IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: ‘E’ NEW DELHI

BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER
AND

SHRI KULDIP SINGH, JUDICIAL MEMBER
[Through Video Conferencing]

ITA No.4748/Del./2017
Assessment Year: 2013-14

ITO, Vs. Nabinagar Power Generating
Ward-13(1), Co. Pvt. Ltd.,
New Delhi Core-7, Scope Complex,
Industrial Area, Lodhi Road,
(Appellant) New Delhi
PAN :AACCN9448C
(Respondent)

Appellant by Shri Atiq Ahmed, Sr.DR
Respondent by None

Date of hearing 13.04.2021
Date of pronouncement 11.05.2021

ORDER

PER O.P. KANT, AM:

This appeal by the Revenue is directed against order dated
30/05/2017 passed by the learned Commissioner of Income-tax
(Appeals)-6, New Delhi [in short ‘the Learned CIT(A)’] for
assessment year 2013-14, raising following grounds:

1. Whether on the facts and circumstances of the case, the Ld. CIT(A)
is legally justified in deleting the addition of Rs.5,61,63,696/- and
2

ITA No.4748/Del./2017

Rs.28,00,638 on account of interest received from bank and on
advances to contractors respectively during the year by not
appreciating the fact the provisions laid down in section 5 of the
Income Tax Act, 1961 (the Act) 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?

2. Whether on the facts and in circumstances of the case, the Ld.
CIT(A) is legally justified in deleting the addition of Rs.1,61,296/-
on account of ‘miscellaneous income’ by sale of scrap even when
the receipt was squarely covered under provision to section 5 of
the Act r.w.s. 56(1) & (2) of the Act which says that the total
income includes all the income earned/received or deemed to be
earned/received by the persons in the previous year?

3. Whether on facts and in circumstances of the case, the Ld. 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 by ignoring the findings of
the Assessing Officer (the AO) recorded in assessment order that
the assessee invested surplus funds which were not immediately
required by it in FDRs and earned interest on it which clearly falls
in the defining of ‘income from other sources’ as per sub section
(1) & (2) to section 56 of the Act.

4. That the appellant craves leave to add, amend, alter or forgo any
ground(s) of appeal either before or at the time of hearing of the
appeal.

2. Briefly stated facts of the case are that the assessee

company is a private limited company, which was incorporated on

09/09/2008 as a joint-venture company between ‘NTPC Ltd.’ and

‘Bihar State Electricity Board’ with an equal percentage of the

shareholding and with main objective of construction of power

plants for generating electricity. The joint-venture was

incorporated with an authorised capital of ₹ 2000 crore. The joint-

venture started preliminary work like survey investigation etc. in

financial year 2009-10. The joint-venture commenced main work

of construction of power plant at Shivnagar, Bihar in financial
3

ITA No.4748/Del./2017

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.
2.1 During the year under consideration, the assessee earned a
sum of ₹ 5,29,25,630/- by way of interest from banks,
contractors and miscellaneous income. 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 further 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 further 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.
2.2 Whereas according to the Assessing Officer, 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’.
On further appeal, the Ld. CIT(A) deleted the addition under the
head ‘income from other sources’ observing as under:
4

ITA No.4748/Del./2017

“3.1.3 The facts of the case and the submissions of the AR have
been carefully considered. It is observed that the ground of appeal
relates to the receipt of Rs. 28,00,638/- on account of interest from
contractor's advances, Rs. 5,61,63,696/- on account of interest
income from banks and Rs. 1,61,296/- on account of Misc. Income
from sale of scrap etc.. It is submitted that the company is a Private
Limited Company which was incorporated on 09.09.2008 as a joint
venture company between NTPC Ltd. and Bihar State Electricity
Board, with an equal percentage of shareholdings with the main
objective of construction of power plant(s) for generating electricity.
The joint venture was incorporated with an authorized capital of Rs.
2000 Crore. It had started in the financial year 2009-10, the
preliminary work like survey and investigations etc i.e. before
undertaking the construction of the power generating plant of the
capacity to produce 3960 MW (660 MWx6 units) of electricity at
Shivanpur, Distt- Aurangabad, Bihar. The total estimated cost of the
project is Rs. 12,600 crore. The main work of construction of the said
power plant was started in the year 2011-12, which is now
expected to be completed in the financial year 2018-19 (Stage-1).
The funds for the entire power plant had been planned to be
financed by way of 30% as equity contributions from the
shareholders and the balance 70% by raising debt funds.

I find that going by the facts and the nature of receipts, the judgment
in the case of Facor Power Limited and Indian Oil Panipat Power
Consortium (Both Hon'ble High Court of Delhi), squarely applies to
present case. In the case of Facor Power Limited, Hon'ble Delhi High
Court held that "where assessee engaged in generating electric
power, kept margin money in form of fixed deposits for procurement
of various capital goods for setting up of power project, interest
earned on said deposits would be in nature of capital receipt not
liable to tax". In the case of Indian Oil Panipat Power Consortium,
Hon'ble High Court of Delhi relied on the Hon'ble Supreme Court
judgment in CIT vs. Bokaro Steel Limited that if income is earned,
whether by way of interest or in any other manner on funds which
are otherwise "inextricably linked" to the setting up of plant, such
income is required to be capitalized to be set off against pre-
operative expenses. The Hon'ble Delhi High Court had also
distinguished the facts before them from those which were before
the apex court in the case of Tuticorin Alkali Chemicals and
Fetilizers Ltd. Vs CIT. The AO failed to establish that these were
surplus funds parked in the bank to earn interest. Going by the facts
of the case and various decisions cited above, the interest receipts
are treated as capital in nature and the additions deserve to be
deleted.

Besides, it is observed that the similar addition of interest income
from bank and interest from contractor's advances in A.Y. 2011-12
5

ITA No.4748/Del./2017

and A.Y. 2012-13 was also deleted by CIT(A) in the appellant's own
case. However, miscellaneous income of Rs. 1,61,296/- on account
of sale of scrap etc. is also covered by Supreme Court in the case of
CIT Vs. Bokaro Steel Ltd. [1999] 236 ITR 315. Therefore, the addition
of Rs. 5,91,25,630/- is hereby deleted. These grounds of appeal are
therefore allowed.”

3. Before us, none appeared on behalf of the assessee.
4. The Learned Department Representative, relied on the order
of the Assessing Officer and submitted that money was raised by
way of share capital which was not specifically linked with the
setting up of the plant, and therefore the decision of the Hon’ble
Delhi High Court in the case of Indian Oil Panipat Power
Consortium (supra) is not applicable over the facts of the
assessee.
5. We have heard submission of the Learned DR and perused
the relevant material on record. We find that identical issue in the
assessment year 2011-12 and 2012-13 has been decided in
favour of the assessee by the Learned First Appellate Authority.
On further appeal by the Revenue before the Tribunal, the issue
whether the interest and other miscellaneous income is in the
nature of capital receipt or income from other sources, has been
decided by the Tribunal in ITA No. 4560 and 4561/Del./2014 for
assessment years 2011-12 and 2012-13 respectively observing as
under:

“7. We have considered the submissions of both the parties and
carefully gone through the material available on the record. It is
noticed that an identical issue having similar facts was a subject
matter of the departmental appeal for the assessment year 2010-11
in ITA No. 6016/Del/2013 in the case of ACIT, Circle-13(1), New
Delhi Vs NTPC Tamil Nadu Energy Co. Ltd., New Delhi wherein the
issue has been decided in favour of the assessee and against the
department vide order dated 15.02.2016 and the relevant findings
have been given in para 5 & 6 which read as under:
6

ITA No.4748/Del./2017

“5. We have heard the submissions of both the parties,
perused the materials available on record, case laws cited by
Id. Counsel for assessee, assessment order and the order of
the Id. CIT(A). We find that the Id. CIT(A) has elaborately
discussed the issue and gave his finding vide para No. 4.1 to
4.9 at page No. 8 to 13 of the impugned order. For the sake of
convenience, the relevant finding of the Id. CIT(A) is
reproduced below:

4.1 I have carefully considered the facts of the case, the
findings of the AO as well as the submissions of the A/R of
the appellant. Both the Grounds of appeal are directed against
additions of Rs. 175,74,129/- comprising of the interest
income received from the bank(s) amounting to Rs. 1,02,740/-
and interest received from contractors advances amounting to
Rs. 174,71,389/-. In the P&L Account the appellant has
shown under the head other income, amount of Rs. 1,02,740/-
as interest income earned on short term deposits parked with
Banks and an amount of Rs. 174,71,389/- as interest earned
on interest bearing advance given to contractors, total Rs.
1,75,74,129/- which was adjusted against Expenditure
During Construction Account in Schedule - 15 and the net
Expenditure During Construction was capitalized under the
Capital Work in Progress in Schedule - 4 of the balance sheet.
The AO in the assessment order observed that the assessee
has not offered above incomes for tax. AO observed that the
facts of case are similar to the case of Tuticorin Alkali
Chemical & Fertilizers ltd. v. CIT (supra). Therefore, the AO
treated the above receipt of Rs. 175.74 lakh as chargeable to
tax u/s 56 of the Act as 'Income from other sources' following
the decision of Hon'ble apex court in the case of CIT vs.
Tuticorin Alkali and Chemicals & Fertilizers Ltd. (1997) 227
ITR 172.

4.2 Therefore, the issue to be decided in this appeal is
whether the above receipts are capital receipt as claimed by
the appellant or income from other sources u/s 56 of the Act
as held by the AO. The whole emphasis of Apex Court
decision in the Tuticorin Alkali Chemicals & Fertilizers Ltd.
(supra) was that funds were found to be surplus. The
company was ready to commence trial production and the
surplus funds were deposited in bank to earn interest.

4.3 In the instant case there is no dispute that project was
under construction during the previous year relevant to AY
2010-11 and the business had not commenced. The appellant
company was incorporated on 23-05-2003 as a joint venture
7

ITA No.4748/Del./2017

company between NTPC Ltd. and Tamil Nadu Electricity
Board for the purpose of construction of power plant for
generation of electricity. The total project was meant to
produce 1500 mw of electricity through 3 units @ 500 mw by
each unit. The said power plant was located at Vellur at the
outskirt of Chennai, Tamil Nadu. The construction of the
power generating unit was started on 28-03-2007. As per
letter of CEO, commercial operation is declared in respect of
unit - I w.e.f. 29/11/2012, unit - II w.e.f. 25/08/13 and unit 3
is yet to be commissioned. By end of financial year 31-03-
2010 the assessee company had raised share holders fund of
Rs. 905.5 crores and had borrowed funds in the form of
secured loan of Rs. 1808.27 crores. These funds were
essentially utilized during the initial period of construction
from A.Y. 2004-05 to A.Y. 2010-11 for conducting survey,
investigation & preliminary expenses, for purchasing land, for
infrastructure development work and for disbursement as
advance to the contractors engaged for construction of power
plant etc.

4.4 Further, there is no finding given by the AO that advances
were made by the appellant out of surplus fund. From the
balance sheet it is observed that as against the above funds
of Rs. 2713.77 crores (without considering amounts due to
sundry creditors), sums aggregating to Rs. 2998.02 crores
were used for acquiring / construction of fixed assets. Against
the liabilities and provisions aggregating to Rs. 293.45 crores,
bank and cash balances was Rs. 4.74 crores only. Further,
the debit balance of Profit and Loss Account as appearing in
the Balance Sheet as on 31.03.2010 was Rs.1.13 crores.
From the above it is evident that investment in fixed assets is
more than the funds available and fixed asset is partly
funded by current liabilities. The liability towards sundry
creditors (Rs.86.78 crores) are far more than the funds lying in
bank (Rs.4.74 crores). Therefore, it is clear that advances
were not given out of surplus funds available with the
company. Simply because money is lying in bank meant for
construction of the plant, it cannot be treated as the surplus
money. The surplus money can arise only after meeting all the
obligations relating to the construction of the power plant and
if the money is found to be surplus after the completion of
construction of the unit. In the instant case the work of
construction of the power plant was under progress.
Therefore, funds cannot be said to be at surplus.

4.5 Some of such funds which were lying unutilized were
temporally parked by the appellant in bank to earn interest.
The purpose of bank deposits yielding interest was evidently
8

ITA No.4748/Del./2017

to maintain liquidity of funds and to reduce the cost of
construction of the power plant. Therefore, interest earned on
such unutilized funds temporally parked with banks to
maintain liquidity and to reduce cost, is inextricably linked
with the setting up of the project. Similarly, the interest
incomes earned on advance to contractors engaged for
construction of power plant is also inextricably linked with the
setting up of the power plant. These incomes have also gone
on to reduce the expenses for setting up of the plant as
evident from schedule 15 of annual report showing details of
expenses during construction. Hon'ble Supreme Court on
identical issue in CIT v. Bokaro Steel Ltd. 102 taxman 94 (SC)
after considering the decision in the case of Tuticorin Alkali
Chemicals and Fertilizers Ltd. (supra) held that interest from
advance to contractors, rent charged on contractor, hire
charges from contractors are inextricably linked to the setting
up of the project and as such capital receipts. In that said
decision Hon'ble Apex Court held:-

"5. We will take the first three heads under which the
assessee has received certain amounts. These are the rent
charged by the assessee to its contractors for housing workers
and staff employed by the contractor for the construction work
of the assessee including certain amenities granted to the
staff by the assessee. Secondly, hire charges for plant and
machinery which was given to the contractors by the assessee
for use in the construction work of the assessee, and thirdly,
interest from advances made to the contractors by the
assessee for the purpose of facilitating the work of
construction. The activities of the assessee in connection with
all these three receipts are directly connected with or are
incidental to the work of construction of its plant undertaken
by the assessee. Broadly speaking, these pertain to the
arrangements made by the assessee with its contractors
pertaining to the work of construction. To facilitate the work of
the contractor, the assessee permitted the contractor to use
the premises of the assessee for housing its staff and workers
engaged in the construction activity of the assessee's plant.
This was clearly to facilitate the work of construction. Had
this facility not been provided by the assessee, the contractors
would have had to make their own arrangements and this
would have been reflected in the charges of the contractors for
the construction work. Instead, the assessee has provided
these facilities. The same is true of the hire charges for plant
and machinery which was given by the assessee to the
contractors for the assessee's construction work. The receipts
in this connection also go to compensate the assessee for the
wear and tear of the machinery. The advances which the
9

ITA No.4748/Del./2017

assessee made to the contractors to facilitate the construction
activity of putting together a very large project was as much to
ensure that the work of the contractors proceeded without any
financial hitches as to help the contractors. The arrangements
which were made between the assessee-company and the
contractors pertaining to these three receipts are
arrangements which are intrinsically connected with the
construction of its steel plant. The receipts have been adjusted
against the charges payable to the contractors and have gone
to reduce the cost of construction. They have, therefore, been
rightly held as capital receipts and not income of the assessee
from any independent source.

7. However, while interest earned by investing borrowed
capital in short-term deposits is an independent source of
income not connected with the construction activities or
business activities of the assessee, the same cannot be said
in the present case where the utilization of various assets of
the company and the payments received for such utilization
are directly linked with the activity of setting up the steel plant
of the assessee. These receipts are inextricably linked with
the setting up of the capital structure of the assessee -
company. They must, therefore, be viewed as capital receipts
going to reduce the cost of construction."

4.6 Hon'ble Delhi High Court in Indian Oil Panipat Power
Consortium Ltd. vs. 1TO (2009) 315 ITR 255 (Del.) held that
where interest on money received as share capital is
temporarily placed in fixed deposit awaiting acquisition of
land, a claim that such interest is a capital receipt entitled to
be set off against pre-operative expenses, is admissible, as
the funds received by the assessee company by the joint
venture partners are "inextricably linked" with the setting up
of the plant and such interest earned cannot be treated as
income from other sources. The Hon'ble Delhi High Court
applied the ratio of Hon'ble Supreme Court in Bokaro Steel
Ltd. (supra) while arriving at the above decision. Hon'ble High
Court also distinguished the facts before them from the facts
which were before the apex court in the case of Tuticorin
Alkali Chemicals and Fertilizers Ltd. v CIT. The distinction
drawn by Delhi High Court, was that that there was a finding
of fact recorded in the case before the apex court that
whatever money was deposited in the bank was essentially
found to be the surplus funds in the hands of that company
and the very purpose of making fixed deposits was to earn
interest on such surplus money. Apex court under those
peculiar circumstances, had held in Tuticorin Alkali Chemicals
10

ITA No.4748/Del./2017

that interest income arising on surplus funds, was chargeable
to tax as income from other sources.

4.7 In identical issue in the case of NTPC Sail Power
Company (P) Ltd. vs. CIT in ITA No. 1238, Hon'ble Delhi High
Court in its decision on 17/07/2012 held that:-

"It is no doubt correct that the proviso to section 36 (1) (Hi) of
the Income Tax Act enacts that any amount of the interest
paid towards ("in respect of) capital borrowed for acquisition
of an asset or for extension of existing business regardless of
its capitalization in the books or otherwise, "for any period
beginning from the date on which the capital was borrowed
for acquisition of the asset till the date on which such asset
was first put to use" would not qualify as deduction. However,
in all these cases, when the interest was received by the
assessee towards interest paid for fixed deposits when the
borrowed funds could not be immediately put to use for the
purpose for which they were taken, this Court, and indeed the
Supreme Court held that if the receipt is "inextricably linked"
to the setting up of the project, it would be capital receipt not
liable to tax but ultimately be used to reduce the cost of the
project, By the same logic, in this case too. the funds invested
by the assessee company and the interest earned were
inextricably linked with the setting up of the power plant."

4.8 Therefore, decisions of Hon'ble Supreme Court in the
case of Bokaro Steel Ltd. (supra), Hon'ble Delhi High Court in
Indian Oil Panipat Power Consortium Ltd. (supra) and NTPC
Sail Power Company (P) Ltd. (supra) are squarely applicable in
the instant case. Identical issue was raised in appeal for AY
2008-09 which was decided by me in favour of the appellant
in A. No. 102/2010-12 vide decision dt. 17/12/2012
following the above decisions of Supreme Court and Delhi
High Court as under:

"8.1.5 Since the work of construction of the power plant has
just started and funds were essentially utilized for conducting
survey, investigation & preliminary expenses, for land
purchase, for infrastructure development work and for
disbursement as advance to the contractors engaged for
construction of power plant etc., therefore, funds cannot be
said to be at surplus. Moreover, the liability towards sundry
creditors (Rs.23.52 crores) are far more than the funds lying in
bank (Rs.3.34 crores). Interest income is also inextricably
linked with the setting up of the power plant because interest
income have gone on to reduce the incidental expenses for
setting up of the plant as evident from schedule 12 of balance
11

ITA No.4748/Del./2017

sheet showing details of incidental expenses during
construction. In view of the above, as the interest on STDR are
"inextricably linked" to the setting up of the project and the
fact that no surplus funds are also available with the
appellant company, therefore, such income is required to be
capitalized to be set off against the pre operative expenses. As
such the A.O. is not justified in adding the sum of Rs.
36,06,774/- as income for other source u/s 56."

4.9 In view of the above factual and legal positions in the
instant AY 2010-11 since the work of construction of the
power plant was under progress, interest incomes are also
inextricably linked with the setting up of the power plant and
such incomes have gone on to reduce the expenses for setting
up of the plant and as there was no surplus funds available
with the appellant company, therefore, such income is
required to be capitalized to be set off against the pre
operative expenses. As such the A.O. is not justified in adding
the sum of Rs. 1,75,74,129/- as income from other source u/s
56. The appeal is allowed in ground nos. I & 2 of appeal. ”

6. In the background of the aforesaid discussion and the
precedents, we are of the view that the Id. CIT(A) has passed
a well reasoned order which does not need any interference
on our part. Hence, we uphold the same. Accordingly, the
appeal of the Revenue is dismissed. ”

8. Against the aforesaid order dated 15.02.2016, the department
preferred an appeal before the Hon’ble Jurisdictional High Court in
ITA No. 541/2016 wherein vide order dated 20.09.2016, the order
of this Bench of the Tribunal was affirmed.

9. Since the facts for the year under consideration are identical to
the facts involved in the case of ACIT, Circle- 13(1), New Delhi Vs
NTPC Tamil Nadu Energy Co. Ltd., New Delhi in ITA No.
6016/Del/2013 for the assessment year 2010- 11. So, respectfully
following the order dated 15.02.2016 passed by this Bench of the
ITAT, New Delhi, we are of the view that the Id. CIT(A) was fully
justified in deleting the impugned addition made by the AO.
Accordingly, we do not see any merit in this appeal of the
department.

10. In ITA No. 4561/Del/2014, the fact are identical as were
involved in ITA No. 4560/Del/2014 for the assessment year 2011-
12 which we have already disposed off in the former part of this
order. Therefore, the findings given therein for the assessment year
12

ITA No.4748/Del./2017

2011-12 shall apply mutatis mutandis for the assessment year
2012-13.
11. In the result, appeals of the department are dismissed.”

5.1 Since the issue in dispute has already been decided by the
Tribunal in favour of the assessee in earlier years, respectfully
following the said finding of the Tribunal, the finding of the Ld.
CIT(A) on the issue in dispute is upheld. The grounds raised by
the Revenue are accordingly dismissed.
6. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 11th May, 2021

Sd/- Sd/-
(KULDIP SINGH) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 11th May, 2021. Asst. Registrar, ITAT, New Delhi

RK/-(DTDS)

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR