EURO ENERGY SYSSTEMS LTD, MUMBAI V. ITO 10(2)(3), MUMBAI

ITA 1607/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9377 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Business income; Depreciation
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , . , . . , ! ' BEFORE SHRI B.R. MITTAL JUDICIAL MEMBER AND SHRI P.M. JAGTAP ACCOUNTANT MEMBER ./I.T.A. NO.1607/MUM/2010 ( # # # # $ $ $ $ / ASSESSMENT YEAR :2006-2007 M/S. EURO ENERGY SYSTEMS LTD., 44A, NAVKETAN INDL. ESTATE, OPP. ONIDA CORPORATE BLDG., MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 # # # # / VS. THE ITO,10(2)(3) MUMBAI % ! ./ & ./PAN/GIR NO. :AABCE3860C ( %' /APPELLANT ) .. ( ()%' / RESPONDENT ) %' * / APPELLANT BY: SHRI SANJAY R. PARIKH ()%' + * / RESPONDENT BY : SHRI A.B. KOLI # + ,! / DATE OF HEARING : 07.11.2012 -.$ + ,! / DATE OF PRONOUNCEMENT : 21.11.2012 / / O R D E R PER P.M. JAGTAP, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)-21, MUMBAI DT.01.01.2010. 2. GROUND NO. 1 & 2 OF THIS APPEAL INVOLVE A COMMON ISSUE RELATING TO TAXABILITY OF INTEREST INCOME EARNED BY THE ASSESSE E ON FIXED DEPOSITS KEPT WITH BANK. ITA NO.1607/M/2010 2 3. THE ASSESSEE IS IN THE PRESENT CASE IS A COMPANY WHICH WAS IN THE BUSINESS OF SETTING UP OF FACILITY FOR MANUFACTURIN G DRY CELL BATTERY PRODUCTS DURING THE YEAR UNDER CONSIDERATION. THERE WAS NO B USINESS MANUFACTURING ACTIVITY THAT HAD TAKEN PLACE. THE RETURN OF INCOM E WAS FILED BY THE ASSESSEE ON 23.11.2006 DECLARING A LOSS OF RS. 21,302/-. IN THE SAID RETURN, INTEREST INCOME OF RS. 10,60,463/- RECEIVED ON BANK DEPOSITS WAS SHOWN BY THE ASSESSEE COMPANY AS ITS BUSINESS INCOME AND AFTER C LAIMING THE EXPENSES, NET LOSS WAS DECLARED. ACCORDING TO THE ASSESSING OFFICER, THE SAID INTEREST INCOME EARNED BY THE ASSESSEE ON THE INVESTMENT MAD E OUT OF SHORT TERM FUNDS BORROWED FOR SETTING UP THE FACTORY DURING TH E CONSTRUCTION PERIOD BEFORE THE COMMENCEMENT OF BUSINESS WAS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIS CHEMICALS LTD. VS CIT 22 7 ITR 172. ACCORDINGLY, HE BROUGHT INTEREST INCOME OF RS. 10,60,463/- TO TAX I N THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE ASSESSMENT COMPLETED U/S. 143(3) VIDE ORDER DT. 20.11.2008. 4. AGAINST THE ORDER PASSED BY THE AO U/S. 143(3) OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) . IT WAS SUBMITTED BEFORE THE LD. CIT(A) ON BEHALF OF THE ASSESSEE THA T THE RELEVANT INTEREST INCOME WAS EARNED ON THE FIXED DEPOSITS KEPT WITH BANK AS MARGIN MONEY. IT WAS CONTENDED THAT THERE WAS THUS NO CASE OF INVE STMENT OF SURPLUS FUNDS TEMPORARILY WITH BANK TO EARN INTEREST INCOME AND T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIS CHE MICALS LTD. (SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE CASE. IT WAS CONTEND ED THAT THE FACTS OF THE ASSESSEES CASE WERE MORE SIMILAR TO THE CASE OF CI T VS BOKARO STEEL LTD. 236 ITR 315 WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE HONBLE SUPREME COURT IN FAVOUR OF THE ASSESSEE. RELYING ON THE SAID DEC ISION OF HONBLE SUPREME COURT, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE B EFORE THE LD. CIT(A) THAT THE INTEREST INCOME SHOULD BE CAPITALIZED BY REDUCI NG THE SAME FROM PRE- OPERATIVE EXPENSES. THIS CONTENTION OF THE ASSESSE E WAS NOT ACCEPTED BY THE LD. CIT(A) ON THE GROUND THAT THE ASSESSEE COMPANY ITSELF HAD NOT CAPITALIZED ITA NO.1607/M/2010 3 THE AMOUNT OF INTEREST INCOME BY REDUCING THE SAME FROM THE PRE-OPERATIVE EXPENSES AND REJECTING THE SAME, HE UPHELD THE ACTI ON OF THE AO IN BRINGING TO TAX THE INTEREST INCOME IN THE HANDS OF THE ASSE SSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RECORD. AS RIGHTLY CONTENDED BY THE LD . COUNSEL FOR THE ASSESSEE, IF THE RELEVANT INTEREST INCOME WAS EARNE D BY THE ASSESSEE FROM THE INVESTMENTS MADE IN BANK DEPOSITS FOR THE PURPO SE OF BUSINESS SUCH AS KEEPING THE SAME AS MARGIN MONEY FOR GETTING LETTER OF CREDIT AND BANK GUARANTEE IN CONNECTION WITH PURCHASE OF CAPITAL EQ UIPMENT, THE SAID INCOME EARNED DURING THE PRE-OPERATIVE PERIOD HAS TO BE CA PITALIZED BY REDUCING THE SAME FROM PRE-OPERATIVE EXPENSES AS HELD BY THE SUP REME COURT IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND ALSO IN THE CASE O F KARNAL CO-OPERATIVE SUGAR MILLS 161 CTR 241 (SC). HOWEVER, THIS ASPECT REQUI RES VERIFICATION AS NEITHER THE AO NOR THE LD. CIT(A) HAS GIVEN ANY SPECIFIC FI NDING ON THIS ISSUE. ALTHOUGH A SPECIFIC CONTENTION TO THIS EFFECT WAS R AISED BY THE ASSESSEE BEFORE THE LD. CIT(A), THE LATER DID NOT ENTERTAIN THE SAM E OBSERVING THAT THE ASSESSEE COMPANY HAD NOT CAPITALIZED THE INTEREST I NCOME IN ITS BOOKS OF ACCOUNT BY REDUCING THE SAME FROM THE PRE-OPERATIVE EXPENSES. IT IS WELL SETTLED THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NO T CONCLUSIVE IN THIS REGARD AND WHAT IS TO BE SEEN IS THE EXACT NATURE OF RECEI PT. WE THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) AND RESTORE TH IS MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH AFTER VERIFYING THE STAND OF THE ASSESSEE FROM THE RELEVANT RECORD KEEPING IN VIEW T HE DECISIONS OF THE HONBLE SUPREME COURT REFERRED TO ABOVE. GROUND N O. 1 & 2 OF THE ASSESSEES APPEAL ARE TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. 6. GROUND NO. 3 RAISED BY THE ASSESSEE IN THIS APPE AL RELATING TO THE ISSUE OF DISALLOWANCE OF DEPRECIATION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) HAS NOT BEEN PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISM ISSED AS NOT PRESSED. ITA NO.1607/M/2010 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREA TED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. . 0 1 #0 + 2 3+ 45 6 / 7 + 89 ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2012 . / + .$ ! 2 :#1 21.11.2012 . + SD/- SD/- (B.R. MITTAL) (P.M. JAGTAP) / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER MUMBAI; :# DATED 21.11.2012 . # . ./ RJ , SR. PS / / / / + ++ + (; (; (; (; < ;$ < ;$ < ;$ < ;$ / COPY OF THE ORDER FORWARDED TO : 1. %' / THE APPELLANT 2. ()%' / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. ;> (# , , / DR, ITAT, MUMBAI 6. ? @ / GUARD FILE. /# /# /# /# / BY ORDER, ); ( //TRUE COPY// 4 44 4 / 8 8 8 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI