAINST COST OF PROJECT AND N OT SEPARATELY TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. GROUND NO. 6: DISALLOWANCE AND CAPITALIZATION OF OT HER EXPENSES 6.1 ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO/ HONBLE DRP HAS ERRED IN DISALLOWING AND CAPITALIZI NG THE EXPENSES RELATED TO MARKET RESEARCH AND DEPRECIATION ON LEASEHOLD IMPRO VEMENTS DEBITED TO THE PROFIT AND LOSS ACCOUNT, WITHOUT ASSIGNING ANY COGENT REAS ONS AND WITHOUT APPRECIATING THAT SUCH EXPENSES ARE ALLOWABLE UNDER THE PROVISIONS OF THE ACT, MORE SO WHEN THE LD. AO/ HONBLE DRP HAVE THEMSELVE S ACCEPTED THAT THE APPELLANT HAS SETUP AND COMMENCED ITS BUSINESS. 6.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ HONBLE DRP HAS ERRED IN NOT ALLOWING THE CLAIM OF EXPENSES AMOUNTING TO RS. 45,13,743 ON ACCOUNT OF INTEREST ON OVERDRAFT FACI LITY, WHICH WAS USED FOR EXPENSES ALREADY ALLOWED AS BEING TAX DEDUCTIBLE, W ITHOUT APPRECIATING THAT THE SAME IS A REVENUE EXPENDITURE ALLOWABLE UNDER SECTI ON 36(I)(III) READ WITH SECTION 37 OF THE ACT. 6.3 ON FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN NOT GRANTING THE DEDUCTION OF AN AMOUNT OF RS. 10,29,847 ON ACCOUNT OF DEPRECIATION, AS PER THE PROVISIONS OF THE ACT, WIT HOUT APPRECIATING THAT THE HONBLE DRP HAD SPECIFICALLY DIRECTED THE LD. AO TO GRANT THE BENEFIT OF DEPRECIATION TO THE APPELLANT. GROUND NO.7: MISCELLANEOUS 7.1 ON FACTS IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN NOT GRANTING THE ENTIRE CREDIT OF TAXES DEDUCTED AT SOU RCE WHILE COMPUTING THE TAX DEMAND UNDER SECTION 156 OF THE ACT WITHOUT APPRECI ATING THAT THE APPELLANT HAS CLAIMED THE CREDIT OF TAXES DEDUCTED AT SOURCE BASE D ON FORM 26AS. ITA NO.6722/DEL/2017 9 7.2. ON FACTS IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO/ HONBLE DRP ERRED IN HOLDING THAT THE APPELLANT HAS FURNISH ED INACCURATE PARTICULARS OF INCOME IN RESPECT OF EACH ITEM OF DISALLOWANCE/ ADD ITIONS AND IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS HEREIN OR ADD ANY FURTHER GROUNDS AS MAY BE CONSIDE RED NECESSARY EITHER BEFORE OR DURING THE HEARING. 8.1 THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDI TIONAL GROUNDS:- WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON THE FA CTS, IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INTEREST INCOME AMOUNTING TO RS. 75,74,22,181 ACCRUING TO THE APPELLANT, IN THE ABSENCE OF SET UP OF BUSIN ESS, WAS LIABLE TO BE TREATED AS CAPITAL RECEIPT WITH THE CONSEQUENTIAL EFFECT OF SU CH RECEIPT REDUCING THE CAPITAL WORK-IN-PR OGRESS. ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE INTEREST INCOME AMOUNTING TO RS.75,74,22,181/- ACCRUING TO THE APPE LLANT IN THE CAPTIONED ASSESSMENT YEAR BE ASSESSED AS BUSINESS INCOME INST EAD OF INCOME FROM OTHER SOURCES. 9. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO V ARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F NTPC LTD., SUBMITTED THAT SINCE ALL FACTS ARE ALREADY AVAILABLE ON RECORD AND NO NE W FACTS ARE REQUIRED TO BE INVESTIGATED, THEREFORE, THE ADDITIONAL GROUND RAIS ED BY THE ASSESSEE SHOULD BE ADMITTED FOR ADJUDICATION. 10. THE LD. DR, ON THE OTHER HAND, STRONGLY OBJECTE D TO THE ADMISSION OF SUCH ADDITIONAL GROUND. HE SUBMITTED THAT THE ADDITIONA L GROUNDS FILED BY THE ASSESSEE COULD NOT BE CONSIDERED FOR ADJUDICATION PARTICULAR LY WHEN NO CLAIM WAS MADE BEFORE THE ORIGINAL AUTHORITY AND THERE IS NOTHING ON RECO RD TO INDICATE AS TO WHAT PREVENTED ITA NO.6722/DEL/2017 10 THE ASSESSEE FROM RAISING SUCH A CLAIM BEFORE THE L OWER AUTHORITIES. FOR THE ABOVE PROPOSITION, HE RELIED ON THE FOLLOWING DECISIONS:- I) ULTRATECH CEMENT LTD. VS. ADDL. CIT [2017-TIOL-785- HC-MUM-IT]; AND II) ADDL. CIT VS. GURJARQRAVURES (P) LTD. [1978] 111 IT R 1 (SC). 11. THE LD. COUNSEL FOR THE ASSESSEE, IN HIS REJOIN DER, SUBMITTED THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ULTRAT ECH CEMENT (SUPRA) IS NOT APPLICABLE SINCE THE AUDIT REPORT WAS NOT AVAILABLE ON RECORD. HOWEVER, IN THE INSTANT CASE, THE FACTS ARE ALREADY ON RECORD AND, THEREFOR E, THE ADDITIONAL GROUND SHOULD BE ADMITTED. 12. AFTER HEARING BOTH THE SIDES AND CONSIDERING TH E FACT THAT ALL MATERIAL FACTS NECESSARY FOR ADJUDICATION OF BOTH THE ADDITIONAL G ROUNDS ARE ALREADY AVAILABLE ON RECORD AND NO NEW FACTS ARE REQUIRED TO BE INVESTIG ATED, THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE ADMITTED FOR ADJUDICATION. 13. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO PAGE 8 OF THE PAPER BOOK, DREW THE ATTENTION OF THE BENCH TO THE PROFIT & LOSS ACC OUNT AND SUBMITTED THAT THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.76,46,90,621/- A S OTHER INCOME. REFERRING TO THE BALANCE SHEET OF THE ASSESSEE COMPANY, COPY OF WHICH IS PLACED AT PAGE 7 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO T HE LIABILITIES AS APPEARING IN THE BALANCE SHEET AND SUBMITTED THAT THE SURPLUS AMOUNT WAS KEPT AS SHORT-TERM DEPOSITS ON WHICH THE ASSESSEE HAS EARNED INTEREST INCOME. HE SUBMITTED THAT THE LD. DRP WHILE DIRECTING THE ASSESSING OFFICER TO CAPITALIZE THE VARIOUS EXPENSES AS WORK-IN- ITA NO.6722/DEL/2017 11 PROGRESS, TREATED THE INTEREST INCOME AS INCOME FR OM OTHER SOURCES. REFERRING TO NOTE NO.17 ATTACHED TO THE NOTES FORMING PART OF FI NANCIAL STATEMENTS, COPY OF WHICH IS PLACED AT PAGE 18 OF THE PAPER BOOK, THE LD. COU NSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FINANCE COSTS OF RS.6 2,38,48,105/- WHICH CONSISTS OF INTEREST ON FULLY AND COMPULSORILY CONVERTIBLE DEBE NTURES AT RS.61,93,34,362/- AND INTEREST ON OVERDRAFT FACILITY AT RS.45,13,743/-. H E SUBMITTED THAT THE ASSESSING OFFICER TREATED THE INTEREST INCOME AS INCOME FROM OTHER S OURCES ON THE GROUND THAT THE ASSESSEE HAS NOT RECEIVED ANY INCOME. HE SUBMITTED THAT THE ASSESSING OFFICER IS TAKING DIVERGENT VIEWS. IF THE EXPENDITURE HAS TO B E CAPITALIZED, THEN, THE INCOME SHOULD GO TO REDUCE THE CAPITAL WORK-IN-PROGRESS. REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO REPORTED IN 181 TAXMAN 249, HE SUBMITTED THAT THE HON'BLE HIGH COURT HELD THAT WHEN THE INCOME WAS EARNED IN A PERIOD PRIOR TO COM MENCEMENT OF BUSINESS IT WAS IN THE NATURE OF CAPITAL RECEIPT AND, HENCE, WAS REQUI RED TO BE SET OFF AGAINST THE PRE- OPERATIVE EXPENSES. 14. THE LD. COUNSEL FOR THE ASSESSEE, IN HIS ANOTHE R PLANK OF ARGUMENT, SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE REAL ESTATE BUS INESS AND HAD PURCHASED A PLOT OF LAND IN BANGALORE IN F.Y. 2004-05 OUT OF THE LOAN FUNDS. HOWEVER, PURSUANT TO THE INFUSION OF EQUITY FUNDS BY VIRTUOUS RETAIL LTD., THE LOAN F UND WAS REPAID IN F.Y. 2008-09. DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE W AS IN THE PROCESS OF CONSTRUCTION OF A MALL IN BANGALORE ON THE AFORESAID LAND. APAR T FROM THIS BUSINESS, THE ASSESSEE ITA NO.6722/DEL/2017 12 ALSO CARRIED ON ANCILLARY BUSINESS OF LENDING OF MO NEY/ADVANCES AND INVESTMENT OF FUNDS WHICH WERE NOT IMMEDIATELY REQUIRED AND EARNE D INTEREST OF RS.76.47 CRORES. HE SUBMITTED THAT THE INTEREST COST INCURRED IN RESPEC T OF LOAN FUNDS AMOUNTING TO RS.62.38 CRORES WAS RELATED TO THE BUSINESS OF THE ASSESSEE I.E., THE REAL ESTATE BUSINESS AS WELL AS INVESTMENT OF FUNDS WHICH WERE NOT IMMEDIATELY REQU IRED. THE INTEREST EXPENDITURE WAS CLAIMED AS DEDUCTION UNDER THE PROVISIONS OF TH E ACT WHILE COMPUTING ITS TAXABLE INCOME. THE ASSESSEE ALSO CLAIMED OTHER ADMINISTRA TIVE EXPENSES AMOUNTING TO RS.77.69 LAKHS AND DEPRECIATION OF RS.12.29 LAKHS W HILE COMPUTING THE BUSINESS INCOME. ALTHOUGH THE ASSESSING OFFICER ACCEPTED TH E FACT THAT THE BUSINESS OF THE ASSESSEE HAD COMMENCED DURING THE CAPTIONED ASSESSM ENT YEAR, HOWEVER, DISALLOWED THE VARIOUS EXPENSES FOR THE REASON THAT THE SAME W AS INCURRED IN RELATION TO THE ONGOING PROJECTS IN BANGALORE AND, THEREFORE, THE S AME NEEDS TO BE CAPITALIZED. THE DRP WHILE AGREEING TO THE FACT THAT THE ASSESSEE HA D COMMENCED ITS BUSINESS, ALLOWED DEPRECIATION ON FURNITURE AND FIXTURES, COMPUTERS A ND OFFICE EQUIPMENTS. THEREFORE, ONCE THE BUSINESS HAS BEEN SET UP AS HELD BY THE AS SESSING OFFICER AS WELL AS THE DRP, THEREFORE, SUCH INTEREST INCOME SHOULD HAVE BEEN TR EATED AS BUSINESS INCOME AND ALL EXPENSES SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. REFERRING TO THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN DCIT VS. HMS REAL ESTATE PVT. LTD., 54 CCH 427, HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT WHEN AN ASSESSEE, WHOSE BUSINESS IS TO DEVELOP REAL ESTATE IS IN A PO SITION TO PERFORM CERTAIN ACTS TOWARDS THE ACQUISITION OF LAND, THAT WOULD CLEARLY SHOW TH AT IT IS READY TO COMMENCE BUSINESS AND AS A COROLLARY THAT IT HAS ALREADY BEEN SET UP. THE ACTUAL ACQUISITION OF LAND IS THE ITA NO.6722/DEL/2017 13 RESULT OF SUCH EFFORTS PUT IN BY THE ASSESSEE. ONC E THE LAND IS ACQUIRED, THE ASSESSEE MAY BE SAID TO HAVE ACTUALLY COMMENCED ITS BUSINESS WHICH IS THAT OF DEVELOPMENT OF REAL ESTATE. THE ACTUAL ACQUISITION OF LAND MAY BE A FIRST STEP IN THE COMMENCEMENT OF THE BUSINESS, BUT, SECTION 3 OF THE ACT DOES NOT SP EAK OF COMMENCEMENT OF THE BUSINESS. IT SPEAKS ONLY OF SETTING UP OF THE BUSI NESS. ACCORDINGLY, THE ORDER OF THE CIT(A) ALLOWING THE VARIOUS EXPENSES AS BUSINESS EX PENDITURE AS AGAINST CAPITALIZATION OF THE SAME AS WORK-IN-PROGRESS BY THE ASSESSING OF FICER WAS UPHELD. 15. REFERRING TO VARIOUS OTHER DECISIONS AS FILED I N THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DISALLOWANCE OF THE VARIOUS EXPENSES INCLUDING THE INTEREST PAID ON FULLY & COMPULSORILY CONVERTIBLE D EBENTURES IS NOT JUSTIFIED. 16. IN HIS ANOTHER PLANK OF ARGUMENT, THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT IF THE INTEREST EXPENSES WAS TO BE CAPITALIZED IN THE COST OF THE ONGOING PROJECT, THE INTEREST INCOME BEING INEXTRICABLY LINKED WITH THE ONGOING PROJECT WAS TO BE ALLOWED TO BE SET OFF AGAINST THE COST OF PROJECT AND NOT T O BE SEPARATELY TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. HE ACCORDINGLY SUBMIT TED THAT THE ORDER OF THE ASSESSING OFFICER/TPO/DRP SHOULD BE SET ASIDE AND T HE VARIOUS GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 17. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDERS OF THE A.O./TPO/DRP. HE SUBMITTED THAT DURING THE ASSESSM ENT PROCEEDINGS, THE ASSESSEE FAILED TO SUBSTANTIATE AS TO HOW THE INTEREST INCOM E IS BUSINESS INCOME. HE SUBMITTED THAT THE ASSESSEE, VIDE LETTER DATED 13 TH DECEMBER, 2016, HAD STATED THAT THE OTHER ITA NO.6722/DEL/2017 14 INTEREST INCOME MAY BE TREATED AS INCOME FROM OTHE R SOURCES. HE SUBMITTED THAT SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CO NSTRUCTION, THEREFORE, IT CAN FOLLOW THE PROJECT COMPLETION METHOD OR PERCENTAGE COMPLET ION METHOD. IN BOTH THESE METHODS OF ACCOUNTING, THE EXPENSES ARE REQUIRED TO BE CAPITALIZED. THE NORMAL BUSINESS RUNNING EXPENSES HAVE ALREADY BEEN ALLOWED BY THE DRP. HE SUBMITTED THAT IN VIEW THE PROVISIONS OF SECTION 57, ONLY EXPENSES INCURRED FOR EARNING INTEREST INCOME ARE TO BE ALLOWED. HE SUBMITTED THAT THE AS SESSEE WANTS TO CLAIM VARIOUS OTHER EXPENSES WHICH ARE NOT RELATED TO EARNING OF INTERE ST INCOME. THE ONUS IS UPON THE ASSESSEE TO SHOW THAT THESE EXPENSES HAVE BEEN INCU RRED FOR EARNING THE INTEREST INCOME. SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT RECEIVING AND GIVING INTEREST IS ITS BUSINESS IS CONCERNED, HE SU BMITTED THAT THE SAME IS NOT EVIDENT FROM THE AUDIT REPORT. HE SUBMITTED THAT SINCE THE ASSESSEE HAS NOT DISCLOSED A SINGLE RUPEE OF INCOME AS REVENUE BY WAY OF SALE OF BUILDI NG, THEREFORE, THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN TAXING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND TREATING THE VARIOUS EXPENSES INCLUDING THE FIN ANCE COST AS WORK-IN-PROGRESS. HE ALSO RELIED ON THE FOLLOWING DECISIONS:- (I) CONVENTIONAL FASTNERS VS. CIT 2018-TIOL-202-SC-IT; (II) CIT VS. JYOTI APPARELS (2008) 166 TAXMAN 343; (III) CIT VS. MEREENA CREATIONS (2010) 189 TAXMAN 71 (DEL ); (IV) CIT VS. BHAWAL SYNTHETICS (INDIA), UDAIPUR (2017) 8 1 TAXMANN.COM 478 (RAJ); ITA NO.6722/DEL/2017 15 (V) THERMAL POWERTECH CORPORATION INDIA LTD. VS. DCIT ( 2017) 81 TAXMANN.COM 168; (VI) CIT VS. RASSI CEMENT LTD. (1998) 100 TAXMAN 568 (AP ). 18. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE A.O./TPO/DRP. WE HAVE ALSO CONSI DERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER, IN THE I NSTANT CASE, HELD THAT THE ASSESSEE IS DEVELOPING A PROPERTY FOR ITS USE IN THE BUSINESS O F LETTING THEM ON HIRE AND IS NOT DEVELOPING THE PROPERTY FOR FUTURE SALE. THEREFORE, THE REVENUE IN FUTURE WILL NOT COME FROM SALE OF PROPERTY BUT WILL COME FROM RENTAL REC EIPT AND THE BUSINESS ASSETS ON WHICH THE ASSESSEE WILL EARN INCOME WILL COME INTO EXISTENCE MUCH LATER. HE, THEREFORE, HELD THAT THE INTEREST INCOME ON THE INV ESTMENTS MADE BY THE ASSESSEE OUT OF THE BORROWED FUNDS WHILE THE BUSINESS OF THE ASSESS EE OF CONSTRUCTION OF THE SAID COMMERCIAL COMPLEX HAD NOT COMMENCED OR THE SAID FU NDS HAD NOT BEEN UTILIZED FOR THE CONSTRUCTION OF THE SAID COMMERCIAL COMPLEX AND DURING THE PERIOD WHEN THE FUNDS WERE LYING IDLE COULD NOT BE CONSIDERED AS BUSINESS INCOME AND WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. SIMILARLY, HE HE LD THAT THE INTEREST PAID ON THE BORROWED FUNDS WAS NOT ALLOWABLE TO BE SET OFF AGAI NST THE SAID INTEREST INCOME IN TERMS OF THE PROVISIONS OF SECTION 57 OF THE ACT SI NCE THE FUNDS INVESTED BY THE ASSESSEE WERE OUT OF BORROWED FUNDS WHICH THOUGH WE RE TAKEN FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE WERE LYING IDLE AND COULD NOT BE CONSIDERED TO HAVE A DIRECT NEXUS WITH THE BUSINESS INCOME OF THE ASSESSEE. WE FIND THE DRP UPHELD THE ACTION OF ITA NO.6722/DEL/2017 16 THE ASSESSING OFFICER ON THIS ISSUE. SO FAR AS THE DISALLOWANCE OF VARIOUS OTHER EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT IS CO NCERNED, THE DRP HELD THAT EXCEPT MARKETING RESEARCH EXPENDITURE OF RS.11,68,544/- WH ICH IS DIRECTLY RELATED TO THE PROJECT, THE OTHER EXPENSES ARE ALLOWABLE AS BUSINE SS EXPENDITURE. THE DRP ALSO DID NOT ALLOW THE CLAIM OF INTEREST ON OVERDRAFT AS BUS INESS EXPENDITURE. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE A.O./DRP HAVE ALREADY HELD THAT THE ASSESSEE HAS SET UP ITS BUSINESS, THE REFORE, THERE WAS NO NEED FOR HAVING THIS DIVERGENT TREATMENT OF THE INCOME AND EXPENSES . 19. AFTER CONSIDERING THE VARIOUS ALTERNATE ARGUMEN TS ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND MERIT IN THE FIRST ADDITI ONAL GROUND RAISED BY THE ASSESSEE. WE FIND SOMEWHAT IDENTICAL ISSUE HAD COME UP BEFORE TH E HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (S UPRA). IN THAT CASE THE ASSESSEE- COMPANY WAS INCORPORATED IN PURSUANCE OF A JOINT VE NTURE ENTERED INTO BETWEEN AN INDIAN COMPANY AND A JAPANESE COMPANY TO SET UP A P OWER PROJECT. IN ORDER TO EFFECTUATE THE PURPOSE FOR WHICH THE JOINT VENTURE WAS CONCEIVED, BOTH THE JOINT VENTURE PARTNERS CONTRIBUTED SHARE CAPITAL WHICH IN CLUDED A SUM BY WAY OF ADDITIONAL SHARE CAPITAL. THE ASSESSEE STATED THAT SAID FUNDS WERE REQUIRED FOR PURCHASE OF LAND AND DEVELOPMENT OF INFRASTRUCTURE, BUT DUE TO LEGAL ENTANGLEMENTS WITH RESPECT TO TIDE OF LAND, THEY WERE TEMPORARILY PUT IN FIXED DEPOSIT WITH BANK AND INTEREST WAS EARNED THEREON. IT CLAIMED THAT SAID INTEREST WAS CAPITAL RECEIPT AND, THEREFORE, SHOULD BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. THE ASSESSING O FFICER, HOWEVER, TREATED THE ITA NO.6722/DEL/2017 17 INTEREST AS 'INCOME FROM OTHER SOURCES'. ON APPEAL, THE COMMISSIONER (APPEALS) CATEGORICALLY FOUND THAT THE FUNDS WERE PLACED IN F IXED DEPOSIT SO THAT LIQUIDITY WAS ENSURED AND MONEY WOULD REMAIN AVAILABLE WHEN REQUI RED FOR PURCHASE OF LAND AND INFRASTRUCTURE DEVELOPMENT AND, HENCE, THE INTEREST EARNED WAS 'INEXTRICABLY LINKED' WITH THE SETTING UP OF THE POWER PLANT. HE, THEREFO RE, APPLIED THE JUDGMENT OF THE SUPREME COURT IN CIT V. BOKARO STEEL LTD. [1999] 236 ITR 315 / 102 T AXMAN 94 AND ALLOWED THE CLAIM OF THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION AND TO CONSIDER THE SAME FOR CAPITALIZATIO N TOWARDS PRE-OPERATIVE EXPENSES. ON THE REVENUE'S APPEAL, THE TRIBUNAL, FOLLOWING DE CISION IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997] 227 ITR 172 / 93 TAXMAN 502 (SC) REVERSED THE ORDER OF THE COMMISSIONER (APPEALS). 20. BEFORE THE HON'BLE HIGH COURT, THE FOLLOWING SU BSTANTIAL QUESTION OF LAW AROSE FOR ITS CONSIDERATION:- 'WHETHER THE TRIBUNAL MISDIRECTED ITSELF IN LAW IN HOLDING THAT INTEREST WHICH ACCRUED ON FUNDS DEPLOYED WITH THE BANK COULD BE TA XED AS INCOME FROM OTHER SOURCES AND NOT AS CAPITAL RECEIPT LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES ?' 20.1 WE FIND THE HON'BLE HIGH COURT DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT FROM PARA 5 ONWARDS READ AS UNDER:- 5. IN OUR OPINION THE TRIBUNAL HAS MISCONSTRUED TH E RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS (SUPRA) AND THAT OF BOKARO STEEL LTD. (SUPRA). THE TEST WHICH PERMEATES THROUGH THE JUDGMENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS (SUPRA) IS THAT IF FUNDS HAVE BEEN ITA NO.6722/DEL/2017 18 BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FI XED DEPOSITS THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE H EAD 'INCOME FROM OTHER SOURCES . ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD. (SUPRA) TO OUR MIND IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQ UIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 5.1 THE TEST, THEREFORE, TO OUR MIND IS WHETHER THE ACTIVITY WHICH IS TAKEN UP FOR SETTING UP OF THE BUSINESS AND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLANT. THE CLUE IS PERHAPS AVAILABLE IN SECTION 3 OF THE ACT WHICH STATES THAT FOR NEWLY SET UP BUSI NESS THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS. THEREFORE, AS PER THE PROVISION OF SECTION 4 OF THE ACT WHICH IS THE CHARGING SECTION INCOME WH ICH ARISES TO AN ASSESSEE FROM THE DATE OF SETTING OF T HE BUSINESS BUT PRIOR TO COMMENCEMENT IS CHARGEABLE TO TAX DEPENDING ON WHET HER IT IS OF A REVENUE NATURE OR CAPITAL RECEIPT. THE INCOME OF A NEWLY SE T UP BUSINESS, POST THE DATE OF ITS SETTING UP CAN BE TAXED IF IT IS OF A REVENUE N ATURE 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 'PROFIT AND GAI NS OF BUSINESS OR PROFESSION' IT WOULD HAVE TO BE AN ACTIVITY WHICH IS IN SOME MANNE R OR FORM CONNECTED WITH BUSINESS. THE WORD 'BUSINESS' IS OF WIDE IMPORT WHI CH WOULD ALSO INCLUDE ALL SUCH ACTIVITIES WHICH COALESCE INTO SETTING UP OF T HE BUSINESS. SEE MAZAGAON DOCK LTD VS CIT & EXCESS PROFITS TAX ; (1958) 34 ITR 368 (SC), AND NARAIN SWADESHI WEAVING MILLS VS COMMISSIONER OF EXCESS PR OFITS TAX ; (1954) 26 ITR 765 (SC). ONCE IT IS HELD THAT THE ASSESSEES INCOM E IS AN INCOME CONNECTED WITH BUSINESS, WHICH WOULD BE SO IN THE PRESENT CASE, IN VIEW OF THE FINDING OF FACT BY THE CIT(A) THAT THE MONIES WHICH WERE INDUCTED INTO THE JOINT VENTURE COMPANY BY THE JOINT VENTURE PARTNERS WERE PRIMARILY INFUSE D TO PURCHASE LAND AND TO DEVELOP INFRASTRUCTURE - THEN IT CANNOT BE HELD THA T THE INCOME DERIVED BY PARKING THE FUNDS TEMPORARILY WITH TOKYO MITSUBISHI BANK, W ILL RESULT IN THE CHARACTER OF THE FUNDS BEING CHANGED, IN AS MUCH AS, THE INTERES T EARNED FROM THE BANK WOULD HAVE A HUE DIFFERENT THAN THAT OF BUSINESS AND BE B ROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES'. IT IS WELL-SETTLED THA T AN INCOME RECEIVED BY THE ASSESSEE CAN BE TAXED UNDER THE HEAD 'INCOME FROM O THER SOURCES' ONLY IF IT DOES NOT FALL UNDER ANY OTHER HEAD OF INCOME AS PROVIDED IN SECTION 14 OF THE ACT. THE HEAD 'INCOME FROM OTHER SOURCES' IS A RESIDUARY HEA D OF INCOME. SEE S.G. MERCANTILE CORPORATION P. LTD VS CIT, CALCUTTA ; (1972) 83 ITR 700 (SC) AND CIT VS GOVINDA CHOUDHURY & SONS .; (1993) 203 ITR 881 (SC). 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUN D BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTUR E. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN T HE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A ITA NO.6722/DEL/2017 19 PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OP ERATIVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS (SUPRA) IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE SURPLUS AND, THEREFORE, THE SUPREME COURT HELD THAT THE INTEREST EARNED ON SURP LUS FUNDS WOULD HAVE TO BE TREATED AS INCOME FROM OTHER SOURCES . ON THE OTHER HAND IN BOKARO STEEL LTD (SUPRA) WHERE THE ASSESSEE HAD EARNED INTEREST ON A DVANCE PAID TO CONTRACTORS DURING PRE-COMMENCEMENT PERIOD WAS FOUND TO BE INE XTRICABLY LINKED TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE W AS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE-OPERA TIVE EXPENSES. 6. THERE IS ANOTHER PERSPECTIVE FROM WHICH THE PRES ENT ISSUE CAN BE EXAMINED. UNDER SECTION 208 OF THE COMPANIES ACT, 1956 A COMPANY CAN PAY INTER EST ON SHARE CAPITAL WHICH IS ISSUED FOR A SPECIFIC PURPOS E TO DEFRAY EXPENSES FOR CONSTRUCTION OF ANY WORK AND WHICH CANNOT BE MADE P ROFITABLE FOR A LONG PERIOD SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN SECTIO N (2) TO (7) OF SECTION 208 . THIS SECTION WAS SPECIFICALLY NOTED BY THE SUPREME COURT IN CHALLAPALLI SUGARS LTD VS CIT (1975) 98 ITR 167. THE SUPREME COURT WENT ON TO OB SERVE AT PAGE 175 AS FOLLOWS: 'WE HAVE ALREADY REFERRED TO SECTION 208 OF THE COMPANIES ACT WHICH MAKES PROVISION FOR PAYMENT OF INTEREST ON SHARE CA PITAL IN CERTAIN CONTINGENCIES. CLAUSE (B) OF SUB-SECTION (1) OF THA T SECTION PROVIDES THAT IN CASE INTEREST IS PAID ON SHARE CAPITAL ISSU ED FOR THE PURPOSE OF RAISING MONEY TO DEFRAY THE EXPENSES OF CONSTRUCTIN G ANY WORK OR BUILDING OR THE PROVISION OF ANY PLANT IN CONTINGEN CIES MENTIONED IN THAT SECTION, THE SUM SO PAID BY WAY OF INTEREST MA Y BE CHARGED TO CAPITAL AS PART OF THE COST OF CONSTRUCTION OF THE WORK OR BUILDING OR THE PROVISION OF THE PLANT. THE ABOVE PROVISION THUS GI VES STATUTORY RECOGNITION TO THE PRINCIPLE OF CAPITALIZING THE IN TEREST IN CASE THE INTEREST IS PAID ON MONEY RAISED TO DEFRAY EXPENSES OF THE CONSTRUCTION OF ANY WORK OR BUILDING OR THE PROVISION OF ANY PLA NT IN CONTINGENCIES MENTIONED IN THAT SECTION EVEN THOUGH SUCH MONEY CO NSTITUTES SHARE CAPITAL. THE SAME PRINCIPLE, IN OUR OPINION, SHOULD HOLD GOOD IF INTEREST IS PAID ON MONEY NOT RAISED BY WAY OF SHAR E CAPITAL BUT TAKEN ON LOAN FOR THE PURPOSE OF DEFRAYING THE EXPENSES O F THE CONSTRUCTION OF ANY WORK OR BUILDING OR THE PROVISION ANY PLANT. THE REASON INDEED WOULD BE STRONGER IN CASE SUCH INTEREST IS PAID ON MONEY TAKEN ON LOAN FOR MEETING THE ABOVE EXPENSES.' 6.1 IN OUR VIEW THE SITUATION IN THE INSTANT CASE I S QUITE SIMILAR EXCEPT HERE INSTEAD OF PAYING INTEREST ON FUNDS BROUGHT IN FOR SPECIFIC PURPOSE INTEREST IS EARNED ON FUNDS BROUGHT IN BY WAY OF SHARE CAPITAL FOR A SPECIFIC PURPOSE. COULD IT BE SAID THAT IN THE FORMER SITUATION INTEREST CO ULD HAVE BEEN CAPITALIZED AND IN THE LATER SITUATION IT CANNOT BE CAPITALIZED. TO TE ST THE PRINCIPLE WE COULD EXTEND THE EXAMPLE, THAT IS, WOULD OUR ANSWER BE ANY DIFFE RENT HAD ASSESSEE PASSED ON ITA NO.6722/DEL/2017 20 THE INTEREST TO THE RESPECTIVE SHAREHOLDERS. IF NOT , THEN IN OUR VIEW THE ONLY CONCLUSION POSSIBLE IS THAT INTEREST EARNED IN THE PRESENT CIRCUMSTANCES OUGHT TO BE CAPITALIZED. 7. IN VIEW OF THE DISCUSSION ABOVE, IN OUR OPINION THE TRIBUNAL MISDIRECTED ITSELF IN APPLYING THE DECISION OF THE SUPREME COURT IN TU TICORIN ALKALI CHEMICALS (SUPRA) IN THE FACTS OF THE PRESENT CASE. IN OUR OP INION ON ACCOUNT OF THE FINDING OF FACT RETURNED BY THE CIT(A) THAT THE FUNDS INFUS ED IN THE ASSESSEE BY THE JOINT VENTURE PARTNER WERE INEXTRICABLY LINKED WITH THE S ETTING UP OF THE PLANT, THE INTEREST EARNED BY THE ASSESSEE COULD NOT BE TREATE D AS INCOME FROM OTHER SOURCES. IN THE RESULT WE ANSWER THE QUESTION AS FRAMED IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THESE APPEALS ARE ALLOWED AND THE IMPUGNED JUDGMENT IS SET ASIDE. 21. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE H OLD THAT THE FUNDS RAISED BY THE ASSESSEE ARE INEXTRICABLY LINKED WITH SETTING U P OF ITS MALL AT BANGALORE AND, THEREFORE, THE INTEREST EARNED BY THE ASSESSEE BY P ARKING THE SAID FUNDS TEMPORARILY WITH BANK CANNOT BE TREATED AS INCOME FROM OTHER S OURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINES S, IT WAS IN THE NATURE OF CAPITAL RECEIPT AND, THEREFORE, IT WOULD GO TO REDUCE THE C APITAL WORK-IN-PROGRESS. WE, THEREFORE, ACCEPT THE ABOVE CONTENTION OF THE LD. C OUNSEL FOR THE ASSESSEE THAT IF THE EXPENDITURE IS CAPITALIZED, THE INCOME EARNED ON TE MPORARY PARKING OF THE FUNDS BEING CAPITAL IN NATURE WILL GO TO REDUCE THE CAPITAL WOR K-IN-PROGRESS. THE GROUND OF APPEAL NOS.3 TO 5 AND THE ADDITIONAL GROUNDS ARE ACCORDIN GLY DECIDED IN THE TERMS INDICATED ABOVE. 22. SO FAR AS GROUND OF APPEAL NO.6.1 IS CONCERNED, IT IS THE GRIEVANCE OF THE ASSESSEE THAT THE MARKET RESEARCH EXPENSES AND DEPR ECIATION ON LEASEHOLD IMPROVEMENTS SHOULD HAVE BEEN ALLOWED AS BUSINESS E XPENDITURE SINCE THE ASSESSEE HAS ALREADY SET UP AND COMMENCED ITS BUSINESS ACTIV ITIES. SINCE, IN THE PRECEDING ITA NO.6722/DEL/2017 21 PARAGRAPHS, WE HAVE ALREADY HELD THAT THE INTEREST INCOME SHOULD GO TO REDUCE THE CAPITAL WORK-IN-PROGRESS WHERE ALL THE EXPENSES ARE CAPITALIZED, THEREFORE, FOLLOWING SIMILAR REASONING WE HOLD THAT THE ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE IN TREATING THIS EXPENDITURE AS WORK-IN-PROGRESS SINCE IT IS GE TTING THE BENEFIT OF REDUCTION TO THE EXTENT OF THE INTEREST INCOME. GROUND OF APPEAL NO .6.1 IS, THEREFORE, DISMISSED. 23. SO FAR AS GROUND OF APPEAL NO.6.2 REGARDING THE CLAIM OF EXPENSES AMOUNTING TO RS.45,13,743/- ON ACCOUNT OF INTEREST ON OVERDRA FT FACILITY IS CONCERNED, THE SAME ALSO, IN OUR OPINION, HAS TO BE CAPITALIZED AND THE ASSESSEE WILL GET ONLY THE BENEFIT OF SET OFF TO THE EXTENT OF INTEREST INCOME. GROUND N O.6.2 RAISED BY THE ASSESSEE IS ALSO ACCORDINGLY DISMISSED. 24. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS PARTLY ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 6.07.2019. SD/- SD/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMFBER DATED: 26 TH JULY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI