DCIT/ACIT, Circle - 3(2),Gangtok, Sikkim, Sikkim V. M/s. Sikkim Industrial Development & Investment Corporation, East Sikkim

ITA 1626/KOL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1091 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 11-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANKAR HALDER
• Assessee Lawyers: ARGHA KUMAR MITRA
• Section: 148

Judgement Text

ITA NO. 1626/KOL/2017 A.Y. 2011-2012 SIKKIM INDUSTRIAL DEVELOPME NT & INVESTMENT CORPORATION 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1626/KOL/2017 ASSESSMENT YEAR: 2011-2012 DEPUTY /ASSISTANT COMMISSIONER OF INCOME TAX,...... .....................APPELLANT CIRCLE-3(2), GANGTOK, SIKKIM, AAYAKAR BHAWAN, INCOME TAX OFFICE, BHANUPATH, NEAR WHITE MEMORIAL HALL, P.O. RAJ BHAWAN, GANGTOK-737 103, SIKKIM -VS.- SIKKIM INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORAT ION,..........RESPONDENT BHANUPATH, P.O. RAJ BHAWAN, GANGTOK, EAST SIKKIM-737 103 [PAN: AAMCS 4610 H] APPEARANCES BY: SHRI SANKAR HALDER, ADDL. CIT, SR. D.R. , FOR THE APPELLANT SHRI ARGHA KUMAR MITRA, FCA, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : NOVEMBER 28, 2018 DATE OF PRONOUNCING THE ORDER : NOVEMBER 30, 2018 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ):- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), SILIGURI DATE D 09.05.2017 AND THE SOLITARY ISSUE INVOLVED THEREIN RELATES TO THE DELE TION BY THE LD. CIT(APPEALS) OF THE DISALLOWANCE OF RS.1,74,16,977/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST. 2. THE ASSESSEE IN THE PRESENT CASE IS A GOVERNMENT OF SIKKIM UNDERTAKING INCORPORATED PRIMARILY TO CREATE INDUST RIAL DEVELOPMENT IN THE STATE OF SIKKIM AND ALSO TO PROVIDE FINANCIAL S UPPORT TO CREATE SUCH INDUSTRIAL DEVELOPMENT. SINCE THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS NOT FILED BY THE ASSESSEE, A NOTI CE UNDER SECTION 148 ITA NO. 1626/KOL/2017 A.Y. 2011-2012 SIKKIM INDUSTRIAL DEVELOPME NT & INVESTMENT CORPORATION 2 WAS ISSUED BY THE ASSESSING OFFICER ON 19.05.2015, IN RESPONSE TO WHICH THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 1 2.06.2015 DECLARING TOTAL INCOME OF RS.1,09,25,559/-. IN THE PROFIT & L OSS ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.27,14,80,961/- WA S DEBITED BY THE ASSESSEE ON ACCOUNT OF INTEREST EXPENSES. AS NOTICE D BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS , SUBSTANTIAL LOANS OF RS.285 CRORES WERE OBTAINED BY THE ASSESSEE FROM CO NSORTIUM OF BANKS AND THE SAME WAS PASSED ON TO THE GOVERNMENT FOR AC QUISITION OF LAND AND PAYMENT OF COMPENSATION. HE ALSO NOTICED THAT INTEREST ONLY TO THE EXTENT OF RS.25,36,33,248/- WAS CHARGED BY THE ASSE SSEE TO THE STATE GOVERNMENT WHILE IT HAD PAID INTEREST OF RS.27,14,8 0,961/- TO THE CONSORTIUM OF BANKS. HE HELD THAT THE BALANCE AMOUN T OF INTEREST AMOUNTING TO RS.1,74,16,977/- PAID BY THE ASSESSEE ON THE LOANS AVAILED FROM THE CONSORTIUM OF BANKS THUS DID NOT CONSTITUT E THE EXPENDITURE INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND ACCORDINGLY THE SAME WAS DISALLOWED BY HIM IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3)/147 OF TH E ACT VIDE AN ORDER DATED 23.12.2016. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3)/147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD . CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON A CCOUNT OF INTEREST FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5 OF H IS IMPUGNED ORDER:- 5. I PERUSED THE ASSESSMENT ORDER, SUBMISSIONS OF THE LD. A/R. (I) IT IS UNCONTROVERTED FACT THAT THE APPELLANT CO RPORATION IS A GOVERNMENT OF SIKKIM UNDERTAKING INCORPORATED PRIMA RILY TO CREATE INDUSTRIAL DEVELOPMENT IN THE STATE OF SIKKI M AND TO PROVIDE FINANCIAL SUPPORT TO CREATE SUCH INDUSTRIAL DEVELOPMENT. FOR THIS PURPOSE, IT TOOK LOANS FROM VARIOUS BANKS AND FINANCIAL INSTITUTIONS. ITA NO. 1626/KOL/2017 A.Y. 2011-2012 SIKKIM INDUSTRIAL DEVELOPME NT & INVESTMENT CORPORATION 3 (II) THE APPELLANT IS TAKEN A LOAN OF RS. 285 CR. F ROM FOUR NATIONALIZED BANKS FOR THE PURPOSE OF LAND ACQUISIT ION FOR CONSTRUCTION OF AIRPORT IN SIKKIM. (III) AS PER NOTES OF ACCOUNTS, THE CORPORATION HAS ADOPTED A POLICY OF CHARGING INTEREST TO THE GOVERNMENT OF SI KKIM ON THE ABOVE LOAN TO THE EQUIVALENT OF INTEREST CHARGED BY THE CONSORTIUM OF FOUR BANKS TOGETHER WITH OTHER EXPENS ES INCURRED IN CONNECTION WITH SAID SECURITIZATION LOAN MINUS T HE INTEREST EARNED FROM SECURITIZATION LOAN FUNDS INVESTED AS T ERM DEPOSIT. (IV) THE ASSESSEE HAS (VIDE LETTER DATED 09/12/2016 ) HAS INFORMED THE AO ABOUT THE BASIS ON WHICH INTEREST H AS BEEN CHARGED FROM THE STATE GOVERNMENT. THE CALCULATION IS AS UNDER:- INTEREST CHARGED TO GOVT. OF SIKKIM TOTAL LOAN PAID TO BANKS AS PER SCHEDULE 1 16 OF THE AUDITED ACCOUNTS RS.27,10,50,225 2 TOTAL PROCESSING CHARGES & GUARANTEE FEES ETC. RS.3,74,20,576 3 TOTAL INTEREST & BANK CHARGES PAID TO BANKS RS.30,84,70,801 4 INTEREST ON FDR EARNED DURING THE YEAR 2010-11 RS.6,53,38,484 LESS: INTEREST ON SIDICOS OWN FDR RS.1,05,00,931 RS.5,48,37,553 NET INTEREST CHARGEABLE TO GOVT. OF SIKKIM AS PER SCHEDULE 13 RS.25,36,33,248 FROM THE ABOVE CALCULATION, IT IS EVIDENT THAT THE ASSESSEE HAS CHARGED INTEREST TO THE STATE GOVERNMENT AS PER ITS UNDERSTANDING/AGREEMENT. HOWEVER, THE AO HAS NOT MA DE ANY COMMENT ON RS.5,48,37,553/- INTEREST EARNED BY THE ASSESSEE ON THE SURPLUS FUNDS PART FOR WHICH ARE KEPT WITH BANK S. AND THEREFORE, THE AO HAS COME TO THE WRONG CONCLUSION THAT ASSESSEE HAS PAID MORE INTEREST TO THE BANKS THAN I T HAS RECEIVED FROM STATE GOVERNMENTS. (V) THE OTHER CONCLUSIONS OF THE AO THAT THE LOAN H AS NOT BEEN USED BY THE ASSESSEE FOR ITS OWN BUSINESS IS ALSO E RRONEOUS BECAUSE IT IS ONLY THE SURPLUS FUND WHICH HAS BEEN PARKED WITH THE STATE GOVERNMENT FOR WHICH THE ASSESSEE HAS REC EIVED DUE INTEREST. THEREFORE, IT CANNOT BE SAID THAT LOAN HA S NOT BEEN BORROWED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE OF RS.1 ,74,16,977/- STANDS DELETED AND ALL THE GROUNDS RELATED TO THE S AME ARE ALLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. ITA NO. 1626/KOL/2017 A.Y. 2011-2012 SIKKIM INDUSTRIAL DEVELOPME NT & INVESTMENT CORPORATION 4 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WELL AS BE FORE US, THE LOAN OF RS.285 CRORES AVAILED FROM THE CONSORTIUM OF FOUR NATIONALISED BANKS WAS PARTLY INVESTED BY THE ASSESSEE IN FDRS AND THE BALANCE AMOUNT WAS PROVIDED TO THE GOVERNMENT OF SIKKIM AS PER THE MUT UAL UNDERSTANDING. IN RESPECT OF THE LOAN AVAILED FROM THE CONSORTIUM OF FOUR NATIONALISED BANKS, THE ASSESSEE HAD PAID INTEREST OF RS.27,10,5 0,225/- AND HAD ALSO INCURRED PROCESSING CHARGES AND GUARANTEE FEES AMOU NTING TO RS.3,74,20,576/-. AS AGAINST THIS TOTAL EXPENDITURE INCURRED IN RESPECT OF THE LOAN AVAILED FROM THE CONSORTIUM OF BANKS AMOUN TING TO RS.30,84,70,801/-, THE ASSESSEE HAD RECEIVED INTERE ST ON INVESTMENT MADE IN FIXED DEPOSITS OUT OF THE SAID LOAN TO THE EXTEN T OF RS.5,48,37,553/ AND THE BALANCE AMOUNT OF RS.25,36,33,248/- WAS CHARGED TO THE STATE GOVERNMENT AS PER THE MUTUAL UNDERSTANDING/AGREEMEN T. IT WAS THUS A CASE WHEREIN THE SURPLUS FUNDS AVAILABLE FROM THE L OAN TAKEN FROM THE CONSORTIUM OF BANKS WERE PARKED BY THE ASSESSEE WIT H THE STATE GOVERNMENT AND SINCE THE ENTIRE EXPENDITURE INCURRE D BY THE ASSESSEE IN THE FORM OF INTEREST AND OTHER CHARGES ON THE LOANS AVAILED FROM THE CONSORTIUM OF BANKS WAS RECOVERED BY THE ASSESSEE I N THE FORM OF INTEREST ON BANK DEPOSITS AS WELL AS INTEREST CHARG ED TO THE STATE GOVERNMENT, WE FIND OURSELVES IN AGREEMENT WITH THE LD. CIT(APPEALS) THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST WAS NOT SUSTAINABLE. ACCORDINGLY THE IMPUG NED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE IS UPHEL D DISMISSING THIS APPEAL OF THE REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 30, 2018. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER VICE -PRESIDENT (KZ) KOLKATA, THE 30 TH DAY OF NOVEMBER, 2018 ITA NO. 1626/KOL/2017 A.Y. 2011-2012 SIKKIM INDUSTRIAL DEVELOPME NT & INVESTMENT CORPORATION 5 COPIES TO : (1) DEPUTY /ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(2), GANGTOK, SIKKIM, AAYAKAR BHAWAN, INCOME TAX OFFICE, BHANUPATH, NEAR WHITE MEMORIAL HALL, P.O. RAJ BHAWAN, GANGTOK-737 103, SIKKIM (2) SIKKIM INDUSTRIAL DEVELOPMENT & INVESTMENT COR PORATION, BHANUPATH, P.O. RAJ BHAWAN, GANGTOK, EAST SIKKIM-737 103 (3) COMMISSIONER OF INCOME TAX (APPEALS), SILIGUR I, (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.