CIT vs. ENERGY INFRASTRUCTURE INDIA LTD

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ITA - 814 / 2011HC Delhi07 July 20112 pages
For Petitioner: NP SAHNI & RUCHESH SINHA
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the interest income was directly connected with the setting up of the project and could be reduced from pre-operative expenses. The assessee was compelled to keep the funds with the bank for project-related purposes.

What were the facts?

The assessee company earned interest on fixed deposits kept with a bank as security for bank guarantees. These guarantees were required for setting up an LPG project. The Assessing Officer treated the interest as income from other sources, while the assessee sought to reduce it from pre-operative expenses.

What were the issues?

Whether interest earned on funds kept as security for bank guarantees for a project can be treated as income from other sources or reduced from pre-operative expenses.

Which sections of the Income-tax Act were involved?

Not specified

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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61.* #3&4 Vo 07.O7.2O1r. Present: Mr. N.P. Sahni, Sr. Standing Counsel for the Income Tax/Appellant. + ITA Nos.814/2O11 & 815/2O1L * The facts which have been recorded by the CIT (Appeal) as well as ITAT are that the Assessee company had given certain bank guarantees worth t 9 crore to statutory bodies like Gujarat Maritime Board and Gail India Ltd. in connection with the setting up of the LPG Project Terminal at Okha, Gujarat. The bank who furnished the bank guarantee to the statutory body on behalf of the Assessee called upon the Assessee to keep the amount with it in the form of fixed deposit under the lien with the bank for issuing the said bank guarantee. The Assessee earned interest on these fixed deposits which it has reduced from preoperative expended by it on setting up of the project Since said interest income has been received in pre-operative period, the Assessing Officer treated the aforesaid interest as income from other sources and did not allow it to be reduced from pre-operative expenses. This order of the Assessing Officer was reversed by CIT(A) holding that the interest income was received in pre-commencement period and was dire,ctly connected with the setting up of the project. The Assessee was forced to keep the aforesaid amount tryith the bank under the lien of the bank in order to enable the Assessee to secure .b 2011:DHC:14806-DB

F. n bank guarantees from the bank which was to be necessarily furnished by the Assessee to the statutory bodies for setting up of LPG Project Terminal at Okha, Gujarat. It is clear from the above that the money was kept with the bank for the purpose which was directly connected with the setting up of the project and interest thereupon could not be treated as income from other sources and it was permissible for the Assessee to reduce the same from pre-operative expenses. The CITA and the ITAT have referred to the decision of the Supreme Court in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 31-5(SC), CIT v. Karnal Cooperative Sugar Mills Ltd. [2000]243 ITR 2(SC) as well as various decisions of the different High Courts. In view of the aforesaid factual background, we do not find any infirmity in the orders passed by CIT (A), No question of law arises in these appeals. The appeals are hereby dismissed. JULY 07, ?OLL rd M.L. MEHTA, J. r 2011:DHC:14806-DB

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