M/s H.P. Infrastructure Development Board, Shimla V. Assistant Commissioner Of Income Tax, Shimla

ITA 1434/CHANDI/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1270 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-01-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1434/CHD/2010 ASSESSMENT YEAR: 2007-08 M/S H.P. INFRASTRUCTURE DEVELOPMENT VS. THE ACIT, CIRCLE BOARD, SHIMLA SHIMLA PAN NO. AAALH0040D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VISHAL MOHAN RESPONDENT BY: SHRI S.K. MITTAL ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), SHIMLA DATED 10.11.2010 RELATING TO ASSESSMENT YEAR 2007-0 8 AGAINST THE ORDER PASSED UNDER SECTION 143(3)OF THE I.T. ACT, 1961. 2. THE ONLY GROUND OF APPEAL RAISED BY THE ASSESSEE I S AS UNDER:- 1. THAT IN FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A), SHIMLA RANGE, SHIMA IS NOT JUSTIFIED IN SUSTAINING AN ADDITION OF RS. 5,36,00,000/- ON ACCO UNT OF ALLEGED INTEREST ON SUM OF RS. 67 CRORES ADVANCE D TO HRTC ON BEHALF OF THE STATE GOVERNMENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-BOARD HAD FURNISHED RETURN OF INCOME SHOWING NIL INCOME ON 30 .11.2010. THE ASSESSEE HAD SHOWN A DEFICIT OF RS.242.49 CR. IN IT S INCOME AND EXPENDITURE ACCOUNT, WHICH WAS SHOWN AS RECOVERABLE FROM THE STATE GOVT. AS PER THE POLICY OF THE GOVT. OF H.P. AND CO NSEQUENTLY THE INCOME 2 WAS SHOWN AT NIL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THE ASSESSEE TO HAVE ADVANCED A SUM OF R S. 67 CR. OF HIMACHAL PRADESH ROAD TRANSPORT CORPORATION (HRTC I N SHORT) AND THE ASSESSEE HAD NOT ACCOUNTED FOR THE INTEREST ACCRUED /RECEIVED ON THE SAID AMOUNT IN ITS INCOME AND EXPENDITURE ACCOUNT. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY THE INTEREST @ 11.5% BE NOT INCLUDED AS ITS INCOME FOR THE YEAR UNDER CONSIDERATION. OTHER QUE RIES WERE ALSO RAISED BY THE A.O. IN RESPECT OF CERTAIN ENTRIES IN THE BA LANCE-SHEET. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD IS INCOR PORATED AT PAGE 3 OF THE ASSESSMENT ORDER AND WAS THAT THE SAID ADVANCE WAS MADE ON BEHALF OF THE H.P.GOVT. FOR THE INITIAL 3 YEARS, AS THE PAYE R AS WELL AS THE RECEIVER OF INTEREST WAS THE GOVT. ITSELF, THERE WA S NO IMPACT ON THE PROFITABILITY OF THE ASSESSEE-BOARD. THE A.O. OBSE RVED THAT THE INTER CORPORATE LOAN WAS EXTENDED BY THE ASSESSEE-BOARD V IDE SANCTION LETTER DATED 30.11.2005 WHICH, TALKS OF THE INTEREST ON TH IS LOAN TO BE PAID TO THE ASSESSEE FOR THE FIRST THREE YEARS BY THE STATE GOVT. AND THEREAFTER BY THE HRTC. AS THE ASSESSEE WAS FOUND TO BE FOLLOWI NG MERCANTILE SYSTEM OF ACCOUNTING, THE INTEREST INCOME TOTALING RS.7,70,50,000/- WAS ADDED AS BUSINESS INCOME OF THE ASSESSEE. THE CIT( A) NOTED THAT THE MAIN FUNCTION OF THE ASSESSEE WAS TO FINALISE DEVEL OPMENT EXPENDITURE UNDER THE STATE PLAN ON BEHALF OF THE STATE GOVT. A ND ADVANCING THE INTER CORPORATE LOAN TO DISCHARGE GPF LIABILITIES DOES NO T AMOUNT TO DEVELOPMENT EXPENDITURE UNDER THE STATE PLAN OR DIS CHARGE OF OBLIGATION ON THIS ACCOUNT ON BEHALF OF THE STATE GOVT. THE S AID LOAN WAS HELD TO BE IN VIOLATION OF STATUTORY FUNCTIONS OF THE ASSES SEE-BOARD AND THE ACCRUED INTEREST @ 8% AS PER THE TERMS OF THE AGREE MENT WAS UPHELD TO BE THE INCOME OF THE ASSESSEE. THE ADDITION WAS RE STRICTED TO 5.36 CR. BEING INTEREST @ 8% ON LOAN OF RS.67 CR. 3 4. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ADDIT ION. ELABORATE SUBMISSIONS WERE MADE BY THE LEARNED A.R. FOR THE A SSESSEE IN RESPECT OF CREATION AND FUNCTIONING OF THE ASSESSEE-BOARD. OU R ATTENTION WAS DRAWN TO THE SANCTION LETTER FOR THE SANCTIONING OF SAID LOAN TO M/S HRTC BEING AN INTER CORPORATE LOAN AND ALSO THE COMMUNICATION WITH THE STATE GOVT. IN RESPECT OF THE INTEREST ACCRUING ON THE SAID LOA N THE LEARNED D.R. PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BE LOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THAT THE ASSESSEE-BOARD IS A BODY CORPORATE CONSTITUTED BY THE H.P. INFRASTRUCTURE DEVELOPMENT ACT, 2001 WHICH WAS CONS ENTED TO BY THE GOVERNOR ON 23 RD OF JUNE, 2002. THE COPY OF THE SAID ACT IS PLACED ON RECORD AT PAGE 13 OF THE PAPER BOOK. 6. THAT THE PREAMBLE OF THE HP INFRASTRUCTURE DEVEL OPMENT ACT, 2001 READS AS UNDER : TO PROVIDE FOR A FRAMEWORK FOR PARTICIPATION BY PERSONS OTHER THAN THE STATE GOVERNMENT AND GOVERNM ENT AGENCIES IN FINANCING, CONSTRUCTION, MAINTENANCE AN D OPERATION OF INFRASTRUCTURE PROJECTS AND TO RAISE R ESOURCES ON BEHALF OF THE STATE GOVERNMENT FOR INFRASTRUCTURE DEVELOPMENT AND FOR THAT PURPOSE TO ESTABLISH A BOA RD TO PROVIDE FOR THE MATTERS RELATING THERETO. 7. THAT AS PER SECTION 3 OF THE SAID ACT, THE ASSES SEE BOARD WAS DECLARED TO BE A BODY CORPORATE TO BE CALLED AS HI MACHAL PRADESH INFRASTRUCTURE DEVELOPMENT BOARD HAVING PERPETUAL S UCCESSION AND A COMMON SEAL. AS PER SECTION 5 OF THE AFORESAID ACT , THE CONSTITUTION OF THE ASSESSEE-BOARD IS AS UNDER : (A) THE CHIEF SECRETARY TO THE GOVERNMENT WHO SHAL L BE THE CHAIRPERSON; 4 (B) THE FINANCE SECRETARY OR ANY STATE GOVERNMENT O FFICER OF OTHER EQUIVALENT RANK SHALL BE THE CHIEF EXECUTIVE OFFICER, TO BE APPOINTED BY THE STATE GOVERNMENT, BY NOTIFICATI ON; (C) NOT EXCEEDING TEN OTHER MEMBERS, WHICH SHALL IN CLUDE SECRETARIES TO THE GOVERNMENT IN THE DEPARTMENTS OF POWER, PUBLIC WORKS, IRRIGATION AND PUBLIC HEALTH, URBAN DEVELOPMENT, TOWN AND COUNTRY PLANNING, TOURISM, IN DUSTRY, FINANCE AND PLANNING, TO BE APPOINTED BY THE GOVERN MENT BY NOTIFICATION. 8. THE FUNCTIONS OF THE BOARD ARE PRESCRIBED UNDER SECTION 14 AND ONE SUCH FUNCTION WAS TO, (J) ACT AS A SPECIAL PURPOSE VEHICLE TO RAISE TO FI NANCE DEVELOPMENT EXPENDITURE UNDER THE STATE PLAN ON BEH ALF OF THE STATE GOVERNMENT AND ALSO TO DISCHARGE OBLIGATIONS ON THIS ACCOUNT ON BEHALF OF THE STATE GOVERNMENT FROM REVE NUE AND OTHER RECEIPTS ACCRUING TO THE STATE GOVERNMENT FROM SUCH DEVELOPMENT EXPENDITURE; AND (K) PERFORM SUCH OTHER FUNCTIONS AS MAY BE ENTRUSTED TO IT BY THE STATE GOVERNMENT, BY NOTIFICATION. 9. THAT VIDE LETTER BEARING NO. FIN-IF(C) 45-1/99(I DB) DATED 30.07.2002 ISSUED BY THE DEPARTMENT OF FINANCE, GOV ERNMENT OF H.P., IT HAS BEEN STIPULATED AS UNDER : AS PER PROVISIONS OF SECTION 14(J) OF H.P. INFRAST RUCTURE DEVELOPMENT ACT, THE BOARD SHALL ACT AS A SPECIAL P URPOSE VEHICLE TO RAISE RESOURCES TO FINANCE DEVELOPMENT EXPENDITU RE UNDER THE STATE PLAN ON BEHALF OF THE STATE GOVERNMENT AND AL SO TO DISCHARGE OBLIGATIONS ON BEHALF OF THIS ACCOUNT ON BEHALF OF THE STATE GOVERNMENT FROM REVENUE AND OTHER RECEIPTS ACCRUING TO THE STATE GOVT. FROM SUCH DEVELOPMENT EXPENDITURE. THE STATE GOVERNMENT SHALL MEET ALL THE EXPENDITURE INCURRED BY THE BOAR D FOR RAISING OF 5 FUNDS, INCLUDING PAYMENT OF INTEREST AND REPAYMENT OF PRINCIPAL. AL INCOME GENERATED BY THE BOARD ON INVESTMENT OF F UNDS RAISED, WHILE ACTING AS SPECIAL PURPOSE VEHICLE, ON BEHALF OF THE STATE GOVERNMENT SHALL BE CREDITED TO THE GOVERNMENT OF H IMACHAL PRADESH AFTER MEETING THE EXPENDITURE ON THE MAINTE NANCE AND WORKING OF THE OFFICE OF THE BOARD. THE EXPENDITUR E IN EXCESS, IF ANY, SHALL BE REIMBURSED BY THE STATE GOVERNMENT TH ROUGH BUDGETARY SUPPORT. 10. THAT THE ASSESSEE-BOARD IS THUS A SPECIAL PURPO SE VEHICLE OF THE STATE GOVT. AND FUNCTION OF THE BOARD IS TO RAISE F UNDS TO FINANCE DEVELOPMENT EXPENDITURE UNDER THE STATE PLAN. THE ASSESSEE BOARD WAS CONSTITUTED TO DISCHARGE OBLIGATIONS ON BEHALF OF S TATE GOVT. FROM REVENUE AND OTHER RECEIPTS ACCRUING TO THE STATE GO VT. FROM SUCH DEVELOPMENT EXPENDITURE. AS IS APPARENT FROM THE C OMMUNICATION REFERRED ABOVE BETWEEN THE PRINCIPAL SECRETARY (FIN ANCE) TO THE GOVT. OF H.P. AND THE CHIEF EXECUTIVE OFFICER OF THE ASSESSE E-BOARD DATED 30.7.2002, THE STATE GOVT. SHALL MEET ALL THE EXPE NDITURE INCURRED FOR RAISING OF FUNDS, INCLUDING PAYMENT OF INTEREST AND REPAYMENT OF PRINCIPAL. FURTHER ALL THE INCOME GENERATED BY TH E ASSESSEE-BOARD ON INVESTMENTS OF FUNDS RAISED, ON BEHALF OF THE STATE GOVT. IS TO BE CREDITED TO THE ACCOUNT OF STATE GOVT. AFTER MEETIN G ALL THE EXPENDITURE AND WHERE THE EXPENDITURE IS IN EXCESS OF THE RECEI PTS, SUCH EXCESS IS ALSO TO BE MET BY STATE GOVT. 11. THE ASSESSEE-BOARD HAD FILED ITS RETURN OF INCO ME RELATING TO ASSESSMENT YEAR 2002-03 DECLARING NIL INCOME, THOUG H THERE WAS EXCESS OF EXPENSES OVER INCOME AMOUNTING TO RS.1,91,222/-. THE INCOME WAS ASSESSED AT NIL VIDE ORDER PASSED UNDER SECTION 143 (3) OF THE ACT AND THE A.O. HAS ACCEPTED THAT AS PER LETTER OF STATE GOVT. , THE EXPENDITURE, IN EXCESS, WOULD BE REIMBURSED BY THE STATE GOVT., THR OUGH BUDGETARY 6 SUPPORT. THE COPY OF THE ASSESSMENT ORDER RELATING TO ASSESSMENT YEAR 2002-03 IS PLACED AT PAGES 17 & 18 OF THE PAPER BOO K. SIMILARLY, INCOME RELATING TO ASSESSMENT YEAR 2004-05 IS FILED AND ACCEPTED AT NIL DESPITE DEFICIT OF RS.113.59 CR. AND FOR ASSESSMENT YEAR 2005-06 ALSO AT NIL AS AGAINST DEFICIT OF RS.225.69 CR. THE ASSESS MENT ORDERS PASSED UNDER SECTION 143(3) OF THE ACT RELATING TO ASSESSM ENT YEARS 2004-05 & 2005-06 ARE PLACED TO PAGES 20 & 21 OF THE PAPER BO OK. THE ASSESSEE HAD FURNISHED RETURN OF INCOME AT NIL FOR ASSESSMEN T YEAR 2006-07. FURTHER FOR THE YEAR UNDER CONSIDERATION, THERE WAS DEFICIT OF RS.242.49 CR. BUT THE RETURN OF INCOME HAS BEEN FILED AT NIL. 12. THE ISSUE ARISING BEFORE US IS IN RESPECT OF DI SBURSEMENT OF FUNDS TOTALING RS.67 CR. TO HIMACHAL PRADESH ROAD TRANSPO RT CORPORATION (HRTC IN SHORT). THE STATE GOVERNMENT VIDE LETTER DATED FIN-IF(C) 17- 4/91 DATED 30-11-2005 TO THE ASSESSEE-BOARD DIRECTE D AS UNDER : I AM DIRECTED TO INVITE YOUR REFERENCE TO ITEM NO.49.4 OF THE BOARD MEETING OF HPIDB HELD ON 16.11 .05 UNDER THE CHAIRMANSHIP OF CHIEF SECRETARY VIDE WHIC H AN INTER CORPORATE TRANSFER/LOAN OF RS.67.00 CRORE TO H.R.T.C. ON BEHALF OF STATE GOVT. WAS APPROVED WITH THE FOLLOWING CONDITIONS:- AN INTER CORPORATE TRANSFER/LOAN OF RS.67.00 CRORE FROM IDB TO H.R.T.C. ON BEHALF OF THE STATE GOVT. HAS BEEN APPROVED. THE LOAN WILL BE REPAID IN TEN YEARS BY THE H.R.T.C. REGULARLY WITH NO MORATORIUM. THE INTEREST ON THIS LOAN FOR THE FIRST THREE YEARS WILL BE PAID BY STATE GOVT. AND THEREAFTER BY H.R.T.C. REGULARLY. 7 YOUR ARE REQUESTED TO TAKE NECESSARY ACTION IN THIS BEHALF UNDER INTIMATION TO THIS OFFICE. 13. THE ASSESSEE ENTERED INTO AN INTER CORPORATE LO AN/TRANSFER AGREEMENT DATED 9.12.2005 WITH HRTC UNDER WHICH IT IS STIPULATED THAT ON THE RECOMMENDATION OF FINANCE DEPTT. TO THE GOVT . OF H.P. VIDE LETTER DATED 30.11.2005, A LOAN OF RS.67 CR. HAD BEEN GRAN TED BY THE ASSESSEE TO HRTC TO ENABLE IT TO DISCHARGE THE GPF LIABILITI ES THE SAID LOAN WAS TO BEAR INTEREST @ 8% P.A. VIDE CLAUSE 2 OF THE AG REEMENT, THE SAID INTEREST IS TO SERVICED BY THE FINANCE DEPARTMENT F OR A PERIOD OF 3 YEARS AND THEREAFTER BY HRTC. THE SAID LOAN WAS TO BE RE PAID IN 10 YEARS IN 40 QUARTERLY INSTALLMENTS. THE COPY OF THE AGREEME NT IS PLACED AT PAGES 22 TO 26 OF THE PAPER BOOK. THE ASSESSEE DID NOT P ROVIDE INTEREST ON THE SAID LOAN IN ITS ACCOUNTS FOR THE YEAR UNDER CONSID ERATION. THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSER VED THAT LOAN OF RS.67 CR. WAS ADVANCED VIDE LETTER DATED 30.11.2005 AND AS PER THE SAME, THE INTEREST FOR THE FIRST THREE YEARS IS TO BE PAID BY STATE GOVT. AND THEREAFTER BY THE HRTC. THE A.O. HELD THAT AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, INTEREST ON SAID ADVANCE HAVING ACCRUED IS TO BE ASSESSED AS INCOME OF THE A SSESSEE. 14. THE QUESTION WHICH ARISES BEFORE US IS WHETHER SUCH INTEREST IS INCLUDIBLE IN THE HANDS OF ASSESSEE. ADMITTEDLY, T HE LOAN WAS ADVANCED AT THE BEHEST OF STATE GOVT. AND UNDER THE SANCTION LETTER IT IS STIPULATED THAT FOR THE FIRST THREE YEARS THE INTEREST ON SAID LOAN IS TO BE PAID BY STATE GOVT. THE LOAN WAS ADVANCED BY THE ASSESSEE- BOARD, WHICH IS ACTING AS A SPECIAL PURPOSE VEHICLE ON BEHALF OF ST ATE GOVT. AND IS TO DISCHARGE OBLIGATION ON BEHALF OF THE STATE GOVT. FURTHER INCOME ARISING AFTER MEETING EXPENDITURE IS OF THE STATE G OVT. AND WHERE EXPENDITURE IS IN EXCESS OF THE RECEIPTS, THEN SUCH EXPENDITURE IS TO BE 8 REIMBURSED BY THE ASSESSEE-BOARD. THE ASSESSEE-BOAR D IS CONSTITUTED BY THE REPRESENTATIVES OF GOVT. OF H.P. THE AFORESAID LOAN OF RS.67 CR. WAS ADVANCED TO HRTC ON THE DIRECTIONS OF STATE GOVT. V IDE LETTER DATED 30.11.2005, WHICH IN ITS BOARD MEETING DATED 16.11. 2005 HAD DIRECTED THE ASSESSEE TO DISBURSE RS.67 CR. TO HRTC ON BEHAL F OF STATE GOVT. THE SAID LOAN WAS FOR A PERIOD OF 10 YEARS AND THE INTE REST FOR THE PERIOD OF FIRST 3 YEARS WAS TO BE PAID BY STATE GOVT. WE FI ND MERIT IN THE CLAIM OF THE ASSESSEE THAT THE SAID INTEREST, IF ANY, ACC RUED TO THE STATE GOVT. AS THE INCOME OF THE ASSESSEE-BOARD AFTER EXPENDITU RE WAS THE INCOME OF THE STATE GOVT. AND WHERE THE SAME IS TO BE RECEIVE D BY STATE GOVT. AND ALSO PAID BY STATE GOVT., NO SUCH INTEREST ACCRUES OR IS TO BE ACCOUNTED FOR BY THE ASSESSEE-BOARD. HENCE, NO SUCH INTEREST IS ASSESSABLE IN THE HANDS OF ASSESSEE. WE ARE ALSO IN AGREEMENT WITH T HE ALTERNATE PLEA OF THE ASSESSEE THAT EVEN IF SUCH INCOME IS INCLUDED I N THE HANDS OF ASSESSEE, THE SAME SHALL AT BEST REDUCE THE EXPENDI TURE OVER RECEIPTS FOR THE YEAR UNDER APPEAL AND NO SEPARATE ADDITION IS M ERITED ON THIS ACCOUNT. ONE VIEW IS FURTHER SUPPORTED FROM THE B OARD RESOLUTION OF THE 97 TH BOARD MEETING HELD ON 15/03/2010 IN WHICH IT HAS B EEN RESOLVED AS UNDER : BOARD DISCUSSED THE PROPOSAL RECEIVED FROM THE PRINCIPAL SECRETARY (TRANSPORT) TO THE GT. OF H.P. AND APPROVED THE RE-SCHEDULING OF THE INTER CORPORATE TRANSFER/LOAN TO HRTC FROM 7 YEARS TO 10 YEARS, THE PRINCIPAL AMOUNT SHALL BE RE-PAID IN 10 EQUAL YEARL Y INSTALLMENTS COMMENCING FROM THE FINANCIAL YEAR 201 0-11. SINCE THE INTER CORPORATE TRANSFER/LOAN HAS BEEN GI VEN ON BEHALF OF THE STATE GOVERNMENT., THE INTEREST ON THIS SHALL BE BORNE BY THE STATE GOVERNMENT. HOWEVER TH E HRTC WILL PAY THE INTEREST ON THIS LOAN TO THE STAT E GOVERNMENT DIRECTLY. 9 15. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES, WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS.5,36,00,000/-. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF MARCH, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH MARCH, 2011 RATI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 10