Dy. Commissioner of Income Tax , Circle-2(2), Hyderabad V. Hinduja National Power Corporation Limited, Hyderabad

ITA 1084/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1689 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2013-2014
• Appeal Filed On: 25-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: P PRASAD
• Keywords: Proportionate interest; Revised return; Capital expenditure
• Section: 143(3); 56

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD (THROUGH VIRTUAL HEARING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1084/HYD/2018 A.Y. 2013 - 14 DCIT, CIRCLE - 2(2), HYDERABAD. VS. HINDUJA NATIONAL POWER CORPORATION LIMITED, HYDERABAD. PAN: AABCH 2426 D (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI P. PRASAD REVENUE BY SHRI Y.V.S.T. SAI, CIT - DR DATE OF HEARING: 23/03/2021 DATE OF PRONOUNCEMENT: 30 /06/2021 ORDER PER A. MOHAN ALANKAMONY , A.M: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) - 1, GUNTUR IN APPEAL NO. 104/CIT(A)(A - I)/GNT/2016 - 17, DATED 14/02/2018 PASSED U/S. 143(3) R.W.S 250(6) OF THE ACT FOR THE A.Y. 2013 - 14. 2. THE REVENUE HAS RAISED SEVEN GROUNDS IN ITS APPEAL HOWEVER, THE CRUX OF THE ISSUE IS THAT : 2 THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD. AO TO THE EXTENT OF RS. 1,60,96,256/ - AS AGAINST THE ADDITION MADE BY THE LD. AO FOR RS. 1,64,17,686/ - TOWARDS INTEREST INCOME EARNED ON IDLE FUNDS BORROWED FOR THE PROJECTS OF THE ASSESSEE 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF PRODUCING POWER VIZ., COAL BASE D THERMAL POWER PLANT. THE ASSESSEE FILED ITS REVISED RETURN OF INCOME ON 30/11/2013 DECLARING TOTAL INCOME OF RS. 25,65,600/ - . THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT VIDE ORDER DATED 30/03/2016 W HEREIN THE LD. AO MADE AN ADDITION OF RS. 1,64,17,686/ - TOWARDS INTEREST INCOME RECEIVED FROM REGULAR FIXED DEPOSITS MAINTAINED WITH THE BANK. ON APPEAL, THE LD. CIT (A) DELETED THE ADDITION TO THE EXTENT OF RS. 1,60,96,256/ - HOWEVER CONFIRMED THE ADDITIO N OF RS. 3,21,430/ - BECAUSE THESE WERE INTEREST EARNED FROM SHORT TERM DEPOSITS FROM SURPLUS FUND AVAILABLE WITH THE ASSESSEE. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD. AO THAT THE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS. 1,88,61,079/ - AGAINST WHICH THE ASSESSEE HAS ADMITTED INTEREST INCOME OF ONLY RS. 24,43,393/ - UNDER THE HEAD INCOME F ROM OTHER 3 SOURCE . IT WAS FURTHER OBSERVED THAT THE ASSESSEE HAD OFFERED TO TAX INCOME FROM INTEREST STATED HEREINABOVE UNDER THE HEAD INCOME FROM OTHER SOURCES FOR RS. 24,43,393/ - WITH RESPECT TO SHORT TERM DEPOSITS. ON QUERY THE ASSESSEE HAS EXPLAINED THAT IT HAD BORROWED FUNDS TO SET UP A POWER GENERATION PLANT AT VISAKHAPATNAM. IT WAS FURTHER S UBMITTED THAT T HE UTILISED BORROW ED FUND DURING THE RELEVANT ASSESSMENT YEAR WAS KEPT IN THE BANK AS FIXED DEPOSIT TOWARDS WHICH THE ASSESSEE HAS RECEIVED INTER EST INCOME FROM THE BANK. THE ASSESSEE HAD FURTHER SUBMITTED THAT FROM THE INTEREST INCOME RECEIVED FROM THE BANK THE ASSESSEE HAD SET OFF THE PROPORTIONATE INTEREST THE ASSESSEE HAD PAID ON SUCH FUNDS SINCE IT IS ALLOWABLE DEDUCTION U/S. 57 OF THE ACT AND THE NET INTEREST WAS OFFERED TO TAX UNDER THE HE AD INCOME FROM OTHER SOURCE U/S. 56 OF THE ACT VI Z., RS. 24,43,393/ - . HOWEVER, THE LD. AO BY RELYING ON VARIOUS DECISIONS CITED IN HIS ORDER WAS OF THE VIEW THAT THE ENTIRE INTEREST INCOME RECEIVED ON REGULAR FIXED DEPOSIT AMOUNTING TO RS. 1,88,61,079/ - IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE AND SINCE THE AS SESSEE HAD OFFERED RS. 24,43,393/ - TO TAX THE BALANCE AMOUNT OF RS. 1,64,17,686/ - WAS BROUGHT TO TAX . ACCORDINGLY, THE LD. AO MADE ADDITION OF RS. 1,64,17,686/ - UNDER THE HEAD INCOME FROM OTHER SOURCE. WHILE DOING SO THE LD. AO WAS OF THE VIEW THAT THE I NTEREST PAYABLE ON THE BORROWED FUNDS HAS TO BE ADDED TO THE COST OF THE PROJECT. ON APPEAL, THE LD. CIT (A) DELETED THE ADDITION TO THE EXTENT OF RS. 1,60,96,256/ - BY NETTING OFF THE 4 PROPORTIONAL INTEREST PAID FOR EARNING THE INTEREST INCOME HOWEVER, SUST AINED THE ADDITION FOR RS. 3,21,430/ - BEING THE INTEREST RECEIVED ON THE SURPLUS FUND AVAILABLE WITH THE ASSESSEE. 5. AT THE OUTSET, THE LD. AR SUBMITTED BEFORE US THAT THE ASSESSEE HAD NOT SET UP THE THERMAL POWER PROJECT DURING THE RELEVANT ASSESSMENT YEAR AND THE ENTIRE AMOUNT RECEIVED FROM BORROWINGS WERE PLACED AS FIXED DEPOSIT WITH BANK IN ORDER TO REDUCE THE INTERE ST LIABILITY. IT WAS THEREFORE PLEADED THAT THE PROPORTIONATE INTEREST PAID FOR EARNING THE INTEREST INCOME FROM BANK SHOULD BE SET OFF AS PER SECTION 57 OF THE ACT. ACCORDINGLY, THE LD. AR RELIED ON THE ORDER OF THE LD. CIT (A). T HE LD. DR ON THE OTHER HAND VEHEMENTLY ARGUED IN SUPPORT OF THE ORDER OF THE LD. AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. F ROM THE FACTS OF THE CASE, IT IS APPARENT THAT FOR WHATEVER REASON THE ASSESSEE HAS BORROWED FUNDS IT HAS PLACED THE SAME IN THE BANK TOWARDS WHICH INTEREST WAS RECEIVABLE. PROVISIONS OF SECTION 57(III) OF THE ACT STIPULATES THAT , THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS NAMELY ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED ONLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. IN THE 5 CASE O F THE ASSESSEE IT IS APPARENT THAT THE ASSESSEE HAD EARNED INTEREST INCOME FROM BANK DEPOSITS AND THE SOURCE OF THE BANK DEPOSITS WAS BORROWED INTEREST BEARING FUNDS. FURTHER, SINCE THE ASSESSEE HAS NOT STARTED GENERATING ANY INCOME BECAUSE THE POWER GENERATION PLANT WAS NOT SET UP I T IS OBVIOUS THAT THE ENTIRE FUNDS DEPOSITED IN THE BANK ACCOUNT OF THE ASSESSEE ARE EITHER BORROWED FUNDS OR EQUITY . HENCE, KEEPING IN VIEW OF THE PROVISIONS OF SECTION 56 AND 57 OF THE ACT IT IS OBVIOUS THAT THE INTEREST PAID BY THE ASSESSEE HAS TO BE NETTED OFF FROM THE INTEREST EARNED BY THE ASSESSEE AND ONLY THE RESIDUE BALANCE OF INTEREST INCOME IF ANY SHALL TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE. THEREFORE, IN THE CASE OF THE ASSESSEE WE HEREBY HOLD THAT T HE NETTED INTEREST INCOME EARNED BY THE ASSESSEE OF RS. 24,44,393/ - ONLY SHALL BE TAXABLE AS DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 8. BEFORE PARTING, IT IS WORT HWHILE TO MENTION THAT THIS ORDER IS PRONOUNCED AFTER 90 DAYS OF HEARING THE APPEAL, WHICH IS THOUGH AGAINST THE USUAL NORMS, WE FIND IT APPROPRIATE, TAKING INTO CONSIDERATION OF THE EXTRA - ORDINARY SITUATION IN THE LIGHT OF THE LOCK - DOWN DUE TO COVID - 19 PA NDEMIC. WHILE DOING SO, WE HAVE RELIED IN THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD. IN ITA 6 NO.6264/M/2018 AND 6103/M/2018 FOR AY 2013 - 14 ORDER DATED 14TH MAY 2020. PRONOUNCED IN THE OPEN COURT ON THE 30 TH JUNE, 2021. SD/ - SD/ - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 30 TH JUNE , 2021. OKK COPY TO: - 1) M/S. HINDUJA NATIONAL POWER CORPORATION LIMITED, POST BOX NO.1, SANNATH NAGAR INDUSTRIAL ESTATE, HYDERABAD 500 018. 2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(2), ROOM NO.513, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3) THE CIT (A) - 1, GUNTUR. 4) THE PR. CIT - II, HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE