Siva Green Power Projects India Private Limited, CHENNAI V. ITO, CHENNAI

ITA 1127/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4610 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-04-2016
• Court: TRIBUNAL
• Department Lawyers: S NATARAJA
• Assessee Lawyers: V LAKSHMINARAYANA
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 56; 12

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , J UDICIAL MEMBER ./ I.T.A.NO. 1127 /MDS/2016 / ASSESSMENT YEAR :20 12 - 1 3 M / S. SIVA GREEN POWER PROJECTS INDIA PVT. LTD., OLD. NO. 19, NEW NO. 32, CATHEDRAL ROAD, NUNGAMBAKKAM, C HENNAI 600 0 34 . [PAN: A A N C S4805R ] VS. THE INCOME TAX O FFICER, CORPORATE WARD 6 ( 3 ), CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI ASHIK SHAH & SHRI V. LAKSHMINARAYANA , C.A. / RESPONDENT BY : SHRI S. NATARAJA , J CIT / DATE OF HEARING : 14 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 09 . 0 5 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 5 , CHENNAI DATED 1 1 . 0 1 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 12 - 1 3 , WHEREIN , THE ASSESSEE HAS CHALLENGED CONFIRMATION OF ADDITION TOWARDS INTEREST INCOME UNDER SECTION 5 6 OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] AS WELL AS CHARGING OF I NTEREST UNDER SECTION 234D OF THE ACT . I.T.A. NO. 1127 /M/16 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN SOLAR POWER PROJECTS AND FILED ITS RETURN OF INCOME ON 27.09.2012 ADMITTING LOSS OF .4,97,105/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED ON THE ASSESSEE ON 30.08.2013. IN RESPONSE THERETO, THE BOOKS AND ACCOUNTS AND OTHER RECORDS WERE PRODUCED FOR VERIFICATION. 2.1 IN CONNECTION WITH SETTING UP OF WIND FARM OF 100 MW CAPACITY AT VALLAPANAERI IN TAMIL NADU, THE ASSESSEE HAS AVAILED OF LOAN FACILITY OF .400 CRORES FROM YES BANK LTD . AND A TOTAL AMOUNT OF .275 CRORES WAS AVAILED TILL 31.03.2012. FOR AVAILING THE ABOVE LOANS, THE ASSESSEE HAS TO MAKE SOME DEPOSITS WITH THE BANK TO THE TUNE OF .12 CORES KNOWN AS DEBT SERVICE RESERVE ACCOUNT (DSRA) . THE ASSESSEE COMPANY IS STILL IN PR E - OPERATIVE STAGE AND HAS NOT STARTED ITS BUSINESS ACTIVITIES. PENDING COMMENCEMENT OF THE BUSINESS, THE DSRA DEPOSIT HAD YIELDED INTEREST AND THE ASSESSEE HAS EARNED AN INTEREST INCOME OF .1,25,93,101/ - . HOWEVER, THE ASSESSEE HAS NOT OFFERED THE INTEREST INCOME FOR TAXATION, BUT CAPITALIZED INTEREST PORTION ON THE GROUND THAT THE INCOME EARNED IS GOING TO REDUCE THE COST OF THE CAPITAL ASSET TO THE EXTENT OF INTEREST. BY CONSIDERING THE PREPOSITION LAID DOWN IN THE CASE OF TUTICORIN ALAKALI CHEMICALS & FE RTILIZERS LTD. V. CIT (SC) 227 ITR 172, THE ASSESSING OFFICER ASSESSED THE INTEREST I.T.A. NO. 1127 /M/16 3 INCOME AS INCOME OF THE ASSESSEE UNDER SECTION 56 OF THE ACT AND BROUGHT TO TAX. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION IN THE CASE OF BONGAIGAON REFINERY AND PETRO CHEMICALS LTD. V. CIT 251 ITR 329, THE LD. CIT(A) HAS CONFIRMED THE ASSESSMENT ORDER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TR IBUNAL. BESIDES CHALLENGING THE DISALLOWANCE MADE UNDER SECTION 56 OF THE ACT, THE ASSESSEE ALSO, BY WAY ADDITIONAL GROUND OF APPEAL, RAISED A GROUND THAT THE INTEREST EXPENDITURE CAPITALIZED BY THE ASSESSEE AS A DEDUCTION SHALL BE ALLOWED UNDER SECTION 57 (III) OF THE ACT. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FIRST, WE SHALL ADJUDICATE THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 56 OF THE ACT. THE ASSESSEE HAS AVAILED A TOTAL AMOUNT OF .275 CRORES TILL 31.03.2012 FROM YES BANK LTD. FOR SETTING UP OF WIND FARM OF 100 MW CAPACITY. FOR AVAILING THE ABOVE LOANS, THE ASSESSEE HAS TO MAKE SOME DEPOSITS WITH THE BANK TO THE TUNE OF .12 CORES KNOWN AS DEBT SERVICE RESERVE ACCOUNT (DSRA). DURIN G THE RELEVANT FINANCIAL YEAR, THE ASSESSEE WAS IN PREOPERATIVE STAGE AND THE ASSESSEE HAS EARNED AN INTEREST INCOME OF .1,25,93,101/ - . THE ASSESSING OFFICER I.T.A. NO. 1127 /M/16 4 TREATED THE SAID INTEREST INCOME AS INCOME UNDER SECTION 56 OF THE ACT AND BROUGHT TO TAX, WHICH WAS CONFIRMED BY THE LD. CIT(A). 5.1 IN THE ABSENCE OF ENOUGH FUNDS, THE ASSESSEE HAS AVAILED THE LOANS FROM FINANCIAL INSTITUTION AND FOR THE SAFETY OF THE LENDER ONLY, THE BANK GUARANTEE WAS GIVEN BY THE ASSESSEE AND THIS DOES NOT MEAN THAT THERE IS A CLOSE NEXUS BETWEEN THE BUSINESS AND THE BANK GUARANTEE. THE BANK GUARANTEE IS ONLY TO SAFEGUARD THE INTEREST OF THE MONEY LENDER AND HAS NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE. FURTHER, THERE WAS NO CONDITION SUCH AS BANK DEPOSITS ARE MANDATORY F OR AWARDING THE CONTRACT ITSELF. 5.2 BY FILING COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF CENTWIN V. ACIT [2010] 2 ITR (T) 305 (CHENNAI), THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE INTEREST EXPENDITURE ON FUNDS BORROWED AND UTILIZED F OR MAKING SUCH DEPOSITS HAS TO BE ALLOWED FOR SET OFF AND ONLY NET INTEREST, IF ANY, SHALL BE TREATED AS PART OF ASSESSEE S INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES . WE HAVE CAREFUL LY GONE THROUGH THE ORDER OF THE TRIBUNAL AND FIND THAT IN THAT CA SE, THE ASSESSEE HAS EARNED INTEREST ON FIXED DEPOSITS KEPT WITH THE BANK AS PART OF TERM OF THE BANK FOR SANCTIONING FACILITIES, WHICH ARE REQUIRED IN CONNECTION WITH THE PERFORMANCE OF ITS EXPORT OBLIGATION. THE BORROWED FUNDS WERE DEPOSITED IN A COMMON KITTY AND THEREFORE, THE ASSESSEE WAS NOT ABLE TO ESTABLISH ONE TO ONE RELATIONSHIP I.T.A. NO. 1127 /M/16 5 BETWEEN BORROWED FUNDS AND FUNDS UTILIZED FOR INVESTMENTS IN FIXED DEPOSITS. THEREFORE, IT WAS HELD THAT IF THE ASSESSEE COULD ESTABLISH ONE TO ONE NEXUS BETWEEN BORROWED F UNDS AND THE DEPOSITS MADE, NETTING OF INTEREST INCOME COULD BE ALLOWED AND THE ISSUE WAS REMITTED BACK TO FILE OF THE ASSESSING OFFICER. THE ABOVE CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE B ECAUSE IN THAT CASE THE ASSESSEE HAS NOT BORROWED THE FUNDS FOR THE PURPOSE OF CREATING OR SETTING UP OF NEW BUSINESS AND BEFORE COMMENCEMENT OF THE SUCH BUSINESS, THE ASSESSEE HAS NOT CLAIMED INTEREST EXPENDITURE BEFORE COMMENCEMENT OF SUCH BUSINESS FOR N ETTING. I N CONFORMITY WITH LAW AND ACCOUNTING PRINCIPL E S, THE INTEREST PAID ON CAPITAL BORROWED FOR ACQUISITION OF AN ASSET HAS TO BE CAPITALIZED AND CANNOT BE ALLOWED AS A REVENUE DEDUCTION TILL THE ASSET IS PUT TO USE. FURTHER SECTION 36(1)(III) OF THE A CT DOES NOT CONFER A DEDUCTION BORROWED FOR THE PURPOSES OF SETTING UP A NEW UNIT EVEN IN THE CASE OF AN ASSESSEE ALREADY IN BUSINESS. DEDUCTION FOR INTEREST ON CAPITAL BORROWED CAN BE ALLOWED ONLY AFTER THE ASSET IS FIRST PUT TO USE AND STARTED GENERATING INCOME. IN THE PRESENT CASE, THE ASSESSEE HAS AVAILED LOAN FOR SETTING UP OF NEW BUSINESS AND IN THE RELEVANT FINANCIAL YEAR, THE ASSESSEE COMPANY WAS IN PRE - OPERATIVE STAGE AND HAS NOT STARTED ITS BUSINESS ACTIVITIES. THUS, WE ARE OF THE OPINION THAT INT EREST EXPENDITURE ON LOANS AVAILED BY THE ASSESSEE CANNOT BE TREATED AS REVENUE EXPENDITURE AND THEREFORE, THE NETTING OF INTEREST DOES NOT ARISE IN ASSESSEE S CASE. I.T.A. NO. 1127 /M/16 6 5.3 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE INTEREST INCOME EARNED BY THE ASSESSEE WAS SUBJECTED TO TDS. THE ASSESSEE HAS FULLY CLAIMED THE TDS IN THE RETURN OF INCOME, WHEREAS THE CORRESPONDING INCOME ELEMENT WAS NOT OFFERED FOR TAXATION, BUT MEANT FOR CAPITALIZATION. WHEN A TDS IS CLAIMED FOR TAX CREDIT, THE CON NECTED INCOME NEEDS TO BE COMPULSORILY OFFERED FOR TAXATION AND THEREAFTER THE INCOME IS SUBJECTED TO DEDUCTION, ETC. THE INCOME UNDER A SPECIFIC HEAD CANNOT BE CAPITALIZED WITH THE CLAIM OF TDS IN THE RETURN OF INCOME. OTHERWISE, THE TDS PORTION ON THE CA PITALIZED AMOUNT CANNOT BE CLAIMED AS TAX CREDIT, ETC. IN THE RETURN OF INCOME. 5.4 BESIDES THE CASE LAW RELIED ON BY THE LD. CIT(A) IN THE CASE OF BONGAIGAON REFINERY AND PETRO CHEMICALS LTD. V. CIT, WHEREIN, THE HON BLE SUPREME COURT HAS AFFIRMED THE F INDINGS OF THE HIGH COURT THAT THE INTEREST INCOME DERIVED BY THE ASSESSEE DURING ITS FORMATIVE PERIOD WAS TAXABLE INCOME, SIMILAR DECISION WAS ALSO GIVEN BY THE HON BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT V. ARASAN ALUMINIUM INDUSTRIES PVT. LTD. 220 ITR 476 , BY OBSERV ING AS UNDER: THE ASSESSEE WAS A PRIVATE LIMITED COMPANY INCORPORATED ON MAY 28, 1977, WITH THE OBJECT OF DOING BUSINESS IN MANUFACTURE AND SALE OF PYROTECHNIC ALUMINIUM POWDER. ITS PAID - UP CAPITAL WAS RS. 6.05 LAKHS. THE ACCOUNTS WE RE CLOSED FOR THE FIRST TIME AS ON OCTOBER 31, 1978. DURING THE ENTIRE YEAR, THE COMPANY WAS ENGAGED IN THE PROCESS OF ERECTION OF ITS PLANT AND MACHINERY AND CONSTRUCTION OF THE FACTORY. THE ASSESSEE RECEIVED AN AMOUNT OF RS. 25,532 AS INTEREST FROM THE S TATE BANK OF INDIA AND TWO SISTER CONCERNS. THE ASSESSEE ALSO PAID AN INTEREST OF RS. 2,666 ON ITS LOAN TO THE EXTENT OF RUPEES ONE LAKH FROM THE STATE BANK OF INDIA. THE I.T.A. NO. 1127 /M/16 7 INTEREST RECEIVED WAS FROM THE ADVANCES MADE OUT OF PAID UP CAPITAL AMOUNTS. THE INCO ME - TAX OFFICER BROUGHT THE ENTIRE AMOUNT TO TAX BUT THE TRIBUNAL HELD THAT IT WAS NOT TAXABLE. ON A REFERENCE: HELD, THAT THE INTEREST RECEIPT OF RS. 25,532 WAS ASSESSABLE AS INCOME. ANDHRA PRADESH CARBIDES LTD. V. CIT [1992] 198 ITR 386 (AP): CIT V. DERCO COOLING COILS LTD. [1992] 198 ITR 375 (AP) ; CIT V. MODI RUBBER LTD. [1994] 208 ITR 379 (DELHI) ; CIT V. SESHASAYEE PAPER AND BOARDS LTD. [1985] 156 ITR 542 (MAD) AND GODAVARI FERTILIZERS AND CHEMICALS LTD. P. CIT [1992] 198 ITR 388 (AP) FOLLOWED . HELD ALSO, THAT THE QUESTION WHETHER THE INTEREST PAYMENT OF RS. 2,666 TO THE STATE BANK OF INDIA AND OTHER EXPENSES SHOULD BE ALLOWED AS A DEDUCTION WAS NOT CONSIDERED BY THE TRIBUNAL. IT WAS OPEN TO THE ASSESSEE TO AGITATE THIS GROUND BEFORE THE TRIB UNAL, AND IF SUCH REQUEST WAS MADE, THE TRIBUNAL HAD TO CONSIDER IT ON THE MERITS. 5.6 HENCE , RESPECTFULLY FOLLOWING THE ABOVE DECISION S , WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE ASSESSEE . 6. WITH REGAR D TO ALLOWANCE OF DEDUCTION UNDER SECTION 57(III) OF THE ACT, BY REFERRING TO THE PETITION FOR FILING ADDITIONAL GROUNDS, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SINCE THE INTEREST INCOME WERE TAXED BY THE ASSESSING OFFICER UNDER INCOME FROM OT HER SOURCES, THE INTEREST PAID ON LOAN AVAILED WAS IN THE NATURE OF EXPENDITURE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF EARNING THE INTEREST INCOME OUGHT TO BE PERMITTED TO BE NETTED AGAINST SUCH INCOME FROM OTHER SOURCES IN TERMS OF SECTION 57( III) OF THE ACT. 6.1 THE LD. DR HAS SUBMITTED THAT SINCE THE INTEREST EXPENDITURE IS CAPITAL EXPENDITURE, SECTION 57(III) OF THE ACT HAS NO APPLICATION. I.T.A. NO. 1127 /M/16 8 6.2 WE HAVE CONSIDERED THE SUBMISSIONS . SINCE THE ASSESSEE COMPANY WAS IN PRE - OPERATIVE STAGE AND HA S NOT STARTED ITS BUSINESS ACTIVITIES, THE ASSESSEE HAS RIGHTLY CAPITALIZED THE INTEREST EXPENDITURE AS REQUIRED UNDER ACCOUNTING STANDARD 16. AS PER THE PROVISIONS OF SECTION 57 (I II ) OF THE A CT , ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL E XPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME SHALL BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES UNDER SECTION 57 OF THE A CT. THUS, ONCE THE ASSESSEE HAS CAPITALIZED THE INTEREST EXPENDITURE, THE ASSESSEE CANNOT CLAIM DEDUCTION OF INTEREST EXPENDITURE UNDER THE PROVISIONS OF SECTION 57(III) OF THE ACT. ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE STANDS REJECTED. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED ON THE 09 TH MAY , 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 09 . 0 5 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.