Mumbai Integratd SEZ Ltd.,, Mumbai v. The Income tax Officer,Ward-4(1),, Ahmedabad

ITA 804/AHD/2010 | 2003-2004
Pronouncement Date: 25-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 80420514 RSA 2010
Assessee PAN AABCG2739C
Bench Ahmedabad
Appeal Number ITA 804/AHD/2010
Duration Of Justice 4 year(s) 1 month(s) 11 day(s)
Appellant Mumbai Integratd SEZ Ltd.,, Mumbai
Respondent The Income tax Officer,Ward-4(1),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 25-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 25-04-2014
Date Of Final Hearing 10-04-2014
Next Hearing Date 10-04-2014
Assessment Year 2003-2004
Appeal Filed On 15-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI N.S. SAINI ACCOUNTANT MEMBER ITA NO.804/AHD/2010 A.Y. 2003-04 MUMBAI INTEGRATED SEZ LTD. (FORMERLY KNOWN AS GUJARAT POSITRA PORT INFRASTRUCTURES LIMITED) 1 ST FLOOR JAI CENTRE 34 P.D. MELLO ROAD MASJID MUMBAI. PAN: AABCG2739C VS ITO WARD-4(1) AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA SR.D.R. ASSESSEE(S) BY : SHRI S.N. SOPARKAR WITH URVASHI SHODHAN AR / DATE OF HEARING : 10/04/2014 / DATE OF PRONOUNCEMENT: 25/04/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M THE ORDER OF LEARNED CIT(A)-V MUMBAI DATED 07.01.2010. AT THE O UTSET IT IS WORTH TO MENTION THAT VIDE U.O. NO. F-27-JD(APPEAL) 2009-10 DATED 11 TH MARCH 2010 THIS APPEAL IS TRANSFERRED TO THE JURISDICTION OF ITAT AHMEDABAD BENCHES. IT IS WORTH TO MENTION THAT THE ASSESSMENT WAS MADE U/S.143(3) VIDE AN ORDER DATED 12.12.2005 BY INCOME TAX OFFICE R WARD-4(1) AHMEDABAD. THE GROUND RAISED BY THE APPELLANT WAS N ARRATIVE; HENCE THE SAME WAS CONCISED LATER ON AS REPRODUCED BELOW: (I) IN FACTS & CIRCUMSTANCES OF THE CASE YO UR APPELLANT MOST RESPECTFULLY SUBMITS THAT THE LD. ASSESSING OFFICER ERRED IN HOL DING THAT THE APPELLANT HAD NOT SETUP ITS BUSINESS AND HAD NOT COMMENCED OPERAT IONS AND LD. CIT ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 2 - (APPEAL) HAS FURTHER ERRED IN UPHOLDING THE SAID FI NDING OF LD. A.O. BY WRONGLY APPLYING THE HON. SUPREME COURT'S DECISION IN CASE OF TUTICOIN ALKALIS CHEMICALS & FERTI. LTD. VS CIT 227 ITR PAG E 172. (II) YOUR APPELLANT FURTHER RESPECTFULLY SUBMI TS THAT THE ID. A.O. ERRED IN TAXING THE INTEREST RECEIPT ON STAFF LOANS AND DEPO SITS FOR LETTERS OF CREDIT (LC) BANK GUARANTEE MARGIN AMOUNTING TO RS. 22 00 821/- AS INCOME FROM OTHER SOURCES AND LD. CIT (A) FURTHER ERRED IN SUSTAINING THE SAID ADDITION. (III) WITHOUT PREJUDICE TO THE ABOVE YOUR APP ELLANT FURTHER SUBMITS THAT LD. CIT(A) HAS FURTHER ERRED IN SUSTAINING THIS ADD ITION / DISALLOWANCE ON THE GROUND THAT THE EXPENDITURE IS NOT INEXTRICABLY LIN KED TO EARNING OF SAID INTEREST. ALTERNATIVELY YOUR APPELLANT FURTHER SUB MITS IF THE SAID INTEREST INCOME IS HELD TO BE TAXABLE THE LD. A.O. MAY BE D IRECTED TO ALLOW DEDUCTION OF EXPENDITURE INCURRED IN RELATION TO INTEREST AND BANK CHARGES ON L C & B G UNDER SECTION 57 (III) OF THE ACT. (IV) YOUR APPELLANT FURTHER SUBMITS THAT BOTH THE L OWER AUTHORITIES HAVE FURTHER ERRED IN LEVYING INTEREST U/S.234B 234D & 244A OF THE ACT OF RS.20 430/- 2. FACTS AS EMERGED FROM THE CORRESPONDING ASSESSME NT ORDER WERE THAT THE ASSESSEE COMPANY WAS CONSTITUTED TO DEVELO P AND OPERATE INFRASTRUCTURE FACILITY IN SPECIAL ECONOMIC ZONES ( SEZ) AT POSITRA GUJARAT. THE FIRST OBSERVATION OF THE AO WAS THAT T HE ASSESSEE-COMPANY HAD NOT COMMENCED ITS BUSINESS. THE SECOND OBSERVAT ION OF THE AO WAS THAT THE EXPENDITURE CLAIMED IN RESPECT OF INTEREST AND BANK CHARGES ON LETTER OF CREDIT (LC) & BANK GUARANTEE (BG) OF RS.2 2 00 821/- SHOULD BE DISALLOWED BEING PRE-OPERATIVE BUSINESS EXPENDIT URE. THE AO HAS ALSO OPINED THAT THE INTEREST EARNED WAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE AO HAS CITED TUTICORIN ALKALIS CHEMICALS AND FERTILIZERS 227 ITR 172 . THE REPLY OF THE ASSESSEE BEFORE AO WAS AS UNDER: THE COMPANY FRAMED FOR THE PURPOSE OF CARRYING OUT THE BUSINESS OF DEVELOPMENT AND OPERATION OF INFRASTRUCTURE FACILIT IES IN INDIA. SINCE THE PROJECT OF SPECIAL ECONOMIC ZONE HAD NOT COMMENCED DURING THE YEAR SO ALL THE CAPITAL EXPENDITURE INCURRED DURING THE YEAR WA S TRANSFERRED TO CAPITAL WORK-IN-PROGRESS. INTEREST INCOME OF RS.22 0 821/- IS TOTAL INTEREST LINKED TO THE SETTING UP OF THE PROJECT AND STARTING THE BUSI NESS AND HENCE IT IS CAPITAL RECEIPT WHICH WILL GO IN REDUCING THE COST OF ASSET S. THE RECEIPT IS THEREFORE A CAPITAL RECEIPT AND CANNOT BE TAXED AS INCOME. THE CASE REFERRED BY YOUR GOODSELF I.E. TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD VS. CIT (227 ITR 172) WHEREIN IT HAS BEEN HELD THAT THE ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 3 - INTEREST EARNED BY THE ASSESSEE ON INVESTMENT OF SH ARE CAPITAL IN ALL DEPOSITS EVEN BEFORE PRODUCTION COMMENCED COULD BE ASSESSED SEPARATELY UNDER THE HEAD INCOME FROM OTHER SOURCES. THE FUNDS WERE BO RROWED FOR SETTING UP THE FACTORIES WHICH WAS NOT IMMEDIATELY REQUIRED BY TH E COMPANY AND WAS KEPT INVESTED IN SHORT TERM THE COMPANY AND WAS KEPT INV ESTED IN SHORT TERM DEPOSIT WITH BANKS. HOWEVER IN OUR CASE THE FUNDS WERE (REQUIRED TO BE USED FOR PROCUREMENT OF PROJECT MATERIAL. HOWEVER THE C OMPANY HAS USED THESE LIMITED FUNDS TO BORROW LETTER OF CREDITS FOR MAKIN G THE PAYMENT OF PROJECT MATERIAL. THEREFORE THE FUNDS WERE KEPT WITH THE B ANKS FOR THE PURPOSE OF MARGIN MONEY TOWARDS LCS AS PER SANCTION TERMS OF R ESPECTIVE BANKS. IN VIEW OF THE SAME THE CASE REFERRED BY YOUR HONOUR MAY N OT BE APPLIED IN OUR CASE. 2.1 THE ASSESSEE HAS ALSO CITED KAMAL CO-OPERATIVE SUGAR MILLS 243 ITR 2. FOR THE LEGAL PROPOSITION THAT INTEREST RECEIVED O N LC FOR PROCUREMENT OF ASSETS IS A CAPITAL RECEIPT AND DIRE CTLY CONNECTED AND INCIDENTAL TO THE COST OF THE ASSETS. THE CLAIM OF THE ASSESSEE WAS THAT THE MARGIN MONEY WAS KEPT WITH THE BANK AND THEREUPON I NTEREST WAS EARNED. THE AO HAS CONCLUDED THAT THE ASSESSEE HAD NOT COMM ENCED ITS BUSINESS. THE INTEREST INCOME EARNED BY THE ASSESSEE FROM THE FIXED DEPOSITS WITH THE BANK WAS HELD AS INCOME FROM OTHER SOURCES. T HE AO HAS ALSO HELD THAT THE INTEREST EXPENDITURE AS CLAIMED BY THE ASS ESSEE WAS NOT TO BE ALLOWED BEING CAPITAL EXPENDITURE. IN SUPPORT OF TH E SAID DECISION THE AO HAS ALSO CITED FEW CASE LAWS; NEED NOT TO REPRODUCE KEEPING BREVITY IN MIND. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. LEARNED CIT(A) WAS NOT CONVINCED ON ALL THE ISSU ES. HE HAS HELD THAT THERE WAS NO BUSINESS ACTIVITY COMMENCED AND T HE ASSESSEE WAS IN THE PROCESS OF SETTING UP THE BUSINESS. THE NEXT CO NCLUSION OF THE LEARNED CIT(A) WAS THAT THE INTEREST EARNED PERTAINED TO PR E-COMMENCEMENT PERIOD. ACCORDING TO HIM THE BUSINESS OF THE ASSES SEE WAS IN PRE- OPERATIVE STAGE. ON THIS LEGAL POINT HE HAS AFFIRM ED THE OBSERVATION OF ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 4 - THE AO. IN RESPECT OF THE TAXABILITY OF THE INTERES T INCOME HE HAS HELD THAT THE INTEREST EARNED WAS RIGHTLY TAXED AS INCO ME FROM OTHER SOURCES. ON THE ISSUE OF INTEREST EXPENDITURE LEARNED CIT(A ) HAS HELD THAT IN RESPECT OF QUESTION OF NETTING OF INTEREST PAID THE ASSESSEE HAD NOT ESTABLISHED THE NEXUS IN THE INTEREST INCOME AND TH E INTEREST PAID; HENCE THERE WAS QUESTION OF CLAIM OF DEDUCTION U/S57(III) OF IT ACT. ACCORDING TO HIM THE INTEREST INCOME WAS LIABLE TO BE TAXED UNDER THE HEAD OTHER SOURCES BUT ON THE OTHER HAND INTEREST EXPENDITURE PERTAINED TO THE FORMATIVE YEARS; HENCE REQUIRED TO BE AMORTIZED. A GAINST THE SAID VIEW OF THE LEARNED CIT(A) NOW THE ASSESSEE IS FURTHER I N APPEAL. 4. IN THE LIGHT OF THE ABOVE FACTS WE HAVE HEARD B OTH THE SIDES. LEARNED AR MR. S.N. SOPARKAR AND URVASHI SHODHAN H AVE PLACED RELIANCE ON SARDAR SAROVAR NARMADA NIGAM LTD. 263 CTR 591 (GUJ .) FOR THE LEGAL PROPOSITION THAT A COMPANY CAN BE SAI D TO HAVE SET UP ITS BUSINESS FROM THE DATE WHEN ONE OF THE CATEGORIES O F ITS BUSINESS WAS STARTED; HENCE REVENUE EXPENDITURE ON SUCH DATE WA S HELD AS ALLOWABLE EXPENDITURE. HE HAS PLACED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF KARNAL CO-OPERATIVE SUGAR MILLS 243 ITR 2 (SC) FOR THE LEGAL PROPOSITION THAT THE INTEREST ON MONE Y DEPOSITED TO OPEN LC FOR PURCHASE OF MACHINERY REQUIRED FOR SET UP A PLA NT AND INCOME EARNED ON SUCH DEPOSIT BEING INCIDENTAL TO ACQUISITION OF ASSETS IS TO BE CAPITALIZED AND MUST NOT BE ASSESSED AS INCOME FROM OTHER SOURCES. ON THE OTHER HAND FROM THE SIDE OF THE REVENUE LEARN ED SR.D.R. MR. O.P. BATHEJA HAS PLACED RELIANCE ON THE DECISION OF HON BLE RAJASTHAN HIGH COURT IN THE CASE OF RAJASTHAN LAND DEVELOPMENT CORPORATION 211 ITR 597 (RAJ) . FOR THE LEGAL PROPOSITION THAT THE ASSESSEE BEING NOT ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 5 - ENGAGED IN THE BUSINESS OF ADVANCING LOANS IS ASSES SABLE UNDER THE HEAD INCOME FROM OTHER SOURCES IN RESPECT OF SURPLUS M ONEY DEPOSITED WITH VARIOUS BANKS. HE HAS ALSO PLACED RELIANCE UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF INDOGULF FERTIL IZERS AND CHEMICALS CORPORATION 280 ITR 621 (ALLD). FOR THE LEGAL PROP OSITION THAT INTEREST EARNED BY THE COMPANY DURING THE CONSTRUCTION PERIO D ON THE BANK DEPOSITS TEMPORARILY KEPT IS TAXABLE AS INCOME FROM OTHER SOURCES AND THAT THE INTEREST INCOME COULD BE SET OF AGAINST IN TEREST PAYABLE ON LOAN. 5. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. AS FAR AS THE QUESTION OF SETTING UP OF THE BUSINESS IS CONCERNED WE MAY LIKE TO MENTION AT THE OUTSET THAT IN A DECISION PRONOUNCED BY RESPECTED THIRD MEMBER ITAT PUNE BENCH IN THE CASE OF STYLER INDIA PVT. LTD. 113 ITD 55 (PUNE) WHEREIN (JM IS THE PARTY). IT WAS PRONOUNCED THAT THE ASSESSEE- COMPANY BEING INCORPORATED FOR RENDERING ADVISORY A ND CONSULTANCY SERVICES IN THE FIELD OF AUTOMOBILES AND HAVING A P LACE OF BUSINESS AND EMPLOYED QUALIFIED PEOPLE TO RENDER ADVICE AND HAVI NG CONTACTED VARIOUS CLIENTS WHO ENTERED INTO AGREEMENT WITH THE ASSESSE E THEN IT COULD BE HELD THAT THE ASSESSEE HAD SET UP ITS BUSINESS. HOWEVER IT WAS ALSO HELD THAT THE EXPENDITURE ON BUILDING WAS CAPITAL IN NATURE THEREFORE NOT ALLOWABLE. IN THE PRESENT CASE FACTS OF THE CASE H AVE REVEALED THAT THE ASSESSEE-COMPANY WAS CONSTITUTED TO DEVELOP AND OPE RATE INFRASTRUCTURE FACILITIES IN INDIA TOWARDS DEVELOPMENT OF SPECIAL ECONOMIC ZONES AT POSITRA IN THE STATE OF GUJARAT. THE ASSESSEE HAD OBTAINED AN APPROVAL FROM THE GUJARAT STATE AND UNION GOVERNMENT. THE AS SESSEE HAS COMMENCED THE PROCESS OF LAND ACQUISITION FROM PRIV ATE PARTIES. THE ASSESSEE HAD CONDUCTED A SURVEY AND STARTED REHABIL ITATION ACTIVITIES TO ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 6 - PERFORM THE ABOVE ACTIVITIES. THE ASSESSEE HAD RECR UITED EMPLOYEES ON RENTAL BASIS OFFICE WAS OCCUPIED ENGAGED FEW PROFE SSIONALS AND CERTAIN ADMINISTRATIVE AS WELL AS EXPENDITURE WERE INCURRED . THERE WAS SOCIO- POLITICAL DEVELOPMENT IN GUJARAT; HENCE THE ASSESS EE HAS FACED SOME PROBLEM BUT THE MANAGEMENT HAD STARTED CONTEMPLATIN G AN INTEGRATED SEZ AT MUMBAI. ALTHOUGH THE GUJARAT PROJECT WAS NO T STARTED WITH FULL SWING BUT THE SETTING UP OF MAHA MUMBAI SEZ WAS IN FULL SWING. THE REQUISITE APPROVAL WAS ALSO OBTAINED FROM THE GOVER NMENT. AFTER OBTAINING THE APPROVAL FROM THE MINISTRY OF COMMERC E GOVERNMENT OF INDIA IMMEDIATELY THEREAFTER THE PROJECT WAS LAUNC HED ON 9 TH AUGUST 2003. BECAUSE OF THESE FACTS WE HEREBY HOLD FOLLOW ING THE DECISION OF STYLER INDIA PVT. LTD. (SUPRA) WHEREIN THIS ISSUE OF SETTING UP OF BUSINESS HAD BEEN DISCUSSED AT LENGTH THAT THE ASS ESSEES BUSINESS WAS SET UP AND THE EXPENSES WERE INCURRED TO PROPAGATE THE BUSINESS OF THE ASSESSEE. IT IS WORTH TO MENTION THAT IN ONE OF THE CASE ITAT J BENCH MUMBAI PRONOUNCED IN THE CASE OF DE BEERS INDIA PRO SPECTING PVT. LTD. BEING ITA NOS.40/MUM/2006 6560 6561 & 6562/MUM/20 07 ORDER DATED 16.12.2011 HAS HELD AS UNDER: THE REASON FOR DISALLOWANCE OF THE EXPENDITURE AND PERMITTING IT TO BE CAPITALIZED BY AO IS ON THE OPINION THAT THE ASSESS EE HAS NOT COMMENCED ITS BUSINESS ACTIVITIES. COMMENCEMENT OF THE BUSINESS A CTIVITIES HAS VARIOUS FACTS. AS PERMITTED BY THE DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION THE ASSESSEE IS PERMITTED TO UNDERTAKE PROSPECTING AND MINING ACTIVITIES FOR DIAMONDS ORIGINALLY AND SUBSEQUENTLY PROSPECTING FO R OTHER MINERALS ALSO (EXCEPT COAL AND IRON ORE) FOR PRIVATE PARTICIPATIO N. THIS INDICATE THAT THE ASSESSEE WAS PERMITTED TO INDULGE IN MINING ACTIVIT IES ONLY WITH REFERENCE TO DIAMONDS WHEREAS IT WAS NOT PERMITTED TO INVOLVE IN MINING ACTIVITIES FOR OTHER MINERALS. PROSPECTING IS AN ACTIVITY PRIOR TO ACTIVITY OF MINING. WITHOUT PROSPECTING AND WITHOUT EXAMINING WHETHER PARTICULA R PRECIOUS STONES/MINERALS WERE AVAILABLE IN A PARTICULAR ARE A IT IS NOT POSSIBLE TO UNDERTAKE MINING ACTIVITIES . HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FR ANCO TOSI INGEGNERIA (2000) 241 ITR 268 CONSIDERED THAT ASSESSEE HAS COM MENCED ITS BUSINESS ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 7 - FROM THE TIME IT OPENED ITS SITE OFFICE AND ALLOWED THE EXPENDITURE UNDER SECTION 37(1). IN VIEW OF THE PRINCIPLES DECIDED IN ABOVE CASES WE ARE OF THE OPINION THAT THE ASSESSEE'S ACTIVITIES OF PROSPECTI NG WHICH IS A PERMITTED ACTIVITY BY THE FIPB IN WHICH THE ASSESSEE HAS CONS IDERABLE EXPERTISE AND FURTHER CONSIDERING THAT VARIOUS PERMISSIONS GRANT ED BY THE GOVT. OF ANDHRA PRADESH WAS ONLY FOR RECONNAISSANCE WITH REFERENCE TO EXPLORATION OF DIAMONDS IT CAN BE CONCLUDED THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS FROM THE TIME IT STARTED THE PROSPECTING ACTIVITY. IT IS ALSO SEEN FROM THE PERMISSIONS GRANTED BY THE FIPB THAT IN SOME CASES THE ASSESSEE WAS PERMITTED TO UNDERTAKE FOR PROSPECTING ONLY FOR OTH ER MINERALS (EXCEPT COAL AND IRON ORE). THEREFORE PROSPECTING ACTIVITY ITSE LF IS TO BE CONSIDERED AS ASSESSEE'S BUSINESS ACTIVITY. THERE IS NO DISPUTE W ITH REFERENCE TO THE EXPENDITURE BEING SPENT ON PROSPECTING ACTIVITIES I N THE YEAR UNDER CONSIDERATION. ACCORDINGLY IT IS HELD THAT THE ASS ESSEE HAS COMMENCED ITS BUSINESS ACTIVITIES. 5.1 CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES OF THE CASE AND THE DETAILS OF THE PROJECT DEVELOPMENT EXPENDI TURE AS ANNEXED TO THE BALANCE SHEET OF THE ASSESSEE WE HEREBY HOLD T HAT FOR THE YEAR UNDER CONSIDERATION THE BUSINESS WAS SET UP BY THE ASSESS EE. 5.2 AFTER HOLDING THAT THE BUSINESS WAS SET UP NOW THE NEXT QUESTION IS THAT HOW THE INTEREST EARNED AND INTEREST PAID IS T O BE COMPUTED FOR THE TAX PURPOSE. WE HAVE NOTED THAT EVEN THIS ISSUE HAS ALSO BEEN DEALT WITH BY ITAT J BENCH MUMBAI IN THE CASE OF DE BEERS INDIA PROSPECTING PVT. LTD (SUPRA) AND RELEVANT PARAGRAPH 12 IS EXTRACTED BELOW: 12. EVEN THOUGH BOTH THE COUNSELS RELIED ON VAR IOUS CASE LAW SUPPORTING THEIR RESPECTIVE STANDS WE ARE OF THE O PINION THAT THIS ISSUE HAS BECOME ACADEMIC IN NATURE AS THE INCOMES OF INT EREST WHETHER ASSESSED UNDER THE HEAD 'BUSINESS' OR 'INCOME FROM OTHER SOURCES' THE SAME IS ELIGIBLE FOR SET OFF TO THE OTHER EXPENDITU RE BEING CLAIMED UNDER THE HEAD 'BUSINESS'. CONSEQUENT TO OUR FINDING THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS AND IS ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 37(1) ON EXPENDITURE OF NON-PROSPECTING ACT IVITIES AND DEPRECIATION THEREON THE ASSESSEE IS ELIGIBLE FOR SET OFF OF THE INTEREST INCOME. SINCE THE ISSUE BECOMES ACADEMIC IN NATURE WE DO NOT INTEND TO GO INTO THE ASPECT WHETHER INCOME IS TO BE ASSES SED AS BUSINESS INCOME OR OTHER SOURCES. THERE IS VARIOUS CASE LAW ON THE ISSUE HOLDING ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 8 - IF THE CAPITAL FUNDS ARE KEPT IN DEPOSITS THEN THE INCOME IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND IF THE WORKING CAP ITAL FUNDS ARE KEPT THEN TO BE TREATED AS BUSINESS INCOME BUT MOST OF THE CASE LAW WAS GIVEN ON RESPECTIVE FACTS. MOST OF THE ISSUES AROSE AS DEDUCTIONS ARE BEING CLAIMED ON NON-OPERATIONAL INCOMES ALSO. IN T HAT CONTEXT VARIOUS DECISIONS WERE RENDERED DEPENDING ON FACTS AND APPL ICABLE LAW. THE DISCUSSION WILL BECOME ONLY ACADEMIC IN NATURE IN T HIS CASE WITHOUT THERE BEING ANY CONSEQUENTIAL EFFECT AS INTEREST IN COME IS ELIGIBLE FOR SET OFF TO BUSINESS LOSS WHETHER ASSESSED AS INCOME FRO M BUSINESS OR INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER IS HOWEVE R DIRECTED TO ALLOW THE SET OFF OF BUSINESS LOSS AS PER THE PROVISIONS OF THE ACT. 5.3 WE ARE ALSO OF THE OPINION THAT THE ASSESSEE IS EXPECTED TO PLACE ON RECORD THE PURPOSE OF THE DEPOSIT UTILIZATION OF F UNDS AND MOST IMPORTANT FACT IS ALSO TO BE BROUGHT ON RECORD ABOUT THE NEXU S OF INTEREST EARNED AND INTEREST PAID. WE THEREFORE HEREBY HOLD THAT THE MATTER SHOULD GO BACK TO THE STAGE OF THE AO SO THAT THE PROCUREMENT OF FUND S ITS UTILIZATION AND THE SOURCE OF DEPOSIT HAS TO BE EXAMINED AFRESH BY THE AO SO THAT THE NEXUS CAN BE ESTABLISHED IN RESPECT OF THE INTEREST EARNED AND INTEREST PAID. WITH THESE DIRECTIONS THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED THAT TOO FOR STATISTICAL PURPOSE. 6. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED. SD/- SD/- (N.S. SAINI) ( MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 25/04/2014 PRABHAT KR. KESARWANI SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III AHMEDABAD ITA NO.804/AHD/2010 MUMBAI INTEGRATED SEZ LTD. VS. ITO WARD-4(1) AHME DABAD. A.Y.2003-04 - 9 - 5. / DR ITAT AHMEDABAD 6. / GUARD FILE. / BY ORDER / ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD