ITO, Tiruppur V. Noyyal Common Effluent Treatment Co. Ltd., Tiruppur

ITA 2068/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8248 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , . . ' # $ , % &' ( [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. S. SUNDER SINGH, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 2068/MDS/2016 / ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER WARD I(2) TIRUPUR VS. M/S N O YYAL COMMON EFFLUENT TREATMENT COMPANY LTD NO.47, SHOP NO.2, PR COMPLEX BINNY COMPOUND MAIN ROAD TIRUPUR 641 601 [PAN AACCN 2584 K ] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI A.V SREEKANTH, JCIT /RESPONDENT BY : SHRI T . BANUSEKAR, CA / DATE OF HEARING : 17 - 10 - 2016 ! / DATE OF PRONOUNCEMENT : 26 - 10 - 2016 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3, COIMBA TORE, DATED 30.3.2016 FOR ASSESSMENT YEAR 2007-08. 2. AT THE OUTSET IT IS NOTICED THAT THERE WAS A DELA Y OF 5 DAYS IN FILING THE APPEAL. THE REVENUE HAS FILED A COND ONATION PETITION SUPPORTED BY AN AFFIDAVIT DATED 4.7.2016. FOR TH E REASONS STATED ITA NO.2068/16 :- 2 -: THEREIN AND IN ABSENCE OF ANY REBUTTAL BY THE AS SESSEE, DELAY OF 5 DAYS IN FILING THE APPEAL STANDS CONDONED. 3. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DISALL OWANCE OF INTEREST ON BRIDGE LOAN AMOUNTING TO ` 3,17,16,944/-. 4. DURING THE ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS EARNED INTEREST OF ` 1,76,38,174/- ON FIXED DEPOSITS WITH UTI BANK AND ` 20,54,765/- FROM BANK OF INDIA AND CLAIMED THE EXPENSES OF ` 3,17,16,944/- AS INTEREST PAYMENT ON BRIDGE LOAN A ND CORPORATE EXPENSES TO THE EXTENT OF ` 20,68,527/- AGAINST THE INCOME EARNED UNDER THE HEAD INTEREST. SINCE THE ASSESSEE -COMPANY HAS NOT COMMENCED THE BUSINESS OPERATIONS, THE ASSESSING OF FICER DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE AND TAXED THE INTEREST RECEIPT ON THE FIXED DEPOSITS AS INCOME FROM OTHER SOURCES AND RAISED A DEMAND OF ` 98,01,760/-. 5. AGGRIEVED, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). THE CIT(A) HAS ALLOWED THE SET OFF OF INTEREST RECE IPT OF ` 1,76,24,412/- AGAINST THE PAYMENT OF INTEREST AMOUN TING TO ` 3,17,16,944/- AS PER THE DISCUSSION MADE AS UNDER: 6.0 I HAVE CONSIDERED THE GROUNDS RAISED BY THE A PPELLANT AND THE ASSESSMENT ORDER. THE ONLY GROUND IS AGAINST T HE DISALLOWANCE OF INTEREST PAID CLAIMED AS DEDUCTION AGAINST INTEREST EARNED, ASSESSED AS INCOME UNDER THE HEAD INCOME F ROM OTHER SOURCES. ITA NO.2068/16 :- 3 -: 6.1 THE APPELLANT IS A SPECIAL PURPOSE VEHICLE (SP V) FORMED BY A GROUP OF EFFLUENT PLANT UNITS TO ACHIEVE ZERO LIQ UID DISCHARGE FOR THE EFFLUENTS THAT HAD TO BE ACHIEVED AS PER DI RECTIONS OF HON'BLE HIGH COURT OF MADRAS. 6.2 THE APPELLANT TOOK A BRIDGE LOAN FROM IL&FS AN D THE FUNDS WERE DEPOSITED IN UTI BANK. THE APPELLANT HAD THE RIGHT TO OPERATE THE BANK ACCOUNT. THE INTEREST EARNED FROM THE ACCOUNT IS ASSESSED AS INCOME FROM OTHER SOURCES BU T INTEREST PAID TO IL&FS HAS NOT BEEN ALLOWED AS DEDUCTION. 6.3 THE BRIDGE LOAN TAKEN FROM IL&FS HAS A CLEAR N EXUS WITH STARTING EFFLUENT TREATMENT PLANTS WHICH WOULD HAVE AN ENDURING BENEFIT AND THE LOAN TAKEN IS FOR ACQUIRIN G A CAPITAL ASSET. AS PREOPERATIVE EXPENSES, THE NET INTEREST THAT IS INTEREST EARNED LESS INTEREST PAID WILL HAVE TO BE CAPITALIZED AS THE PURPOSE IS FOR AN ENDURING BENEFIT AND HENCE CA PITAL IN NATURE. THIS IS IN FACT, THE ALTERNATE GROUND OF T HE APPELLANT. 6.4 IN THE INSTANT CASE, THERE IS A NEGATIVE FIGUR E AND THIS WILL HAVE TO BE CAPITALIZED AS THEY ARE INCURRED FOR ACQ UIRING CAPITAL ASSETS WITH ENDURING BENEFIT. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE US. 7. THE LD. DR HAS ARGUED THAT THE ASSESSEE HAS RECEIV ED INTEREST ON DEPOSITS MADE WITH UTI BANK WHICH SHOUL D BE ASSESSED AS INCOME FROM OTHER SOURCES AS THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS OPERATIONS AND THE EXPENDITURE CANNOT BE A LLOWED TO BE SET OFF. THE LD. DR HAS RELIED ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTI LIZERS LTD, 227 ITR 172. ITA NO.2068/16 :- 4 -: 8. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDER O F THE CIT(A). 9. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. DURING THE YEAR UNDER CONSIDERAT ION THE ASSESSEE HAS NOT COMMENCED THE COMMERCIAL PRODUCTION. IT WA S EXPLAINED THAT THE ASSESSEE IS REQUIRED TO MAKE DEPOSITS AS PER T HE ORDERS OF THE HON'BLE MADRAS HIGH COURT BECAUSE OF ONGOING LITIGA TION ON ENVIRONMENTAL POLLUTION ISSUES. THE SPVS HAD APPLI ED TO A CONSORTIUM OF BANKS FOR FINANCE BUT A FORMAL SANCTION WAS NOT RECEIVED AT THAT POINT OF TIME AND THE ASSESSEE HAS TO MAKE DEPOSIT AS PER THE HIGH COURTS ORDER TO AVOID CLOSURE OF THE UNITS. FOR T HE PURPOSE OF MAKING DEPOSIT, THE ASSESSEE HAS AVAILED BRIDGE LOAN FROM INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD,(IL&FS) MUMBAI A ND RETAINED THE DEPOSIT WITH UTI. THE DEPOSIT WAS MADE IN THE JOIN T NAMES OF ILFS AND THE SPV IN AN ESCROW CUM NO LIEN ACCOUNT. THE BRIDGE LOAN WAS REPAYABLE ON GETTING REGULAR TERM LOAN FROM CONSORT IUM OF BANKS. THE FUNDS FROM IL&FS CAME DIRECTLY TO THE SAID ACCOUNT WITH UTI AND TRANSFERRED BY UTI BANK TO DEPOSIT ACCOUNT. THE AS SESSEE HAS RECEIVED THE INTEREST ON FIXED DEPOSITS FROM UTI TO THE TUNE OF ` 1,61,98,174/- AND PAID A SUM OF ` 3,17,16,944/- TO IL&FS ON THE BRIDGE LOAN. THE CLAIM OF INTEREST OF ` 3,17,16,944/- HAS TO BE ALLOWED AGAINST THE FIXED DEPOSIT INTEREST OF ` 1,61,98,174/-. THERE WERE OTHER ITA NO.2068/16 :- 5 -: DEPOSITS WITH BANK OF INDIA WHICH EARNED THE INTERE ST OF RS.2054765/- THE ASSESSEE ARGUED THAT THE FUNDS BORROWED FROM I L&FS AND INVESTMENT MADE WITH UTI AND THE PAYMENT OF INTERES T WAS INEXTRICABLY LINKED WITH THE INTEREST EARNED FROM UTI IT IS TO BE SET OFF AGAINST THE PAYMENT OF INTEREST TO IL&FS. THE SUBM ISSION MADE BY THE ASSESSEE HAS BEEN EXAMINED BY THE CIT(A) AND A LLOWED DEDUCTION. NO EVIDENCE WAS BROUGHT ON RECORD BY TH E REVENUE TO PROVE THAT THE DEPOSITS ARE PLACED WITH UTI FROM TH E SURPLUS FUNDS WITH AN INTENTION TO EARN THE INTEREST INCOME. THE REFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND U PHOLD THE SAME. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED ON 26 TH OCTOBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . . ' # $ ) (D.S. SUNDER SINGH) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 26 TH OCTOBER, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF