Lanco Kondapalli Power Pvt.Ltd, Hyderabad V. DCIT, Hyderabad

ITA 1615/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66196 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Business expenditure; Period of limitation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1615/HYD/2010 ASSESSMENT YEAR 2007-08 M/S. LANCO KONDAPALLI POWER PVT. LTD., HYDERABAD PAN: AAACK5423A VS. DY. CIT CIRCLE-16(1) HYDERABAD APPELLANT RESPONDENT I.T.A. NO. 1659/HYD/2010 ASSESSMENT YEAR 2007-08 DY. CIT CIRCLE-16(1) HYDERABAD VS. M/S. LANCO KONDAPALLI POWER PVT. LTD., HYDERABAD PAN: AAACK5423A APPELLANT RESPONDENT ASSESSEE BY: SRI S. RAMA RAO REVENUE BY: SMT. ALKA R. JAIN DATE OF HEARING: 26 .07.2012 DATE OF PRONOUNCEMENT: 31.08.2012 O R D E R PER CHANDRA POOJARI, AM: THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 15.10.2010 FOR A.Y. 2007- 08. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS ERRONEOUS TO THE EXTENT THE SAID ORDER IS PREJUD ICIAL TO THE APPELLANT. 2. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE AMOUNT OF RS. 7,21,16,000 BILLED AGAINST AP TRANCO BEING THE ADVANCE TAX PAYABLE REPRESENTS THE INCOME ACCRUING TO THE A PPELLANT DURING THE PREVIOUS YEAR UNDER CONSIDERATION. 3. THE LEARNED CIT (APPEALS) OUGHT TO HAVE SEEN THE FA CT THAT THOUGH A BILL WAS RAISED BY THE APPELLANT AGAINST T HE AP TRANCO CLAIMING THE SAID AMOUNT TOWARDS ADVANCE TAX , AP I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 2 TRANCO DID NOT ACCEPT THE CLAIM AND THE AMOUNT WAS WRITTEN OFF DURING THE YEAR ITSELF. 4. THE LEARNED CIT (APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT AP TRANCO DID NOT APPOINT THE ARBITRATOR IN SP ITE OF THE REQUEST MADE BY THE APPELLANT HEREIN AND THE APPELL ANT HAD TO APPROACH THE HONOURABLE HIGH COURT OF ANDHRA PRADES H AND THE MATTER IS PENDING . 5. THE LEARNED CIT (APPEALS), IN THE CIRCUMSTANCES OF THE CASE, OUGHT TO HAVE HELD THAT THE SAID AMOUNT DID NOT ACC RUE TO THE APPELLANT DURING THE PREVIOUS YEAR AND IS NOT ASSES SABLE AS THE INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDER ATION. 6. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE PROFIT OF RS. 3,00,09,300 REPRESENTS INCOME FROM OTHER SOURCE S AND NOT THE INCOME FROM BUSINESS OF POWER GENERATION. THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT THE SAID INCO ME IS A PART OF BUSINESS INCOME DERIVED BY THE APPELLANT FROM TH E POWER GENERATION UNIT AND DIRECTED THAT THE CONSEQUENTIAL DEDUCTION BE ALLOWED. 3. THE REVENUE RAISED THE FOLLOWING GROUND: 1. THE CIT(A)-V IS NOT CORRECT IN HOLDING THAT REIMBUR SEMENT OF ADVANCE TAX PAYMENTS TO THE ASSESSEE FORM PART OF B USINESS INCOME, SINCE THE SUM REIMBURSED IS NOT DIRECTLY RE LATED TO THE GENERATION AND DISTRIBUTION OF POWER BUT IS A RESUL T OF AN AGREEMENT. THEREFORE, CIT(A)-V OUGHT TO HAVE CONSI DERED THE SUM REIMBURSED AS INCOME FROM OTHER SOURCES. 4. GROUND NOS. 1 TO 5 IN ASSESSEE'S APPEAL AND THE GRO UND RAISED BY THE REVENUE ARE INTERRELATED. HENCE WE T AKE UP THESE GROUNDS TOGETHER FOR ADJUDICATION. 5. THE FACTS ARE THAT THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE GENERATION OF POWER. IT HAS AN AGRE EMENT WITH M/S. AP TRANSCO, WHEREBY AS PER ARTICLES 3.8, 3.9 A ND 3.10 OF THE POWER PURCHASE AGREEMENT, M/S. AP TRANSCO IS TO PRO VIDE REIMBURSEMENT OF TAXES PAID BY THE ASSESSEE COMPANY . DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER INVES TIGATED THIS ISSUE AND FOUND THAT AS PER THE CLAUSES OF THE AFOR EMENTIONED I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 3 AGREEMENT, THE ASSESSEE HAD RAISED FOUR BILLS REGAR DING REIMBURSEMENT OF TAXES. DETAILS OF THESE CLAIMS AR E AS BELOW: BILL NO. BILL DATE NATURE OF BILL BILL AMOUNT (RS.) AT/21 24.05.2006 ADVANCE TAX 10,817,000 AT/22 14.08.2006 ADVANCE TAX 21,635,000 AT/23 15.11.2006 ADVANCE TAX 21,635,000 AT/24 15.02.2007 ADVANCE TAX 18,029,000 TOTAL 72,116,000 OBSERVING THAT THE ASSESSEE IS FOLLOWING THE MERCAN TILE SYSTEM OF ACCOUNTING, THE ASSESSING OFFICER ADDED THE AFORESA ID AMOUNT TO THE INCOME OF THE ASSESSEE. 6. ON APPEAL, THE CIT(A) CONFIRMED ORDER OF THE ASSESS ING OFFICER. AGAINST THIS THE ASSESSEE IS IN APPEAL BE FORE US. HOWEVER, HE HELD THAT REIMBURSEMENT OF ADVANCE TAX IS INCOME FROM BUSINESS INSTEAD OF INCOME FROM OTHER SOURCES. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS FAIRLY CONCEDED BY BOTH THE PARTI ES THAT THIS ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL DATED 18 TH MAY, 2012 IN ASSESSEES OWN CASE IN ITA NOS. 798/HYD/200 9, 1500/ HYD/2011, ITA NO. 767/HYD/09 AND 1435 TO 1438/HYD/ 2011 FOR A.YS. 2001-02, 2003-04 TO 2006-07 MORE SPECIFICALLY FOR A.Y. 2001-02 IN ITA NO. 767/HYD/09 (ASSESSEE'S APPEAL) A ND IN ITA NO. 798/HYD/2009 (REVENUE APPEAL) IN PARA 11 OF THE ORDER WHICH READS AS UNDER; 11. WE HEARD BOTH SIDES AND PERUSED THE MATERIAL ON RECORD. UNDISPUTED FACTS EMERGING FROM THE ORDERS OF THE CI T(A) AS WELL AS THE ASSESSING OFFICER ARE THAT THOUGH THE A SSESSING OFFICER HAS RAISED THE BILL ON APTRANSCO FOR ENERGY SUPPLIED BY IT AMOUNTING TO RS. 329,39,89,958 AFTER COMMENCE MENT OF COMBINED CYCLE COMMERCIAL OPERATION AND AN AMOUNT O F RS. I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 4 50,62,32,391 BEFORE COMMENCEMENT OF COMBINED CYCLE COMMERCIAL OPERATION, TOTAL AMOUNTING TO RS. 382,54 ,87,771, THE APTRANSCO HAS ADMITTED ONLY AN AMOUNT OF RS. 296,67,25,943. AS IS EVIDENT FROM THE ORDERS OF THE REVENUE AUTHORITIES, FOR THE DIFFERENTIAL AMOUNT, DISPUTE I S GOING ON BETWEEN PARTIES AT DIFFERENT LEVELS. ASSESSEE COMPA NY HAVING CLAIMED TO GET THE DISPUTED AMOUNT FROM APTRANSCO A ND HAS EVEN INVOKED THE ARBITRATION CLAUSE AND HAS MOVED A N ARBITRATION APPLICATION BEFORE THE HONBLE ANDHRA P RADESH HIGH COURT SEEKING APPOINTMENT OF AN ARBITRATOR, TH E WHOLE ISSUE IS IN A STAGE OF SUSPENDED ANIMATION. ADMITTE DLY, THE ASSESSEE COMPANY HAS NOT RECEIVED THE WHOLE AMOUNT AS RAISED IN THE BILLS ON APTRANSCO. WHATEVER AMOUNT HAS BEEN RECEIVED FROM APTRANSCO HAS BEEN SHOWN IN THE BOOKS OF ACCOUNT. WHEN THERE IS UNCERTAINTY OVER RECEIPT OF THE DISPUTED AMOUNT BY THE ASSESSEE COMPANY, UNTIL FINALISATION OF LITIGATION, IT CANNOT BE SAID THAT INCOME HAS ACCRUED OR CRYSTA LLIZED IN THE HANDS OF THE ASSESSEE JUST BECAUSE BILLS HAVE BEEN RAISED BY THE ASSESSEE. ACCOUNTING STANDARD NO. 9 ISSUED BY THE I CAI, DEALING WITH THE EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION, STATED AS FOLLOWS: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS MEASURABLE AND THAT AT THE TIME OF SALE OR THE RENDERING OF TH E SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLEC TION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, I NTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF U NCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO R ECOGNISE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAI NTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNISED AT THE T IME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 9.3 TO 9.4 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENUE OF TH E PERIOD IN WHICH IT IS PROPERLY RECOGNISED. ICAI, BEING A STATUTORY BODY, THE ACCOUNTING STANDA RD PRESCRIBED BY IT CANNOT BE BRUSHED ASIDE LIGHTLY. T HE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNT HAS RECOGNIZED WHAT EVER AMOUNT HAS BEEN RECEIVED FROM APTRANSCO AND HAS NOT I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 5 RECOGNISED THE DISPUTED AMOUNT, SINCE THE SAME IS S UBJECT MATTER OF LITIGATION. THE PROCEDURE ADOPTED BY THE ASSESSEE FOR RECOGNITION OF REVENUE IS IN CONFORMITY WITH THE AC COUNTING STANDARD 9, RELEVANT PORTION OF WHICH HAS BEEN EXTR ACTED ABOVE. WHAT THE INCOME-TAX AUTHORITIES ARE REQUIRED TO TAX IS THE REAL INCOME OF THE ASSESSEE, AND NOT ANY HYPOTH ETICAL INCOME OR ANY INCOME UNDER LITIGATION, THERE BEING NO CERTAINTY OF THE ASSESSEE RECEIVING SUCH INCOME UNTIL THE LIT IGATION REACHES FINALITY. THE HONBLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY COMPANY LTD V/S. CIT (225 ITR 74 6), VIDE HEAD NOTE ON PAGE 746, HAS HELD AS FOLLOWS- INCOME-TAX IS A LEVY ON INCOME. NO DOUBT, THE INCO ME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ. THE ACCRUAL OF THE INCOME OR ITS RECEIPT. BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOM E DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH I N BOOK- KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCO ME, WHICH DOES NOT MATERIALISE. THE HONBLE SUPREME COURT, AFTER ANALYZING ITS EARL IER DECISION, VERY SUCCINCTLY OBSERVED IN THE PENULTIMA TE PARA OF ITS DECISION, VIDE PAGE 760 OF THE REPORTS (225 ITR), I N THE FOLLOWING MANNER THE QUESTION WHETHER THERE WAS REAL ACCRUAL OF INC OME TO THE ASSESSEE COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY HAS TO BE CONSIDERED BY TAKING THE P ROBABILITY OR IMPROBABILITY OF REALISATION IN A REALISTIC MANNER. IF THE MATTER IS CONSIDERED IN THIS LIGHT, IT IS NOT POSSIBLE TO HOLD THAT THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY W HICH WERE ADDED BY THE INCOME-TAX OFFICER WHILE PASSING THE A SSESSMENT ORDERS IN RESPECT OF THE ASSESSMENT YEARS UNDER CON SIDERATION. THE APPELLATE ASSISTANT COMMISSIONER WAS RIGHT IN D ELETING THE SAID ADDITION MADE BY THE INCOME-TAX OFFICER AND TH E TRIBUNAL HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RA TES AS MADE BY THE ASSESSEE COMPANY ON THE BASIS OF WHICH NECESSAR Y ENTRIES WERE MADE REPRESENTED ONLY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BROUGHT TO TAX BY THE INCOME-TA X OFFICER DID NOT REPRESENT THE INCOME WHICH HAD REALLY ACCRU ED TO THE ASSESSEE COMPANY DURING THE RELEVANT PREVIOUS YEARS . THE HIGH COURT, IN OUR OPINION, WAS IN ERROR IN UPSETTING TH E SAID VIEW OF THE TRIBUNAL. THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH, VIDE ITS ORDER DATED 31.1.2011 IN THE CASE OF DCIT V/S. SRI BALAJI BIO- MASS POWER P. LTD. IN ITA NO. 1748/HYD/2008, HAS CO NSIDERED A SIMILAR ISSUE AND HELD IN THE FOLLOWING MANNER- I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 6 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE WITH REGARD TO THE MATERIAL FACTS OF THE CA SE. THE ONLY QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER T HE DIFFERENTIAL AMOUNT OF SALES , VIZ. WORKED OUT AT RS. 3.48/- PER UNIT AS PER THE POWER PURCHASE AGREEMENT APPLYING WHICH INVOICE S FOR SUPPLY OF POWER TO APTRANSCO WERE RAISED AND RS. 3. 18/- APPLYING WHICH IN TERMS OF THE INTERIM ORDERS OF TH E HONBLE A.P. HIGH COURT, INVOICES OF THE ASSESSEE WERE SETT LED BY THE APTRANSCO AND ACCOUNTED FOR BY THE ASSESSEE IN THE BOOKS OF ACCOUNT, CAN BE TREATED AS THE INCOME OF THE ASS ESSEE FOR THE ASSESSMENT YEAR 2005-06. WE FIND THAT THE CIT(A) HA S GIVEN ELABORATE REASONING BEFORE CONCLUDING THAT THE INCO ME WORKED AT THE RATE OF RS. 3.48/- PER UNIT OF POWER SUPPLIE D HAD NEITHER ACCRUED TO THE ASSESSEE NOR WAS RECEIVABLE DURING T HE PREVIOUS YEAR AND THEREFORE, NO CORRESPONDING DEBT IN RESPEC T OF THE DIFFERENTIAL AMOUNT STOOD CREATED IN THE BOOKS OF T HE PURCHASER, I.E. APTRANSCO. MERELY BASED ON THE INVOICES RAISED , INCOME CANNOT BE DEEMED TO ACCRUE TO THE ASSESSEE, WHEN THE DIFFERENTIAL INCOME WAS SUBJECT MATTER OF LITIGATIO N, AND THERE IS NO CERTAINTY OF THE ASSESSEE BEING ENTITLED TO SUCH INCOME, UNLESS IT SUCCEEDS IN SUCH LITIGATION. EVEN IF AN A SSESSEE SUCCEEDS ULTIMATELY IN THE LITIGATION, A DEBT ENFOR CEABLE AGAINST THE OTHER PARTY DOES NOT GET CREATED, UNLESS A CLAI M IN THAT BEHALF WAS RAISED BEFORE THE SAME BEING BARRED BY L IMITATION. IT IS FOR THIS REASON THAT AN ASSESSEE, TO KEEP THE IS SUE ALIVE, HAS TO RAISE THE CLAIM AGAINST THE OTHER PARTY WITHIN THE PERIOD OF LIMITATION, WHICH IN ITS VIEW IS DUE TO IT ACCORDIN G TO THE TERMS OF THE CONTRACT, SO AS TO GET AN ENFORCEABLE RIGHT FOR THE RECOVERY OF THE AMOUNT AS AND WHEN IT SUCCEEDS IN T HE LITIGATION. IN THIS VIEW OF THE MATTER, THOUGH INVO ICES RAISED CONSTITUTE FUNDAMENTAL RECORD FOR MAINTENANCE OF AC COUNTS IN THE NORMAL COURSE, AS OBSERVED BY THE ASSESSING OFF ICER, THAT LOGIC DOES NOT HOLD GOOD WHEN THE SUBJECT MATTER WA S UNDER DISPUTE AND WAS UNDER LITIGATION BEFORE THE JUDICIA L FORA, INCLUDING THE JURISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT DURING THE RELEVANT POINTS OF TIME. ASSESSEE S METHOD OF ACCOUNTING ONLY THE AMOUNT WHICH WAS NOT SUBJECT MA TTER OF LITIGATION AND WHICH IN FACT WAS RECEIVED BY IT FRO M THE APTRANSCO IN TERMS OF THE INTERIM ORDER OF THE A.P. HIGH COURT, WAS IN CONFORMITY WITH THE ACCOUNTING STANDA RD 9 AND THE RATIO LAID DOWN BY THE APEX COURT, AMONG OTHERS , IN THE CASE LAW DISCUSSED BY THE CIT (A) IN THE IMPUGNED O RDER, AND ALSO IN THE CASE-LAW RELIED UPON BY THE ASSESSEE BE FORE US. IN THIS VIEW OF THE MATTER, WE FIND NO INFIRMITY IN TH E ORDER OF THE CIT (A), WHICH IS ACCORDINGLY CONFIRMED AND THE GRO UNDS OF APPEAL OF THE REVENUE ARE REJECTED.. I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 7 CONSIDERED IN THE LIGHT OF THE AFORESAID PRINCIPLE OF LAW, IT CANNOT BE SAID THAT THE AMOUNT DISPUTED BY APTRANSC O HAS REALLY ACCRUED TO THE ASSESSEE COMPANY IN THE ASSES SMENT YEAR UNDER DISPUTE. ONLY BECAUSE, THE ASSESSEE COMPANY H AS RAISED THE BILL FOR THE SAID AMOUNT AS PER THE POWER PURCH ASE AGREEMENT. WE THEREFORE, HOLD THAT ADDITION OF RS. 84,06,80,727 CANNOT BE SUSTAINED. WE ACCORDINGLY DE LETE THE SAME. HOWEVER, WE MAKE IT CLEAR THAT THE SAID AMOUN T WILL BE TAXABLE IN THE HANDS OF THE ASSESSEE IN THE YEAR IN WHICH IT IS ACTUALLY RECEIVED. ASSESSEES GROUNDS ON THIS ISSUE ARE ALLOWED, AND THE SAME OF THE REVENUE ARE DISMISSED. 8. FURTHER THE SAME VIEW IS CONSIDERED FOR A.Y. 2003-0 4 IN ITA NO. 1435/HYD/11 IN PARA 24 WHICH READS AS FOLLO WS: '24. WE HEARD BOTH SIDES AND PERUSED THE MATERIAL O N RECORD. UNDISPUTED FACTS ARE THAT THOUGH THE ASSESSEE HAS R AISED THE BILLS FOR REIMBURSEMENT OF ADVANCE TAX PAID, APTRAN SCO HAS REFUSED TO PAY THE SAME, AND THE ASSESSEE IN ORDER TO RESOLVE THE DISPUTE HAS APPROACHED THE HONBLE HIGH COURT F OR APPOINTMENT OF AN ARBITRATOR. IN THESE FACTS OF THE CASE, THE ISSUE IN DISPUTE INVOLVED IN THIS GROUND OF THE ASS ESSEE IS AKIN TO THE ONE CONSIDERED BY US WHILE CONSIDERING THE C ROSS-APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001-02. HE NCE FOR THE DETAILED REASONS DISCUSSED IN PARA 11 HEREINABOVE, WHILE DEALING WITH THE CORRESPONDING ISSUE FOR THE ASSESS MENT YEAR 2001-02, WE FIND THAT THE ADDITION OF RS .5,87,99,0 00 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) C ANNOT BE SUSTAINED. WE ACCORDINGLY DELETE THE SAME.' 9. RESPECTFULLY FOLLOWING THE ABOVE RATIO LAID DOWN BY THE CO-ORDINATE BENCH, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 10. NOW, WE WILL CONSIDER THE SECOND ISSUE I.E., GROUND NO. 6 IN ASSESSEE'S APPEAL IS WITH REGARD TO THE CIT(A)'S OBSERVATIONS THAT THE PROFIT OF RS. 3,00,09,300 REPRESENTS INCOM E FROM OTHER SOURCES AND NOT FROM BUSINESS OF POWER GENERATION. BRIEF FACTS OF THE ISSUE ARE THAT THE COMPANY AVAILED FOREIGN CURR ENCY LOANS FOR SETTING UP OF A POWER PLANT AT LIBOR PLUS FIX RATE. IN ORDER TO HEDGE THE RISK ON ACCOUNT OF EXCHANGE RATE FLUCTUAT IONS, THE I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 8 COMPANY ENTERED INTO AN INTEREST RATE SWAP CONTRACT WITH STATE BANK OF INDIA, KOTI, HYDERABAD FIXING THE LIBOR RAT E. AS THE INTEREST RATES GREW DURING THE YEAR, THE ASSESSEE S OLD THE ABOVE CONTRACT AND MADE A PROFIT OF RS 3,00,09,300. THIS PROFIT WAS DISCLOSED AS INCOME FROM BUSINESS. THE ASSESSING O FFICER HELD THAT THE AFOREMENTIONED INCOME WAS TO BE ASSESSED A S INCOME FROM OTHER SOURCES. ON APPEAL, THE CIT(A) HELD THA T THE INCOME FROM EXCHANGE FLUCTUATIONS HAS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM BUSINESS. AGA INST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE ASSESSEE RELIED ON THE FOLLOWING JUDGEMENTS: A) CIT VS. RANE (MADRAS) LTD., 238 ITR 377 (MAD.) B) RAGHUNATH EXPORTS (P) LTD. VS. CIT, 330 ITR 57 (CAL .) C) CIT VS. GEM PLUS JEWELLERY INDIA LTD., 330 ITR 175 (BOM) D) SHAH ORIGINALS VS. ACIT (2007) 112 TTJ 754 (MUM.) E) CHANGEPOND TECHNOLOGIES (P) LTD. VS. ACIT 119 TTJ ( CHENNAI) F) DCIT & ORS. VS. EDS ELECTRONIC DATA SYSTEMS (I) (P) LTD.23 DTR 10 12. THE DR RELIED ON THE ORDER SHREE KRISHNA POLYESTER LTD. VS. DCIT, 274 ITR 21 AND THE ORDER OF CIT(A). 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE EARNED THIS INCOME BY HEDG ING THE RISK ON ACCOUNT OF EXCHANGE RATE FLUCTUATION RELATING TO INTEREST RATE PAYMENT ON FOREIGN LOANS. THIS INTEREST INCOME CAN NOT BE CONSIDERED AS DERIVED FROM BUSINESS ACTIVITY OF THE ASSESSEE. EVEN THE ASSESSEE NOT CARRIED ON THE BUSINESS OF PR ODUCTION OF ELECTRICITY, IT WOULD HAVE EARNED THIS INCOME. CAR RYING OUT OF BUSINESS ACTIVITY HAS NOTHING TO DO WITH EARNING OF THIS INCOME. THE CLAIM OF THE ASSESSEE IS THAT WHEN THE PAYMENT OF INTEREST IS BUSINESS EXPENDITURE, CORRESPONDINGLY SAVING OF INT EREST IS ALSO A BUSINESS INCOME. IN OUR OPINION, EARNING FROM BUSI NESS ACTIVITY I.T.A. NOS. 1615 & 1659/HYD/2010 M/S. LANCO KONDAPALLI POWER PVT. LTD. ============================= 9 IS INDEPENDENT FROM EARNING FROM SAVING ON ACCOUNT OF THIS KIND OF HEDGING. BEING SO, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE. ACCORDING LY, THIS GROUND OF THE ASSESSEE IS DISMISSED. THE ORDER OF THE CIT( A) IS CONFIRMED ON THIS COUNT. 14. IN THE RESULT, ASSESSEE'S APPEAL IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST AUGUST, 2012 TPRAO COPY FORWARDED TO: 1. M/S. LANCO KONDAPALLI POWER PVT. LTD., C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SRIYA'S ENCLAVE, 3-6-6 43, ST. NO. 9, HIMAYATHNAGAR, HYDERABAD-500 029. 2. THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 16(1), HYDERABAD. 3. THE CIT (A) - V , HYDERABAD. 4. THE C IT - IV , HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD