DCIT, CHENNAI V. Indo Tech Transformers Limited, CHENNAI

ITA 1379/CHNY/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0564 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 30-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M S NETHRAPAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Question of law; Capital receipt; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , , ( BEFORE SHRI GEORGE MATHAN , JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.1379/CHNY/2017 /ASSESSMENT YEAR: 2006-07 THE DY. COMMISSIONER OF- INCOME TAX, CORPORATE CIRCLE-2(2), CHENNAI. VS. M/S.INDO TECH TRANSFORMERS- LTD., DP-36, SIDCO INDUSTRIAL ESTATE, THIRUMAZHISAI, CHENNAI-602 107. [PAN: AAACI 5775 P ] ( * /APPELLANT) ( +,* /RESPONDENT) DEPARTMENT BY : MR. M.S.NETHRAPAL, JCIT ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADV. . /DATE OF HEARING : 22.08.2019 . /DATE OF PRONOUNCEMENT : 16.09.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI , DATED 20.03.2017 FOR THE AY 2006-07. 2. THE APPEAL FILED BY THE REVENUE IS DELAYED BY 09 DAYS, FOR WHICH, THE AO HAS FILED THE AFFIDAVIT REQUESTING FOR CONDO NATION OF DELAY, TO WHICH, THE LD.COUNSEL OF THE ASSESSEE HAS NOT RAISE D ANY SERIOUS ITA NO.1379/CHNY/2017 :- 2 -: OBJECTION. CONSEQUENTLY, THE DELAY OF 09 DAYS IN FILING OF THE APPEAL STANDS CONDONED AND THE APPEAL IS DISPOSED OFF ON M ERITS. 3. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF APPE AL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONTRARY TO THE LAW AND FACTS OF THE CASE. 2.1 THE CIT(A) ERRED IN DELETING THE DISALLOWANCE O N NON-REDUCTION OF INTEREST INCOME EARNED ON SHARE APPLICATION MONEY BY DIRECTING THE AO TO REDUCE THE SAME FROM TOTAL INCOME OF THE ASSESSEE WHILE GIVING TO THE ORDER OF CIT(A). 2.2. THE CIT(A) FAILED TO CONSIDER THE JUDGEMENT IN FAVOUR OF THE REVENUE ON THE SIMILAR ISSUE BY THE HON'BLE SUPREME COURT IN THE CASE OF T UTICORIN ALKALI CHEMICALS & FERTILIZERS LTD., VS COMMISSIONER OF INCOME TAX 141 CTR SC 387 (1997). 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. BRIEF FACTS OF THE CASE ARE THAT THE RESPONDENT-AS SESSEE NAMELY M/S.INDO TECH TRANSFORMERS LTD., COMPANY INCORPORAT ED UNDER THE PROVISIONS OF COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ELECTRICAL TRANSFORMERS. T HE RETURN OF INCOME FOR THE AY 2006-07 WAS FILED ON 30.11.2006 DECLARING A TOTAL INCOME OF RS.17,97,20,830/-. AGAINST THE SAID RETURN OF INCO ME, THE ASSESSMENT WAS COMPLETED BY THE AO VIDE ORDER DATED 30.12.2008 U/S.143(3) OF THE ACT. WHILE DOING SO, THE AO MADE THE FOLLOWING ADD ITIONS: 1. CONTRACTUAL DEDUCTIONS BY SEBS RS.1,25,70,176/- 2. DISALLOWANCE OF EXPENDITURE U/S.14A R.W.R.8D RS.1 5,37,466/- 5. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE TH E LD.CIT(A) WHO VIDE IMPUGNED ORDER, ALLOWED THE APPEAL. WHILE DOI NG SO, THE LD.CIT(A) DELETED THE ADDITION U/S.14A, AS REGARDS, THE DISAL LOWANCE U/S.80IB, THE LD.CIT(A) REMANDED THE MATTER BACK TO THE FILE OF T HE AO TO CONSIDER THE CLAIM AFRESH. THE LD.CIT(A) ALSO DIRECTED THE AO TO DELETE THE INTEREST OF ITA NO.1379/CHNY/2017 :- 3 -: RS.1,63,38,322/- ON THE SHARE APPLICATION MONEY THO UGH THE AMOUNT WAS OFFERED TO TAX BY THE ASSESSEE IN THE RETURN OF INC OME BY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. NEHA PROTEINS LTD., REPORTED IN [2008] 306 ITR 102 (RAJ. ) 6. BEING AGGRIEVED BY THE DECISION OF THE LD.CIT(A) T O DELETE THE INTEREST EARNED FROM THE SHARE APPLICATION MONEY, T HE REVENUE IS IN APPEAL BEFORE US. THE LD.SR.DR SUBMITTED THAT THE LD.CIT(A) OUGHT NOT TO HAVE DIRECTED THE ITO TO DELETE THE INTEREST FROM T HE TAXABLE INCOME. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS PLACED ON RECORD. 8. THE ISSUE IN THE PRESENT APPEAL STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT V. SHREE RAMA MULTI TECH LTD., REPORTED IN [2018] 4 03 ITR 0426 (SC), WHEREIN, IT HAS BEEN HELD AS UNDER: .9) COMING BACK TO THE FACTS OF THE CASE, WE MA Y REITERATE THAT THE RESPONDENT WAS STATUTORILY REQUIRED TO KE EP SHARE APPLICATION MONEY IN THE SEPARATE ACCOUNT TILL THE ALLOTMENT OF SHARES W AS COMPLETED. INTEREST EARNED ON SUCH SEPARATELY KEPT AMOUNT WAS TO BE ADJUSTED T OWARDS EXPENDITURE FOR RAISING SHARE CAPITAL. WE ARE, THEREFORE, OF THE OPINION THAT INTEREST EARNED WAS INEXTRICABLY LINKED WITH REQUIRE MENT OF COMPANY TO RAISE SHARE CAPITAL AND WAS THUS ADJUSTABLE TOWARDS THE E XPENDITURES INVOLVED FOR THE SHARE ISSUE. THOUGH LEARNED COUNSEL FOR THE APPELLANT CONTENDED THAT PART OF THE SHARE APPLICATION MONE Y WOULD NORMALLY HAVE TO BE RETURNED TO UNSUCCESSFUL APPLICANTS, AND THEREFOR E, THE ENTIRE SHARE APPLICATION MONEY WOULD NOT ULTIMATELY BE APP ROPRIATED BY THE COMPANY, INSOFAR AS PRESENT CASE IS CONCERNED, WE DO NOT SEE HOW THIS FACTOR WOULD MAKE ANY SIGNIFICANT DIFFERENCE. INTEREST EARNED FROM SHARE APPLICATION MONEY STATUTORILY REQUIRED TO BE KEPT IN SEPARATE ACCOUN T WAS BEING ADJUSTED TOWARDS ITA NO.1379/CHNY/2017 :- 4 -: THE COST OF RAISING SHARE CAPITAL. IN THAT VIEW OF THE MATTER, WE ARE OF THE OPINION THAT THE HIGH COURT WAS RIGHT IN ALLOWING SUCH DEDU CTION. 10) IN LIGHT OF THE ABOVE DEVELOPMENTS IN THE CASE, THE QUESTION OF LAW HAS BEEN DECIDED BY THIS COURT IN CASE IN BOKARO STEEL LTD. (SUPRA), WHEREIN THE COMPANY WAS SET UP TO PRODUCE STEEL. WHEN THE CONSTRUCTION OF PLANT WAS YET NOT COMPLETED, COMPANY EARNED INTEREST ON ADVANCES TO C ONTRACTOR, RENT FROM QUARTERS LET OUT TO EMPLOYEES OF THE CONTRACTOR AS WELL AS OTHER INCOME SUCH AS HIRE CHARGES ON PLANT AND MACHINERY LET OUT TO CONTRACTOR, ROYALTY ON STONES REMOVED FROM ITS LAND. IT WAS IN THIS BACKGROUND THAT THIS COURT HELD THAT THE AMOUNTS WERE DIRECTLY CONNECTED TO AND INCIDENTAL TO CONSTRUCTION OF PLANT BY THE COMPANY, AMO UNTS WERE CAPITAL RECEIPTS AND NOT INCOME FROM ANY INDEPENDENT SOURCE. 11) FURTHER, THE RATIONALE OF JUDGMENT O F BOKARO STEEL LTD. (SUPRA) WAS FOLLOWED IN COMMISSIONER OF INCOME T AX VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD. (2000) 243 ITR 2 (SC). IN THIS CAS E, THE COMPANY HAD DEPOSITED CERTAIN AMOUNT WITH THE BANK TO OPEN LETTER OF CRED IT FOR PURCHASE OF MACHINERY FOR SETTING UP PLANT. ON THE MONEY SO DEPOSITED, IT EARNED INTEREST. IN THAT BACKGROUND, THIS COURT OBSERVED THAT THIS IS NOT A CASE WHERE ANY SURPLUS SHARES CAPITAL MONEY WHICH WAS LYING IDLE HAD BEEN DEPOSIT ED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY IS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. 12) THE COMMON RATIONALE THAT IS FOLLOWED IN ALL T HESE JUDGMENT IS THAT IF THERE IS ANY SURPLUS MONEY WHICH IS LYING IDLE AND IT HAS BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST THEN IT IS LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES BUT IF THE INCOME ACCRUED IS MER ELY INCIDENTAL AND NOT THE PRIME PURPOSE OF DOING THE ACT IN QUESTION WHICH RE SULTED INTO ACCRUAL OF SOME ADDITIONAL INCOME THEN THE INCOME IS NO T LIABLE TO BE ASSESSED AND IS ELIGIBLE TO BE CLAIMED AS DEDUCTION. PUTTING THE AB OVE RATIONALE IN TERMS OF THE PRESENT CASE, IF THE SHARE APPLICATIO N MONEY THAT IS RECEIVED IS DEPOSITED IN THE BANK IN LIGHT OF THE STATUT ORY MANDATORY REQUIREMENT THEN THE ACCRUED INTEREST IS NOT LIABLE TO BE TAXED AND IS ELIGIBLE FOR DEDUCTION AGAINST THE PUBLIC ISSUE EXPENSES. THE IS SUE OF SHARE RELATES TO CAPITAL STRUCTURE OF THE COMPANY AND HENCE EXPENSES INCURRE D IN CONNECTION WITH THE ISSUE OF SHARES ARE TO BE CAPITALIZED BECAUSE THE PURPOSE OF SUCH DEPOSIT IS NOT TO MAKE SOME ADDITIONAL INCOME BUT TO COMPLY WITH THE STATUTORY REQUIREMENT, AND INTEREST ACCRUED ON SUCH DEPOSIT IS MERELY INCIDENTAL. IN THE PRESENT CASE, THE RESP ONDENT WAS STATUTORILY REQUIRED TO KEEP THE SHARE APPLICATION MO NEY IN THE BANK TILL THE ALLOTMENT OF SHARES WAS COMPLETE. IN THAT SENSE, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN HOLDING THAT THE INTEREST A CCRUED TO SUCH DEPOSIT OF MONEY IN THE BANK IS LIABLE TO BE SET-OFF AGAINST THE PUB LIC ISSUE EXPENSES THAT THE COMPANY HAS INCURRED AS THE INTEREST EARNED WAS INEXTRICABLY LINKED WITH REQUIREMENT OF THE COMPANY TO RAISE SHARE CAPITAL A ND WAS THUS ADJUSTABLE TOWARDS THE EXPENDITURE INVOLVED FOR THE SHARE ISSU E. 13) IN VIEW OF THE FORGOING DISCUSSION, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN UPHOLDING THE DECISION OF THE TRIBUNAL DATED 21.10.2011 THAT THE INTEREST INCOME EARNED OUT OF THE SHARE APPLICATION MONEY IS LIABLE TO BE SET OFF AGAINST THE PUBLIC ISSUE EXPENSES. THE JUDGMENT PASSED BY THE DIVISION BENCH OF THE HIGH COUR T IN REMANDING THE MATTER TO THE TRIBUNAL ON OTHER ISSUES REQUIRES NO INTERFEREN CE. ITA NO.1379/CHNY/2017 :- 5 -: 9. IN THE LIGHT OF THE ABOVE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. SHREE RAMA MULTI TECH LTD., SUPR A, WE DO NOT FIND ANY MERIT IN THE PRESENT APPEAL FILED BY THE REVENUE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 16 TH SEPTEMBER, 2019 IN CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) ( INTURI RAMA RAO ) /ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 16 TH SEPTEMBER, 2019. TLN . +45 65 /COPY TO: 1. * /APPELLANT 4. 7 /CIT 2. +,* /RESPONDENT 5. 5 + /DR 3. 7 ( ) /CIT(A) 6. /GF