The Income Tax Appellate Tribunal (ITAT), Delhi Bench deleted the addition on account of interest received from bank and on advances to contractors.
The assessee company, Nabinagar Power Generating Co. Pvt. Ltd. is a private limited company, which was incorporated as a joint-venture company between ‘NTPC Ltd.’ and ‘Bihar State Electricity Board’ with an equal percentage of the shareholding and with the main objective of construction of power plants for generating electricity. The joint-venture was incorporated with an authorised capital of Rs.2000 crore. The joint- venture started preliminary work like survey investigation etc. in the financial year 2009-10.
The joint-venture commenced main work of construction of a power plant at Shivnagar, Bihar in financial year 2011-12. 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.
The assessee contended that interest income is inextricably linked with setting up of the power plant and the money simply being lying in the bank for construction of the plant, cannot be considered as surplus money.
The assessee submitted that 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.
The assessee submitted that purpose was to use the money in such a way so as to reduce cost of the power plant to the extent possible, by earning interest income and this would also benefit the revenue in a way that company would claim less amount of depreciation every year after completion of the project.
On the other hand, the Assessing Officer opined that the interest accrued on funds, which were not required immediately by the 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 the assessee company. The Assessing Officer assessed the interest income and miscellaneous income (for sale of a scrap) under the head ‘Income from other sources’.
The CIT(A) is legally justified in deleting the addition of Rs.5,61,63,696/- and Rs.28,00,638 on account of interest received from bank and on advances to contractors respectively during the year.
The revenue contended that the CIT(A) has not appreciated the fact the provisions laid down in section 5 of the Income Tax Act, 1961 wherein it has been clearly mentioned that the total income of a person includes all the income earned/received or deemed to be earned/received by the person in the previous year.
The division bench of Justice Kuldip Singh and O.P.Kant ruled that the CIT(A) has passed a well reasoned order which does not need any interference on our part.
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