M/s H.P. Power Corporation Ltd., Shimla V. ACIT, Shimla

ITA 842/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90119 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-04-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Keywords: Depreciation; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO.842/CHD/2014 ASSESSMENT YEAR: 2010-11 H.P. POWER CORPORATION LTD. VS. THE ACIT HIMFED BHAWAN CIRCLE SHIMLA SHIMLA PAN NO. AABCH8615G (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VISHAL MOHAN RESPONDENT BY : DR. AMARVEER SINGH DATE OF HEARING : 30/04/2015 DATE OF PRONOUNCEMENT : 06/05/2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23/07/2014 PASSED BY THE CIT(A) SHIMLA, H.P. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS WHICH ARE AS UNDER : 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE TAX ABILITY OF INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES. FACT OF THE MATTER IS TH AT THE SAME SHOULD HAVE BEEN UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN NOT JUSTIFIED IN HOLDING THAT THE INTEREST ACCURED / RECEIVED WAS THE INCOME OF THE ASSESSEE APPELLANT. THE SAID FIND ING IS AGAINST THE FACTUAL MATRIX OF THE CASE AND AS SUCH IS NOT SUSTAINABLE I N THE EYES OF LAW. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ADD ITION OF RS. 28,42,77,854/-. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT ASSE SSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PLANNING, PROMOTING, ORG ANIZING THE DEVELOPMENT OF ALL ASPECTS OF HYDROELECTRIC POWER ON BEHALF OF HIM ACHAL PRADESH STATE GOVERNMENT AND HIMACHAL PRADESH STATE ELECTRICITY B OARD. DURING THE YEAR ASSESSEE COMPANY WAS IMPLEMENTING VARIOUS PROJECTS IN THE STATE OF HIMACHAL PRADESH. NONE OF THE POWER PROJECTS UNDERTAKEN BY T HE ASSESSEE COMPANY HAS COMMENCED PRODUCTION. THE ASSESSEE COMPANY HAD EARN ED INTEREST AMOUNTING TO RS. 28,42,77,854/-. IT WAS NOTED BY TH E AO THAT STATUTORY AUDITOR AS PER THEIR REPORT HAS STATED THAT INTEREST EARNED BY THE ASSESSEE ON TEMPORARY INVESTMENT WAS TAXABLE. IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172. THE ASSESSEE HAD NOT SHOWN THE INTEREST INCOME IN THE R ETURN OF INCOME AND THEREFORE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE T HAT WHY INTEREST EARNED BY IT ON SURPLUS AND BORROWED FUNDS SHOULD NOT BE BROU GHT TO TAX. IN RESPONSE IT WAS STATED VIDE LETTER DT. 30/01/2013 AS UNDER: THE ASSESSEE IS GOVT. COMPANY INCORPORATED IN DEC EMBER 2006 TO PLAN, PROMOTE AND ORGANIZE THE DEVELOPMENT OF ALL THE ASP ECTS OF HYDROELECTRIC POWER IN THE STATE OF HIMACHAL PRADESH ON BEHALF OF GOVT. OF HIMACHAL PRADESH. NONE OF THE POWER PROJECTS UNDERTAKEN BY T HE ASSESSEE COMPANY HAD COMMENCED PRODUCTION UPTO ASSESSMENT YEAR UNDER CONSIDERATION. AS COMPANY IS STILL IN THE PRE OPERATION STAGE AND YET TO COMMENCE THE COMMERCIAL PRODUCTION, STATEMENT OF INCIDENTAL EXPE NDITURE DURING CONSTRUCTION HAS BEEN PREPARED AND INTEREST EARNED ON TEMPORARY BANK DEPOSITS MADE OUT OF FUNDS RECEIVED FROM HP GOVT/PF C LOAN AND ASIAN DEVELOPMENT BANK HAS BEE SET OFF AGAINST THE CAPITA L EXPENDITURE BEING INCURRED ON THE PROJECT AS EARNING OF INTEREST IS I NCIDENTAL / INEXTRICABLY LINKED TO THE MAIN ACTIVITY OF THE COMPANY. REGARDING INTEREST EARNED ON BANK DEPOSITS AND NOT SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES AS ALREADY EXPLAINED, T HE COMPANY IS AT CONSTRUCTION STATE AND THERE IS NO SOURCE OF INCOME . THE HPPCL HAVE TO KEEP SOME AMOUNT IN SHORT TERM DEPOSITS IN THE BANK OUT OF THE AMOUNT RECEIVED AS SHARE CAPITAL / POWER FINANCE COMPANY LOAN/ADB F UNDS TO MEET OUT THE URGENT REQUIREMENTS AGAINST WORKS ON BECOMING DUE A ND THE HPPCL HAS EARNED INTEREST ON SHORT TERM DEPOSIT DURING THE YE AR. THE FUND AGAINST WHICH INTEREST HAS BEEN RECEIVED I S FROM THE EQUITY SHARE CAPITAL OF GOVT. OF HIMACHAL PRADESH/PFC LOANS AND ADB FUNDING. THESE FUNDS COULD NOT BE UTILIZED DUE TO DELAY IN EXECUTI ON OF PROJECTS FOR WANT OF NOCS FROM THE VILLAGERS IN LAND ACQUISITION CASES A S WELL AS FOREST & ENVIRONMENT CLEARANCE AND DUE TO CERTAIN OTHER TECH NICAL REASONS RESULTING WHICH THESE FUNDS HAVE TEMPORARILY BEEN PARKED IN V ARIOUS SCHEDULED BANKS. IT IS FURTHER SUBMITTED THAT FOR MEETING THE CONSTR UCTION COST OF HYDRO PROJECT THERE IS A TIME LAG BETWEEN THE RECEIPT OF FUNDS AN D ITS UTILIZATION IN THE CONSTRUCTION OF THE PROJECT GIVING RISE TO TEMPORAR Y SURPLUS FUNDS. THESE TEMPORARY SURPLUS FUNDS ARE INVESTED IN BANK DEPOSI T AND EARN INTEREST. THE INCOME SO EARNED WAS ALSO UTILIZED IN THE CONSTRUCT ION OF THE PROJECT AND FOR PAYING INTEREST ON LOAN TAKEN FROM PFA/ADB. FROM THE DETAIL OF EXPENDITURE IT IS EVIDENT THAT A SSESSEE IS BEARING SIGNIFICANT COSTS ON ACCOUNT OF PFC LOAN INTEREST PAYMENTS WHIC H I BEING CAPITALIZED TO PROJECT COST INSTEAD OF CLAIMING AS REVENUE EXPENDI TURE. IN THE SIMILAR WAY AS ALREADY CONTENDED INTEREST EARNED ON TERM DEPOSITS CLAIMED AS SET OFF AGAINST THE INTEREST PAID ON LOAN SO AS TO REDUCE T HE COST OF PROJECT. ALL THE EXPENSES INCLUDING INTEREST ON LOAN INCURRE D DURING CONSTRUCTION STATE ARE ELIGIBLE FOR CAPITALIZATION I.E. TO BE A PART O F ASSET CREATED AND ARE ELIGIBLE FOR DEPRECIATION. THIS WOULD MEAN THAT IN THE CONVE RSE CASE, WHERE INTEREST IS EARNED. IT SHOULD BE AN ABATEMENT OF CAPITAL COST S O AS TO REDUCE THE CAPITAL BASE FOR DEPRECIATION PURPOSE. IN VIEW OF ABOVE CONTENTION, INCOME TAX REFUND HAS BEEN SOUGHT IN THE INCOME TAX RETURN FILED. FURTHER IN VIEW OF SIMILAR ISSUE DECIDED I.E. IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED VS. ITA(2009 315 ITR 255 (DELHI BY THE DELHI HIGH COURT AND APEX COURT JUDGMENT IN THE CASE OF BOKARO STEEL LIMITED (1999) 227 ITR 172 IT WAS HELD THAT INTERES T EARNED ON FUNDS RECEIVED FOR A SPECIFIC PURPOSE AND KEPT TEMPORARILY IN SHOR T TERM DEPOSIT COULD NOT BE 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 RECEIPTS AND HENCE WAS REQUIRED TO BE SET OFF AGAIN ST PRE OPERATIVE EXPENSES. FURTHER IT WAS HELD THAT IF ASSESSEE RECE IVES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP A PROJECT I.E. PLANT & MACHINERY, SUCH RECEIPT WILL GO TO REDUCE THE COST OF ITS ASSETS. FURTHER SUPREME COURT JUDGMENT IN THE CASE OF CHALLAPALI SU GAR LTD VS CIT 98 ITR 167, WHERE AS PER THE ORDERS ITSELF, IF INTEREST ON SHAR E CAPITAL IS TO BE CAPITALIZED THEN ON THE SAME LOGIC THE INTEREST RECEIVED ON INV ESTMENT INEXTRICABLY LINKED TO SUCH CONTRIBUTION MUST ALSO BE HELD TO BE A CAPI TAL RECEIPT. INCOME UNDER THE HEADS INTEREST ON LOANS, SALE FROM TENDER FORMS, MISC. RECEIPTS, INTEREST ON STAFF LOANS AND LD CHARGES RE CEIPTS BEING INCIDENTAL TO CONSTRUCTION OF PROJECT DEDUCTED FROM PRE OPERATIVE EXPENSES INCURRED. THE AO EXAMINED THESE SUBMISSIONS AND WAS OF THE OP INION THAT DECISIONS RELIED BY THE ASSESSEE WERE DISTINGUISHABLE AND HEL D THAT INTEREST ON INVESTMENT WAS ACCESSIBLE AS INCOME FROM OTHER SOURCES. 4. ON APPEAL IT WAS MAINLY STATED THAT ASSESSEE HAS BEEN ASSIGNED THE TASKS OF CONSTRUCTION OF HYDRO-ELECTRIC POWER PROJECT NEA R RENUKA IN SIRMOUR. THE SAID POWER PROJECT WAS WHOLLY FUNDED BY THE DELHI GOVERN MENT THROUGH DELHI JAL BOARD BUT THERE WAS SOME DELAY IN THE PROJECT AND T HEREFORE FUNDS WERE INVESTED IN FDRS TEMPORARILY AND THEREFORE INCOME F ROM INTEREST WAS NOT TAXABLE. 5. THE LD. CIT AFTER EXAMINING THE SUBMISSIONS DID NOT AGREE WITH THE SAME AND DECIDE THE ISSUE AGAINST THE ASSESSEE VIDE PARA 4.1 WHICH IS AS UNDER: 4.1 I HAVE GONE THROUGH THE FACTS OF THE CASE SUBMI SSION OF ASSESSEE, ASSESSMENT ORDER AND VARIOUS CASE LAWS CITED BY A.O . AND ASSESSEE. IN THE PRESENT CASE MAIN ISSUE IS FOR A COMPANY, AT PRE-OP ERATIVE STAGE, INTEREST EARNED ON INVESTMENT OF BORROWED FUNDS, WOULD BE RE VENUE RECEIPT CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR WOULD BE CAPITAL RECEIPT WHICH CAN BE SET OF AGAINST THE PRE -OPERATIVE EXPENSES. THE ASSESSEE IS A STATE GOVERNMENT OWNED COMPANY WH ICH HAS TAKEN LOAN FROM DELHI JAL BOARD. THE STATUTORY AUDITORS H AD POINTED OUT THAT INTEREST EARNED ON TEMPORARY INVESTMENT BECOMES TAX ABLE IN VIEW OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. THE INTEREST RECEIPTS IS NOT INEXTRICABLY LINKED TO SETTING UP OF PROJECTS AS TH E DEPOSITS HAVE NOT BEEN MADE AS A MANDATORY BUSINESS REQUIREMENT BUT SURPLU S FUNDS HAVE BEEN INVESTED IN THE FORM OF DEPOSITS WITH THE VARIOUS B ANK. THE DEPOSITS BY NO MEANS COULD BE CONSIDERED AS SHORT TERM DEPOSITS WH ICH IS APPARENT FROM THE FACT THAT THIS ISSUE OF ACCRUAL OF INTEREST IS PERPETUATING FROM YEAR-TO- YEAR AS MENTIONED PARA 2.2. THE RATIO OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. 315 ITR 255 ARE DISTINGUISHABLE ON THE FACTS TO THE ASSESSEES CASE AS UNDER:- 1. INDIAN OIL PANIPAT POWER CONSORTIUM LTD. SHARE C APITAL WAS INTRODUCED WHEREAS IN ASSESSEES CASE LOAN HAS BEEN TAKEN FROM DELHI JAL BOARD. 2. ASSESSEE HAS NOT ENTERED INTO SHORT-TERM DEPOSIT S AS A MANDATORY REQUIREMENT AS IN INDIAN OIL PANIPAT CASE. 3. THUS THE FACTS OF THE CASE ARE MORE AKIN TO TUTI CORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997)227 ITR (SC). RELIANCE IS PLACED ON ITAT, HYDERABAD JUDGMENT IN CASE OF KAKINAD SEZ(P) LTD. VS BOKARO STEEL LTD. 236 ITR 315 AS WELL AS INDIAN OIL PANIPAT POWE R CORP. LTD. 315 ITR 255 HAVE BEEN CONSIDERED. IN PRESENT CASE DEPOSITS MADE WERE NOT UTILISED AS MARGIN MONEY OR FOR SUCH SIMILAR CAUSE MANDATORY FOR COMMENCING BUSINESS SO THESE FUNDS TAKE THE FORM OF SURPLUS FUNDS. THE COMPANY D ID NOT HAVE CAPACITY TO UTILIZE THE BORROWED FUNDS ACTUALLY AT THE TIME OF BORROWING FUNDS AND WAS UNABLE TO DEFINE THE SPECIFIC PURPOSE FOR WHICH THE FUNDS WERE TO BE UTILIZED. RATHER THESE FUNDS WERE DEPOSITED WITH TH E BANK. EVEN TILL DATE NONE OF THE PROJECTS HAVE STARTED. SO IT IS HELD TH AT THE INTEREST EARNED IN THE PRESENT SET OF FACTS IS NOT LINKED TO THE PROPO SED BUSINESS ACTIVITY OF ASSESSEE. THUS THE INTERESTS RECEIVED ARE HELD TO B E NOT OF CAPITAL NATURE BUT REVENUE RECEIPTS TAXABLE AS INCOME FROM OTHER S OURCES. 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH PRINCIPALLY THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE D ECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 169/CHD/2013. HOWEVER, THE FACT S DURING THE YEAR ARE PARTLY DIFFERENT. DURING THE YEAR THE ASSESSEE HAD BORROWE D CERTAIN AMOUNT FROM PFC AND ADB ETC. SINCE THE FUNDS WERE NOT REQUIRED AS T HERE WAS DELAY IN THE PROJECT. THESE FUNDS WERE PARKED IN TEMPORARY INVES TMENT IN FDRS THEREFORE, AT LEAST INTEREST ON THESE INVESTMENTS COULD NOT BE SU BJECTED TO TAX. IN THIS REGARD ASSESSEE RELIED ON THE DECISION OF TRIBUNAL IN CASE OF M/S BEAS VALLEY POWER CORPORATION LTD. VS. THE ACIT IN ITA NO. 857/CHD/20 12. 7. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE IMPUGNED ORDER. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE FIND THAT DURING THIS YEAR ASSESSEE HAS BORROWED CERTAIN FUNDS AS MENTION ED IN THE SUBMISSIONS BEFORE AO FROM PFC AND ADB. THE ASSESSEE HAD EARLI ER TAKEN THE MONEY FROM DELHI JAL BOARD ON WHICH NO INTEREST WAS REQUIRED T O BE PAID. IT WAS HELD IN THE EARLIER YEAR IN ASSESSEES OWN CASE THAT INTEREST O N SUCH INVESTMENT OF THESE FUNDS WOULD BE TAXABLE. IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172. HOWEVER, THE INTEREST EARNED ON TEMPORARY INVESTMENT MADE OU T OF THE BORROWED FUNDS CAN NOT BE TAXED BECAUSE THESE FUNDS HAVE BEEN SPEC IFICALLY BORROWED FOR THE PURPOSE OF PROJECT BUT PROJECT WAS DELAYED AND THER EFORE FUNDS WERE PARKED IN TEMPORARY INVESTMENT IN THE FORM OF FDR. SAME VIEW WAS TAKEN IN THE CASE OF M/S BEAS VALLEY POWER, CORPORATION LTD. VS. THE ACI T IN ITA NO. 857/CHD/2012 IT WAS OBSERVED AT PAGE 12 & 13 AS UNDER: 12. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 12(I) ON CONSIDERATION OF THE ABOVE FACTS AND MATER IAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION TO SUSTAIN THE FINDINGS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT A SSESSEE CORPORATION IS A GOVERNMENT COMPANY PROMOTED BY H.P . STATE ELECTRICITY BOARD LTD. THE ASSESSEE HAS ADMITTEDLY NOT STARTED COMMERCIAL OPERATION IN THE YEAR UNDER CONSIDERATIO N AND WAS STILL IN THE PRE-OPERATIVE STAGE. THE ASSESSEE CLA IMED THAT IT HAS NO SURPLUS FUNDS BUT THE FINDING OF THE AUTHORITIES BELOW WAS THAT ASSESSEE EARNED INTEREST ON SURPLUS FUNDS. THE ACC OUNTS OF THE ASSESSEE PLACED ON RECORD CLEARLY SUPPORT THE SUBMI SSION OF THE ASSESSEE THAT THERE WERE NO SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE ALSO CLAIMED THAT ITS FUNDS WERE TEMPORARILY EMPLOYED FOR SHORT TERM DEPOSITS FOR EF FICIENTLY AND EFFECTIVELY USE OF ITS FUNDS SO AS TO REDUCE THE TO TAL COST OF THE PROJECT. THE LD. CIT(APPEALS) ALSO PARTLY AGREED W ITH THE SUBMISSION OF THE ASSESSEE THAT PART FUNDS WERE INV ESTED FOR SETTING UP OF THE PLANT & MACHINERY. THE ASSESSEE' S COUNSEL HAS REFERRED TO THE ACCOUNTS OF THE ASSESSEE AT PAGE 15 OF THE PAPER BOOK TO SHOW THAT ASSESSEE RECEIVED LESSER INTEREST OF RS. 625.97 LACS AND PAID INTEREST ON LOAN AT RS. 3652.44 LACS IN THE YEAR UNDER CONSIDERATION WOULD SHOW THAT ASSESSEE HAS TO PAY MORE INTEREST AS AGAINST THE SMALL INTEREST RECEIVED BY ASSESSEE. THEREFORE, IF ANY ADJUSTMENT IS MADE AGAINST INTERE ST PAID, STILL THERE IS A LIABILITY OF THE ASSESSEE TO PAY INTERES T ON THE LOANS. THE ASSESSEE ALSO EXPLAINED THAT FOR EFFECTIVE FUND S MANAGEMENT, THE TEMPORARY SURPLUS FUNDS WERE KEPT I N SHORT TERM BANK DEPOSITS AND THEREAFTER, INTEREST WAS EAR NED AND SO WAS ALSO USED FOR CONSTRUCTION OF THE PROJECT AND FOR PAYING INTEREST TO THE POWER FINANCE COMPANY WHICH HAVE NO T BEEN ADVERSELY COMMENTED UPON BY THE AUTHORITIES BELOW. THEREFORE, THE RELIANCE OF THE ASSESSING OFFICER ON THE DECISI ON IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (SUPRA) WAS TOTALLY MISPLACED. THE HON'BLE SUPREME COURT I N THE CASE OF CIT VS BOKARO STEEL LTD. HELD AS UNDER : HELD, DISMISSING THE APPEAL, THAT THE FIRST THREE H EADS OF INCOME WERE (I) THE RENT CHARGED BY THE ASSESSEE TO ITS CONTRACTORS FOR HOUSING WORKERS AND STAFF EMPLOYED BY THE CONTRACTOR FOR THE CONSTRUCTION WOR K OF THE ASSESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE, (II) HIRE CHARGES FOR PLANT AND MACHINERY WHICH WAS GIVEN TO THE CONTRACTORS BY THE ASSESSEE FOR USE IN THE CONSTRUCTION WORK OF THE AS SESSEE, AND (II) INTEREST FROM ADVANCES MADE TO THE CONTRACTORS BY THE ASSESS EE FOR THE PURPOSE OF FACILITATING THE WORK OF CONSTRUCTION. THE ACTIVITI ES OF THE ASSESSEE IN CONNECTION WITH ALL THESE THREE RECEIPTS WERE DIREC TLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSEE. THE ADVANCES WHICH THE ASSESSEE MADE TO T HE CONTRACTORS TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOG ETHER A VERY LARGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACT ORS PROCEEDED WITHOUT ANY FINANCIAL HITCH AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESSEE-COMPANY AND THE CONTRACTO RS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE I NTRINSICALLY CONNECTED WITH THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEI PTS HAD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAD, THEREFORE, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSESSEE ANY INDEPEN DENT SOURCE. 12(II) THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V ITO 315 ITR 255 (DE LHI) HELD AS UNDER : THE ASSESSEE-COMPANY WAS INCORPORATED IN PURSUANCE OF A JOINT VENTURE ENTERED INTO BETWEEN INDIAN OIL CORPORATION AND M O F JAPAN TO SET UP A POWER PROJECT. IN ORDER TO EFFECTUATE THE PURPOSE F OR WHICH THE JOINT VENTURE WAS CONCEIVED, SHARE CAPITAL WAS CONTRIBUTED BY THE SE TWO CORPORATIONS WHICH INCLUDED RS. 20 CRORES BY WAY OF ADDITIONAL SHARE C APITAL. THE ASSESSING OFFICER TREATED THE INTEREST EARNED ON MONIES RECEI VED AS SHARE CAPITAL BY THE ASSESSEE TEMPORARILY PLACED IN A FIXED DEPOSIT AWAI TING ACQUISITION OF LAND WHICH HAD RUN INTO LEGAL ENTANGLEMENTS ON ACCOUNT O F TITLE AS 'INCOME FROM OTHER SOURCES'. THE COMMISSIONER (APPEALS) ACCEPTED THE STAND OF THE ASSES- SEE THAT THE INTEREST WAS IN THE NATURE OF A CAPITA L RECEIPT WHICH WAS LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. THE TRIB UNAL REVERSED THIS ORDER. ON APPEAL : HELD, ALLOWING THE APPEALS, THAT THE FUNDS IN THE F ORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE THE INTEREST EARNED ON FU NDS PRIMARILY BROUGHT FOR IN THE BUSINESS COULD NOT BE CLASSIFIED AS 'INCOME FRO M OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO CO MMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF A CAPITAL RECEIPT AND WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 13. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, IT IS CLEAR THAT THE FUNDS WITH THE ASSE SSEE, EVEN IF TEMPORARILY USED FOR SAVINGS/SHORT TERM DEPOSITS, B UT THE EARNING OF THE INTEREST WERE DIRECTLY CONNECTED WITH WORK O F CONSTRUCTION OF THE PROJECT EMPLOYED BY THE ASSESSEE. THEREFORE , THE EARNING OF INTEREST COULD NOT BE TREATED AS INCOME FROM OTH ER SOURCES, SINCE THE INCOME WAS EARNED IN THE PERIOD PRIOR TO COMMENCEMENT OF THE BUSINESS AND IT WAS THE NATURE OF CAPITAL RECEIPT AND WAS REQUIRED TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES. WE, THEREFORE, SET ASIDE THE ORDERS OF A UTHORITIES BELOW AND DELETE THE ADDITION OF RS. 83,06,897/-. HOWEVER THE DETAILS OF THESE FUNDS ARE NOT AVAILABL E ON RECORD THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO EXAMINE BIFURCATION OF FUNDS BO RROWED BY THE ASSESSEE AND FUNDS OWNED BY THE ASSESSEE. INTEREST EARNED ON ACC OUNT OF FUNDS BORROWED SHOULD NOT BE SUBJECTED TO TAX AND ONLY INTEREST ON BALANCE SURPLUS FUNDS SHOULD BE SUBJECTED TO TAX. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06/05/2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 06/05/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR