ATHENA KARNAL SOLAR POWER PVT LTD,GURUGRAM vs. DCIT,CIRCLE-1(1), GURGAON

The solitary issue involved in the present appeal is regarding capitalization of interest income. It is the specific case of the Assessee that interest income earned on bank deposit up to previous year ending on 31st March 2018 has been netted off from the interest paid up to 31st March 2018 on term loan taken for the development of the solar power plant. The net interest (i.e. interest expense less interest income) has been considered under capital work in progress (CWIP) in audited financial of F.Y 2017-18. As per the Assessee the said treatment of interest income is in line with provision of ICDS-V as prescribed under the income tax Act, 1961. The claim of the Assessee has been turned down by the lower authorities and made addition/confirmed of Rs. 2,03,54,362/-, which is under challenge in the present Appeal.

The Ld. Assessee's Representative submitted that the issue involved in the present appeal is squarely covered by the Judgment of the Hon'ble Supreme Court in the case of Commissioner of Income-tax Vs. Karnal Co-operative Sugar Mills Ltd. reported in 1999 (4) TMI 7- Hon'ble Supreme Court, thus sought for allowing the Appeal.

Per contra, the Ld. Department's Representative relying on the orders of the Lower Authorities sought for dismissal of the Appeal.

We have heard both the parties and perused the material available on record. The issue of treatment of interest income which has been capitalized by the Assessee is no more res-integra. The Hon'ble Supreme Court in the case of Commissioner of Income-tax Vs. Karnal Co-operative Sugar Mills Ltd (supra) held as under:-

“In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest has been earned. This is, therefore, not a case where any surplus share capital money which is lying idle has been deposited in the bank for the purpose of earning interest. The deposit of money in the present case is directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery. In this view of the matter the ratio laid down by this court in Tuticorin Alkali Chemicals and Fertilizers Limited v. CIT , will not be attracted. The more appropriate decision in the factual situation in the present case is in CIT v. Bokaro Steel Ltd. . The appeal is dismissed. There will be no order as to costs.”

In view of the above facts and circumstances, by relying on the ratio laid down by the Judgment of the Hon'ble Supreme Court (supra), the impugned addition sustained by the Ld. CIT(A) is hereby deleted.

In the result, Appeal of the Assessee is allowed.