Interest Income Earned During Plant Setup Treated as Capital: ITAT Upholds CIT(A)'s Decision to Delete Addition [Read Order]
The CIT(A)'s previous decision for AY 2018-19, where similar interest was set off against capital work-in-progress.
![Interest Income Earned During Plant Setup Treated as Capital: ITAT Upholds CIT(A)s Decision to Delete Addition [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/05/power-plant.jpg "Interest Income Earned During Plant Setup Treated as Capital: ITAT Upholds CIT(A)s Decision to Delete Addition [Read Order]")
The Delhi Bench of Income Tax Appellate Tribunal(ITAT)upheld the Commissioner of Income Tax(Appelas)[CIT(A)]'s decision to delete an addition made by the Assessing Officer(AO), who had treated ₹94,78,739 of interest income earned during the plant setup as taxable under ‘Income from Other Sources’, instead of recognizing it as capital in nature. The Revenue-appellant, appealed...
The Delhi Bench of Income Tax Appellate Tribunal(ITAT)upheld the Commissioner of Income Tax(Appelas)[CIT(A)]'s decision to delete an addition made by the Assessing Officer(AO), who had treated ₹94,78,739 of interest income earned during the plant setup as taxable under ‘Income from Other Sources’, instead of recognizing it as capital in nature.
The Revenue-appellant, appealed against the order passed by the CIT(A) dated 01.08.2024.In this case,Anglian Infrastructure Development Private Ltd,respondent-assessee,filed its return of income for the Assessment Year 2017–18 on 25.10.2017, declaring NIL income, and also filed a revised return on the same date with higher TDS credit but still NIL income. The case was picked for limited scrutiny to examine share premium and investment in immovable property.
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During assessment, the AO made three additions, including taxing interest income of ₹94,78,739 under ‘Income from Other Sources’ on the ground that the company was not engaged in any lending activity. The AO also added ₹52,00,000 as unexplained share premium, as the company failed to provide KYC and bank details of the foreign investor, and disallowed preliminary expenses of ₹72,59,610 for lack of justification under Section 35D.
The CIT(A) deleted all three additions, which led the department to file an appeal, arguing that the CIT(A) had not properly examined the facts and had accepted the company’s claims without adequate evidence.
The two member bench comprising Anubhav Sharma(Judicial Member) and Naveen Chandra(Accountant Member) addressed the issue of disallowing interest income earned during the setting up of the business. The AO had added ₹94,78,739 as income under ‘Income from Other Sources’, relying on the Supreme Court’s decision in Tuticorin Alkalies Chemicals & Fertilizers Ltd., which stated that interest earned before the start of business is taxable.
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However, before the CIT(A), the assessee referred to the Supreme Court’s later ruling in Bongaigaon Refinery & Petrochemicals Ltd., which said that interest earned during the setup of a plant was capital in nature. The assessee also pointed to the CIT(A)’s decision for AY 2018-19, where similar interest income was allowed to be set off against capital work-in-progress, as it was linked to setting up the plant.
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The ITAT found that the department had not shown how the interest was not linked to the plant setup. Since the interest earned had already been treated as capital in nature in AY 2018-19, the tribunal agreed with the CIT(A)’s decision to delete the addition. It concluded that the department’s appeal had no merit.
In short,the appeal filed by the revenue was dismissed.
To Read the full text of the Order CLICK HERE
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