M/s. Chettinad International Coal Terminal P. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2187/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9160 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Reopening of assessment; Depreciation; Business expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2187/MDS/2013 ( / ASSESSMENT YEAR: 2007-08) M/S. CHETTINAD INTERNATIONAL COAL TERMINAL P.LTD., RANI SEETHAI HALL, 5 TH FLOOR, 603, ANNA SALAI, CHENNAI-600 006. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(3), CHENNAI. PAN: AACCC7786J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. P.RADHAKRISHNAN, JCIT /DATE OF HEARING : 29 TH MARCH, 2016 /DATE OF PRONOUNCEMENT : 9 TH JUNE, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- I, CHENNAI DATED 23.10.2013 IN ITA NO.250/09-10/A-I PASSED UNDER SECTION 143(3) R.W.S. 147 & 250 (6) OF THE A CT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DISMISSING THE GROUND CHALLENGING THE VALIDITY OF REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT. 2 ITA NO.2187 /MDS/2013 SINCE THE LEARNED ASSESSEES REPRESENTATIVE HAS NOT PRESSED THIS GROUND IT IS DISMISSED AS SUCH. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN SUSTAINING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER IN RESPECT OF INTEREST IN COME RECEIVED FROM FIXED DEPOSITS AS INCOME FROM OTHER SOURCES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE DEVELOPMENT OF INFRASTRUCTURAL FA CILITY FOR HANDLING AND TRANSPORTING OF COAL, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 29.10.2007 DECLARING INCOME OF ` 61,39,210/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 25.09.2008 RESULTING I N REFUND OF ` 19,76,098/-. ON VERIFICATION OF THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE, THE LEARNED ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE HAD RECEIVED INTEREST INCOME OF ` 1,52,43,871/- WHEREAS THE SAME WAS DECLARED AS ` 61,39,212/- IN THE RETURN OF INCOME. THEREFORE THE LEARNED ASSESSING OFFICER REOPENED THE ASSESSMENT UNDER SECTION 147 ON 17.11.2009, AS THE INCOME TO THE EXTENT OF ` 91,04,649/- HAD ESCAPED ASSESSMENT AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S.147 OF THE ACT ON 11.12.2009 B Y TREATING 3 ITA NO.2187 /MDS/2013 THE AGGREGATE INTEREST INCOME OF ` 1,52,43,871/- AS THE INCOME FROM OTHER SOURCE, WITHOUT ALLOWING THE BE NEFIT OF SET OFF OF BUSINESS EXPENDITURE. THE LEARNED ASSESSIN G OFFICER CAME TO THE AFORESAID CONCLUSION BECAUSE FROM THE D ATE OF THE INDENT LETTER DATED 9/7/2006 WITH RESPECT TO TH E AWARDED OF LICENSE TO CONSTRUCT THE COAL TERMINAL AT ENNORE PORT BY M/S. ENNORE PORT LTD., TO THE ASSESSEE, IT WAS VERY CLEAR THAT THE COAL TERMINAL COULD NOT HAVE COMMENCED COMMERCI AL OPERATION DURING THE RELEVANCE FINANCIAL YEAR 2006- 07 WHICH IMPLIES THAT THE PROJECT OF THE ASSESSEE WAS UNDER PRE- OPERATIVE STAGE. FURTHER THE LEARNED ASSESSING OFFI CER RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF CHALLAPALLI SUGARS LTD. VS. CIT REPORTED IN 98 ITR 167 (SC) WHEREIN IT WAS HELD AS FOLLOWS:- INTEREST RECEIVED ON SHORT TERM DEPOSITS IS TAXABLE INCOME AND CANNOT BE TREATED AS AN ABATEMENT OF CAPITAL COST. PRE-OPERATIVE INTEREST RECEIPT SHALL BE TAXABLE AS OTHER SOURCE OF INCOME. AS PER AS-10 FINANCING COST ON LOANS & BORROWINGS ATTRIBUTABLE TO CONSTRUCTION OR ACQUISITION OF FIXED ASSETS SHOULD BE INCLUDED IN THE GROSS VALUE OF THE FIXED ASSETS AT PRE- OPERATIVE STAGE. EXPENSES DURING PRE- COMMENCEMENT PERIOD WILL NOT BE DEDUCTIBLE. SIMILARLY, LOSS DURING THE PERIOD CANNOT ALSO BE TREATED AS BUSINESS LOSS. TO THE EXTENT OF EXPENSE WHICH CAN BE CAPITALIZED TO THE ASSET, 4 ITA NO.2187 /MDS/2013 THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON IT ALSO. FURTHER RELIANCE WAS PLACED BY THE LEARNED ASSESSIN G OFFICER IN THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT REPORTED IN 227 ITR 172. FOLLOWING THE AFORESAID DECISIONS, THE LEARNED ASSESSING OFFICER BROUGHT TO TAX THE INTERE ST INCOME OF RS.1,52,42,871/- UNDER THE HEAD INCOME FROM OT HER SOURCE AND WITHOUT SETTING OFF THE EXPENDITURE UN DER OTHER HEADS OF INCOME. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY OBSERVING AS UNDER:- 7.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS MADE BY THE LEARNED AUTHORIZED REPRESENTATIVE. IT IS SEEN THAT LEARNED AUTHORIZED REPRESENTATIVE HAS RELIED ON SEVERAL CASE LAWS WHICH WERE DELIVERED PRIOR TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT REPORTED IN 227 ITR 172. TILL THE DECISION DELIVERED IN THE ABOVE CASE, THE OPINIONS WERE DIVIDED WHETHER THE PRIOR PERIOD INCOME SHOULD BE TAXED OR NOT, IF SO, WHETHER NETTING IS PERMISSIBLE OR NOT. WITH THE DECISION OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. 5 ITA NO.2187 /MDS/2013 CIT (SUPRA) THE DEBATE HAS ALMOST SETTLED. WHILE DELIVERING THE JUDGEMENT IN THE ABOVE CASE, THE HONBLE SUPREME COURT HAS HELD THAT INTEREST DERIVED BY THE ASSESSEE FROM SHORT TERM DEPOSITS WITH BANK WOULD BE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. RELIANCE IS ALSO PLACED ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 AND LIBERTY INDIA VS. CIT 317 ITR 218. SINCE THE INTEREST INCOME IS NOT DERIVED FROM THE ELIGIBLE BUSINESS AS THE BUSINESS HAS NOT STARTED YET, THE ASSESSING OFFICER HAS RIGHTLY TREATED THE PRIOR PERIOD INTEREST AS INCOME. REGARDING THE NETTING OF INTEREST RECEIVED AGAINST THE INTEREST PAID, THE HONBLE MADRAS HIGH COURT IN THE CASE OF CHINAPANDI VS. CIT REPORTED IN 282 ITR 389 (MAD) HAD CATEGORICALLY HELD THAT GROSS INTEREST RECEIVED BY THE ASSESSEE SHOULD BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES NO DEDUCTION U/S.10B BE GRANTED ON THEM. IN VIEW OF THE ABOVE, I DO NOT FIND ANY ERROR IN THE ORDER OF THE ASSESSING OFFICER. THE ADDITION MADE BY THE ASSESSING OFFICER IS SUSTAINED AND THE GROUND IS DISMISSED. 5. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA D NOT CONSIDERED THE WRITTEN SUBMISSIONS DATED 28.08.2013 FILED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS WHILE ARRIVING AT HIS CONCLUSION. HE FURTHER SUBMITTED THAT ASSES SMENT OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER S OURCES IS ERRONEOUS BECAUSE THE PURPOSE OF BANK DEPOSIT WH ICH 6 ITA NO.2187 /MDS/2013 EARNED INTEREST WAS NOT TAKEN INTO CONSIDERATION. I T WAS FURTHER PLEADED THAT THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) DID NOT PROVIDE PROPER OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE DURING THE APPELLATE PROCEEDINGS. HENC E, IT WAS PRAYED BY THE LEARNED AUTHORIZED REPRESENTATIVE THA T THE ADDITION MADE BY THE REVENUE MAY BE DELETED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND, STRONGLY ARGUED IN SUPPORT OF THE ORDERS OF T HE REVENUE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. ON SCRUT INIZING THE BALANCE SHEET OF THE ASSESSEE, WE FIND THAT THE ASS ESSEE HAS BANK BALANCE OF RS.32,50,01,455/-, AND AT THE SAME TIME SUNDRY CREDITORS AMOUNTING TO RS. 37,25,87,392/-. THEREFORE, IT APPEARS THAT AGAINST THE INTEREST EARNED BY THE ASSESSEE THERE WOULD BE CORRESPONDING EXPENDITURE IN TERMS O F INTEREST EXPENDITURE IN WHICH CASE, IT SHOULD BE ALLOWED AS DEDUCTION AS PER THE PROVISIONS OF SECTION 57 OF THE ACT. FU RTHER, FROM THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED 7 ITA NO.2187 /MDS/2013 COMMISSIONER OF INCOME TAX (APPEALS) WE ARE NOT ABL E TO APPRECIATE THE ENTIRE FACTS OF THE CASE. THEREFORE, IN THE INTEREST OF JUSTICE, WE HEREBY REMIT THE MATTER BAC K TO THE FILE OF THE ASSESSING OFFICER TO ANALYZE THE ENTIRE FACT S OF THE CASE AND THEREAFTER PASS APPROPRIATE ORDER AS PER L AW & MERIT KEEPING IN VIEW OF OUR OBSERVATIONS AND VERIFYING T HE FACTS THEREIN. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH JUNE, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 9 TH JUNE, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF