M/S. SWELECT SOLAR ENERGY PVT. LTD.,CHENNAI vs. ITO, CORPORATE WARD - 6 (4), CHENNAI

This appeal by the assessee is arising out of the order ofthe Commissioner of Income Tax (Appeals)-15,Chennai in dated28.11.2019. The assessment was framed by the Income Tax Officer, Corporate Ward 6(4), Chennai u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment year 2015-16 vide order dated 29.09.2017.

The only issue in this appeal of assessee is as regards to the order of CIT(A) sustaining the assessment of interest income by the AO under the head ‘income from other sources’ while rejecting the computation of income related to the main activity / core business under the head ‘income from business’ without any reason. For this, assessee has raised various grounds which need not to be reproduced.

Brief facts are that the assessee company filed its return of income for the relevant assessment year 2015-16 admitting total loss of Rs.11,63,887/-. The AO during the course of assessment proceedings noticed that pending commencement of business, proceeds from short term borrowing was invested by the assessee partly in non-current investment and the balance offered as long term loans and advances to its subsidiary. The interest earned from subsidiary company has been shown under other income and also claimed the interest expenses to the holding company on the borrowings for an amount of Rs.37,47,953/-. According to AO, the business has not commenced and there is no set up of business and accordingly the interest expenses claimed are to be capitalized. Further the assessee explained before AO that the assessee has declared interest income from subsidiary on loan given out of the 3 amount borrowed for the purpose of acquiring fixed assets as well as short term borrowings which are kept in fixed deposits and hence, the interest income should be allowed set-off against interest payment. The AO was of the view that since the business was yet to commence, the interest income has to be taxed separately under the head ‘income from other sources’ and the expenditure incurred before the commencement of business i.e., the interest expenses needs to be treated as pre-operative as held by the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., vs., CIT, 227 ITR 172. Aggrieved, assessee preferred appeal before CIT(A). 3. The CIT(A) also confirmed the action of the AO by observing that the assessee does not hold any physical inventory and its business operation has not started yet. It was noted by CIT(A) that company has not earned any income and no expenditure except interest expenditure has been incurred. According to CIT(A), the company exist only on paper and no fixed asset has been purchased and moreover no plant and machinery has been set up for the purpose of its business. The CIT(A) relying on the decision of Tuticorin Alkali Chemicals and Fertilizers Ltd., supra, confirmed the action of the AO in making assessment of interest income under the