I.T.O., Ward-8(4), Kolkata, Kolkata V. M/s Hoogly Met Coke and Power Co. Ltd, Kolkata

ITA 2259/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4510 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Keywords: Opportunity of being heard; Capital expenditure
• Section: 56

Judgement Text

1 ITA NO.2259/KOL/2016 HOOGHLY MET COKE & POWER CO. LTD., AY- 2009-10 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA ( ) BEFORE . . , /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH , AM] I.T.A. NO. 2259/KOL/2016 ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER, WD-8(4), KOLKATA VS. HOOGHLY ME T COKE & POWER CO. LTD. (SINCE MERGED WITH TATA STEEL LTD.) (PAN: AABCH5447G) APPELLANT RESPONDENT DATE OF HEARING 15.05.2018 DATE OF PRONOUNCEMENT 08.08.2018 FOR THE APPELLANT SHRI A. BHATTACHARJEE, ADDL. CIT FOR THE RESPONDENT SHRI KIRIT KAMDAR, AR ORDER PER SHRI A.T.VARKEY, JM THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDE R OF LD. CIT(A)-16, KOLKATA DATED 16.09.2016 FOR AY 2009-10. 2. GROUND NO. 1 OF REVENUES APPEAL IS AGAINST THE ACTION OF LD. CIT(A) IN TREATING THE INTEREST INCOME NOT AS INCOME UNDER THE INCOME FRO M OTHER SOURCES. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AO FOUND THAT THE ASSESSEE EARNED INTEREST OF RS.171.71 LAKH ON ADVANCES GIVEN AND THE SAID IN TEREST WAS ADJUSTED AS PREOPERATIVE EXPENSES CAPITALIZED IN THE ACCOUNTS. THE AO ASKED THE ASSESSEE TO EXPLAIN THE ADMISSIBILITY OF ITS CLAIM AND AS TO WHY THE INTERE ST OF RS.171.71 LAKHS SHOULD NOT BE CHARGED TO TAX AS REVENUE RECEIPT. IN RESPONSE, THE ASSESSEE FILED WRITTEN SUBMISSION AND AFTER PERUSING THE WRITTEN SUBMISSION OF THE ASSESS EE AND HEARING THE ARGUMENTS OF THE AR, THE AO CAME TO THE CONCLUSION AS UNDER: THE CLAIM OF THE ASSESSEE AND THE ARGUMENTS OF TH E A/R ARE NOT WELL FOUNDED. THE CLEAR FACT IS THAT THE ASSESSEE RECEIVED THE INTEREST OF RS.17 1.71 LAKH FROM TPC ON CERTAIN RECEIVABLE BEING SALE PRICE OF TWO POWER PLANTS SOLD BY THE AS SESSEE TO TPC. THE TPC WAS REQUIRED TO PAY INTEREST @ 8.5% ON THE UNPAID SALE PRICE TREATE D AS 'ADVANCE' IN THE HAND OF TPC. THE COMMISSIONING OF TWO NEW POWER PLANTS BY THE ASSESS EE IS THE SOLE REQUIREMENT OF THE 2 ITA NO.2259/KOL/2016 HOOGHLY MET COKE & POWER CO. LTD., AY- 2009-10 ASSESSEE'S BUSINESS AND NOT OF THE TPC'S BUSINESS. IT IS ALSO NOT THE CASE THAT THE TPC ACTED IN ANY MANNER AS A CONTRACTOR FOR THE ASSESSEE COMPANY IN THE COMMISSIONING OF THE ASSESSEE'S POWER PLANTS FOR WHICH ANY ADVANCE WAS GIVEN TO IT. SO THERE HAS BEEN NO NEXUS BETWEEN THE EARNING OF INTEREST ON THE MONEY RECEIVABLE FROM TP C AND THE COMMISSIONING OF THE NEW POWER PLANTS OF THE ASSESSEE COMPANY. THEREFORE, TH E INTEREST INCOME OF RS.171.71 LAKH HAS NO NEXUS WITH THE PREOPERATIVE EXPENSES INCURRED BY TH E ASSESSEE. IN THIS VIEW OF THE MATTER, THE INTEREST OF RS.171.71 LAKH IS ASSESSED AS INCOME FR OM OTHER SOURCES U/S 56 AND CHARGED TO TAX ACCORDINGLY. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO RELYING ON THE DECISION OF HIS PREDECESSOR FOR AY 2007-08 DELETED THE ADDITION. AGGRIEVED, REVENUE IS BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY GO NE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT LD. CIT(A) HAS DECIDED THE ISSUE BASED ON THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2007-08. HOWEVER, WE NOTE THAT THE LD. CIT(A)S ORDER FOR AY 2007-08 WAS DEALT BY THE TRIBUNAL AS UNDER: 8.SIMILARLY AS REGARDS ASSESSMENT OF RS.5,62,22,05 6/- REPRESENTING INTEREST FROM TATA POWER COMPANY LTD. THE LD. CIT(A) HAS REFERRED TO THE CER TIFICATE FROM THE CHARTERED ACCOUNTANT IN THIS REGARD. THE ID. CIT(A) HAS NOTED THAT FROM THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT IT WAS OBSERVED THAT A SUM OF RS.5,62,22 ,056/- WAS THE TOTAL INTEREST PAID BY THE ASSESSEE ON TERM LOAN REGARDING THE CAPITAL EXPENDI TURE MADE BY THE ASSESSEE ON ACCOUNT OF POWER PLANT AND IT WAS THIS INTEREST ONLY THE ASSES SEE HAS RECOVERED FROM TATA POWER COMPANY LTD. ON HANDING OVER OF THE OWNERSHIP OF TWO UNITS OF POWER PLANT TO THAT COMPANY. IN THIS VIEW OF THE MATTER THE LD. CIT(A) OBSERVED THAT THE SAID INTEREST WAS ONLY RECOVERED AND ACTUAL EXPENDITURE WAS INCURRED BY THE ASSESSEE TOWARDS SE TTING UP OF THE PLANT. HENCE HE OBSERVED THAT THIS DID NOT INVOLVE ANY ELEMENT OF INCOME AND THE SAME WAS NOT LIABLE TO BE TAXED AS INCOME. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RECORDS. WE FIND THAT AS ALSO HELD BY US WHILE DECIDING THE ISSUE OF INTEREST REC EIVED EARLIER THE ONLY DISPUTE IS THAT IF A SUM INVOLVED WAS ONLY RECOVERY OF ACTUAL EXPENDITURE IN CURRED BY THE ASSESSEE TOWARDS SETTING UP OF THE POWER PLANT THE SAME WOULD NOT BE TAXABLE AS IN COME. HOWEVER, THE FACTS IN THIS REGARD ARE ALSO BASED UPON ONLY THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANTS THE VERACITY OF WHICH HAS NOT BEEN EXAMINED BY THE REVENUE. IN THESE CIR CUMSTANCES ON THE SAME REASONING AS IN THE PREVIOUS ISSUE WE REMIT THIS ISSUE ALSO TO THE FILE OF THE AO. 6. SINCE THE TRIBUNAL HAS REMITTED THE ISSUE BACK TO FILE OF THE AO TO EXAMINE THE VERACITY OF THE FACTS CERTIFIED BY THE CHARTERED AC COUNTANT AND WE NOTE THAT THE FACTS OF THE INSTANT CASE IS AKIN TO THE EARLIER YEAR, SO, WE AL SO REMIT THE ISSUE ON HAND BACK TO THE FILE OF THE AO ON THE SAME REASONING AS IN THE PREVIOUS ISS UE WITH THE SAME OBSERVATION THAT THE SUM IN QUESTION WAS ONLY RECOVERY OF THE ACTUAL EXP ENDITURE INCURRED BY THE ASSESSEE TOWARDS SETTING UP OF POWER PLANT THE SAME IS NOT I NCOME AND IT CANNOT BE TAXABLE. 3 ITA NO.2259/KOL/2016 HOOGHLY MET COKE & POWER CO. LTD., AY- 2009-10 THEREFORE, THE CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT CAN BE VERIFIED BY AO AND THE VERACITY OF THE FACT CAN BE EXAMINED BY THE AO AFRE SH AND IF FOUND CORRECT NEED TO BE ALLOWED IN ACCORDANCE TO LAW. THEREFORE, THIS GROU ND OF APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NO. 2 OF REVENUES APPEAL IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF PRELIMINARY EXPENSES U/S. 35D OF TH E INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 8. BRIEFLY STATED FACTS ARE THAT THE AO NOTED THAT IN COMPUTING INCOME FROM BUSINESS THE ASSESSEE CLAIMED DEDUCTION U/S. 35D OF THE ACT AMOU NTING TO RS.35,22,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO CALLED FOR DETAILS OF EXPENSES WHEREFROM THE AO OBSERVED THAT THE PRELIMINARY EXPENSES INCLUDED A S UM OF RS.23,94,000/- WHICH WAS PAID TO ROC ON 15.06.2006 FOR INCREASE IN AUTHORIZED CAPITA L OF THE COMPANY. ACCORDING TO AO, THE EXPENDITURE CLAIMED BY THE ASSESSEE AS DEDUCTIO N U/S. 35 OF THE ACT IS INCORRECT AS THE EXPENDITURE PAID TO ROC AS FEE FOR INCREASING THE A UTHORIZED SHARE CAPITAL IS A CAPITAL EXPENDITURE AND HENCE, BY RELYING ON THE DECISION R ENDERED BY HONBLE SUPREME COURT IN PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD . VS. CIT (1997) 225 ITR 792 (SC) THE AO DISALLOWED A SUM OF RS.4,78,000/- BEING ONE-FIFT H OF RS.23,94,000/- OUT OF THE TOTAL AMOUNT OF RS.35,22,000/- CLAIMED BY THE ASSESSEE FO R DEDUCTION U/S. 35D OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO DELETED THE ADDITION BY OBSERVING AS UNDER: GROUND NO. 6 DEALS WITH DISALLOWANCE OF PRELIMINA RY EXPENSES U/S. 35D OF RS.4,78,800/-. THE AO HAS DISALLOWED THE CLAIM OF THE APPELLANT RE LYING ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELO PMENT CORPORATION LIMITED VS. CIT (1997) 225 ITR 792 WHEREIN IT WAS HELD THAT THE ASSESSEE I S NOT ENTITLED TO AMORTIZATION OF EXPENDITURE FEE AS A RESULT OF INCREASE IN THE SHAR E CAPITAL U/S. 35D(2)(C)(III) BUT THE ASSESSEE HAS SUBMITTED THAT THE AO HAS WRONGLY DISALLOWED TH E AMOUNT WHICH THE APPELLANT COMPANY HAS SUO MOTO NOT CONSIDERED FOR THE PURPOSE OF CLAI M. I FIND MERIT IN THIS SUBMISSION OF THE A.R. HENCE, THE ADDITION MADE BY THE AO IS DELETED . AGGRIEVED, REVENUE IS BEFORE US. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO HAS DISALLOWED THE CLAIM OF ASSESSEE RELYING ON THE DECISION OF 4 ITA NO.2259/KOL/2016 HOOGHLY MET COKE & POWER CO. LTD., AY- 2009-10 HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE I NDUSTRIAL DEVELOPMENT CORPORATION LTD. (SUPRA) WHEREIN THE HONBLE SUPREME COURT HELD THAT THE ASSESSEE IS NOT ENTITLED TO AMORTIZATION OF EXPENDITURE FEE AS A RESULT OF INCR EASE IN SHARE CAPITAL U/S. 35D(2)(C)(III) OF THE ACT. HOWEVER, ACCORDING TO ASSESSEE, THE AO HA S WRONGLY DISALLOWED THE AMOUNT WHICH THE ASSESSEE COMPANY HAS NOT CONSIDERED EVEN FOR TH E PURPOSE OF CLAIM. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION AS MADE BY THE AO TAKIN G NOTE OF THIS FACT AS CONTENDED BY THE ASSESSEE. THIS FACT WE NOTE HAS NOT BEEN VERIFIED BY THE AO AND IN ORDER TO DO SO, WE SET ASIDE THE ACTION OF THE LD. CIT(A) AND REMIT THE IS SUE BACK TO THE FILE OF THE AO FOR VERIFICATION OF THE FACTUAL FINDING AS RENDERED BY THE LD. CIT(A) AND IF FOUND CORRECT , NO DISALLOWANCE IS CALLED FOR. NEEDLESS TO SAY, REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BE GIVEN DURING VERIFICATION OF THE FACT. THIS GROUND OF APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.08.2018 SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :8 TH AUGUST, 2018 JD.(SR. P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT ITO, WARD-8(4), KOLKATA. 2 RESPONDENT HOOGHLY MET COKE & POWER CO. LTD. (S INCE MERGED WITH TATA STEEL LTD.), TATA CENTRE, 43, J. L. NEHRU ROAD , KOLKATA-700 071. 3. THE CIT(A) -16, KOLKATA. (SENT THROUGH E-MAIL) 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY