Milan Kumar Aggarwal(HUF), Gurugram V. ITO, Ward-2(5), Gurugram

ITA 2984/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7869 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 27-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Keywords: Capital asset; Depreciation; Capital receipt; Capital expenditure; Set aside
• Section: 56

Judgement Text

1 ITA NO. 2948/DEL/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 2948/DEL/2018 ( A .Y 2013-14) M/S TRIUMPH REALTY (P) LTD. THE GRAND HOTEL GATE NO.4, PLOT NO-2 NELSON MANDELA ROAD, VASANT KUNJ, PHASE-II NEW DELHI-110070 PAN: AACCT8092L (APPELLANT) VS ITO WARD-25(4) NEW DELHI (RESPONDENT) APPELLANT BY SH. VINOD BINDAL, CA RESPONDENT BY SH. SARAS KUMAR, SR DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 15/01/2018 PASSED BY CIT(A)-9, NEW DELHI FOR ASSESSMENT YEAR 2013-14. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOL DING THE INTEREST OF RS. 6,55,69,400/- EARNED ON FDRS AS INCOME FROM OTHER SOURCES IGNORING THE FACTS THAT THE HOTEL OF THE ASSESSEE IS UNDER CONST RUCTION AND BUSINESS OF THE ASSESSEE HAS NOT COMMENCED AND THE FUNDS ON WHICH I NTEREST WAS EARNED WERE INEXTRICABLY LINKED TO THE SETTING UP OF THE H OTEL AND THUS THE SAID DATE OF HEARING 15.07.2020 DATE OF PRONOUNCEMENT 27.08.2020 2 ITA NO. 2948/DEL/2018 INTEREST INCOME HAS BEEN NETTED OFF AGAINST THE INT EREST PAID BY THE ASSESSEE AND ALSO IGNORING THE SUBMISSIONS AND EVIDENCES PLA CED ON RECORD. THUS THE ADDITION SO MADE SHOULD BE DELETED. 3. THE ASSESSEE IS A COMPANY RUNNING A FIVE STAR H OTEL IN GOA. DURING THE YEAR UNDER CONSIDERATION, THE HOTEL OF THE ASSESSEE WAS IN PROCESS OF CONSTRUCTION. THE ASSESSEE HAS TAKEN AN ECB FOR FUN DING THE SAID CONSTRUCTION AND WHICH WAS PARKED IN THE FDRS DURING THE YEAR. T HE ASSESSEE HAS DEDUCTED INTEREST EARNED ON FDR AT RS. 6.49 CRORES AS PER TH E BALANCE SHEET AND NETTED THE FINANCIAL COST AT RS. 7.33 CRORES. THE ASSESSIN G OFFICER OBSERVED THAT THE INTEREST EARNED ON FDR AMOUNTING TO RS. 4,49,34,958 /- HAS NOT BEEN SHOWN AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS PER SECTION 56 OF THE INCOME TAX ACT, 1961. WHEREAS, AS PER THE 26AS, THE ASSESSEE RECEIVED INTEREST AMOUNTING TO RS. 6,55,69,400/-. THE ASSESS ING OFFICER AFTER CONSIDERING THE REPLY AND DOCUMENTS OF THE ASSESSEE MADE AN ADDITION OF RS. 6,55,69,400/- BY HOLDING THE INTEREST EARNED ON FDR S AS INCOME FROM OTHER SOURCES. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT IN THE EARLIER YEAR FO R ASSESSMENT YEAR 2012- 13, THE FACTS WERE IDENTICAL AND THE TRIBUNAL HAS D ECIDED THE APPEAL OF THE ASSESSEE IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 29/11/2019 BEING ITA NO. 6597/DEL/2016. THE LD. AR SUBMITTED THAT THE ASSESS ING OFFICER ERRED IN LAW AND ON FACTS IN CONSIDERING THE INTEREST OF RS 6,55 ,69,400/-EARNED ON FDRS DURING THE PERIOD, WHEN THE HOTEL OF THE ASSESSEE I S UNDER CONSTRUCTION AND BUSINESS OF THE ASSESSEE HAS NOT COMMENCED, AS INC OME FROM OTHER SOURCES IGNORING THE FACT THAT THE SAID INTEREST INCOME HAS BEEN NETTED OFF AGAINST THE INTEREST PAID BY THE ASSESSEE AND THE SUBMISSIONS A ND EVIDENCES PLACED ON RECORD. THUS THE LD. AR PRAYED THAT THE ADDITION SO MADE SHOULD BE DELETED. 3 ITA NO. 2948/DEL/2018 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR A SSESSMENT YEAR 2012-13 BEING ITA NO. 6597/DEL/2016 DATED 29.11.2019 HELD A S UNDER: 6 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF T HE MATERIAL PLACED ON RECORD AND THE JUDGMENTS RELIED UPON BY THE ID. COU NSEL, WE FIND THAT IT IS UNDISPUTED FACT AND EVEN ACCEPTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS TAKEN FOREIGN ECB LOAN OF RS.82.37 CRORES FOR T HE PURPOSE OF ACQUISITION OF A CAPITAL ASSET, I.E., RENOVATION AND REFURBISHM ENT OF HOTEL ACQUIRED BY THE ASSESSEE UNDER SARFEASI ACT FROM SBI, MUMBAI. THE E NTIRE ECB LOAN WAS DISBURSED IN A SINGLE TRENCH IN THE YEAR UNDER CONS IDERATION AND TILL THIS YEAR, THE ASSESSEE COULD UTILIZE ONLY RS.33.70 CRORES AND WAS CONSIDERED IN THE CAPITAL WIP. THE ASSESSEE HAS TEMPORARILY PARKED TH E ECB LOAN IN FDRS TILL UTILIZATION FOR FIXED ASSET/CAPITAL EXPENDITURE STR ICTLY IN COMPLIANCE WITH THE RBI INSTRUCTION. THE ASSESSEE HAD PAID INTEREST AMO UNT OF RS. 13.38 CRORES AND HAS EARNED INTEREST ON FDRS OF RS.4.03 CRORES. THE NET AMOUNT OF INTEREST OF RS.9.35 CRORES HAS BEEN ADDED TO THE PREOPERATIV E EXPENDITURE PENDING CAPITALIZATION, I.E. IN CAPITAL WIP. THERE IS NO QU ARREL THAT THE INTEREST PAID ON ECB LOAN HAS BEEN CAPITALIZED. WAY BACK IN THE YEAR 1974, HONBLE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGARS LTD. VS. CIT, 98 ITR 167 (SC) HAD EXAMINED THE QUESTION WHETHER INTEREST PAID BEFORE COMMENCEMENT OF PRODUCTION BY A COMPANY ON THE AMOUNT BORROWED FOR ACQUISITION, INSTALLATION OF PLANT AND MACHINERY WOULD FORM PART OF ACTUAL CO ST OF THE ASSET, ASSESSEE WILL BE ENTITLED TO DEPRECIATION ALLOWANCE AND DEVE LOPMENT REBATE WITH REFERENCE TO SUCH INTEREST ALSO. THEIR LORDSHIPS HE LD THAT IF ASSESSEE HAS RECEIVED ANY AMOUNT WHICH IS INEXTRICABLY LINKED WI TH THE SETTING UP OF PLANT AND MACHINERY, THEN SUCH RECEIPT WILL ONLY GO TO RE DUCE THE COST OF FIXED ASSET. THIS PRINCIPLE WAS FOLLOWED BY HONBLE SUPREME COUR T IN THE CASE OF BOKARO STEEL LTD. (SUPRA) AND ALSO IN THE CASES OF CIT VS. KARNAL COO PERATIVE SUGAR 4 ITA NO. 2948/DEL/2018 MILLS LTD.(SUPRA) AND CIT VS. KARNATAKA POWER CORPORATION (SUPRA). THE ID. ASSESSING OFFICER HAS RELIED UPON THE JUDGMENT OF H ONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZ ERS LTD.(SUPRA) TO TAX THE INTEREST EARNED ON FDRS AS INCOME FROM OTHER SOURCE S ON THE FACTS OF THE PRESENT CASE. THIS PRECISE ISSUE HAD CAME UP IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA), WHEREIN EXPLAINING THE PRINCIPLE LAID DOWN IN THE DECISION OF TUTICORIN ALKALI CHEMICALS AND FERT ILIZERS LTD., BOKARO STEEL LTD. AND CHALLAPALLI SUGARS LTD. (SUPRA), THE HONB LE JURISDICTIONAL COURT HELD THAT THE TEST WHICH PERMEATES THROUGH THE JUDGMENT IN TUTICORIN ALKALI CHEMICALS (SUPRA) IS THAT, IF FUNDS HAVE BEEN BORRO WED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRT UE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS, THE INCOME EAR NED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER S OURCES. ON THE OTHER HAND, THE RATIO OF SUPREME COURT JUDGMENT IN BOKARO STEEL LTD. (SUPRA) IS THAT IF INCOME IS EARNED WHETHER BY WAY OF INTEREST OR I N ANY OTHER MANNER OR THE FUNDS, WHICH ARE OTHERWISE INEXTRICABLY LINKED WITH SETTING UP OF A PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PREOPERATIVE EXPENSES. .. 8. THE SEQUITOR OF THE JUDGMENT OF HONBLE SUPREME COURT AND HONBLE JURISDICTIONAL HIGH COURT IS THAT IF THE FUNDS HAVE BEEN RAISED FOR THE PURPOSE OF SETTING UP OF A PLANT OR ACQUISITION OF CAPITAL ASSET THEN THE FUNDS HAVE TO BE INEXTRICABLY LINKED WITH THE ACTIVITIES OF THE P LANT AND IF SUCH FUNDS HAVE BEEN PUT IN FDRS, THEN INTEREST RECEIVED WILL BE A CAPITAL RECEIPT AND CANNOT BE TAXED AS INCOME FROM OTHER SOURCES. RESPECTFULLY FOLLOWING THE AFORESAID PRINCIPLE, WHICH IS APPLICABLE ON THE FACTS OF THE PRESENT CASE ALSO, WE HOLD THAT ONCE THE ECB LOAN WHICH IS TO BE UTILIZED FOR CAPITAL EXPENDITURE ONLY, THEN, ANY INTEREST EARNED ON FUNDS TEMPORARILY PARK ED IN FDRS IS INEXTRICABLY LINKED WITH THE SETTING UP OF HOTEL OF THE ASSESSEE , WHICH IS TO BE HELD AS CAPITAL RECEIPTS ONLY AND IS PERMITTED TO BE SET OF F AGAINST THE CAPITAL EXPENDITURE. THE DECISION OF CIT (A) IS IN LINE WIT H THE JUDICIAL PRECEDENCE AND 5 ITA NO. 2948/DEL/2018 THEREFORE, THE IMPUGNED ORDER OF THE ID. CIT (A) IS UPHELD. CONSEQUENTLY, THE APPEAL OF THE REVENUE IS DISMISSED. IN THIS PARTICULAR YEAR ALSO, THE INTEREST ON FDRS DURING THE PERIOD HAS BEEN NETTED OFF AGAINST INTEREST PAID BY THE ASSESSEE WH ICH IS IDENTICAL TO THE FACT OF EARLIER ASSESSMENT YEAR 2012-13. THERE IS NO CHANGE IN THE CIRCUMSTANCES IN THIS YEAR. THEREFORE, THE CIT(A) WAS NOT CORRECT IN CONFIRMING THE ADDITION BY TAKING DIFFERENT OPINION FROM THE EARLIER A.Y. 2012 -13 TAKEN BY THE EARLIER CIT(A). IT IS PERTINENT TO NOTE THAT ONCE THE ECB L OAN WHICH IS TO BE UTILIZED FOR CAPITAL EXPENDITURE ONLY, THEN, ANY INTEREST EARNED ON FUNDS TEMPORARILY PARKED IN FDRS IS INEXTRICABLY LINKED WITH THE SETT ING UP OF HOTEL OF THE ASSESSEE, AND THE SAME SHOULD BE HELD AS CAPITAL RE CEIPTS ONLY AND IS PERMITTED TO BE SET OFF AGAINST THE CAPITAL EXPENDITURE AS PE R THE PROVISIONS OF INCOME TAX ACT. THE ORDER OF THE CIT(A) IS SET ASIDE. HENCE, A PPEAL OF THE ASSESSEE IS ALLOWED. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF AUGUST, 2020 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 27/08/2020 R. NAHEED 6 ITA NO. 2948/DEL/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI