Hinduja National Power Corporation Limited, Hyderabad V. Income Tax Officer, Ward-2(3), Hyderabad

ITA 1264/Hyd/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0733 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 12-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P PRASAD
• Keywords: Capital expenditure
• Section: 143(3); 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD (THROUGH VIRTUAL HEARING) BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S AT BEER SINGH GODARA, JUDICIAL MEMBER ITA NOS. 1263 & 12 64 /HYD/2018 ASSESSMENT YEAR S : 2012 - 13 & 2013 - 14 HINDUJA NATIONAL POWER CORPORATION LIM ITED, HYDERABAD. PAN: AABCH 2426 D VS. INCOME TAX OFFICER, WARD - 2(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI P. PRASAD REVENUE BY: SHRI SUNIL KUMAR PANDEY, DR DATE OF HEARING: 08/02/2021 DATE OF PRONOUNCEMENT: 18 /02/2021 ORDER PER A. MOHAN ALANKAMONY, AM.: BOTH THE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE LD. CIT (A) - 1, GUNTUR IN APPEAL NO. 219 AND 104 /CIT(A - 1 ) /GNT/2015 - 16 & 2016 - 17 , BOTH DATED 14/2/2018 PASSED U/S. 143(3) R.W.S 250(6) OF THE ACT FOR THE AY S 2012 - 13 AND 2013 - 14 RESPECTIVELY. 2. THE ASSESSEE HAS RAISED FOUR GROUNDS IN ITS APPEAL WITH RESPECT TO ITS APPEAL IN ITA NO. 1263/H/2018 FOR THE AY 2012 - 13 , HOWEVER A ND THE CRUX OF THE ISSUE IS THAT: - 2 THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD. AO WHO HAD DENIED THE CLAIM OF DEDUCTION TOWARDS INTEREST PAYABLE ON BORROWED FUNDS WHILE COMPUTING THE TAXABLE INTEREST INCOME EARNED BY THE ASSESSEE ON THE FIXED DEPOSIT S MADE FROM BORROWED FUNDS. 3. THE ASSESSEE HAS RAISED FOUR GROUNDS IN ITS APPEAL WITH RESPECT TO ITS APPEAL IN ITA NO. 1264/H/2018 FOR THE AY 2013 - 14, HOWEVER AND THE CRUX OF THE ISSUE IS THAT: - 1. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD. AO WHO HAD DISALLOWED THE CLAIM OF DEDUCTION TOWARDS INTEREST PAYABLE OF RS. 3,21,430/ - AGAINST THE INTEREST EARNED FOR RS. 12,10,609/ - ON SHORT TERM DEPOSITS ON THE GROUND THAT THE DEPOSITS WERE MADE FROM SURPLUS FUNDS. 2. THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD. AO WHO HAD DENIED THE CLAIM OF DEDUCTION TOWARDS INTEREST PAYABLE ON BORROWED FUNDS WHILE COMPUTING THE TAXABLE INTEREST INCOME EARN ED BY THE ASSESSEE ON THE FIXED DEPOSITS MADE FROM THE BORROWED FUNDS. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF GENERATING THERMAL POWER FILED ITS RETURN OF INCOME FOR THE AY 2012 - 13 AND 2013 - 14 ON 28/9/2012 AND 3 28/11/2013 RESPECTIVELY. THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 20/03/2015 AND 30/3/2016 FOR THE AY 2012 - 13 AND 2013 - 14 RESPECTIVELY WHEREIN THE LD. AO DISALLOWED THE CLAIM OF INTEREST PAYABLE ON BORROWED FUNDS WHILE COMPUTING THE INTEREST INCOME EARNED FROM THE UN UTILISED BORROWED FUNDS DEPOSITED WITH THE BANK ACCOUNT OF THE ASSESSEE BY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. TUTICORIN AL KALI CHEMICALS AND FERTILIZERS LIMITED REPORTED IN 227 ITR 172. ON APPEAL, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. AO BY AGREEING WITH HIS VIEW. 5 . AT THE OUTSET, WE DO NOT FIND ANY MERIT IN THE ORDERS OF THE LD. REVENUE AUTHORITIES IN THIS REGARD. IN THE CASE OF THE ASSESSEE THE DECISIONS RELIED BY THE LD. REVENUE AUTHORITIES HAVE NO APPLICATION. THE FACTS IN THE CASE OF THE ASSESSEE ARE THAT IT HAS BORROWED FUNDS FROM THE BANK FOR THE PURPOSE OF ITS BUSINESS. SINCE THE ENTIRE FUNDS COULD NOT BE UTILISED DURING THE RELEVANT AYS THE SAME WERE PLACED IN BANK DEPOSIT IN ORDER TO CUT DOWN THE INTEREST EXPENDITURE INCURRED TOWARDS THE BORROWED FUNDS. PROVISIONS OF SECTION 57( III) OF THE ACT CLEARLY LAYS DOWN THAT WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCE, ANY EXPENDITURE OTHER THAN CAPITAL EXPENDITURE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME SHALL BE ALLOWABLE AS DEDUCTION. THEREFORE, WHEN THE 4 UNUTILISED BORROWED INTEREST - BEARING FUND S ARE PARKED IN THE BANK AS FIXED DEPOSIT THE CORRESPONDING INTEREST EXPENDITURE INCURRED SHALL BE ALLOWABLE AS DEDUCTION BY VIRTUE OF SECTION 57(III) OF T HE ACT. HENCE, W E HEREBY DIRECT THE L D. AO TO VERIFY WHETHER THE ASSESSEE HAS PARKED THE UNUTILISED BORROWED FUNDS IN THE BANK ACCOUNT AS FIXED DEPOSIT AND IF SO, GRANT DEDUCTION IN ACCORDANCE WITH SECTION 57(III) OF THE ACT. ACCORDINGLY, THE CONCISE GROUND OF THE APPEAL IN ITA NO. 1263/H/2018 FOR THE AY 2012 - 13 AND THE CONCISE GROUND NO.2 OF THE APPEAL IN ITA NO. 1264/H/201 8 FOR THE AY 2013 - 14 ARE DISPOSED OFF . 6. WITH RESPECT TO THE FIRST CONCISE GROUND OF THE APPEAL IN ITA NO. 1264/H/2018 FOR THE AY 2013 - 14 , IT IS OBVIOUS THAT IF THE ASSESSEE HAS DEPOSITED ITS SURPLUS FUNDS ARISING OUT OF ITS BUSINESS WITH THE BANK AS FIXED DEPOSIT THEN THERE IS NO INTEREST COST ATTRIBUTABLE TO THE SAME. IN SUCH CIRCUMSTANCES, NO DEDUCTION CAN BE GRANTED TOWARDS INTEREST EARNED ON SUCH DEPOSITS BECAUSE NO SUCH INTEREST EXPENDITURE IS INCURRED ON THE FUNDS DEPOSITED WITH THE BANK. THEREFORE, ON THIS ISSUE ALSO, WE REMIT THE MATTER BACK TO THE FILE OF THE LD. AO TO VERIFY WHETHER THE INTEREST EARNED ON FDS WITH THE BANK AGGREGATING TO RS. 12, 10,609/ - ARE ARISING OUT OF INTEREST - BEARING FUND S OR OUT OF SURPLUS FUNDS AND THEREAFTER DECIDE THE MATTER IN ACCORDANCE WITH THE OBSERVATIONS MADE BY US HEREIN ABOVE. 5 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. PRONOUNCED IN THE OPEN COURT ON THE 18 TH OF FEBRUARY, 2021. SD/ - SD/ - (S.S. GODARA) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 18 TH FEBRUARY, 2021. OKK COPY TO: - 1. HINDUJA NATIONAL POWER CORPORATION LIMITED C/O. GULF OIL CORPORATION LIMITED, SANATNAGAR INDUSTRIAL ESTATE, KUKATPALLY, HYDERABAD - 500 018. 2. INCOME TAX OFFICER, WARD - 2(3), HYDERABAD. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , GUNTUR. 4. THE PRINCIPAL COMMISSIONER OF INCOME TAX - II, HYDERABAD. 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. 6. GUARD FILE