Bharath Coal Chemicals Limited, CHENNAI V. ITO, CHENNAI

ITA 1518/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7986 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-11-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 27-05-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYA PAL
• Assessee Lawyers: R SIVARAMAN
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , # $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1518/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S. BHARATH COAL CHEMICALS LIMITED, I FLOOR SIGAPPI AACHI BUILDING, NO. 18/3 RUKMANI LAKSHMIPATHI SALAI, EGMORE, CHENNAI - 600 008. [PAN: AACCH 2455F] VS. INCOME TAX OFFICER, CORPORATE WARD 1(2), CHENNAI. ( / APPELLANT) ( / RESPONDENT) & ' / APPELLANT BY : SHRI R. SIVARAMAN, ADVOCATE *+& ' / RESPONDENT BY : MR. SUPRIYA PAL, JCIT ' /DATE OF HEARING : 10.11.2016 ' /DATE OF PRONOUNCEMENT : 03.02.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS) - CHENNAI, IN ITA NO. 262/CIT( A)-1/14-15, DATED 29.04.2016 PASSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT. :-2-: I.T.A. NO. 1518/MDS/2016 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE CIT(A) ERRED IN CONFIRMING THE ASSESSMENT O F THE BANK INTEREST OF RS. 1,14,45,691/- UNDER THE HEAD 'INCOME FROM OTHER SO URCES.' 2.2 THE CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT THE BANK DEPOSIT HAD TO BE MADE TO GIVE BANK GUARANTEE IN CONNECTION WITH IMP ORT OF CAPITAL GOODS REQUIRED FOR THE PURPOSE AND THE INTEREST EARNED H AS INTRINSIC AND INSEGREGABLE NEXUS WITH THE BUSINESS OF THE APPELL ANT AND THEREFORE THE INTEREST EARNED CANNOT BE ASSESSED UNDER 'INCOME F ROM OTHER SOURCES.' 2.3 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT IN TH E APPELLANT'S CASE, THE BANK INTEREST IS NOT ASSESSABLE UNDER INCOME FROM OTHER SOURCES, IN LIGHT OF THE FOLLOWING JUDGEMENTS: I) CIT VS JAYPEE DSC VENTURES LIMITED (204 ITR 169 ) DATED 11.03.2011, DELHI HC. II) PR. CIT VS. FACOR POWER LTD (380 ITR 474) DELH I HC. III) CIT VS. BOKARO STEEL LTD. (102 TAXMANN 94) SC . 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE CO MPANY IS IN THE BUSINESS OF COAL GASIFICATION PLANT AND FILED ITS RETURN OF INC OME FOR THE ASSESSMENT YEAR 2012- 13 ON 10.08.2012 DECLARING NIL INCOME. SUBSEQUENTL Y, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) WAS ISSUED. IN COM PLIANCE TO THE NOTICE, THE LD. AR APPEARED FROM TIME TO TIME AND FILED THE DETAILS. THE LD. AO ON PERUSAL OF FINANCIAL STATEMENTS FOUND THAT THE ASSESSEE COMPANY HAS PROP OSED TO SET UP A COAL GASIFICATION BASED AMMONIA AREA COMPLEX IN ODHISA A ND THE PROJECT HAS TO BE EXECUTED OVER A PERIOD OF 36 MONTHS ON THE ALLOCATE D LAND. FURTHER THE WORK IN :-3-: I.T.A. NO. 1518/MDS/2016 PROGRESS IS IN THE PRELIMINARY STAGES AND YET TO CO MMENCE ITS COMMERCIAL OPERATIONS IN THE SAID FINANCIAL YEAR. THE ASSESSEE COMPANY H AS EARNED INTEREST OF RS. 1,14,45,691/- AND SINCE THE ASSESSEE HAS NOT COMMEN CED BUSINESS INTEREST INCOME WAS SET OFF AGAINST PRE-OPERATIVE EXPENSES AND ALSO FILED LETTER EXPLAINING THAT THE ASSESSEE HAS MADE FIXED DEPOSITS WITH AXIS BANK TO GIVE BANK GUARANTEES IN CONNECTION WITH IMPORT OF CAPITAL GOODS REQUIRED FO R PROJECT, AND THE INTEREST EARNED HAS INTRINSIC AND INSEGREGABLE NEXUS WITH THE BUSIN ESS OF THE ASSESSEE. THE LD. AR FURTHER EMPHASIZED ON THE ESTABLISHING COAL GASIFIC ATION AT HALDIZA AND THE LAND WAS ALLOTTED BY THE GOVERNMENT OF WEST BENGAL IN DECEMB ER, 2009 FOR SETTING OF FACTORY AND THE COMPANY OBTAINS EPCG LICENSE UNDER ZERO DUT Y EPCG SCHEME AND THE CAPITAL GOODS ARE REQUIRED FOR THE PROJECT. DURING THE PERIOD SEPTEMBER, 2011 THE CAPITAL GOODS WERE IMPORTED UNDER THE EPCG SCHEME A ND ALSO EXECUTED EPCG BONDS AND PROVIDED FOUR BANK GUARANTEES WHICH WERE SUBMIT TED TO THE CUSTOM AUTHORITIES. THESE FIXED DEPOSITS ARE AGGREGATE TO RS. 15,84,20, 486/- AND INTEREST ACCURED ON THE FIXED DEPOSITS WAS RS. 1,14,45,691/-. THE ASSE SSEE'S COMPANY CONTENTION WAS THAT THE INTEREST RECEIVED ON FDR ARE NOT OUT OF SU RPLUS FUNDS AND SUCH DEPOSITS ARE GIVEN AS BANK GUARANTEE FOR IMPORT OF CAPITAL GOODS REQUIRED FOR THE PROJECT. AND THESE FIXED DEPOSITS HAVE INTRINSIC AND INSEGREGABL E NEXUS WITH THE BUSINESS OF THE ASSESSEE AND THE INTEREST EARNED IS IN THE NATURE O F CAPITAL RECEIPT AND SET OFF AGAINST THE PRE-OPERATIVE EXPENSES (CAPITALISED) AN D SUPPORTED WITH THE JUDICIAL DECISIONS. WHEREAS LD. AO CONSIDERED THESE FACTS S UBMITTED AND DISCUSSED AT PAGE 3 TO 5 OF HIS ORDER AND IS OF THE UNILATERAL OPINIO N THAT INTEREST EARNED DURING THE PRE-COMMENCEMENT PERIOD HAS TO OFFERED AS INCOME FR OM OTHER SOURCES AND DISTINGUISH JUDICIAL DECISIONS AND TREATED INTEREST ON FIXED DEPOSITS AS INCOME FROM :-4-: I.T.A. NO. 1518/MDS/2016 OTHER SOURCES AND PASSED ORDER U/S. 143(3) OF THE A CT DATED 21.07.2015 DETERMINING TOTAL INCOME OF RS. 1,14,45,691/-. 4. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR ARGUED THAT THE A SSESSING OFFICER HAS ERRED IN TREATING INTEREST ON FIXED DEPOSIT AS INCOME FROM O THER SOURCES WITHOUT APPRECIATING THAT THESE FIXED DEPOSITS ARE PROVIDED AS BANK GUAR ANTEES IN CONNECTION WITH IMPORT OF CAPITAL GOODS REQUIRED FOR THE PROJECT, FURTHER THE LD. AO ERRED IN REJECTING SET OFF INTEREST INCOME AGAINST THE PRE-OPERATIVE EXPENSES. THE LD. CIT(A) CONSIDERED THE FINDINGS AND ASSESSEE SUBMISSIONS AND THE JUDICIAL DECISIONS AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND DISMISSED THE A PPEAL. 5. AGGRIEVED BY THE CIT(A) ORDER, ASSESSEE FILED BE FORE THE TRIBUNAL AND BEFORE US THE LD. AR REITERATED THE SUBMISSIONS MADE BEFOR E THE ASSESSING OFFICER AND THE APPELLATE AUTHORITIES AND FURTHER SUBMITTED THAT TH E LD. CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF ASSESSING OFFICER ON INTERE ST ON FIXED DEPOSITS SUBMITTED FOR THE PURPOSE OF BANK GUARANTEE AS INCOME FROM OTHER SOURCES AND LD. CIT(A) OVERLOOKED REASONS AND THE BASIC NECESSITY OF 100% BANK GUARANTEE REQUIRED IN IMPORTING CAPITAL GOODS AND RELIED ON THE JUDICIAL DECISIONS AND EMPHASIZED THAT THE INTEREST INCOME HAS NEXUS WITH THE PROJECT AND IN T HE NATURE OF CAPITAL RECEIPT AND HAS TO BE SET OFF AGAINST THE PROJECT COST AND PRAY ED FOR ALLOWING THE APPEAL. CONTRA, THE LD. DR RELIED ON THE ORDERS OF THE CIT( A). :-5-: I.T.A. NO. 1518/MDS/2016 6. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. THE SOLE CRUX OF THE DISPUTED ISSUE THA T THE INTEREST ON BANK FIXED DEPOSITS PROVIDED AS BANK GUARANTEE ON EPGS SCHEME FOR THE PURPOSE OF IMPORT OF CAPITAL GOODS. THE ASSESSEE COMPANY HAS TREATED IN TEREST EARNED ON FIXED DEPOSITS AS SET OFF AGAINST THE PROJECT COST AS INTRINSIC AN D INSEGREGABLE NEXUS WITH BUSINESS OPERATIONS. WHEREAS, THE ASSESSING OFFICER IS OF T HE OPINION THAT THE ASSESSEE HAS NOT COMMENCED BUSINESS OPERATIONS, THEREFORE, SAME HAS TO BE HELD AS INCOME FROM OTHER SOURCES. THE LD. AR SUBSTANTIATED HIS ARGUME NTS WITH THE DECISIONS OF APEX COURT AND FILED THE PAPER BOOK CONSISTING OF FINANC IAL STATEMENTS AND SUPPORTING BANK STATEMENTS, COPY OF BANK GUARANTEE. THE LD. D R ARGUED THAT THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS AND THEREFORE SAME HAS T O BE TREATED AS INCOME FROM OTHER SOURCES. THE LD. AR DREW ATTENTION TO THE FI NANCIAL STATEMENTS, IN RESPECT OF PLANT AND MACHINERY, CAPITAL WORK IN PROGRESS AND O THER ASSETS, WHERE ADDITION MADE TO THE VALUE OF ASSETS AS ON 01.04.2011. THE FACT THAT THE ASSESSEE COMPANY MADE INVESTMENTS IN THE FINANCIAL YEAR BEING THE FI RST YEAR AND ALSO CLAIMED SET OFF OF INTEREST. FURTHER, THE LD. AR DREW OUR ATTENTIO N TO THE LETTER ADDRESSED BY THE BANK FOR SANCTIONING THE CREDIT FACILITIES AND TO P ROVE THAT THE ASSESSEE IS IN THE INITIAL STAGE OF BUSINESS THOUGH THE ACTUAL COMMERC IAL PRODUCTION WAS NOT COMMENCED AND THE STEPS WERE TAKEN BY THE ASSESSEE COMPANY TO COMPLETE PROJECT AS PER THE TERMS AND CONDITIONS WITH THE GOVERNMENT . WE FOUND THE ASSESSEE SUBMITTED THE BANK GUARANTEE SOLELY FOR THE PURPOSE OF IMPORT OF CAPITAL GOODS AND RECEIVED INTEREST ON FIXED DEPOSITS WHICH WAS SET O FF WITH THE PROJECT COST. THE LD. AR RELIED ON THE DECISION OF CIT(A) VS. JAYPEE DSC VENTURES LTD., (2012) 335 ITR 132 (DELHI) ALSO APEX COURT DECISION CIT(A) VS BOKA RO STEEL LTD., (1999) 236 ITR :-6-: I.T.A. NO. 1518/MDS/2016 315(SC) AND ALSO RELIED ON THE DECISION OF DELHI HI GH COURT IN THE CASE OF PR. CIT VS FACOR POWER LTD., 380 ITR 474 (DEL), IT WAS HELD TH AT WHERE ASSESSEE IS ENGAGED IN GENERATING ELECTRIC POWER, KEPT MARGIN MONEY IN THE FORM OF FIXED DEPOSITS FOR PROCUREMENT OF VARIOUS CAPITAL GOODS FOR SETTING UP THE POWER PROJECT, INTEREST EARNED ON FIXED DEPOSITS WOULD BE IN NATURE OF CAPI TAL RECEIPT, NOT LIABLE TO TAX. THE ASSESSEE COMPANY HAD MADE FIXED DEPOSITS TO PROCURE CAPITAL GOODS FOR PROJECT AS PER TERMS OF EPCG SCHEME. WE RELY ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. INDIAN POWER PROJECTS LTD., VS DCI T IN ITA NO. 543 OF 2007 DATED 27.04.2015, WHERE HON'BLE HIGH COURT HAS CONSIDERED THE DECISION OF THE SUPREME COURT AND OTHER JUDICIAL DECISIONS AND HELD THAT : ' 9. A READING OF THE ORDER OF THE CIT(A) AS ALSO T HE TRIBUNAL WOULD REVEAL THAT THE CIT(A) HAS RELIED ON THE DECISION O F THE SUPREME COURT IN BOKARO STEEL CASE (SUPRA), MORE PARTICULARLY, PARA- 6, WHICH HAS BEEN EXTRACTED ABOVE, TO COME TO THE CONCLUSION THAT IN THE CASE OF HAND, THE RECEIPT BY WAY OF SALE OF TENDER DOCUMENTS, EVEN AT THE PRE-COMMENCEMENT STAGE IS INEXTRICABLY LINKED TO THE PROCESS OF SETT ING UP OF BUSINESS AND, IT THEREFORE, CAPITAL IN NATURE. SIMILAR WAS THE VIEW OF THE DELHI HIGH COURT IN THE CASE OF INDIAN DRUGS & PHARMACEUTICALS (SUPRA), WHICH VIEW HAS BEEN ENDORSED BY THE SUPREME COURT. 10. HOWEVER, A READING OF THE ORDER OF THE TRIBUNA L WOULD REVEAL THAT THERE CAN BE NO IOTA OF DOUBT THAT THE TRIBUNA L FAILED TO APPRECIATE THE FINDING OF THE DELHI HIGH COURT, IN SIMILAR SET OF FACTS, WHICH WAS ULTIMATELY ENDORSED BY THE SUPREME COURT THAT THE RECEIPTS WHI CH ARE INEXTRICABLY LINKED TO THE PROCESS OF SETTING UP OF BUSINESS COULD NOT BE CONSTRUCTED IN ANY OTHER MANNER OTHER THAN IN THE NATURE OF CAPITAL RECEIPTS . ' :-7-: I.T.A. NO. 1518/MDS/2016 7. CONSIDERING THE APPARENT FACTS, MATERIAL ON RECO RD AND JUDICIAL DECISIONS, WE ARE OF THE OPINION THAT THE INTEREST ON FIXED DEPOS ITS IN PROVIDING BANK GUARANTEE UNDER EPCG SCHEME IS IN THE NATURE OF CAPITAL RECEI PT AND TO BE SET OFF AGAINST PROJECT COST AND ACCORDINGLY WE DIRECT THE ASSESSIN G OFFICER TO DELETE THE ADDITION AND ALLOW THE GROUND OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 03RD DAY OF FEBRUAR Y, 2017 AT CHENNAI. SD/ - ( . ) ( A. MOHAN ALANKAMONY ) # / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) ) # /JUDICIAL MEMBER /CHENNAI, 1 /DATED: 03RD FEBRUARY, 2017 JPV ' *#34 54 /COPY TO: 1. &/ APPELLANT 2. *+& /RESPONDENT 3. 6 ( )/CIT(A) 4. 6 /CIT 5. 4 *## /DR 6. : /GF