The Dhamra Port Company Ltd, Bhubaneswar V. DCIT, Bhubaneswar

ITA 264/CTK/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52419 (ITAT-CUTTACK)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: B K MOHAPATRAA K SABATARS
• Keywords: Capital receipt; Capital expenditure
• Section: 143(3); 80HHC

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 264/CTK/2011 (ASSESSMENT YEAR 2006 - 07) THE DHAMRA PORT COMPANY LIMITED, 2 ND FLOOR, FORTUNE TOWERS, CHANDRASEKHARPUR, BHUBAN ESWAR PAN: AABCD 0602 P VERSUS ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1) AT PRESENT DCIT, CIRCLE 2(2), BHUBANESWAR . (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI B.K.MOHAPATRA/A.K.SABAT,ARS FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HE ARING : 20.10.2011 DATE OF PRONOUNCEMENT : 09.11.2011 ORDER SHRI K.S.S.PRASAD RAO, JM : THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) DT. 9.2.2011 FOR THE ASSESSMENT YEA R 2006 - 07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN GROUND NOS.2 AND 3 IN ITS GROUNDS OF APPEAL, AS UNDER. 2. NON TAXABILITY OF INTEREST - RS.1,21,78,928/ - A. THAT THE LEARNED CIT(APPEALS) OUGHT HAVE HELD THAT THE WHOLE OF INTEREST OF RS. 1,21,7 8,928/ - BEING INEXTRICABLY LINKED TO THE SETTING UP OF THE DHAMRA PORT PROJECT AT DHAMRA L3HADRAK DISTRICT, ORISSA, BY THE ASSESSEE (DPCL) IS CAPITAL RECEIPT AND NOT EXIGIBLE TO INCOME TAX AND HENCE TO BE EXCLUDED FROM THE TOTAL INCOME. B. THAT THE LEARNED CIT(APPEALS) HAS MIS - APPRECIATED! MISCONSTRUED THE FACTS AND HIS ORDER IN HOLDING THAT THE INTEREST EARNED HAS NO LINK WITH THE SETTING UP OF THE DHAMRA PORT PROJECT IS ON IRRELEVANT CONSIDERATIONS, CONTRARY TO FACTS, ARBITRARY, ERRONEOUS AND BAD IN LAW. C. THAT THE LEARNED CIT(APPEALS) HAS MIS - APPRECIATED /MISCONSTRUED THE FACTS AND HIS CONCLUSION THAT THE RATIO IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V. ITO. REPORTED IN (2009) 315 ITR 255 IS NOT APPLICABLE IS ON IRRELEVANT CONSIDERATIONS, ARBITRARY, ERRONEOUS AND BAD IN LAW. D. THAT THE INTEREST FROM BANK DEPOSITS OF RS. 1,21,78,928/ - IS NOT TO BE INCLUDED IN TOTAL INCOME ULS.56 OF THE ACT. 3. DISALLOWANCE OF RS.3 ,00,000/ - : WITHOUT PREJUDICE TO GROUNDS (1) & (2) ABOVE, IN THE ALTERNATIVE: A. THE LEAR NED CIT(APPEALS) OUGHT NOT HAVE SUSTAINED THE DISALLOWANCE OF RS.3,00,000/ - FROM INTEREST INCOME. 2 B. THE ORDER OF THE LEARNED CIT(APPEALS) IN SUSTAINING THE DISALLOWANCE OF EXPENSES OF RS.3,00,000/ - U/S. 57(III) OF INCOME TAX ACT, 1961 IS BASED ON IRRELEVA NT CONSIDERATIONS, CONTRARY TO FACTS, ARBITRARY, EXCESSIVE, ERRONEOUS AND BAD IN LAW. C. THAT BOTH THE LEARNED AO AS WELL AS CIT(APPEALS) HAS MIS - APPRECIATED THE RELEVANCE OF THE CBDT CIRCULAR NO.621 DATED 19.12.1991 IN THE FACTS OF THE CASE OF THE ASSESSE E AND HAS ERRED IN NOT ALLOWING THE DEDUCTION OF RS.3,00 ,000/ - U/S.57(III) OF I.T. ACT. 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED BY THE ASSESSEE AND THEIR LEGAL IMPLICATIONS. 4. ON CAREFUL CONSIDERATION OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL IN THE LIGHT OF THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, THE UNDISPUTED FACTS RELATING TO THE ISSUES ARE THAT THE ASSESSEE COMPANY IS A 50:50 JOINT VENTURE OF TATA STEEL AND L&T, IS SETTING UP A PORT AT DHAMRA, ORISSA UNDER THE CONCESSION AGREEMENT ENTERED INTO WITH THE GOVT OF ORISSA . THE PROJECT IS IN PRE - OPERATIVE STAGE AND IS YET TO COMMENCE COMMERCIAL ACTIVITY. FOR THE IMPLEMENTATION OF THE PROJECT BOTH THE PROMOTERS HAVE BROUGHT IN SHARE CAPITAL TOWARDS MEETING VARIOUS EXPENSES OF THE PROJECT. DURING THE ASSESSMENT YEAR 2006 - 07, THE PROJECT WAS IN FULL FLEDGED CONSTRUCTION STAGE AND CONSIDERABLE PROGRESS HAD BEEN MADE IN PROJECT ACTIVITIES WITH CONSIDERABLE PORTION OF LAND TAKEN UP, AGREEMENTS SIGNED FOR CONSTRUCTION, LOAN SYNDIC ATION COM PLETED WITH CONSORTIUM OF BANKS/ FINANCIAL INSTITUTIONS ETC. AND THE OPERATIONS WERE MAINLY FROM BHUBANESWAR OFFICE. THUS MAINTAINING THE CORPORATE ENTITY & COMPLIANCE THEREOF ALONGWITH OBTAINING FUNDS INCLUDING FROM THE PROMOTERS AND KEEPING THE F UNDS IN BANK DE POSITS WERE ACTIVITIES OF THE FIN ANCE AND ADMINISTRATIVE SETUP WITH DIRECT NEXUS FOR MAINTAINING THE FUNDS LIQUID AND SAFE ALONG WITH CERTAIN EARNING TO MEET PORTION OF RELATED EXPENSES OF THE COMPANY. O UT OF THE AMOUNTS RECEIVED FROM PROMOT ERS TOWARDS SHARE CAPITAL, AFTER METICULOUS PLANNING CARRIED OUT FROM TIME TO TIME CERTAIN AMOUNTS HAD BEEN PLACED IN TERM DEPOSITS WITH 3 BANKS TAKING INTO ACCOUNT THE EXPENSES TO BE SPENT FOR THE SAID PROJECT INCLUDING FOR MAINTAINING THE CORPORATE ENTIT Y UNDER THE COMPANIES ACT, 1956 AND THE COMPANY HAD EARNED INTEREST ON SUCH DEPOSITS FROM BANKS AS PART OF THIS PLANNING. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS EARNED INTEREST OF 1, 21,78,928 FROM BANK DEPOSITS. ALTHOUGH THE STAFFS DEPLOYED WERE PRIMARILY ENGAGED IN THE PROJECT ACTIVITIES, IN ORDER TO EARN SUCH INCOME, THE COMPANY HAD TO DO SOME FUNCTIONS OF FINANCIAL PLANNING, BUDGETING AND FORECASTING OF PROJECT EXPENSES. NECESS ARY STEPS WERE TAKEN TO SELECT THE BANK OFFERING SUITABLE RETURNS. ENCASHMENT OF DE POSITS/ RENEWAL OF DEPOSITS WERE REQUIRED TO BE DONE FROM TIME TO TIME. NECESSARY INTERNAL APPROVALS WERE REQUIRED TO BE TAKEN FROM HIGHER LEVELS OF MANAGEMENT FOR MAKING THE INVESTMENTS AND WITHDRAWAL OF SUCH INVESTMENTS AS AND WHEN REQUIRED FOR THE PROJECT IMPLEMENTATION. THE ABOVE MENTIONED ACTIVITIES REQUIRE TIME AND ATTENTION OF FINANCE DEPARTMENT OF THE COMPANY AS WELL AS TOP MANAGEMENT. ACCORDINGLY, THE ASSESS EE HAS INC URRED EXPENSES OF 3,00,000 WHOLLY AND EXCLUSIVELY FOR EARNING THE SAID INTEREST INCOME. THE AFORESAID INTEREST INCOME AFTER TAKING INTO ACCOUNT THE EXPENSES OF 3,00, 000, BEING A BARE MINIMUM AND VERY REASONABLE AMOUNT, CONSIDERED VOLUNTARILY FOR EARNING THE AFORESAID INTEREST INCOME HAS BEEN OFFERED FOR TAXATION UNDER INCOME FROM OTHER SOURCES SINCE THE COMPANY IS YET TO COMMENCE BUSINESS ACTIVITY BEING IN THE PRE - CONSTRUCTION STAGE. THE DETAILS OF AMOUNTS SPENT WHOLLY AND EXCLUSIVELY FOR EARNING THE INTEREST INCOME WAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ADDITIONALLY, THE ASSESSEE COMPANY HAD CONTENDED THAT LIMITING SUCH EXPENSES TO RS.3,00,000 IS A BARE MINIMUM AND VERY REASONABLE ALSO KEEPING IN VIEW THE SPIRIT OF THE CBDT CIRCULA R NO.621 DATED 19.12.1991 AND ACCORDINGLY THE STAND HAS BEEN TAKEN THAT ONLY THE BALANCE AMOUNT IS TO BE CONSIDERED IN COMPUTING THE 4 TOTAL TAXABLE INCOME. THE INCOME TAX RETURN OF THE COMPANY FOR THE ASSESSMENT YEAR 2006 - 07 WAS FILED AT A TOTAL INCOME OF 1,18,78,928 TAKING INTO ACCOUNT THE INTEREST INCOME EARNED FROM BANK AND AFTER DEDUCTING THE EXPENSES OF 3,00,000 INCURRED FOR EARNING THE SAID INCOME . THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER DATED 19.12.2008 U/S 143(3) OF THE INCOME TAX ACT ON MIS - APPRECIATION OF FACTS AND ERRONEOUS PREMISE HAS ADDED/ DISALLOWED THE AFORESAID EXPENSES OF 3, 00,000 AND HAS ASSESSED THE TOTAL INCOME AT 1,21,78,928 BEING THE GROSS INTEREST INCOME AND ACCORDINGLY RAISED DEMAND . AGGRIEVED, THE ASSESSEE WENT IN APPE AL BEFORE THE LEARNED CIT(A) AND BEING UNSUCCESSFUL HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. DURING THE COURSE OF HEARING, THE LEARNED AR OF THE ASSESSEE HAS VEHEMENTLY ARGUED CONTENDING INTERALIA THAT THE INTEREST AMOUNT IN QUESTION IS DERIVE D BY THE ASSESSEE ON THE CAPITAL CONTRIBUTION RECEIVED BY THE ASSESSEE FROM DIFFERENT PARTIES AND/OR PARTNERS. SINCE THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS ALL THE EXPENSES INCURRED TILL THE COMMENCEMENT OF BUSINESS ARE TO BE CAPITALIZED AS REQUIRED UNDER THE COMPANIES ACT BUT FOR TAXATION PURPOSE THE ASSESSEE HAS TO FILE THE RETURN DISCLOSING THE INCOME THAT HAS EARNED. ACCORDINGLY, THE ASSESSEE HAS OFFERED THE INTEREST INCOME EARNED BY IT, BY CLAIMING 3,00,000 OF THE SAID INCOME AS EXPENSES INCURRE D IN CONNECTION WITH EARNING THAT INCOME. SINCE THE ASSESSEE COMPANY HAS NOT COMMENCED ITS BUSINESS ALL THE ESTABLISHMENT OF THE COMPANY IS FUNCTIONING TO SAFEGUARD THE CONTRIBUTION OF SHARE CAPITALS RECEIVED BY THE ASSESSEE BY INVESTING IN APPROPRIATE FI NANCIAL ORGANIZATIONS WHICH WILL BE ULTIMATELY MORE BENEFICIAL TO THE ASSESSEE. THEREFORE, ALL THE EXPENSES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IS ATTRIBUTABLE TO THE EARNING OF THIS INTEREST INCOME BUT THE ASSESSEE COMPANY HAS CHOSEN TO 5 CLAIM A LIMITED AMOUNT OF 3,00,000 OF THE SAID INTEREST INCOME EARNED BY IT ONLY AS EXPENDITURE INCURRED FOR EARNING THAT INCOME. EVEN THIS CLAIM OF THE ASSESSEE IS NEGATIVE D BY THE DEPARTMENT ON VARIOUS PLEAS WHICH ARE OF NO RELEVA NCE TO THE ISSUE ON HAND. THE CBDT CIRCULAR NO.621 DT.19.12.1991 IS SQUARELY APPLICABLE TO THE FACTS OF THE ISSUE UNDER CONSIDERATION. THEREFORE, THE DEPARTMENTAL AUTHORITIES HAVE MISCONCEIVED THE CONCEPT OF EARNING INCOME FROM OTHER SOURCES AND THEREBY REJECTING THE RIGHTFUL CLAIM MADE BY THE ASSESSEE. THEREFORE, THE ORDERS OF THE DEPARTMENTAL AUTHORITIES ARE NOT SUSTAINABLE FOR LEGAL SCRUTINY. THE ASSESSEE SOUGHT FOR SETTING ASIDE THE ORDERS OF THE DEPARTMENTAL AUTHORITIES BY ALLOWING THE APPEAL OF THE ASSESSEE. 6. CONTRARY TO THIS, THE LEARNED DR HAS VEHEMENTLY ARGUED SUPPORTING THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES AND ASSAILING THE ARGUMENTS ADVANCED BY THE ASSESSEE AND ACCORDINGLY HE SOUGHT FOR DISMISSAL OF THE APPEAL OF THE ASSESSEE BY U PHOLDING THE ORDERS OF THE DEPARTMENTAL AUTHORITIES. 7. ON CAREFUL ANALYSIS OF THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES IN THE LIGHT OF THE SUBMISSIONS OF BOTH THE PARTIES AS WELL AS THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL, IT IS FOUND THAT UN DISPUTEDLY THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS THOUGH ESTABLISHED AS PER THE COMPANIES ACT HAVING ITS OFFICE AT BHUBANESWAR, PROJECT SITE AND AT MUMBAI AND INCURRING EXPENDITURES FOR MAINTAINING ALL THESE OFFICES. THE ASSESSEE IS NOT ABLE TO START ITS BUSINESS DUE TO VARIOUS PROBLEMS SUCH AS OBSERVATION OF VARIOUS PROCEDURAL ASPECTS FOR ACQUIRING LAND ETC., REQUIRED FOR COMMENCING THE BUSINESS. AS THE ASSESSEE HAS RECEIVED CONTRIBUTIONS FROM VARIOUS SOURCES TOWARDS ITS CAPITAL AND THE SAID RECEIPTS WERE PARKED IN BANKS WHICH HAVE EARNED THE INCOME OF INTEREST IN QUESTION, THE ASSESSEE WHILE OFFERING 6 THE SAID INTEREST INCOME FOR TAXATION HAS CLAIMED 3,00,000 OF THE SAID INCOME AS ALLOWABLE EXPENDITURE CONNECTED WITH EARNING SUCH INCOME. THE CLAIM OF THE ASSESSEE IS THAT ALL THE ESTABLISHMENTS OF THE ASSESSEE COMPANY IS ENGAGED IN PLANNING THE PROCEDURE FOR SAFEGUARDING THE FUNDS RECEIVED BY THE ASSESSEE TOWARDS CAPITAL CONTRIBUTION FROM VARIOUS SOURCES BY PARKING THEM WITH NECESSARY FINANCIAL INSTITUT IONS WHICH ARE ULTIMATELY BENEFICIAL TO THE ASSESSEE. THE ASSESSEE IS CLAIM ING THE BENEFIT OF CBDT CIRCULAR NO.621 DT.19.12.1991 BUT THIS CIRCULAR IS ISSUED RELATING TO THE IMPLEMENTATION OF THE PROVISIONS CONTAINED IN SECTION 80HHC OF THE I.T.ACT. THE ASS ESSEE IS CLAIMING THE SAID CIRCULAR ON THE SAME ANALOGY AS APPLICABLE TO SECTION 57 OF THE I.T.ACT ALSO. SECTION 57 OF THE I.T.ACT PROVIDES THAT THE DEDUCTIONS TO BE MADE OUT OF THE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE IS CLAIMING THE BENEFIT OF SUB - SECTION ( III ) OF SECTION 57 WHICH SAYS THAT ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME . THIS PROVISION CLEARLY ENV ISAGES THAT ANY EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE INCOME CHARGEABLE AS INCOME FROM OTHER SOURCES IS ALLOWABLE. IN THE PRESENT CASE IN HAND, THE ASSESSEE IS NOT ABLE TO DEMONSTRATE BY PROVIDING NECESSARY EVIDENCE TO SHOW THAT THE ASSESSE E IS SPENDING ANY AMOUNT FOR EARNING THE INTEREST INCOME RETURNED FOR THE PERIOD UNDER CONSIDERATION. UNDISPUTEDLY THE INCOME RETURNED IS THE INTEREST EARNED ON DEPOSITS OF THE AMOUNT OF THE ASSESSEE COMPANY HAVING RECEIVED FROM DIFFERENT SOURCES TOWARDS C APITAL CONTRIBUTION. THE ASSESSEE HAS CLAIMED EXPENSES OF 3,00,000 FOR EARNING THE INTEREST INCOME, THOUGH IT IS SENDING MORE AMOUNT FOR MAINTAINING OF ITS ESTABLISHMENT AT DIFFERENT LACES. IN THAT VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT T HE CLAIM OF EXPENDITURE OF 3,00,000 FOR EARNING THE 7 INTEREST INCOME OF 1,21,78,928 IS REASONABLE MORE SO THE PRINCIPAL AMOUNT OF DEPOSITS IN BANKS IS NOTHING BUT THE CAPITAL CONTRIBUTION OF VARIOUS SHARE HOLDERS OF THE ASSESSEE. 8. THE DEPARTMENT HAS NEGATIVED THE CLAIM OF THE ASSESSEE RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS THAT WERE ENUMERATED IN THE ORDERS OF THE DEPARTMENTAL AUTHORITIES. IN OUR CONSIDERED VIEW, THE STAND TAKEN BY THE DEPARTMENT IS INCORRECT . HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF THE ASSESSEE IS SUSTAINABLE FOR LEGAL SCRUTINY. HENCE, THE APPEAL OF THE ASSESSEE IS ALLOWED SETTING ASIDE THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . S D/ - S D/ - (K.K.GUPTA ) ACCOUNTANT MEMBER ( K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 9 TH NOVEMBER, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: THE DHAMRA PORT COMPANY LIMITED, 2 ND FLOOR, FORTUNE TOWERS, CHANDRASEKHARPUR, BHUBANESWAR 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(1) AT PRESENT DCIT, CIRCLE 2(2), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.