The Addl.CIT.,Vapi Range, Vapi V. Gopinath Spinning Pvt.Ltd., SILVASSA

ITA 2013/AHD/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9138 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 14-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 09-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Question of law; Capital receipt; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 201

Judgement Text

ITA NO. 2 013 AHD 201 0 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] ITA NO. 2013 /AHD/201 0 ASSESSMENT Y EAR : 200 7 - 08 ADDL. COMMISSIONER OF INCOME TAX, VAPI RANGE, VAPI . .. .APPELLANT VS. GOPINATH SP INNING PVT. LTD. .. .. . RESPONDENT SURVEY NO.245/1, UNIT NO.2, PRAMUKH INDL. ESTATE, DEMNI ROAD, SILVASSA (U.T. OF DADRA N AGAR H AVELI) [PAN: A A CCG 0932 G ] APPEARANCES BY: MANISH J. SHAH , FOR THE APPELLANT DINESH SINGH , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : 14 .02. 201 7 DATE OF PRONOUNCING THE ORDER : 28 . 0 2 .2017 O R D E R 1. THIS APPEAL IS DIRECTED AGAINST LEARNED CIT(A) S ORDER DATED 10 TH MARCH, 2010, FOR THE ASSESSMENT YEA 2007 - 08, ON THE FOLLOWING GROUNDS : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT( A ) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF INTEREST INCOME OF RS.47,25,032/ - CLAIMED AS ABETMENT EXPENSES, WITHOUT APPRECIATING PROPERLY THE FACTS BROUGHT IN BY THE ASSESSING OFFICER FOR DISALLOWANCE. 2. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER NOTICED TH AT THE ASSESSEE HAS SHOWN INTEREST INCOME ON BANK FIXED DEPOSITS AT RS.52,46,198/ - BUT CLAIMED AN ABATEMENT OF RS.47,25,032/ - . IT WAS EXPLAINED BY THE ASSESSEE THAT THIS ITA NO. 2 013 AHD 201 0 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 2 OF 5 AMOUNT OF RS.47,25,032/ - REPRESENTS INTEREST ON MARGIN MONEY, KEPT BY WAY OF FIXED DE POSITS, FOR ISSUANCE OF L/CS . ETC. FOR PURCHASE OF MACHINERIES ETC. RELIANCE WAS PLACED ON HON BLE SUPREME COURT S JUDGEMENTS, IN THE CASES OF CIT VS. KARNAL CO - OPERATIVE SUGAR MILLS LIMITED [(2000) 243 ITR 2 (SC)] AND CIT VS . BOKARO STEEL LIMITED [(1999) 236 ITR 315 (SC)] IN SUPPORT OF THE PROPOSITION THAT THIS INTEREST ON MARGIN MONEY WOULD NOT BE TA XA BLE BUT DEDUCTIBLE FROM THE COST OF PROJECT. THE ASSESSING O FFICER , HOWEVER, REJECTED THIS STAND. HE NOTED THAT THE STAND SO TAKEN BY THE ASSESSEE IS AT VARIANCE WITH THE STAND TAKEN IN D IRECTOR S REPORT. IT WAS ALSO NOTED THAT AS AGAINST FACTS OF KARNAL CO - OPERATIVE SUGAR MILLS S CASE (SUPRA) WHEREIN ISSUANCE OF L/C W A S CONTINGENT UPON BANK DEPOSIT BEING PLACED, THERE WAS NO SUCH MANDATORY REQUIREMENT FO R ISSUANCE OF L/C IN THE PRESENT CASE. WITH THESE OBSERVATIONS, THE ASSESSING O FFICER PROCE E DED TO BRING THIS AMOUNT OF RS.47,25,032/ - TO TAX. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A ) WHO REVERSED THE ACTION OF THE ASSES SING OFFICER BY OBSERVING AS FOLLOWS : - 4.2 DECISION : I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE ABOVE SUBMISSION OF THE APPELLANT. THE SUBMISSION OF THE APPELLANT SUPPORTS HIS CLAIM ON THIS GROUND OF APPEAL. THE APPELLANT ALSO SUBMITT ED LOAN SANCTION LETTER FROM THE BANK W ITH TERMS AND CONDITIONS OF LOAN MENTIONED IN IT. THE LOAN SANCTION LETTER FROM THE BANK SUPPORTS THE CLAIM OF THE APPELLANT THAT MONEY W AS KEPT AS DEPOSIT AS 25% CASH MARGIN FOR TERM LOAN SANCTION. THE PURPOSE OF TER M LOAN IS TO PURCHASE CAPITAL ASSETS AND WITH TERM LOAN RS. 9 CRORES WERE SANCTION AS I M PORT LETTER OF CREDIT FOR CAPITAL GOODS. IT CLARIFIES THAT LOAN WAS TAKEN TO PURCHASE CAPITAL GOODS. THE MARGIN WAS KEPT TO GET THE TERM LOAN FACILITY AS WELL AS IMPORT LETTER OF CREDIT FOR PURCHASE OF CAPITAL GOODS. THE APPELLANT ALSO SUBMITTED CONFIRMATION FROM BANK OF BARODA THAT RS.36 LACS ARE DEBITED TO APPELLANT S A/C AND CREDITED TO MARGIN MONEY DEPOSIT TO SANCTION VARIOUS CREDIT FACILITIES TO PURCHASE THE CAPITA L GOODS. THE APPELLANT DIFFERENTIATED AND COMPARED THE DECISION GIVEN IN THE CASE OF TUTICORIN CASE AND BAKARO STEEL CASE. HE ALSO COMPARED THE FACTS OF THESE CASES WITH THE FACTS OF HIS PRESENT GROUND OF APPEAL. WHEN WE GO THROUGH THE SUBMISSION OF THE A PPELLANT THE FACTS IN THE SUPREME COURT JUDGMENT IN THE CASE OF BOKARO STEEL (SUPRA) ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANT. SUBSEQUENT TO THE JUDGMENT OF SC IN THE CASE OF BOKARO STEEL (SUPRA) THE SIMILAR SITUATION AROSE IN THE CASE O F CIT VS KARNAL CORP MILLS LTD. 243 ITR(2 000 ) (SC) WHERE THE INTEREST EARNED ON THE MARGIN MONEY KEPT BY WAY OF L/C FOR THE PURCHASE OF MACHINERY WAS NOT ASSESSABLE AS INCOME. IN THIS CASE BOKARO ITA NO. 2 013 AHD 201 0 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 3 OF 5 STEEL JUDGMENT WAS FOLLOWED. THE APPELLANT ALSO EXPLAINED I N HIS SUBMISSION ABOUT THE ASSESSMENT ORDER AND FINDINGS OF THE AO AND THAT CLARIFY HOW THE FACTS OF THE CASE PRESENTED IN ASSESSMENT ORDER DO NOT SUPPORT THE GROUND OF ADDITION. THE APPELLANT EXPLAINED HOW THE ASSESSMENT ORDER IS NOT CONSIDERED THE FACTS APPLICABLE, WHICH ARE IN FAVOUR OF THE APPELLANT. WE REPRODUCE HIS ARGUMENTS EXPLAINING THAT HOW FACTS OF HIS CASE NOT PROPERLY CONSIDERED IN ASSESSMENT ORDER. A MERE SURMISE AND THE STATEMENT WITHOUT ANY MERITORIOUS FACTS BY THE AO IS NOT A CONCLUSIVE R ESULT. THE AO ON THE ONE HAND ACCEPTS THE FACT THAT INTEREST IS ON MARGIN MONEY KEP T FOR L/C BUT DENIES THE LATER PART THAT IT IS LINKED WITH PURCHASE OR MACHINERY AND THEREFORE CONVINCINGLY FOLLOWING THE RATIO OF TUTICORIN CASE IS A CONCLUSION WITHOUT ANY SUPPORT. THE SAME THEREFORE IS FAR FROM THE FACT AND WITHOUT ANY MERIT. IT IS MERELY A SURMISE. FURTHER THE ASSESSMENT ORDER WHERE IN THE LEARNED OFFICER HAS DESCRIBED IN DETAIL ABOUT THE DEPRECIATION CLAIM U/S 43(6) OF THE ACT , HERE ALSO WE STATE THAT SUCH DISCUSSION IS OUT OF PLACE IN THE WHOLE ORDER THE ISSUE IS NOT ON 'COST' OF MACHINERY THE ISSUE IS WHETHER INTEREST IS A INCOME OF REVENUE NATURE OR CAPITAL NATURE. SIR, W E REMIND YOU THAT COST OF INTEREST IS A PART OF COST OF MACHINERY AS DECIDED B Y SC IN CHALLAPALLING SUGAR COMPANY (SC) (SUPRA). WE DO NOT DISCUSS HERE THE 'EXPENDITURE' WE HAVE FOCUS HERE ON 'INCOME'. SIR, THE OBSERVATION RELATING TO THE DIRECTORS REPORT IS BEYOND THE ASSESSMENT YEAR I.E. 9.08.2007 IS A DATE BEYOND ASSESSMENT YEAR . THIS STATEMENT MADE IN DIRECTOR'S REPORT IS REQUIRED TO BE STATED AS PER COMPANY'S ACT'. THE APPELLANT ALSO SUBMITTED ACCOUNT AND ACCOUNTING STANDARDS FOR INTEREST DURING CONSTRUCTION PERIOD. THE ACCOUNTING STANDARDS ALSO SUPPORTS THE CLAIM OF THE APPELLANT ON THIS GROUND. THE FACTS OF THE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS BOKARO STEELS LTD. 236 ITR 315 (SC) 1999 SUPPORT THE CLAIM OF THE APPELLANT ON THIS GROUND. CONSIDERING THIS FACTS AND CASE LAWS WHICH SUPPORT THE CLAIM OF THE APPELLANT, THIS GROUND OF APPEAL IS ALLOWED. 3. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE ME. 4. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGA L POSITION. 5. I FIND THAT, AS EVIDENT FROM BANK OF BARODA S SANCTION LETTER DATED 27.09.2006 (COPY PLACED BEFORE US AT PAGES 19 TO 27 OF THE PAPER BOOK), PLACING THE FIXED DEPOSIT ITA NO. 2 013 AHD 201 0 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 4 OF 5 WAS A CONDITION PRECEDENT FOR AVAILING THE CREDIT FACILITIES FOR AVAILING L ETTER OF CREDITS ETC. I N THIS LIGHT, I MAY REFER TO THE FOLLOWING OBSERVATIONS MADE BY HON BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF STEELCO GUJARAT LIMITED VS. ITO (TAX APPEAL NO.893 OF 2006; JUDGEMENT DATED 10.11.2006): - 4.0. AT THE OUTSET, IT IS REQUIRED TO BE NOTED AND EVEN AS OBSERVED BY THE AO WHILE PASSING THE ASSESSMENT ORDER, THE ASSESSEE EARNED THE INTEREST ON THE DEPOSIT WHICH WAS REQUIRED TO BE PLACED FOR OPENING OF LC FOR IMPORT OF PLANT AND MACHINERY. THE AO HAS ALSO OBSERVED THAT WITHO UT DEPOSITING THE MONEY WITH FDR, THE LC CANNOT BE OPENED. HOWEVER AO DID NOT ACCEPT THE CONTENTION MADE ON BEHALF OF THE ASSESSEE THAT ADDITION OF AFORESAID INVESTMENT TREATING AS INCOME FROM OTHER SOURCE, SOLELY ON THE GROUND THAT THE ASSESSEE CANNOT PRA Y FOR SET OFF OF THE INTEREST AND OTHER INCOME OF THE PREOPERATIVE PROJECT EXPENSES. IN LIGHT OF THE AFORESAID FACTS, MORE PARTICULARLY, WHEN THE INTEREST EARNED BY THE ASSESSEE WAS ON THE FIXED DEPOSIT WHICH WAS REQUIRED FOR OBTAINING LC FOR PURCHASE OF P LANT AND MACHINERY, WE ARE OF THE OPINION THAT THE DECISION OF THE HON'BLE SUPREME COURT IN TH E CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD (SUPRA) SHALL BE DIRECTLY APPLICABLE TO THE FACTS OF THE CASE ON HAND. IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD (SUPRA) ALSO ASSESSEE EARNED THE INTEREST ON DEPOSIT MADE TO OPEN THE LETTER OF CREDIT FOR PURCHASE OF MACHINERY REQUIRED FOR SETTING UP OF ITS PLANT. THE HON'BLE SUPREME COURT HAS HELD THAT SUCH INTEREST WAS A CAPITAL RECEIPT WHICH WOULD GO CAPITAL SH IFTED, WHICH WOULD GO TO REDUCE COST OF ASSET AND THAT DEPOSIT OF MONEY WAS DIRECTLY LINKED WITH PURCHASE OF PLANT AND MACHINERY AND THEREFORE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCIDENTAL TO THE ACQUISITION OF THE ASSETS FOR SETTING UP OF PLANT AND MAC HINERY. UNDER THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD (SUPRA) SHALL BE SQUARELY APPLICABLE TO THE FACTS OF THE CASE ON HAND. 5.0. HOWEVER, SO FAR AS RELIANCE P LACED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AUTOKAST LTD (SUPRA) UPON WHICH, RELIANCE HAS BEEN PLACED BY THE LEARNED TRIBUNAL AS WELL AS BY THE REVENUE IS CONCERNED, WE ARE OF THE OPINION THAT SAID DECISION SHALL NOT BE APPLICABLE T O THE FACTS OF THE CASE ON HAND. IN THE CASE BEFORE THE HON'BLE SUPREME COURT, THE ASSESSEE BORROWED THE CERTAIN AMOUNT FROM THE IDBI AND DEPOSITED THE SAME IN THE BANKS TILL IT WAS USED EITHER IN PURCHASE OF PLANT AND MACHINERY AND/OR INSTALLING THEM OR I N RUNNING ESTABLISHMENT. TO THAT HON'BLE SUPREME COURT HAS OBSERVED THAT AO WAS RIGHT IN TREATING SUCH INTEREST AS INCOME OF THE ASSESSEE FROM THE OTHER SOURCE. 6.0. IN VIEW OF THE ABOVE AND FOR THE REASONS STATED ABOVE AND IN LIGHT OF THE DIRECT DECISIO N OF THE HON'BLE SUPREME COURT IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD (SUPRA), WE ARE OF THE OPINION THAT THE LEARNED TRIBUNAL HAS COMMITTED ERROR IN HOLDING THAT THE INTEREST INCOME EARNED ON THE AMOUNT OF DEPOSIT KEPT WITH THE BANK FOR THE PUR POSE OF OPENING LETTER OF CREDIT USED FOR THE PURPOSE OF PLANT AND MACHINERY WOULD BE TAXABLE AS ITA NO. 2 013 AHD 201 0 A SSESSMENT Y EAR: 20 0 7 - 08 PAGE 5 OF 5 'INCOME FROM OTHER SOURCE . THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. PRESENT APPEAL STANDS DISPOSED OF. 6. THE CON CLUSIONS ARRIVED AT BY THE LEARNED CIT ( A ) CLEARLY IN CONFORMITY WITH THE VIEWS SO EXPRESSED BY THE HON BLE JURISDICTIONAL HIGH COURT. IN VIEW OF THE ABOVE DISCUSSIONS, IN MY CONSIDERED VIEW, NO INTERFERENCE IS REQUIRED IN WELL REASONED ORDER OF THE LEARNE D CIT(A). I APPROVE THE SAME AND DECLINE TO INTERFERE IN THE MA T TER. 7. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2017 . SD/ - PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: THE 28 TH DAY OF FEBRUARY , 2017 . PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX A PPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD