Case Law Details
ITO Vs Nabinagar Power Generating Co. Pvt. Ltd. (ITAT Delhi)
No addition on account of interest income as same was inextricably linked with setting up of power plant and to be capitalized
Conclusion: Since the work of construction of the power plant was under progress, interest incomes are also inextricably linked with the setting up of the power plant and such incomes have gone on to reduce the expenses for setting up of the plant and as there was no surplus funds available with the appellant company, therefore, such income is required to be capitalized to be set off against the pre operative expenses. As such the AO is not justified in adding the sum of Rs. 1,75,74,129/- as income from other source u/s 56.
Held: Assessee – a private limited company was a joint-venture company between ‘NTPC Ltd.’ and ‘Bihar State Electricity Board’ with an equal percentage of the shareholding and with main objective of construction of power plants for generating electricity. The funds for the power plant had been planned to be financed by way of 30% as equity contribution from the shareholder and the balance 70% by raising debt funds. During the year under consideration, assessee earned a sum of ₹ 5,29,25,630/- by way of interest from banks, contractors and miscellaneous income. Assessee contended that interest income was inextricably linked with setting up of the power plant and the money simply being lying in the bank for construction of the plant, could not be considered as surplus money. Since the interest income was earned in the period prior to commencement of business, it was in the nature of the capital receipt and hence was required to be set-off against preoperative expenses. Whereas according to AO, the interest accrued on funds, which were not required immediately by assessee company for its business purposes and which were invested in fixed deposit and for the advances given to the contactors and therefore interest was not earned out of business regularly carried out by assessee company. AO assessed the interest income and miscellaneous income (for sale of a scrap) under the head ‘Income from other sources’. It was held that since the work of construction of the power plant was under progress, interest incomes are also inextricably linked with the setting up of the power plant and such incomes have gone on to reduce the expenses for setting up of the plant and as there was no surplus funds available with the appellant company, therefore, such income is required to be capitalized to be set off against the pre operative expenses. As such the AOis not justified in adding the sum of Rs. 1,75,74,129/- as income from other source u/s 56. Since the issue in dispute had already been decided by the Tribunal in favour of the assessee in earlier years, respectfully following the said finding of the Tribunal, addition made by AO was deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
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