IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: "C" NEW DELHI BEFORE SHRI I.C.SUDHIR, JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA No: 5330/Del/2012 Assessment Year : - 2006-07 Gill Power Generation Co.Pvt.Ltd. vs. ITO, Ward 12(1) J 1, LGF 6, (Under the stair) New Delhi Kailash Colony New Delhi PAN: AACCG 1014 H (Appellant) (Respondent) Appellant by : Shri Anil Goel, C.A. Respondent by : Sh. Satpal Singh, Sr.D.R. ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the assessee directed against the order dt. 21.5.2012 of Ld.CIT(A)-VIII, New Delhi for the Assessment Year 2006- 07 on the following ground.
"1. The Ld.CIT(A) has wrongly upheld the addition made by Assessing Officer treating a sum of Rs.7,03,433/- as income from other sources, however, have failed to allow deduction of expenditure incurred for earning the income."
2. The assessee is a company and was incorporated for setting up of power generation plant at Upper Bari Doab Canal at Babehalli bridge, V & PO Babehalli, Gurdaspur, Punjab. The assessee's project was still in progress. It earned interest income of Rs.7,03,433/-. The Assessing ITA 5330/Del/2012 Page 2 of 4 Assessment Year 2006-07 Gill Power Generation Co.P.Ltd.
Officer applied the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. 227 ITR 172 and held that interest earned on parking of funds in the bank during the pre operative stage is to be taxed as 'income from other sources'. The assessee company claimed set off of interest expenses against interest income, on the ground that there is a direct nexus between funds borrowed and interest earned. It was submitted that the funds were borrowed from IREDA. The A.O. rejected the claim of the assessee and held that all expenditure is to be capitalized. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority at last para page 4 held as follows.
"I have considered the submissions of the appellant findings of the Assessing Officer and the facts on record. Perusal of records show that the business of the appellant had not commenced. The appellant had purchased FDRs out of the loans on which interest of Rs.7,03,433/- was earned. The law is very clear that interest income earned on FDRs is taxable as 'income from other sources', even if the FDRs are purchased out of loans for business purposes. It is also a settled position of law that even in cases ;where FDRs are purchased towards margin money the interest is to be considered as income from other sources. The case laws relied upon by the appellant are based on different facts. In view of the discussion above, the disallowance made by the Assessing Officer is as per law. These grounds of appeals are dismissed."
3. Aggrieved the assessee is in appeal before us.
4. The Ld.Counsel for the assessee Mr.Anil Goel filed a paper book running into 116 pages and drew our attention to pages 52, 57, 59 and 62 and submitted that the loan was sanctioned from IREDA and that ITA 5330/Del/2012 Page 3 of 4 Assessment Year 2006-07 Gill Power Generation Co.P.Ltd.
FDRs were made from this loan. He argued that his claim is allowable in terms of S.57(iii).
5. TheLd.D.R. Mr.Satpal Singh on the other hand opposed the contentions of the assessee. He argued that the expenditure if any should be capitalized as the assessee had not commenced business.
6. After hearing rival submissions we find that the First Appellate Authority has held that the assessee has purchased FDRs out of the loans granted by IREDA. In other words this fact is not in dispute. S.57(iii) reads as follows:-
S.57(iii) : any other 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."
As the expenditure in question is wholly and exclusively incurred for the purpose of earning this interest income, we are of the considered opinion that the claim of the assessee under Section 53(iii) is to be allowed as the nexus is not in dispute. No other issue is argued by the assessee. In the result the appeal of the assessee is allowed.
7. In the result, the appeal by the assessee stands allowed.
Order pronounced in the Open Court on 18th January, 2013.
Sd/- Sd/- (I.C.SUDHIR) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 18th January, 2013. ITA 5330/Del/2012 Page 4 of 4 Assessment Year 2006-07 Gill Power Generation Co.P.Ltd. *manga Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Dy. Registrar
1. Date of Dictation:
2. Draft placed before the Author on:
3. Draft proposed and placed before Second Member on:
4. Draft discussed/approved by the Second Member on:
5. Approved draft came to Sr.P.S. on:
6. Date of Pronouncement :
7. File sent to Bench Clerk on :
8. Date on which file given to Head Clerk on:
9. Date of dispatching the Order on: