Sneha Kinetic Power Projects Private Limited, Hyderabad, Hyderabad V. ITO, Ward-3(3), Hyderabad, Hyderabad

ITA 141/HYD/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5016 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 21-01-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 30-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business income; Depreciation; Capital receipt
• Section: 40(a)(ia); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NOS. 141 & 142/HYD/2017 ASSESSMENT YEARS: 2012-03 & 2013-14 SNEHA KINETIC POWER PROJECTS PRIVATE LIMITED, HYDERABAD [PAN: AAFCS1221B] VS INCOME TAX OFFICER, WARD-3(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S.RAMA RAO, AR FOR REVENUE : SHRI SUNIL KUMAR PANDEY, DR DATE OF HEARING : 21-01-2021 DATE OF PRONOUNCEMENT : 09-02-2021 O R D E R PER BENCH : THESE TWO ASSESSEES APPEALS FOR AYS.2012-13 & 2013 -14 ARISE FROM THE CIT(A)-3, HYDERABADS COMMON ORDER DA TED 14-10-2016 PASSED IN APPEAL NOS.1432/14-15 & 0304/1 5- 16/CIT(A) INVOLVING PROCEEDINGS U/S.143(3) OF THE IN COME TAX ACT, 1961 [IN SHORT, THE ACT]. HEARD BOTH THE PARTIES. CASE FILES PERUSED. ITA NOS. 141 & 142/HYD/2017 :- 2 -: 2. THE ASSESSEE HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS IN APPEAL NO.141/HYD/2017 FOR AY.2012-13: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE APPELLANT DID NOT COMMENCE BUSINESS ACTIVI TY AND THAT THE INTEREST ON FIXED DEPOSITS OF RS.9,26,440/- IS TAXA BLE UNDER THE HEAD 'OTHER SOURCES'. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE INTEREST OF DERIVED IN THE PROCESS OF THE BUSINESS ACTIVITY OF THE APPELLANT AND THAT THE EXPENDITURE INCURRED DURING THE COURSE OF BUSINESS IS AN ALLOWABLE DEDUCTION. 4. IN THE ALTERNATE, THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS) OUGHT TO HAVE DIRECTED THAT INTEREST RELATABLE TO T HE DEPOSITS SHOULD BE ALLOWED. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE OBSERVATION OF THE ASSESSING OFFICER THAT THE BUSINESS DID NOT COMMENCE DURING THE YEAR UNDER CONSIDERATIO N AND FURTHER ERRED IN TREATING THE AMOUNT OF RS.18,83,457/- AS P RELIMINARY EXPENSES. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 3. WE NOTICE THAT THE ASSESSEES GRIEVANCES PLEADED IN LATTER AY.2013-14 APPEAL NO.142/HYD/2017 ARE IDENTICAL EXCE PT THE FACT THAT IT HAD DERIVED INTEREST INCOME OF RS.1,92,76,5 30/- AND PRELIMINARY EXPENSES AMOUNTING TO RS.10,32,360/-; RESPECTIVELY. 4. LEARNED AUTHORISED REPRESENTATIVE HAS ARGUED ONLY THE ISSUE OF ASSESSMENT OF ASSESSEES INTEREST INCOME UNDE R THE HEAD INCOME FROM OTHER SOURCES. HE TOOK US TO PARA 3 ONWARDS IN ASSESSMENT ORDER DT.30-12-2014 AY.2012-13 THAT THE IMPUGNED INTEREST INCOME HAD ARISEN ON ACCOUNT OF DEBT SERVICE RESERVE ACCOUNT (DSRA) CREATED AS PER THE TERMS OF FINANCIAL ASSISTANCE IMPOSED BY THE IDBI BANK LTD. MR .RAO ITA NOS. 141 & 142/HYD/2017 :- 3 -: THEN INVITED OUR ATTENTION TO PAGES 48 ONWARDS CONTAINING THE DETAILS OF THE CORRESPONDING DSRA. HIS CASE THEREFOR E IS THAT THE IMPUGNED INTEREST INCOME RELATES TO THE BUSINESS AN D THEREFORE IT OUGHT TO HAVE BEEN ASSESSED AS INCOME FR OM BUSINESS HEAD ONLY. 5. LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE CIT(A)S IDENTICAL ACTION IN BOTH THESE ASSESSMENT YEAR S UPHOLDING THE ASSESSING OFFICERS ACTION ASSESSING TH E IMPUGNED INTEREST INCOME AS INCOME FROM OTHER SOURCE S VIDE FOLLOWING DETAILED DISCUSSION: 7. REGARDING THE SECOND ISSUE OF TREATING THE INTE REST INCOME FROM FIXED DEPOSITS AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER, THE DETAILS ARE AS UNDER: THE APPELLANT HAD TO DEPOSIT THE FOLLOWING AMOUNTS AS A PRE-REQUISITE TO OBTAIN LOAN FROM IDBI PARTICULARS LOAN AMOUNT RECEIVED (RS.) FD MADE AS A PRE-REQUISITE (RS.) 1 ST DISBURSEMENT IN AY.2012-13 17,27,00,000 4,50,00000 2 ND DISBURSEMENT IN AY.2013-14 49,94,23,308 16,10,00,000 ON THESE FDS THE APPELLANT RECEIVED INTEREST AS UND ER: A.Y.2012-13 RS. 9,26,440/- A.Y.2013-14 RS. 1,92,76,530/- THE APPELLANT REDUCED THE ABOVE INTEREST FROM CAPIT AL WORK IN PROGRESS. WHEREAS THE ASSESSING OFFICER TREATED THE SAME AS I NCOME FROM OTHER SOURCES. THE ASSESSING OFFICER RELIED ON TUTICORN ALKALI CHEMICALS AND FERTILISERS LTD 227 I TR 172 ( SC) IN THIS CASE INTEREST EARNED BY ASSESSEE BEFORE COM MENCEMENT OF BUSINESS ON SHORT TERM DEPOSITS WITH BANKS OUT OF T ERM LOANS SECURED FROM FINANCIAL INSTITUTIONS WAS CONSIDERED AS INCOM E CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND WOUL D NOT GO TO REDUCE THE INTEREST PAYABLE BY THE ASSESSEE. ITA NOS. 141 & 142/HYD/2017 :- 4 -: COROMANDEL CEMENTS LTD 234 ITR 412 (SC) IN THIS CASE IT WAS HELD THAT INTEREST RECEIVED ON SHORT TERM DEPOSITS DURING THE PRE-PRODUCTION STAGE IS ASSESSABLE AS IN COME FROM OTHER SOURCES. AUTOKAST LTD 248 ITR 110 ( SC) IN THIS CASE IT WAS HELD THAT INTEREST EARNED ON SH ORT-TERM DEPOSIT OF AMOUNT BORROWED FOR SETTING UP BUSINESS IS ASSESSAB LE TO TAX IN THE HANDS OF ASSESSEE AS INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER OBSERVED THAT THE INTEREST IN COME INCURRED DURING PRE-CONSTRUCTION PERIOD OUT OF EQUITY CONTRI BUTIONS HAS NO NEXUS WITH THE PROJECT, THEREFORE THE INTEREST EARN ED IS TO BE TAXED UNDER THE HEAD OTHER SOURCES RELYING ON THE SUPREME COURT DECISIONS MENTIONED ABOVE. 8. THE SUBMISSIONS OF THE APPELLANT ARE AS UNDER: A) AS PER THE SANCTION LETTER OF IDBI DATED 28.6.20 10, THE APPELLANT WAS COMPELLED TO MAKE FDS WITH THE BANK T O OBTAIN LOANS, THUS THE INTEREST WAS ELIGIBLE TO BE SET OFF AGAINS T THE PROJECT EXPENDITURE INCURRED. B) IN CASE OF TUTICORN ALKALI CHEMICALS AND FERTILI SERS LTD CITED SUPRA THE FACTS WERE DIFFERENT. IN THAT CASE THE IN TEREST WAS EARNED ON SURPLUS FUNDS DEPOSITED WITH THE BANK. WHEREAS I N THE PRESENT CASE THE APPELLANT IS COMPELLED TO DEPOSIT CERTAIN AMOUNTS WITH IDBI BANK AS PRE-REQUISITE TO OBTAIN LOANS, THEREFORE TH E CASE OF TUTICORN ALKALI CHEMICALS AND FERTILISERS LTD CANNOT BE APPL IED. C) IN THE CASE OF AUTOKAST LTD, THE FACTS WERE, THE ASSESSEE BORROWED AMOUNTS FROM IDBI AND DEPOSITED THE SAME W ITH STATE BANK OF TRAVANCORE AS HE DID NOT REQUIRE THE FUNDS IMMEDIATELY. THE INTEREST EARNED WAS CONSIDERED AS TAXABLE UNDER THE HEAD OTHER SOURCES BY THE HON'BLE SUPREME COURT. HOWEVER IN TH E PRESENT CASE THE APPELLANT MADE FDS AS A PRE-REQUISITE TO OBTAIN LOANS. D) THE APPELLANT RELIED ON INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS ITO (2009) 315 ITR 255 WHEREIN THE HON'BLE D ELHI HIGH COURT HELD THAT THE INTEREST ACCRUED ON FUNDS DEPLOYED DU RING PRE-OPERATIVE PERIOD SHOULD BE SET OFF AGAINST PRE-OPERATIVE EXPE NSES AND SHOULD NOT BE TAXED UNDER THE HEAD OTHER SOURCES. E) RELIANCE IS PLACED ON ADANI POWER LTD VS ACIT (2 015) 155 ITO 239 WHEREIN THE HON'BLE AHMEDABAD TRIBUNAL HELD THA T THE INTEREST EARNED DURING PRE-OPERATIVE PERIOD ON DEPOSITS IN G OVT. SECURITIES SHOULD BE TREATED AS CAPITAL ASSET. HENCE REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. ITA NOS. 141 & 142/HYD/2017 :- 5 -: F) RELIANCE IS ALSO PLACED ON THE DECISION OF DCIT VS FACOR POWER LTD (2016) 380 ITR 474 WHEREIN THE HON'BLE DELHI HI GH COURT HELD INTEREST EARNED DURING PRE-OPERATIVE PERIOD ON DEPO SITS MADE OUT OF SHARE CAPITAL IS A CAPITAL RECEIPT. 9. THE INFORMATION ON RECORD IS CAREFULLY CONSIDERE D. THE HON'BLE ITAT HYDERABAD IN THE CASE OF KAKINDA SEZ PVT LTD VS ACI T 141 ITO 635 HELD THAT INTEREST EARNED ON FDS DURING PRE-OPERATI VE PERIOD ARE TO BE BROUGHT TO TAX UNDER THE HEAD 'INCOME FROM OTHER SO URCES'. THE FACTS IN THIS CASE WERE THE ASSESSEE OBTAINED LARGE AMOUN T OF SECURED LOANS, PART OF WHICH WAS KEPT IN FDS WITH THE BANKS . THE INTEREST EARNED ON THESE FDS WERE SET OFF AGAINST PREOPERATI VE EXPENSES BY ASSESSEE. THE HON'BLE TRIBUNAL CONSIDERED THE DECIS ION OF TUTICORN ALKALI CHEMICALS AND FERTILISERS LTD ( CITED SUPRA ) AND INDIAN OIL PANIPAT POWER CONSORTIUM LTD (CITED SUPRA ) AND VAR IOUS OTHER PRECEDENTS ON THIS ISSUE HELD THAT INTEREST PAID ON BORROWED FUNDS HAS NO CONNECTION WITH RECEIPT OF INTEREST AND HELD THAT INTEREST PAYABLE CANNOT BE ALLOWED AS DEDUCTION U/S 57(III). FURTHER IN APPELLANTS CASE AS VERIFIED FROM IDBI LO AN SANCTION LETTER DATED 28.6.2010, THE APPELLANT MADE DEPOSITS WITH T HE BANK AS HIS EQUITY BEING PROMOTER. THEREFORE IT PRACTICALLY AMO UNTS TO THAT THE APPELLANT KEPT HIS SHARE OF CAPITAL WITH THE BANK O N WHICH HE RECEIVED INTEREST. THEREFORE IT IS DEARLY TAXABLE U NDER THE HEAD OTHER SOURCES. THEREFORE THE ACTION OF ASSESSING OFFICER IN TREATING INTEREST EARNED ON FDS AS INCOME FROM OTHER SOURCES IS UPHEL D. 10. IT IS TO BE MENTIONED HERE THAT THE FACTS ARE I DENTICAL FOR A.Y 2013- 14 ALSO. THE P&L ACCOUNT FOR A.Y.2013-14 READ AS UN DER. NOTE YEAR ENDED MARCH 31, 2012 I. EXPENSES: FINANCE COSTS 15 31,234 DEPRECIATION AND AMORTIZATION EXPENSES 7,82,663 OTHER EXPENSES 14 10,63,989 TOTAL EXPENSES 18,77,886 II. PROFIT (LOSS) BEFORE TAX (18,77,886) III. TAX EXPENSE -- IV. LOSS FOR THE YEAR (18,77,886) ITA NOS. 141 & 142/HYD/2017 :- 6 -: THE DETAILS OF OTHER EXPENSES ARE AS UNDER FOR THE YEAR ENDED MARCH, 31, 2013 RENT 42,300 RATES AND TAXES 3,795 PRINTING AND STATIONERY 4,040 COMMUNICATION EXPENSES 5,602 PAYMENTS TO THE AUDITOR STATUTORY AUDIT 2,24,720 OFFICE MAINTENANCE 64,246 DONATIONS 3,06,782 MISCELLANEOUS EXPENSES 4,12,504 10,63,989 THE COMPUTATION OF A.Y.2013-14 READ AS UNDER: AMOUNT INCOME FROM BUSINESS NET PROFIT AS PER PROFIT AND LOSS ACCOUNT (18,77,886) ADD: DEPRECIATION CONSIDERED SEPARATELY 7,82,663 DONATION US 37 3,06,782 INTEREST OTHERS 3,37,633 AUDIT FEE DISALLOWED U/S. 40(A)(IA) 2,24,720 16,51,798 (2,26,088) LESS: DEPRECIATION AS PER IT ACT 5,81,552 DISALLOWANCE MADE IN EARLY YEAR PAID NOW 40(A)(IA) 2,24,720 8,06,272 TOTAL TAXABLE INCOME (10,32,360) 6. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FOREGOING RIVAL CONTENTIONS. WE FIND NO SUBSTANCE IN T HE ASSESSEES FOREGOING GRIEVANCE. CASE RECORDS INDICA TE IN PG.47 OF THE PAPER BOOK THAT THE ASSESSEE HAD TO COMMENCE ITS COMMERCIAL OPERATIONS FOR THE PROJECT(S) IN ISSUE FROM DECEMBER 31 ST , 2013 RELEVANT TO AY.2014-15 WHEREAS WE ARE IN AYS.2012-13 & 2013-14 ONLY. THE CLINCHING FACT AS EM ERGES THEREFORE IS THAT THE ASSESSEE HAS SOUGHT THE ASSESSMEN T OF ITS ITA NOS. 141 & 142/HYD/2017 :- 7 -: INTEREST INCOME AS BUSINESS INCOME WITHOUT HAVING COMMENCED ITS CORRESPONDING ACTUAL BUSINESS ACTIVITY AT ALL IN THESE TWO ASSESSMENT YEARS. WE THEREFORE FIND NO REASO N TO INTERFERE WITH DETAILED REASONING EXTRACTED FROM THE C IT(A)S ORDER IN THE PRECEDING PARAGRAPHS. WE THUS DECLINE AS SESSEES SOLITARY GRIEVANCE. 7. NEXT COMES MR.RAMA RAO YET ANOTHER PLEA THAT BOTH THE LOWER AUTHORITIES OUGHT TO HAVE ADOPTED NETTING METHOD BY FOLLOWING THE DECISION OF HON'BLE APEX COURT ACG ASSO CIATED CAPSULES PVT. LTD. VS. CIT (2012) [343 ITR 089] (SC) THAN ASSESSING THE ENTIRE INTEREST INCOME U/S.57 OF THE ACT. 8. MR.PANDEY, ON THE OTHER HAND, VEHEMENTLY CONTENDED THAT THE ASSESSEE IS NOT ENTITLED FOR NETTING SINCE THE CORRESPONDING INTEREST EXPENDITURE HAS TO BE TREATED AS PART OF CAPITAL ACCOUNT ONLY. THE FACT REMAINS THAT THIS ISSUE HA S NEITHER BEEN EXAMINED IN THE COURSE OF ASSESSMENT NOR IN THE CIT(A)S ORDER. WE THEREFORE DRAW SUPPORT FROM THEIR L ORDSHIPS ABOVE DECISION AND DIRECT THE ASSESSING OFFICER TO FIN ALISE NECESSARY COMPUTATION ON NETTING BASIS. NO OTHER GROU ND HAS BEEN PRESSED BEFORE US. 9. THESE ASSESSEES APPEALS ARE PARTLY ALLOWED FOR S TATISTICAL PURPOSES IN ABOVE TERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH FEBRUARY, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.GO DARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 09-02-2021 TNMM ITA NOS. 141 & 142/HYD/2017 :- 8 -: COPY TO : 1.SNEHA KINETIC POWER PROJECTS PRIVATE LIMITED, C/O . SRI S.RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3-6-643, STREET NO.9, HIMAYAT NAGAR, HYDERABAD. 2.THE INCOME TAX OFFICER, WARD-3(3), HYDERABAD. 3.CIT(APPEALS)-3, HYDERABAD. 4.PR.CIT-3, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.