The ACIT, Circle-4, Baroda V. M/s. Petronet CI Ltd., Mumbai

ITA 1703/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0511 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-02-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 02-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADIP KR MAJUMDAR
• Assessee Lawyers: M K PATEL
• Keywords: Business income
• Section: 142(1); 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI D.K. TYAGI JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCO UNTANT MEMBER ASSISTANT COMMISSIONER OF INCOME TAX CIR-4, BARODA (APPELLANT) VS. M/S PETRONET CI LTD PA NO. AACCP7208C (RESPONDENT) REVENUE BY : SRI PRADIP KR. MAJUMDAR, SR. D.R. ASSESSEE BY : SRI M.K.PATEL, A.R. DATE OF HEARING : 12-02-2013 DATE OF PRONOUNCEMENT : 22-02-2013 / ORDER PER : D.K TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF L D. CIT(A)-III BARODA DATED 28/05/2012. 2. THE ONLY EFFECTIVE GROUND TAKEN BY THE REVENUE R EADS AS UNDER:- ITA NO. 1703/AHD/2012 A.Y.:-2004-05 ITA NO. 1703/AHD/2012 A.Y. 2004-05 PAGE NO ACIT VS. M/S PETRONET C I LTD 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS . 16,61,082/- CONSIDERING THE SAME BEING INTRINSICALLY CONNECTED WITH THE PROJECT WORK AND THEREBY REDUCE THE COST OF PROJECT WITHOUT CONS IDERING THE FACT THAT THE INCOME FROM INTEREST EARNED DURING PRE-COMMENCE MENT PERIOD WOULD BE TAXABLE AS INCOME FROM OTHER SOURCES WHICH GETS SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AU TOKAST LTD. 116 TAXMAN 244 (2001) 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASS ESSING OFFICER NOTED THAT THE ASSESSEE HAD NOT DRAWN PROFIT AND LOSS ACC OUNT AND THEREFORE THE CORRECTNESS OF ITS INCOME WAS NOT SHOWN. THE A.O. ALSO STATED THAT AS PER SCHEDULE E TO THE STATEMENT UNDER THE NOMENCLATURE OF INCIDENTAL EXPENDITURE DURING THE CONSTRUCTION ACCOUNT FOR THE YEAR ENDED 31.03.2004, THE ASSESSEE HAS REFLECTED THE INCOME AS UNDER:- PARTICULARS AMOUNT INTEREST ON BANK DEPOSITS 2,38,187/- INTEREST DELAYED SUBSCRIPTION TO EQUITY 4,16,461/- INTEREST OTHERS 12,44,621/- INTEREST ON IT REFUND 8,110/- MISCELLANEOUS INCOME 4,214/- TOTAL 19,11,593/- OUT OF INCOME OF RS. 19,11,593/- INCOME OF RS. 2,5 0,511+RS. 81,10+4,214 WAS ONLY OFFERED FOR TAXATION. THE RES IDUAL INCOME OF RS. 16,73,406 WAS SET OFF (NETTED) AGAINST THE EXPENSES AND THE BALANCE EXPENSES OF RS. 2,63,93,411 WERE CARRIED TO CAPITAL WORK-IN-PROGRESS. ITA NO. 1703/AHD/2012 A.Y. 2004-05 PAGE NO ACIT VS. M/S PETRONET C I LTD 3 4. THE ASSESSING OFFICER FURTHER OBSERVED AS UNDER:- IN THE REPLY DATED 12.08.2011, THE ASSESSEE COMPAN Y HAS STATED THAT THE PROJECT WAS UNDER IMPLEMENTATION STAGE AND IN A BSENCE OF ANY COMMERCIAL OPERATION, NO PROFIT AND LOSS A/C WAS PR EPARED. THE ASSESSEE HAS ALSO STATED THAT THE STATEMENT OF PRE- OPERATIVE EXPENDITURE RELATING TO CONSTRUCTION PERIOD WAS PRE PARED AND THE ENTIRE EXPENDITURE (NET OF INCOME) WAS TRANSFERRED TO CIWP. THE COMPANY CONSIDERED RS. 2,50,511 AS INCOME FROM OTHE R SOURCES AND DECLARED IN TURN OF INCOME. THE REST OF THE INCOME OF RS. 12,44,621 WAS SET OFF AGAINST THE EXPENDITURE IN THE CONSTRUC TION STAGE. THE ASSESSEE COMPANY FURTHER SUBMITTED AT RS. 12,44,621 WAS INCOME DUE TO DOWNWARD REVISION OF CONTRACT VALUE FOR THE PERI OD FROM 31.01.2001 TO 17.07.2003 WITH IOC. HENCE, IT WAS N OT CONSIDERED AS OTHER INCOME. IN REPLY DATED 25.08.2011, THE ASSES SEE HAS ALSO STATED THAT THE SAID INCOME OF RS. 12,44,621 WAS ADDED TO THE TOTAL INCOME UNDER AN ORDER U/S 154 OF THE ACT. HOWEVER, IT NEED S TO MENTION THAT THE ASSESSEE HAD CARRIED THE ISSUE BEFORE CIT(A) AN D THE ORDER U/S 154 WAS QUASHED BY CIT(A) TREATING THAT THERE WAS NO MI STAKE APPARENT FROM RECORDS. THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE OWING T O THE FACT THAT IT WAS INTEREST EDITED BY IOC DUE TO DOWNWARD REVISION OF CONTRACT VALUE. THOUGH, THE ASSESSEE HAS NOT SUBMITTED ANY D OCUMENT OR ANY SUPPORTING JUSTIFICATION FROM IOC, EVEN IF IT ACCEP TED THAT IT WAS INTEREST THEN ALSO THE NATURE OF INCOME WOULD BE OT HER COME AS IT WAS NEITHER DERIVED FROM NOR ATTRIBUTABLE TO BUSINESS. ANOTHER COMPONENT IS OF INTEREST ON DELAYED SUBSCRI PTION TO EQUITY OF RS, 4,16,461. IN REPLY DATED 25.08.2011, THE ASSESSEE HAS STATED THAT COMPANY HAD DECIDED AND AUTHORIZED CHAR GING INTEREST ON DELAYED PAYMENT OF SUBSCRIPTION. HENCE, THE AMOUN T WAS WORKED OUT AT RS, 4,16,461 WHICH WAS PROVIDED DURING THE YEAR. ACCORDING TO THE ASSESSEE, THIS INCOME WAS ARISING OUT OF ORDINARY C ONSTRUCTION ACTIVITY. THIS TOO IS NOT BUSINESS INCOME BUT INCOME FROM OTH ER SOURCES. IN THE CIRCUMSTANCES, AN AMOUNT OF RS. 16,61,082 (RS, 12,4 4,621 + RS./ 4,16,461) IS HEREBY DISALLOWED AND ADDED TO THE TOT AL INCOME / LOSS OF THE ASSESSEE.' ITA NO. 1703/AHD/2012 A.Y. 2004-05 PAGE NO ACIT VS. M/S PETRONET C I LTD 4 5. BEFORE LD. CIT(A) THE ASSESSEE PLACED RELIANCE O N THE FOLLOWING SUBMISSIONS:- 1.0 THE APPELLANT IS A PSU AND INCORPORATED TO CON STRUCT AN OIL TRANSPORTATION PIPELINE FROM JAMNAGAR (GUJARAT ON T HE WEST COAST) TO RATLAM (MADHYA PRADESH) IN CENTRAL INDIA. THE SHARE HOLDERS, NAMELY, M/S. INDIAN OIL CORPORATION LIMITED AND M/S . RELIANCE INDUSTRIES LIMITED WITHDREW FROM THIS PROJECT AS TH EY INTENDED TO CONSTRUCT THEIR OWN PIPELINES. THE PROJECT WAS ABAN DONED. THE COMPANY HAD UP TO THIS TIME EXPENDED MONIES FOR PRE PARING FEASIBILITY REPORTS AND STUDIES RELATING TO SEISMOL OGY, SATELLITE SURVEYS, SOIL INVESTIGATIONS ETC. ALL THESE EXPENSES WERE CO LLECTED UNDER THE HEAD 'PRE OPERATIVE EXPENSES PENDING CAPITALIZATION '. 1.1 THE LEARNED ASSESSING OFFICER HAS MADE ADDI TIONS OF 16 , 61 , 082/- BEING THE INTEREST ON DELAYED SUBSCRIPTION OF EQUITY AND OTHER INTEREST TREATING THE SAME AS 'INCOME FROM OT HER SOURCES.' 1.2. IT IS SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT FILED THE RETURN OF INCOME DECLARING TOTA L INCOME OF 2,50,51/-. THE RETURN WAS PROCESSED AND ACCEPTED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. THEREAFTER THE LEARNED ASSESSING OFFICER PASSED AN ORDER DATED 25-05-2006 UNDER SECT ION 154 OF THE IT ACT, 1961 FOR INCLUDING THE OTHER INTEREST INCOME O F 16,73,4O6/- IN THE TOTAL INCOME. THE APPEAL PREFERRED BY THE APPELLANT AGAINST THE SAID ORDER WAS ALLOWED BY THE COMMISSIONER (APPEALS) VID E ORDER NO.CAB/III-27/09-10 DATED 8-12-2009. SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPENED BY ISSUI NG NOTICE UNDER SECTION 148 OF THE ACT. IN RESPONSE TO THE SAID NOT ICE, THE APPELLANT FILED A LETTER REQUESTING TO TREAT THE RETURN FILED UNDER SECTION 139(1) AS FILED UNDER SECTION 148 OF THE I T ACT. THEREAFT ER NOTICES UNDER SECTION 142(1) AND 143(2) OF THE ACT WERE ISSUED. A LL THE RELEVANT INFORMATION AND/OR DETAILS CALLED FOR WERE FURNISHE D FROM TIME TO TIME. 1.3. IT IS SUBMITTED THAT DURING THE YEAR THE PROJ ECT WAS UNDER IMPLEMENTATION STAGE AND IN ABSENCE OF ANY COMMERCI AL OPERATION, NO PROFIT & LOSS ACCOUNT WAS PREPARED. A STATEMENT OF PRE-OPERATIVE EXPENDITURE DURING CONSTRUCTION PERIOD WAS PREPARED AND THE ENTIRE EXPENDITURE (NET OF INCOME) WAS TRANSFERRED TO CAPI TAL WORK IN PROCESS. IT IS SUBMITTED THAT THE INCOME DURING THE YEAR INCLUDED THE FOLLOWING : ITA NO. 1703/AHD/2012 A.Y. 2004-05 PAGE NO ACIT VS. M/S PETRONET C I LTD 5 --------------------------------------------------- --------------------------------- PARTICULARS AMOUNT -------------------------------------------------- ---------------------------------- INTEREST ON BANK DEPOSITS 2,38,187 INTEREST DELAYED SUBSCRIPTION TO EQUITY 4,16,461 INTEREST- OTHERS 12,44,621 INTEREST ON IT REFUND 8,110 MISCELLANEOUS INCOME 4,214 -------------------------------------------------- -------------------------------- TOTAL 19,11,593 -------------------------------------------------- --------------------------------- THE APPELLANT HAS DECLARED THE INTEREST ON BANK DEP OSITS '2,38,187/- PLUS MISCELLANEOUS INCOME OF '4,214/- AND INTEREST ON IT REFUND 8 , 110/-IREGATING TO '2 , 50,511/- AS 'INCOME FROM OTHER SOURCES' IN ITS RETURN OF INCOME. THE OTHER INTEREST VIZ., INTEREST ON DELAYED SUBSCRIPTION TO EQUITY 4,16,461/- AND OTHER INTERES T OF 12,44,621/- WAS SET OFF AGAINST THE EXPENDITURE INCURRED DURING CON STRUCTION STAGE. 1.4 DURING THE YEAR THE COMPANY CALLED-UP CAPITAL O F '7.20 CRORES FROM THE EXISTING SHAREHOLDERS AGAINST WHICH '4.32 CRORES WERE RECEIVED. FURTHER THE BOARD OF DIRECTORS OF THE CO MPANY DECIDED AND AUTHORIZED CHARGING OF REST ON DELAYED PAYMENT OF EQUITY SUBSCRIPTION CALLS FROM SHAREHOLDERS TILL DATE OF P AYMENT. SUCH INTEREST ON DELAYED SUBSCRIPTION WORKED OUT TO 16,4 61/- WHICH WAS PROVIDED FOR DURING THE YEAR. IT IS SUBMITTED THAT SUCH AMOUNTS ARE NOT RELATED T O INCOME ARISING OUT OF INVESTMENT OF SURPLUS FUNDS BUT IS A PENAL SUM R ECOVERED FROM A DEFAULTER ARISING IN THE ORDINARY CONSTRUCTION ACTI VITY AND RIGHTLY DEDUCTED FROM PRE OPERATIVE EXPENSES. REFERENCE I S INVITED TO DECISION IN CIT V/S. M/S. BOKRO STEEL PLANT LTD (1 999) 236 ITR 315. 1.5 INTEREST OF 12,44,621/-, IT IS SUBMITTED THAT , HAS BEEN CHARGED TO M/S. INDIAN OIL CORPORATION LIMITED ON THE EXCES S AMOUNT RECOVERED BY THEM FROM APPELLANT DUE TO DOWNWARD R EVISION OF THE CONTRACT VALUE FOR THE PERIOD 31-01-2001 TO 17-07-2 003. A COPY OF THE ACCOUNT EXPLAINING THE NATURE INTEREST IS ENCLO SED IN ANNEXURE-I. THIS INTEREST HAS ALSO BEEN RECOVERED IN THE NORMAL COURSE AND NOT ARISING OUT OF INVESTMENT OF ANY SURPLUS. ITA NO. 1703/AHD/2012 A.Y. 2004-05 PAGE NO ACIT VS. M/S PETRONET C I LTD 6 1.6 AS FAR AS THE INTEREST ON I T REFUND 8,110/- AND MISCELLANEOUS INTEREST OF 4,214/- IS CONCERNED, THE SAME HAS ALR EADY BEEN SHOWN BY THE APPELLANT AS INCOME FROM OTHER SOURCES ALONG WI TH THE INTEREST ON BANK DEPOSIT '2 , 38,187/-. 1.7 IN VIEW OF THE FACTS AND CIRCUMSTANCES, IT I S SUBMITTED THAT THERE IS NO SHORT DECLARATION OF INCOME BY THE APPELLANT AND THE APPELLANT HAS RIGHTLY OFFERED THE INCOME FOR THE YEAR UNDER C ONSIDERATION. THE APPELLANT, THEREFORE, PRAYS THAT THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER MAY BE DELETED. 6. LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS AND THE ASSESSMENT ORDER. IN THE PRESENT CASE, THE APPELLANT HAS NOT EARNED THESE INTERESTS ON ACCOUNT OF DEPLOYMENT OF SURPLUS CAP ITAL, BUT RATHER THE INTEREST OF 4,16,461 HAS BEEN EARNED ON ACCOUNT OF INTEREST FOR DELAYED PAYMENT OF CAPITAL BY THE SHARE HOLDERS IN THE INTEREST OF 12,44,621 HAS BEEN CHARGED ON ACCOUNT OF EXCESS AMO UNT RECOVERED BY IOC FROM THE APPELLANT DUE TO DOWNWARD REVISION OF THE CONTRACT VALUE FOR THE PERIOD 31.01.2001 TO 17.07.2003. THUS BOTH THESE INTERESTS ARE INTRINSICALLY CONNECTED WITH THE PROJ ECT OF THE APPELLANT AND HENCE AS PER THE DECISION OF IN THE CASE OF B OKARO STEEL PLANT LTD. (SUPRA), THESE INCOMES HAVE RIGHTLY BEEN TREAT ED BY THE APPELLANT AS REDUCING THE CONSTRUCTION COST. THIS AMOUNT 16,6 1,082/- BEING INTRINSICALLY CONNECTED WITH THE PROJECT WORK CAN O NLY BE HELD TO HAVE REDUCED THE COST OF THE PROJECT. HENCE, THE APP ELLANT HAS RIGHTLY REDUCED THIS INTEREST FROM THE CAPITAL WORK IN PROG RESS. ACCORDINGLY, THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELET ED. 7. SINCE AT THE TIME OF HEARING THE FINDING OF THE LD. CIT(A) THAT THE INTEREST OF RS. 4,16,461/- HAS BEEN EARNED ON ACCOU NT OF INTEREST FOR DELAYED PAYMENT OF CAPITAL BY THE SHARE-HOLDERS AND THE INT EREST OF RS. 12,44,621/- HAS BEEN CHARGED ON ACCOUNT OF EXCESS AMOUNT RECOVE RED BY IOC FROM THE ASSESSEE DUE TO DOWNWARD REVISION OF THE CONTRACT V ALUE FOR THE PERIOD 31.01.2001 TO 17 TH JULY, 2003 HAS NOT BEEN DISPUTED BY THE REVENUE, T HE LD. ITA NO. 1703/AHD/2012 A.Y. 2004-05 PAGE NO ACIT VS. M/S PETRONET C I LTD 7 CIT WAS JUSTIFIED IN HOLDING THAT BOTH THESE INTERE STS WERE INTRINSICALLY CONNECTED WITH THE PROJECT OF THE ASSESSEE AND HENC E AS PER DECISION OF THE HONBLE APEX COURT IN THE CASE OF BOKARO STEEL PLAN T LTD, THESE INCOMES HAVE RIGHTLY BEEN TREATED BY THE ASSESSEE FOR REDUC ING THE CONSTRUCTION COST. THE ORDER PASSED BY HIM DOES NOT REQUIRE ANY INTERF ERENCE AND THE SAME IS HEREBY UPHELD. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 22 /02/2013 A.K. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '#