M.M. Kumar, J. - (1.) THIS order shall dispose of IT Appeal Nos. 616 and 617 of 2006 which have been filed by the Revenue under Section 260 -A of the Income -tax Act, 1961 (for brevity 'the Act') challenging order dated 14 -11 -2005, passed by the Income -tax Appellate Tribunal, Chandigarh Bench -A (for brevity, 'the Tribunal') in IT Appeal Nos. 614 and 615 (Chandigarh) of 2003, in respect of assessment year 1999 -2000 and 2000 -2001. Revenue has claimed the following substantial question of law, which would emerge from the order passed by the Tribunal. Whether the Tribunal in the facts relevant to the case and in law was right in allowing set off of interest income relating to the pre -operative period, earned on the fixed deposits kept for arranging bank guarantees, towards the cost of capital assets.
(2.) IT has not been disputed that the interest income on the fixed deposit was earned by the assessee -respondent during the pre -operative period of the unit. The FDRs for a sum of Rs. 6.25 crores was furnished by the assessee -respondent as performance guarantee of Rs. 25 crores. Accordingly, the interest income was not declared by the assessee in his return. The Assessing Officer held the income to be taxable as 'income from other sources'. The business has commenced on 24 -7 -2000 whereas the interest income was earned in respect of the earlier period. On appeal filed by the assessee, the Commissioner of Income -tax (Appeals) reversed the view taken by the Assessing Officer by placing reliance on a judgment of this Court in the case of Karnal Co -operative Sugar Mills Ltd. v. CIT, : [1998] 233 ITR 531, and a judgment of Hon'ble the Supreme Court in the case of CIT v. Bokaro Steel Ltd., [1999] 36 ITR 315.
(3.) IT is further appropriate to mention that the CIT(A) also referred its earner decision in the case of assessee himself in respect of assessment year 1998 -99, which was a year preceding the assessment year in hand. Accordingly, it was held that this income was not taxable under the head 'Income from other sources'.;