M/s. GRIDCO Limited, Bhubaneswar V. ACIT, Circle-2(1), Bhubaneswar

ITA 306/CTK/2016

AI Insights

The case involves GRIDCO Limited appealing against the order of the CIT(A)-1, Bhubaneswar, which disallowed certain interest expenditures claimed by the assessee for the assessment year 2010-2011. The primary contention was regarding the treatment of Rs.400 crores worth of bonds received from DISCOMs, which were initially part of the debtors' balance. The assessee argued that these bonds were not a result of any specific investment from interest-bearing funds but were a conversion of receivables into bonds following government instructions due to the turmoil in the power sector. The Revenue argued that the assessee should have shown income from these bonds and thus was liable for disallowance of interest expenses. The Tribunal, after considering the facts, ruled in favor of the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127062 (ITAT-CUTTACK)
• Duration Of Justice: 6 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-02-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 09-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P.V.RAO

Judgement Text

आयकर अऩीऱीय अधधकरण, कटक न्यायऩीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK श्री जाजज माथन, न्याययक सदस्य एवं श्री अरुण खोड़पऩया ऱेखा सदस्य के समक्ष । BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर अऩीऱ सं/ITA No.306/C TK/2016 (ननधाारण वषा / Asses s m ent Year : 2010-2 011) GRIDCO Limited Janpath, Bhoi Nagar, Bhubaneswar-751022 Vs ACIT, Circle-2(1), Bhubaneswar PAN No. :AABCG 5398 P (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) ननधााररती की ओर से /Assessee by : Shri Ved Jain & Shri P.V.Rao, ARs राजस्व की ओर से /Revenue by : Shri M.K.Gautam, CIT-DR स ु नवाई की तारीख / Date of Hearing : 20/02/2023 घोषणा की तारीख/Date of Pronouncement : 20/02/2023 आदेश / O R D E R Per Bench : This is an appeal filed by the assessee against the order of the ld.CIT(A)-1, Bhubaneswar, dated 09.05.2016 passed in I.T.Appeal No.0493/14-15, for the assessment year 2010-2011. 2. It was submitted by the ld. AR that in the course of assessment the AO has taken a view that the assessee had invested Rs.510 crores which includes investment of Rs.110.22 crores in the equity shares of the DISCOMs and Rs.400 crores being the bonds from DISCOMs. It was submitted that the assessee purchases and sells power. The assessee is to receive sale price from the DISCOMs. The DISCOMs do not pay the assessee on time. There being substantial lapses and consequently the debtors in the assessee’s balance sheet representing the DISCOMs had gone to a very high amount. As the power sector itself was undergoing substantial turmoil, the Govt. of India had intervened and had issued ITA No.306/CTK/2016 2 instructions and on the basis of such instructions the assessee had got converted the debtors representing the DISCOMs into the bonds to an extent of Rs.400 crores. Ld. AR drew our attention to page 270 of the paper book and submitted that these bonds of Rs.400 crores had come into existence as early as during the assessment year 2007-2008 i.e. the same had been disclosed in its balance sheet for the year ending 31.03.2007. It was the submission that this amount of Rs.400 crores have been carried forward right from A.Y.2007-2008 and even till today these bonds have not been encashed nor the assessee has been able to derive any income out of the said bonds. The discussions and litigations in respect of the same are still pending. It was the submission that the AO has taken a mistaken impression that the assessee had invested in the bonds. The assessee had made no specific investment out of its surplus funds or its share capital but had converted through discussions the amount representing the debtors from the DISCOMs being NESCO, WESCO and SOUTHCO into 12.5% non-convertible secure bonds to the extent of Rs.400 crores. It was the submission that this being so, as the assessee had not diverted interest bearing funds for the purpose of obtaining the said bonds, no disallowance of the interest expenditure was called for. It was the submission that the ld. CIT(A) had also dismissed assessee’s appeal without appreciating these facts. It was the prayer that as the assessee had not made any investment in the bonds out of its interest bearing funds and as no disallowance of interest has been made ITA No.306/CTK/2016 3 for any of the preceding years right from A.Y.2007-2008, no disallowance is called for during the relevant assessment year. 3. In reply, ld. CIT-DR vehemently supported the order of the ld. AO and ld. CIT(A). It was the submission that each assessment is a separate assessment year and that as the assessee has got the investment in the bonds, the assessee was liable to show the income from the bonds during each of the years. It was the submission that it is on this count that the AO has disallowed the interest expenses insofar as the funds which otherwise would have been used by the assessee for its business has been blocked by the assessee in the form of bonds. 4. We have considered the rival submissions. A perusal of the facts of the present case clearly show that the so-called investment in the bonds has come from the assessment year 2007-2008. These bonds have come into existence on account of the reduction from the quantum of the debtors. In short, the substantial portion of the debtors representing the DISCOMs had been converted into interest bearing non-convertible secure bonds. This being so, it can clearly be mentioned here that the assessee has not used any interest bearing funds for the purpose of obtaining the said bonds. This being so, no disallowance from interest expenditure would be called for. Further the investment in the share of Rs.110 crores clearly is less than the capital available, which is non- interest bearing funds, therefore, no disallowance on the same would also be called for. ITA No.306/CTK/2016 4 5. In the result, appeal of the assessee stands allowed. Order dictated and pronounced in the open court on 20/02/2023. Sd/- (अरुण खोड़पऩया) (ARUN KHODPIA) Sd/- (जाजज माथन) (GEORGE MATHAN) ऱेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 20/02/2023 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : आदेशान ु सार/ BY ORDER, (Assistant Registrar) आयकर अऩीऱीय अधधकरण, कटक/ITAT, Cuttack 1. अऩीऱाथी / The Appellant- GRIDCO Limited Janpath, Bhoi Nagar, Bhubaneswar-751022 2. प्रत्यथी / The Respondent- ACIT, Circle-2(1), Bhubaneswar 3. आयकर आय ु क्त(अऩीऱ) / The CIT(A), 4. आयकर आय ु क्त / CIT 5. पवभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 6. गार्ज पाईऱ / Guard file. सत्यापऩत प्रयत //True Copy//