Sar Infracon Pvt.Ltd., Surat V. The Income tax Officer,Ward-4(2), Surat

ITA 1080/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0260 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Keywords: Diversion of income; Additional evidence
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1079 & 1080/AHD/2010 ASSESSMENT YEARS :2005-06 & 2006-07 SAR INFRACON PVT. LTD., 508, BELGIUM TOWER, OPP. LINEAR BUS STOP, RING ROAD, SURAT V/S . THE INCOME TAX OFFICER, WARD 4(2), SURAT. PAN NO. A A ICS2441N (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI S. N. SOPARKAR, SR. ADV. WITH MS. URVASHI SHODHAN, A.R. /BY RESPONDENT SHRI Y.P. VERMA, SR. D.R. /DATE OF HEARING 26.12.2012 /DATE OF PRONOUNCEMENT 15.02.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS ARE FILED BY THE ASSESSEE IN ITA NOS. 1079 & 1080/AHD/2010, WHICH HAVE BEEN EMANATED FROM THE OR DERS OF THE LEARNED CIT(A)-IV, SURAT, DATED 23-11-2009 FOR BOTH A.YS. 2 006-07 & 2007-08. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE EFFE CTIVE GROUNDS OF APPEALS ARE AS UNDER: GROUNDS OF ITA NO. 1079/AHD/2010 (A.Y. 05-06) (I) ADDITION OF RS.21,22,253/- IN RESPECT OF INTER EST:- ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 2 (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING ADDITION OF INTEREST OF RS.21,22,253/- W HICH DID NOT BELONG TO THE APPELLANT BUT BELONGED TO THE FOL LOWING:- CENTRAL GOVERNMENT RS.16,25,244/- GUJARAT HIRA BOURSE RS. 4,97,009/- (2) THE APPELLANT SUBMITS THAT THE ORDER OF THE LEA RNED COMMISSIONER OF INCOME-TAX (APPEALS) IS REQUIRED TO BE CANCELLED AS HE HAS NOT TAKEN INTO CONSIDERATION AN D DEALT WITH THE JUDGEMENTS OF THE GUJARAT, MUMBAI & DELHI HIGH COURTS NOR DISCUSSED WHY THEY WERE NOT APPLICABLE T O THE FACTS OF THE CASE. (3) THE APPELLANT FURTHER SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS NOT AT ALL PROPERTY CONSTRUED THE RATIO OF THE JUDGEMENTS AND WAS NOT JUSTIFIED IN NOT GIVING DEDUCTION BASED ON THE ABOV E. (4) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) FURTHER ERRED IN NOT CONSIDERING THE COPY OF COMPUT ATION AND FINAL ACCOUNTS OF GUJARAT HIRA BOURSE FOR THE Y EAR ENDED 31.03.2008 BY TREATING AS ADDITIONAL EVIDENCE WHEN THIS EVIDENCE WAS CALLED FOR BY THE PREDECESSOR OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND, THEREFORE , ADMISSIBLE AS PER PARA 4 OF RULE 46A OF THE INCOME- TAX RULES, 1962 AND OUGHT TO HAVE BEEN TAKEN INTO CONSIDERATION. GROUNDS OF ITA NO. 1080/AHD/2010 (A.Y. 06-07) (I) ADDITION OF RS.1,25,44,938/- IN RESPECT OF INT EREST:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 3 CONFIRMING ADDITION OF INTEREST OF RS.1,25,44,938/- WHICH DID NOT BELONG TO THE APPELLANT BUT BELONGED TO THE FOL LOWING:- CENTRAL GOVERNMENT RS.96,07,045/- GUJARAT HIRA BOURSE RS. 29,37,893/- (2) THE APPELLANT SUBMITS THAT THE ORDER OF THE LEA RNED COMMISSIONER OF INCOME-TAX (APPEALS) IS REQUIRED TO BE CANCELLED AS HE HAS NOT TAKEN INTO CONSIDERATION AN D DEALT WITH THE JUDGEMENTS OF THE GUJARAT, MUMBAI & DELHI HIGH COURTS NOR DISCUSSED WHY THEY WERE NOT APPLICABLE T O THE FACTS OF THE CASE. (3) THE APPELLANT FURTHER SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS NOT AT ALL PROPERTY CONSTRUED THE RATIO OF THE JUDGEMENTS AND WAS NOT JUSTIFIED IN NOT GIVING DEDUCTION BASED ON THE ABOV E. (4) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) FURTHER ERRED IN NOT CONSIDERING THE COPY OF COMPUT ATION AND FINAL ACCOUNTS OF GUJARAT HIRA BOURSE FOR THE Y EAR ENDED 31.03.2008 BY TREATING AS ADDITIONAL EVIDENCE WHEN THIS EVIDENCE WAS CALLED FOR BY THE PREDECESSOR OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND, THEREFORE , ADMISSIBLE AS PER PARA 4 OF RULE 46A OF THE INCOME- TAX RULES, 1962 AND OUGHT TO HAVE BEEN TAKEN INTO CONSIDERATION. THE AMOUNT OF INTEREST IS DIFFERENT IN BOTH THE YEA RS. 2. THE ASSESSEE COMPANY FILED RETURN OF INCOME BOT H THE YEARS ON DECLARING INCOME AT NIL FILED ON 31.03.2006 & 23.03 .2007 RESPECTIVELY. THE ASSEESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN D EVELOPMENT OF SEZ, DIAMOND TRAINING INSTITUTION AND OTHER SUCH INFRAST RUCTURE TO PROMOTE THE DIAMOND INDUSTRY TO A WORLDWIDE LEVEL. IN A.Y. 05- 06, THE SCRUTINY ASSESSMENT ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 4 WAS MADE U/S.143(3) R.W.S. 147, WHEREAS IN A.Y. 06- 07 U/S. 143(3) OF THE IT ACT. IN A.Y. 05-06, THE APPELLANT RECEIVED INTERES T FROM BANK OF INDIA TO THE EXTENT OF RS. 21,22,253/- ON WHICH TDS HAS BEEN DED UCTED BY THE BANK AT RS.4,32,939/-. SIMILARLY, IN A.Y. 06-07, THIS INTE REST WAS RS.1,25,44,938/- ON WHICH TDS DEDUCTED AT RS. 25,59,075/- THE ASSESSEE WAS GIVEN REASONABLE OPPORTUNIJTYL OF BEING HEARD BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDING IN BOTH THE YEARS, WHICH WAS REPLIED BY THE APPELLANT VIDE LETTER DATED 15.07.2008, IN BOTH THE YEARS ON IDENTICAL SU BMISSIONS. IT WAS CONTENDED BEFORE THE A.O. AS WELL AS CIT(A) THAT TH E COMPANY IS A SPECIAL PURPOSE VEHICLE (SPV) PROMOTED UNDER THE INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME (IIUS) OF CENTRAL GOVERNMENT FOR CARRYING OUT THE INFRASTRUCTURE DEVELOPMENT IN INDUSTRIAL CLUSTER. THE SPV WAS INITIAL PLANNED TO DEVELOP INFRASTRUCTURE FOR SEZ PROJECT AT SURAT PROMOTED BY CUJARAT HIRA BOURSE (GHB, A SECTION 25 COMPANY PROMOTED BY SURAT DIAMOND ASSOCIATION). THE CENTRAL GOVERNMENT HAD RELEASED GRANT AGAINST THE CONTRIBUTION MADE BY GHB. THE COPY OF LETTER OF GR ANT TO GHB AND IIUS IS ATTACHED HEREWITH AS ANNEXURE-1 ALONGWITH THIS REPL Y BEFORE THE A.O. AS PER THE MANDATE LAID DOWN UNDER THE SCHEME GHB AND CENT RAL GOVERNMENT PAID THEIR RESPECTIVE FOR THE PROJECT TO ASSESSEE COMPAN Y. THE SAID FUND WERE KEPT UNDER ESCROW ACCOUNTS/FDS WITH BANKS BY THE ASSESSE E COMPANY DURING THE YEARS UNDER CONSIDERATION AS IT NEITHER HAS ANY ENT ITLEMENTS OVER THE FUNDS NOR HAS AUTHORITY TO SPEND THE SAME WITHOUT APPROVA L OF CENTRAL GOVERNEMNT. THE SUBJECTED FUND IN AN EVENT IF THE PROJECT IS NO T GETTING MATERIALIZED HAS TO ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 5 BE RETURNED BY ASSESSEE COMPANY TO GHB AND CENTRAL GOVERNMENT. MOREOVER, THE LETTER OF CENTRAL GOVERNMENT ALSO PRO VIDED CONDITION THAT THE INTEREST EARNED ON THE CENTRAL GRANT ALREADY RELEAS ED WOULD FORM PART OF THE CENTRAL GRANT LIMIT OF RS.50 CRORE. THE COPY OF THE LETTER OF CENTRAL GOVERNMENT WAS ANNEXED AS ANNEXURE-2 BEFORE THE A.O . ALONGWITH REPLY. IN 2006-07 GHB MOVED AWAY FROM THE PROJECT AND HANDED OVER THE COMPANY TO SOUTH GUJARAT CHAMBER OF COMMERCE (SGCC) WITH THE C ONDITION TO REDEEM ITS CONTRIBUTION ALONGWITH REIMBURSEMENT OF THE INT EREST MONEY PLACED IN FD OUT OF ITS CONTRIBUTION. IT WAS CLAIMED BEFORE THE A.O. THAT THE APPELLANT WAS CUSTODIAN OF MONEY OF CENTRAL GOVERNMENT AND GHB/SG CC. IT HAD NO ENTITLEMENT EITHER TO CONTRIBUTION, GRANT OR TO INT EREST EARNED ON THE SUBJECTED MONEY PLACED IN BANK FD. THE APPELLANT CONTENDED B EFORE THE A.O. THAT THIS INTEREST EARNED ON THE GRANT AND CONTRIBUTION NOT E ARNED BY IT AS GRANT AND CONTRIBUTION IS ALONGWITH INTEREST WAS EITHER BELON GED TO CENTRAL GOVERNMENT OR GHB. THERE WAS A RIDER ON THIS GRANT/CONTRIBUTI ON. HE FURTHER PLACED RELIANCE ON HONBLE GUJARAT HIGH COURT DECISION IN CASE OF GUJARAT MUNICIPAL FINANCE BOARD V. DCIT (1996) 221 ITR 317, 336, WHEREIN THE HONBLE GUJARAT HIGH COURT HAS CATEGORICALLY HELD THAT INTEREST REC EIVED IN RESPECT OF GRANT IN AID CANNOT BE TREATED AS INCOME OF THE ASSESSEE IN VIEW OF THE SPECIFIC DIRECTIVE OF THE GOVERNMENT THAT INTEREST EARNED WI LL BE TREATED AS PART OF GRANT IN AID. THUS, IT WAS ARGUED BEFORE THE A.O ., THE INTEREST ACCRUED ON MONEY KEPT WITH BANK DURING THE PRE-CONSTRUCTION PE RIOD CANNOT BE TREATED AS INCOME OF THE ASSESSEE. ALTERNATIVELY, IT WAS ARGU ED THAT THE APPELLANT IS A ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 6 CUSTODIAN OF THE GRANT/CONTRIBUTION. IT HAD NO POW ER TO USE/SPEND THE MONEY ON ITS OWN. THE PROJECT IN THE YEAR UNDER CONSIDER ATION COULD NOT TAKE OFF AS THE NOTIFICATION FOR DECLARING THE SEZ WAS NOT RECE IVED FROM CENTRAL GOVERNMENT AS WELL AS THERE WERE NUMBER OF HITCHES IN ALLOTMENT OF LAND BY GIDC AND OTHER GOVERNMENT APPROVALS. THUS, THE FUN DS REMAIN IDLE IN BANK NOT INTENTIONALLY BUT DUE TO THE COMPULSION AND CIR CUMSTANCES BEYOND THE CONTROL OF ASSESSEE. THE ACCRUAL OF INTEREST THERE ON WAS NOT THE CASE OF ACCRUAL OF INTEREST ON MONEY LYING IDLE BUT IT IS T HE CASE OF ACCRUAL OF INTEREST ON THE MONEY WHICH DUE TO RESTRICTIVE COMPULSIONS C OULD NOT BE USED FOR THE PROJECT DURING THE PERIOD UNDER CONSIDERATION. THE APPELLANT FURTHER RELIED UPON FOLLOWING CASES: I. CIT V BOKARO STEEL LTD. (236 ITR 315) II. CIT V KAMAL CO-OPERATIVE SUGAR MILLS LTD. (243 ITR 2) & III. BONGAIGAON REFINERY AND PETROCHEMICALS LTD. V CIT (251 ITR 329) IV. CIT V. SARASWATI KUNJ CO-OP HOUSE BUILDING SOCI ETY (2006) 157 TAXMANN 166 (DEL) V. SLP NO. CC 4976 OF 2007 (2008) 167 TAXMANN 0045 (SLP-12) (SC). THE A.O. CONSIDERED THE REPLY OF THE ASSESSEE AND A LSO ANALYZED THE CASE LAWS CITED BY THE APPELLANT BEFORE HIM. HE OBSERVE D THAT INTEREST EARNED ON THE ESCROW ACCOUNTS/FDS HAS NOT BEEN SPECIFIED IN T HE APPROVAL LETTER. THE MONEY WAS LYING WITH THE COMPANY AS IDLE AND INCOME HAS BEEN EARNED. WHATEVER CASE LAW CITED BY THE APPELLANT BEFORE HIM , HAS BEEN DISTINGUISHED BY HIM. HE FURTHER RELIED IN CASE OF TUTICORIN ALKALI CHEMCIALS & FERTILIZERS LTD. VS. CIT 227 ITR 172 (SC) AND HELD THAT INTEREST EARNED BY THE ASSESSEE BEFORE COMMENCEMENT OF BUSINESS ON SHORT TERM DEPOS ITS WITH BANKS OUT OF ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 7 TERM LOANS SECURED FROM FINANCIAL INSTITUTIONS IS I NCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND WOULD NOT GO T O REDUCE THE INTEREST PAYABLE BY THE ASSESSEE WHICH WOULD BE CAPITALIZED AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION. THE FACT THAT THE COMPAN Y HAS NOT COMMENCED BUSINESS DOES NOT MEAN THAT IF IT IS NOT CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, ITS INCOME FROM ANY OTHER SOURC E WILL NOT BE TAXED. COMPANY HAVING CHOSEN TO INVEST ITS IDLE CAPITAL FR UITFULLY THE FRUITS OF SUCH INVESTMENT WILL CLEARLY BE OF REVENUE NATURE. THE FACT THAT COMPANY WILL HAVE TO PAY INTEREST IS IRRELEVANT BECAUSE THE COMPANY I S FREE TO USE THE INTEREST RECEIVED IN ANY WAY IT LIKES AND THERE IS NO DIVERS ION AT SOURCE. UNLESS IT CAN BE SHOWN AS EXEMPT U/S.10, THE INTEREST RECEIVED IS TAXABLE INCOME. NO ADJUSTMENT CAN BE ALLOWED UNLESS PERMITTED BY THE I .T. ACT HOWSOEVER DESIRABLE IT MAY BE FROM THE POINT OF VIEW OF EQUIT Y. FINALLY, HE MADE ADDITION OF RS.21,22,253/- IN A.Y. 05-06 AND RS.1,25,44,938/ - IN A.Y. 06-07. 3. BEING AGGRIEVED BY THE ORDERS OF THE A.O., THE A SSESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO HAS CONFIRMED THE ADD ITION BY CONSIDERING THE REPLY OF THE ASSESSEE, DATED 21.04.2009 & 10.08.200 9. LD. CIT(A) OBSERVED THAT AS PER LETTER DATED 24.11.2004 OF DEPARTMENT O F INDUSTRIAL POLICY AND PROMOTION OF MINISTRY OF COMMERCE AND INDUSTRY, GOV ERNMENT OF INDIA HAD CONVEYED THE APPROVAL OF THE GOVERNMENT OF INDIA FO R UPGRADATION OF INFRASTRUCTURE FACILITIES AT GEMS AND JEWELLERY CLU STER, SURAT UNDER THE INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME (IIUS) , 2003, AT THE TENTATIVE COST OF RS. 85 CRORES, WHICH WAS IN CONFIRMING OF G RANT FROM THE CENTRAL ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 8 GOVERNMENT AND CONTRIBUTION BY THE USER INDUSTRY. THE PROJECT WAS TO START WITHIN THE TIME OF SIX MONTHS AND WAS TO BE COMPLET ED WITHIN 24 MONTHS. CERTAIN CONDITIONS ALSO LAID DOWN BY THE CENTRAL GO VERNMENT. THE INITIAL GRANT WAS GIVEN BY THE CENTRAL GOVERNMENT AT RS.16.70 CRO RE AND CONTRIBUTION FROM GHB WAS RS.5.56 CRORES. BOTH THE FUNDS WERE MADE A VAILABLE TO THE APPELLANT COMPANY, WHICH WERE DEPOSITED IN THE ESCR OW ACCOUNT/FD ACCOUNT. THE APPELLANT EARNED INTEREST ON BOTH FUNDS AS MENT IONED ABOVE. HE SUPPORTED THE FINDINGS OF THE A.O. THAT IN CASE OF COMPANY HAD NOT COMMENCED ITS BUSINESS DID NOT MEAN THAT THE INTERE ST EARNED ON FDS WAS NOT CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GA IN, ITS INCOME FROM ANY OTHER SOURCE WILL NOT BE TAXED. THIS INCOME WAS AL SO NOT EXEMPTED U/S. 10 AND WAS TAXABLE. HE ALSO FOUND HONBLE GUJARAT HIG H COURT DECISION IN CASE OF GUJARAT MUNICIPAL FINANCE BOARD V. DCIT (SUPRA) , DISTINGUISHABLE AS THIS BOARD WAS CONSTITUTED UNDER THE GUJARAT MUNICIPAL F INANCE BOARD ACT, 1979. THE GOVERNMENT OF GUJARAT DISCHARGES ITS DUTY THROU GH THE BOARD. THUS, THE PROPOSITION GIVEN IN THE CASE OF GUJARAT MUNICIPAL FINANCE BOARD V. DCIT (SUPRA) IS NOT APPLICABLE IN CASE OF APPELLANT. THE BOARD IS TO BE ACT ON BEHALF OF THE GOVERNMENT OF GUJARAT. FURTHER, HE ALSO ANA LYZED SECTION 10 (20A) OF THE IT ACT. WITHOUT PREJUDICE TO THE VARIOUS FINDI NGS GIVEN BY THE LD. CIT(A), IT WAS HELD THAT W.E.F. 01.04.2003, THE GHB/THE CHAMBE R OF COMMERCE CANNOT BE SAID TO BE AN AUTHORITY AS MENTIONED IN SECTION 10(20A). THE APPELLANT HAD SHOWN INTEREST EARNED ON THESE FDS IN THE BOOKS OF ACCOUNT. THE APPELLANT ALSO FAILED TO PROVE THAT THE AMOUNT ON A CCRUED INTEREST HAD BEEN ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 9 RETURNED TO THE, GHB OR THE TRUST FORMED BY THE CHA MBER OF COMMERCE. THE APPELLANT HAD CLAIMED THE REFUND ON THE BASIS OF TD S CERTIFICATE RECEIVED BY IT FROM THE BANK. AS PER SECTION 198, TDS DEDUCTED SH ALL FOR THE PURPOSE OF COMPUTING THE INCOME OF THE ASSESSEE, BEING DEEMED TO THE INCOME RECEIVED. FINALLY, AFTER DISCUSSING ALL THE FACTS AND CASE LA WS OF THE ASSESSEE, HE CONFIRMED THE ADDITION IN BOTH THE YEARS. 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT SUBMITTED THAT THE APPELLANT RECEIVED A GRANT FROM CENTRAL GO VERNMENT AND CONTRIBUTION FROM GHB WHICH HAD BEEN DEPOSITED IN ESCROW ACCOUNT /FDS AS PER THE TERMS AND CONDITIONS OF THE CENTRAL GOVERNMENT. HE ALSO FILED PAPER BOOK WHICH INCLUDE AUDIT REPORT, COPY OF RETURN, COPY OF REPLY BEFORE THE CIT(A), COPY OF LETTER OF CENTRAL GOVERNMENT DATED 20.02.20 07, CONVEYING AN IN PRINCIPLE APPROVAL OF GRANT OF RS. 50 CROREWS, LET ER BY CENTRAL GOVERNMENT TO GUJARAT HIRA BOURSE, COPY OF COMMUNICATIONS BETWEEN ASSESSEE AND GUJARAT HIRA BOURSE & LEDGER OF ASSESSEE IN THE BOOKS OF GU JARAT HIRA BOURSE AND ARGUED THAT THE ASSESSEE IS A CUSTODIAN ON BEHALF O F BOTH THE PARTIES AND IN CASE OF PROJECT IS NOT MATERIALIZED THE GRANT ALONG WITH THE INTEREST IS TO BE REFUNDED TO THE RESPECTIVE PARTIES. HE DRAWN OUR A TTENTION PAGE NO.53 OF THE PAPER BOOK WHICH IS REPLY TO THE CIT(A), PAGE NO. 7 1 WHICH IS COPY OF LETTER DATED 24.11.2004 MINISTRY OF COMMERCE INDUSTRY, DEP ARTMENT OF INDUSTRIAL POLICY & PROMOTION, APPROVAL FOR UPGRADATION OF INF RASTRUCTURE FACILITIES AT GEMS & JEWELLERY CLUSTER, SURAT, GUJARAT FOR UNDER INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME (IIUS), 2003. HE FURTHER DRAWN OUR ATTENTION IN ITEM NOS. ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 10 1,4,6,9 & 10 AS PER THIS APPROVAL, THE GRANT OF CEN TRAL GOVERNMENT BY THE GOVERNMENT OF INDIA WOULD BE UTILIZED ONLY FOR SUB- PROJECT MENTIONED IN THIS LETTER. ANY DEVIATION THERE FROM WOULD REQUIRE THE APPROVAL OF THE GOVERNMENT OF INDIA IN WRITING. THE NEXT INSTALLMENT SHALL BE RELEASED BEFORE GETTING UTILIZATION CERTIFICATE AND DEPEND UPON THE CONTRIB UTION MADE BY THE PROMOTER. AS PER PAGE NO. 51, THE INTEREST EARNED ON THE CENT RAL GRANT ALREADY RELEASED WOULD FORM PART OF THE CENTRAL GRANT LIMIT OF RS. 5 0 CRORE. THUS, IT WAS CONTENDED THAT INTEREST EARNED ON THE ESCROW/FDS AC COUNTS WAS GRANT AS PER GOVERNMENT OF INDIA LETTER DATED 20.02.2007. GHB R ELEASED ITS CONTRIBUTION ALONGWITH THE INTEREST VIDE LETTER DATED 26.07.2008 . AS PER PAGE NO.15 OF THE PAPER BOOK, THE APPELLANT HAD SHOWN INTEREST EARNED ON ESCROW ACCOUNT/FDS IS A LIABILITY IN THE BALANCE SHEET IN BOTH THE YEA RS, RS.21.22 LACS FOR A.Y. 05- 06 & RS. 1.46 CRORE IN A.Y. 06-07. ON PAGE NO. 101 , THE APPELLANT PLACED THE INCOME AND EXPENDITURE ACCOUNT OF GHB WHEREIN INTER EST FROM APPELLANT HAS CONSIDERED ADDITIONAL INCOME AT RS.1,28,19,743/- IN A.Y. 08-09. THE GHB HAS SHOWN LOAN AND ADVANCE IN BALANCE SHEET FOR A.Y. 08 -09. THE HONBLE GUJARAT HIGH COURT DECISION IN CASE OF GUJARAT MUNICIPAL FINANCE BOARD V. DCIT (SUPRA) IS SQUARELY APPLICABLE IN CASE OF APPELLANT. HE FU RTHER ALSO RELIED UPON IN CASE OF RAJKOT DIST. GOPALAK COOPERATIVE MILK PRODUCERS UNI ON LTD. (204-ITR-290). THE AUDITOR OF THE APPELLANT IN A.Y. 05-06 HAD MADE THE REMARK AS UNDER: DURING THE PERIOD UNDER CONSIDERATION, THE COMPANY RECEIVED RS.16.70 CRORES AS CONTRIBUTION IN THE FORM OF COND ITIONAL GRANT IN AID FROM THE CENTRAL GOVERNMENT AND RS.5.56 CRORES AS C ONTRIBUTION ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 11 FROM GUJARAT HIRA BOURSE IN PROJECT ACCOUNT. AS PE R THE TERMS OF IIU SCHEME READ WITH THE SANCTION LETTER, THESE FUNDS A RE STRICTLY TO BE UTILIZED FOR THE PURPOSE FOR WHICH THE SAME HAS BEE N GRANTED. MOREOVER, THE FUNDS CAN BE UTILIZED ONLY AFTER OBTA INING PRIOR APPROVAL OF THE CONTRIBUTORS INCLUDING CENTRAL GOVE RNMENT AUTHORITIES. UP TO 31-03-2005, THE FUNDS WERE KEPT IN SEPARATE ESCROW ACCOUNT WITH THE BANK ON WHICH INTEREST OF R S.21.22 LACS HAS ACCRUED WHICH HAS ALSO BEEN ADDED TO PROJECT ACCOUN T ALONGWITH THE CONTRIBUTIONS BEING EXPANDABLE FOR THE PROJECT ONLY . THE APPELLANT HAD NOT TAKEN THIS INCOME IN COMPUTAT ION OF INCOME UNDER ANY HEAD IN BOTH THE YEARS. LD. COUNSEL FOR THE APPELL ANT ALSO FILED COPY OF RECENT HONBLE GUJARAT HIGH COURT DECISION IN CASE OF GUJARAT POWER CORPN. LTD. VS. ITO FOR A.Y. 1992-93, WHEREIN IDENTICAL ADDITION OF INTEREST WERE MADE BY THE A.O. ON MONEY RECEIVED ON ACCOUNT OF SHARE CAPITAL FROM THE GUJARAT GOVERNMENT (PROMOTER OF THE COMPANY). THE GOVERNME NT OF GUJARAT HAD INSTRUCTED THE GUJARAT POWER CORPN. LTD. THAT INTER EST ACCRUING ON SUCH AMOUNT SHOULD BE PAID TO THE GOVERNMENT. THE LD. A .O. MADE ADDITION ON ACCOUNT OF INTEREST INCOME. HONBLE GUJARAT HIGH C OURT, AFTER FOLLOWING TRIBUNALS DECISION ON GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. V. ITO, REPORTED IN (1982) AND HONBLE BOMBAY HIGH COURT DECISION IN CASE OF CIT VS. TANUBAI D. DESAI, REPORTED IN (1972) 084 ITR 713 AS HELD THAT THE APPELLANT WAS HOLDING THE INTEREST INCOME AS TRUSTEE OF THE G OVERNMENT OF GUJARAT. THE HONBLE APEX COURT DECISION IN CASE OF TUTICORIN ALKALI CHEMICAL AND FERTILIZERS LTD. (SUPRA), WAS NOT APPLICABLE AS THE ASSESSEE HAD EARNED INTEREST OUT OF INVESTMENT MADE FROM THE BORROWED F UNDS PRIOR TO THE COMMENCEMENT OF THE BUSINESS. IT WAS IN THIS BACKG ROUND, THAT THE HONBLE ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 12 APEX COURT HELD THAT SUCH INTEREST WOULD BE TAXABLE AND INTEREST EARNED CANNOT BE UTILIZED TO DISCHARGE LIABILITY FOR PAYME NT OF INTEREST. IT WAS HELD THAT THIS WAS NOT A CASE OF DIVERSION OF INCOME BY OVERR IDING TITLE AND THAT THE DEDUCTION OF SET OFF AGAINST INTEREST LIABILITY ON THE BORROWED FUNDS WOULD NOT BE PERMISSIBLE. THUS, THE APPEAL IS ALLOWED IN FAV OUR OF THE REVENUE AGAINST THE ASSESSEE BY THE HONBLE APEX COURT. AT THE OUT SET, LD. SR. D.R. VEHEMENTLY RELIED UPON THE ORDER OF THE CIT(A) AND A.O. AND ARGUED THAT THE APPELLANT HAD TAKEN CREDIT ON TDS DEDUCTED ON INTER EST IN HIS RETURN. AS PER SECTION 198, THE APPELLANT HAS TO SHOW THE INTEREST INCOME IN RESPECTIVE RETURN. THUS, HE ARGUED FOR THE CONFIRMATION OF TH E ORDER OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORD. THE APPELLANT WAS A CUSTODIAN AND GOVERNME NT OF INDIA HAD PROHIBITED GRANT AS WELL AS INTEREST FROM ANY USE, EXCEPT THE PURPOSES GIVEN IN THE APPROVAL LETTER. IN CASE OF PROJECT IS NOT MAT ERIALIZED THE SAME HAS OT BE REPAID TO THE RESPECTIVE AGENCIES WITH INTEREST. T HE CASE LAWS CITED BY THE APPELLANT I.E. GUJARAT POWER CORPN. LTD. VS. ITO (SUPRA) & GUJARAT MUNICIPAL FINANCE BOARD V. DCIT (SUPRA), ARE SQUARELY APPLICABLE. THE CASE LAW CITED BY THE CIT(A) IS NOT APPLICABLE AS IN CASE OF APPEL LANT, THE MONEY WAS RECEIVED THROUGH GRANT WHEREAS IN CASE OF TUTICORIN ALKALI CHEMICAL AND FERTILIZERS LTD. (SUPRA), THE BORROWED LOAN USED FOR THE EARNING THE INTEREST IN PRE-OPERATION PERIOD. IT IS TRUE THAT THE APPELLAN T HAD BEEN GRANTED REFUNDS ON THE BASIS OF TDS CERTIFICATE, EVEN THOUGH, INCOME E ARNED BY WAY OF THE ITA NOS. 1079 & 1080/AHD/2010 A.Y. 2005-06 & 2006-07 PAGE 13 INTEREST EARNED ON FDS HAD NOT BEEN DISCLOSED AS IN COME BUT THE APPELLANT HAS TO REFUND THE GRANT/CONTRIBUTION WITH INTEREST TO THE GOVERNMENT OF INDIA AND GHB. THUS, WE HAVE CONSIDERED VIEW THAT IN BOT H THE YEARS, THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION. ACCO RDINGLY, APPEALS IN BOTH YEARS ARE ALLOWED. 6. IN THE RESULT, ASSESSEES APPEALS FOR BOTH ASSES SMENT YEARS ARE ALLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 15.02.2013 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMADABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ;