Kakinada SEZ Limited(Formerly Known Kakinada SEZ Pvt Ltd), Hyderabad V. Income Tax Officer, Ward-2(1), Hyderabad

ITA 307/Hyd/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0836 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2015-2016
• Appeal Filed On: 07-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Keywords: Business income; Capital receipt; Capital expenditure; TDS
• Section: 143(3); 195; 208; 192; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS.598/HYD/2014, 112/HYD/2016 & 305 TO 307/HYD/2019 ASSESSMENT YEARS: 2009 - 10 TO 2015 - 16 KAKINADA SEZ (P)LTD, HYDERABAD PAN:AACCK5670R VS. ITO/ACIT, WARD-2(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI MANISH SHAH REVENUE BY : SRI KIRAN KATTA, DR DATE OF HEARING: 23/01/2020 DATE OF PRONOUNCEMENT: 09/06/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. ALL THESE ARE ASSESSEES APPEALS FOR THE RELEVANT A .YS AGAINST THE ORDERS OF THE RESPECTIVE CIT(A)S. 2. BRIEF FACTS OF THE CASE AS TAKEN FROM THE A.Y 20 09-10 ARE THAT THE ASSESSEE COMPANY WHICH IS IN THE BUSINESS OF IMPLEM ENTING A MULTI-PRODUCT SPECIAL ECONOMIC ZONE, FILED ITS RETURN OF INCOME O N 29.09.2010 ADMITTING RS. NIL AS INCOME. DURING THE ASSESSMENT PROCEEDIN GS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS SECURED HUGE LOAN TO THE TUNE OF RS.405.00 CRORES AS ON 31.03.2009 BY EQUITABLE M ORTGAGE OF COMPANYS LAND BY WAY OF DEPOSITING TITLE DEEDS AND HAS INVES TED IN ACQUIRING THE ASSETS FOR THE BUSINESS OF THE COMPANY. HE OBSERVED THAT OUT OF THE LOANS TAKEN, THE COMPANY HAS MADE FIXED DEPOSITS IN THE B ANK TO THE TUNE OF RS.95.48 CRORES FOR EARNING INTEREST ON THE DEPOSIT S AND AS PER THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSEE COMPANY HAS RECEIVED INTEREST OF RS.1,36,04,879/- DURING THE FINANCIAL YEAR 2008-09 BUT DID NOT OFFER THE SAID INCOME TO TAX IN ITS RETURN OF INCOME FILED FOR THE A.Y 2009-10. THE ASSESSEE 2 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. WAS THEREFORE, ASKED TO SHOW CAUSE AS TO WHY THE IN TEREST ON FDS OF BANKS TO THE TUNE OF RS.1,36,04,879/- EARNED DURING THE R ELEVANT PERIOD SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES OF THE CO MPANY AND ACCORDINGLY BROUGHT TO TAX. 2.1 THE ASSESSEE, VIDE ITS REPLY DATED 21.12.2011, STATED THAT THE AMOUNT OBTAINED BY WAY OF SECURED LOANS, WHICH COUL D NOT BE DEPLOYED IMMEDIATELY, WERE KEPT IN FIXED DEPOSITS WITH THE B ANKS FROM TIME TO TIME, SO AS TO EARN INTEREST WHICH IN EFFECT REDUCED THE ACTUAL INTEREST OUTGO. IT WAS SUBMITTED BY THE COMPANY THAT THOUGH IT EARNED INTEREST INCOME OF RS.1,36,04,879/- ON FIXED DEPOSITS DURING THE YEAR, IT HAS ALSO PAID INTEREST OF RS.49,48,93,142/- ON SECURED LOANS AND SINCE THE BORROWED FUNDS HAVE BEEN OBTAINED SOLELY FOR THE PURPOSE OF SETTING UP OF MULTI-PRODUCT SPECIAL ECONOMIC ZONE PROJECT, IN THE AUDITED FINANCIAL STA TEMENTS, THE AMOUNT OF INTEREST EARNED WAS NETTED OFF AND THE NET AMOUNT W AS SHOWN IN SCHEDULE- 5, AS PRE-OPERATIVE EXPENSES PENDING ALLOCATION. T HE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CIT VS. BOKARO STEEL LTD (236 ITR 315 (S.C) AND THE DECISION OF TH E HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSO RTIUM LTD VS. ITO (315 ITR 255) IN SUPPORT OF ITS CLAIM. THUS, THE ASSESSE E SUBMITTED THAT THE INTEREST INCOME SHOULD NOT BE TREATED AS INCOME FR OM OTHER SOURCES. THE ASSESSEE FURTHER SUBMITTED THAT SINCE THE MONEY BOR ROWED FOR THE BUSINESS PURPOSES WHICH REMAINED UNUTILIZED WAS USED FOR EAR NING INTEREST INCOME AND AS THE RATE OF INTEREST FOR THE BORROWING WAS H IGHER THAN THE RATE OF INTEREST EARNED ON DEPOSITS, THE SAME SHOULD BE NE TTED OFF AND ACCORDINGLY, THE AMOUNT OF TDS DEDUCTED ON INTEREST INCOME EARNE D FROM FDS OUGHT TO BE REFUNDED OR ADJUSTED AGAINST THE TAX DEMAND. 2.2 THE AO HOWEVER, WAS NOT CONVINCED WITH THE ASSE SSEES CONTENTIONS AND BY APPLYING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD VS. CI T (1977) 227 ITR 172, HE HELD THAT THE INTEREST EARNED BY THE ASSESSEE IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES BECAUSE IT IS EARNED BY DEPOSITING THE BORROWED 3 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. CAPITAL IN FIXED DEPOSITS. AS REGARDS THE ISSUE OF NETTING OF INTEREST IS CONCERNED, THE AO HELD THAT THE INTEREST EXPENDITUR E HAS TO BE CAPITALIZED AND THE SAME CANNOT BE SET OFF AGAINST THE INCOME F ROM OTHER SOURCES. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE A O BY FOLLOWING THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y 2007-08. AGAINST THE ORDER OF THE CIT (A), THE ASSESSEE IS I N APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: GROUND I: TAXING INTEREST EARNED ON FIXED DEPOSIT UNDER THE HEAD 'INCOME FROM OTHER SOURCES':- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING T HE ACTION OF THE INCOME TAX OFFICER, WARD-2(1), HYDERABAD ('THE A.O.') IN CHARGING TO TAX THE INTER EST EARNED AMOUNTING TO RS.1 ,36,04,879/-ON FIXED DEPOSITS UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELETE THE AFORESAID CHARGEABILITY OF THE AMOUNT OF INTEREST EARNED ON FIXED DEPOSITS AS THE SAME IS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WILL GO TO REDUCE THE AMOUNT OF INTEREST EXPENDITURE TO BE CAPITALISED. WITHOUT PREJUDICE TO GROUND I ABOVE: GROUND IL: INTEREST EARNED ON FIXED DEPOSITS SHOULD BE NETTED OFF AGAINST INTEREST EXPENDITURE ON BORROWED FUNDS:- 1. WITHOUT PREJUDICE TO THE FOREGOING GROUND, ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT (APPEALS) ERRED IN UPHOLDING THE ACTION OF A.O. IN NOT ALLOWING THE DEDUCTION OF INT EREST EXPENSE AGAINST INTEREST EARNED DESPITE THE FACT TH AT THERE EXISTS A NEXUS BETWEEN THE BORROWED FUNDS AND THE DEPOSITS PLACED BY WHICH INTEREST IS EARNED. 2. THE APPELLANT PRAYS THAT THE INTEREST EXPENSE BE ALLOWED TO BE DEDUCTED AGAINST EARNED ON FIXED DEPOSITS. 4 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. GROUND ILL:- THE APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL . 3.1 FURTHER, VIDE LETTER DATED 15.05.2019, THE ASSE SSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: WITHOUT PREJUDICE TO GROUND 1 AND 2: ADDITIONAL GROUND NO. 1: 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) ERRED IN UPHOLDING THE ACTION OF THE LD. AO IN TAXING INTEREST RECEIVED DURING PRE-CONSTRUCTION PERIOD UNDER THE HEAD 'INCOME FROM OTHER SOURCES' WITHOUT TAKING INTO ACCOUNT THAT THE FUNDS PARKED I N FIXED DEPOSITS WERE NOT 'SURPLUS FUNDS' AND THEREFORE, COULD NOT BE TAXED AS 'INCOME FROM OTHER SOURCES'. 2. THUS, THE APPELLANT HUMBLY PRAYS THAT THE AO BE DIRECTED TO TREAT THE INTEREST RECEIVED AS A CAPITA L RECEIPT. WHICH WOULD GO ON TO REDUCE THE CAPITAL EXPENDITURE. 3.2 SINCE ALL THE FACTS WITH REGARD TO THE ADDITION AL GROUNDS ARE ALREADY ON RECORD AND DO NOT REQUIRE ANY FRESH VERIFICATION , WE ADMIT THE ADDITIONAL GROUNDS AND PROCEED TO ADJUDICATE AS UNDER: 4. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR A TTENTION TO THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY T O DEMONSTRATE THAT ONE OF ITS MAIN OBJECTS IS TO CARRY ON THE BUSINES S OF INVESTMENT AND DEVELOPMENT OF INFRASTRUCTURE FOR SPECIAL ECONOMIC ZONES INCLUDING PLANNING, DESIGNING, FINANCING, OPERATING AND MARKE TING SPECIAL ECONOMIC ZONES THUS, ACCORDING TO HIM, THE BORROWED FUNDS H AVE BEEN UTILIZED FOR ITS OBJECTS ONLY AND THEREFORE INTEREST EXPENDITURE IS FOR ITS BUSINESS PURPOSES ONLY AND SINCE THE PROJECT HAS NOT YET BEE N SET UP, IT HAS BEEN CAPITALIZED. 5 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. 4.1 AS REGARDS THE FINDINGS OF THE AO AND CIT(A) TH AT IN THE EARLIER AYS 2007-08 AND 08-09, THIS TRIBUNAL IN THE ASSESSEES OWN CASE HAS DECIDED THE ISSUE AGAINST THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS OF THE CASE FOR THE YEARS BEFORE US ARE DISTINGUISHABLE. HE SUBMITTED THAT IN THE EARLIER YEARS, THE ASSESSEES FDS WERE OUT OF SURPLUS FUNDS WHEREAS IN THE YEARS BEFORE US, THE FIXED DE POSITS WERE OUT OF FUNDS WHICH WERE TEMPORARILY IDLE AND WERE PLACED IN FIXE D DEPOSITS FOR A BRIEF PERIOD DURING THE RELEVANT FY ONLY. THUS, ACCORDING TO HIM, THE FIXED DEPOSITS ARE FOR THE BUSINESS PURPOSE OF SETTING UP OF SEZS AND, THEREFORE, THE INTEREST EARNED THEREFROM GO TO REDUCE THE INTE REST COST TO THE ASSESSEE. HE HAS ALSO RELIED UPON THE ADDITIONAL GROUND OF AP PEAL RAISED BY THE ASSESSEE AND PLACED RELIANCE UPON THE FOLLOWING DEC ISIONS IN SUPPORT OF THE ADDITIONAL GROUND. I. INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (D ELHI H.C.) REPORTED IN 315 ITR 255 II. CIT VS. PETRONET LNG LTD. (2011) (DELHI H.C.) REPORTED IN 10 TAXMANN.COM 257 III. HYDERABAD HI-TECH TEXTILE PART P LTD. VS. IT O IN ITA NO.587/HYD/2016, ITAT HYDERABAD BENCH. IV. ADANI POWER LTD. VS. ACIT (2015) 61 TAXMANN.CO M 355 (ITAT AHMEDABAD BENCH) V. PRAYAGRAJ POWER GENERATION CO.LTD. VS. ITO (ITA NO.625 & 626 OF 2013) LUCKNOW BENCH OF ITAT VI. KAMATH HOTELS (INDIA) LIMITED VS. ACIT (ITA NO.1078/MUM/2013) (MUMBAI BENCH OF ITAT) VII. ELGEN (INDIA) PVT. LTD. VS. ITO (ITA NO.1286 & 1287 /HYD/2016) (HYDERABAD BENCH OF ITAT) VIII. PCIT VS. ROAD INFRASTRUCTURE DEVELOPMENT COR PORATION OF RAJASTHAN LTD. REPORTED IN 257 TAXMAN 208 (RAJASTHA N) IX. CIT VS. SHRI RAMA MULTI TECH LTD. REPORTED IN 393 ITR 371 (SC) 4.2. IN ADDITION TO THE ABOVE, IN SUPPORT OF HIS CO NTENTION THAT THE INTEREST INCOME IS TO BE SET OFF AGAINST THE INTEREST EXPEND ITURE ON BORROWED FUNDS, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE FOL LOWING DECISIONS. 6 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. I. CIT VS. VGR FOUNDATIONS (MADRAS HC) REPORTED IN 298 ITR 132 II. DCIT VS.CNIL IN ITA NO.1649 /MAD/20 15 (CHENNA I BENCH OF ITAT) III. SUPREME COURT CONTINENTAL CONSTRUCTION 195 IT R 81 IV. SC HK INVESTMENT 211 ITR 511 V. MUMBAI ITAT JF LABORATORY 96 ITD 448 VI. BANGALORE ITAT PRESTIGE GARDEN CONSTRUCTION 67 SOT 139 VII. DELHI HIGH COURT IN VODAFONE SOUTH LTD. 61 TA XMANN.COM 415 4.3. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE MENTIONED FRESH FACTS AND THE LATER DECISIONS OF HON'BLE DELH I HIGH COURT AS WELL AS OTHER BENCHES OF IT AT WERE NOT CONSIDERED BY ITAT IN THE ASSESSEES CASE IN THE EARLIER YEARS AND, THEREFORE, THE ORDER OF I TAT IN THE EARLIER YEARS SHOULD NOT BE FOLLOWED FOR THE AYS BEFORE US. IN SU PPORT OF THIS CONTENTION, HE PLACED RELIANCE UPON THE JUDGEMENT OF HON 'BLE S UPREME COURT IN THE CASE OF BHARAT SANCHAR NIGAM LTD. & ANOTHER VS. UNI ON OF INDIA AND OTHERS (2006) 282 ITR 273 (SC). 4.4. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT WHERE TWO VIEWS ARE POSSIBLE ON AN ISSUE I.E. ONE FAVOURABLE TO THE ASSESSEE AND THE OTHER AGAINST THE ASSESSEE, THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED. FOR THIS PROPOSITION, HE PLACED RELIANC E ON FOLLOWING DECISIONS. CIT VS. VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) PRADIP J MEHTA VS. CIT AHMEDABAD 300 ITR 231 JCIT VS. ITC LTD. 112 ITD 57 KOLKATA BENCH OF ITA T 4.5 THE LD. COUNSEL FOR THE ASSESSEE FURTHER HAS DE MONSTRATED THE DEPLOYMENT OF FUNDS BY FILING STATEMENT SHOWING DET AILS OF OWN FUNDS, BORROWED FUNDS, FIXED ASSETS, INVESTMENT IN FIXED D EPOSITS, INTEREST ON BORROWED FUNDS AND INTEREST FROM FIXED DEPOSITS FOR THE FY 2006-07 TO 2015- 16, WHICH IS AS UNDER: 7 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. STATEMENT SHOWING DETAILS OF OWN FUNDS, BORROWED FU NDS, FIXED ASSETS, INVESTMENT IN FIXED DEPOSITS, INTEREST ON BORROWED FUNDS AND INTEREST FROM FIXED DEPOSITS FOR THE FY 2006-07 TO FY 2015-16 (AMOUNT IN RS. LAKHS) S. .NO PARTICULARS FINANCIAL YEAR ENDED 31.03.07 31.03.08 31.03.09 31.03.010 31.03.11 31.03 .12 31.03.13 31.03.14 31.03.15 31.03.16 A OWN FUNDS 1 SHARE CAPITAL 1052.71 1052.71 4052.71 4418.22 9399.43 9399.43 9399.43 9399.43 9399.43 9399.43 2 SHARE APPLICATION MONEY 1762.00 3965.52 365.52 - - - - - - - 3 RESERVES & SURPLUS - - - - - (162.50) (227.03) (240.85) (283.10) (345. 11) TOTAL (A) 2814.71 5018.22 4418.22 4418.22 9399.43 9236.94 9172.40 9158.58 9116.33 9054.33 B BORROWED FUNDS 1 SECURED LOANS 28902.97 37504.00 40555.56 44500.00 46500.00 46500. 00 25000.00 20833.33 20833.00 23333.33 2 UNSECURED LOANS - - - 2901.29 13786.76 25023.59 60567.48 71784.67 9 2744.00 116470.32 TOTAL (B) 28902.97 37504.00 40555.56 47401.29 6028 6.76 71523.59 85567.48 92618.01 113577.00 139803.65 C INVESTMENTS 1 FIXED ASSETS 14.35 13.24 12.46 17.05 17.28 41.84 84.80 98.89 130.20 92.99 2 CWIP 17343.84 22060.52 44195.77 51817.71 75544.21 72890.16 85704.85 99881.09 116801.38 170069.73 3 BANK BALANCES FIXED DEPOSITS 9415.07 9548.54 - - - - 947.39 1011.75 1630.20 2180 .68 CURRENT ACCOUNT 380.43 1442.32 468.89 45.85 93.89 74.54 87.55 33.28 49.08 96.86 D INTEREST ON BORROWED FUNDS 1699.52 3724.57 4948.93 5148.14 6049.97 7560.67 969 6.81 9696.81 13933.84 17230.85 E INTEREST ON FIXED DEPOSITS 327.05 609.36 136.05 22.11 3.28 4.48 87.89 87.89 31 .35 170.41 4.6 FROM THE ABOVE STATEMENT, HE HAS POINTED OUT TH AT FOR THE YEAR ENDING 31/03/2007 AND 31/03/2008, RELEVANT TO AYS 2007-08 AND 2008-09, THE CAPITAL WORK-IN-PROGRESS WAS MUCH LESS THAN THE TOT AL OF OWN AND BORROWED FUNDS AND IT WAS IN THESE CIRCUMSTANCES THAT THE TR IBUNAL HAS HELD THAT SURPLUS FUNDS WERE INVESTED IN FIXED DEPOSITS AND HENCE THE INTEREST INCOME HAS TO BE TREATED AS INCOME FROM OTHER SOUR CES AND HELD THE ISSUE AGAINST THE ASSESSEE. HE POINTED OUT THAT FOR THE YEARS ENDING 31/03/2009, 31/03/2010, 31/03/2011 AND 31/03/2012 T HERE WAS NO CLOSING BALANCE OF THE FIXED DEPOSITS, WHICH SHOWS THAT THE FIXED DEPOSITS MADE DURING THE YEAR WERE WITHDRAWN DURING THE YEAR ITSE LF I.E. THEY WERE MADE FOR A SHORT PERIOD AND WERE UTILIZED FOR THE PURPOS E OF BUSINESS DURING THE RELEVANT PREVIOUS YEARS ITSELF, AND FURTHER THAT TH E CAPITAL WORK-IN-PROGRESS FOR ALL THE YEARS WAS MUCH MORE THAN THE TOTAL OF O WN AND BORROWED FUNDS. THUS, HE SUBMITTED THAT THERE WERE NO SURPLUS FUNDS , BUT, OUT OF BOTH 8 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. BORROWED AND OWN FUNDS, ONLY TEMPORARILY IDLE FUNDS WERE MADE INTO FIXED DEPOSITS TO EARN INTEREST INCOME, SO THAT THE INTE REST COST OF THE ASSESSEE ON BORROWED FUNDS WOULD GET REDUCED. THUS, HE POINT ED OUT THE DISTINCTION BETWEEN SURPLUS FUNDS AND TEMPORARILY IDLE FUNDS. H E SUBMITTED THAT THE INTEREST ON FIXED DEPOSITS MADE AND WITHDRAWN DURIN G THE RELEVANT FYS, WAS BROUGHT TO TAX BY THE AO AS INCOME FROM OTHER SOUR CES INSTEAD OF NETTING IT OFF AGAINST INTEREST PAID BY THE ASSESSEE ON BOR ROWED FUNDS. 4.7 IN SUPPORT OF HIS CONTENTION THAT THE INTEREST INCOME ON TEMPORARILY IDLE FUNDS IS A CAPITAL RECEIPT AND IS NOT TO BE TR EATED AS INCOME FROM OTHER SOURCES, THE LD. COUNSEL FOR THE ASSESSEE PLACED R ELIANCE UPON THE DECISION OF THE A BENCH OF MUMBAI, ITAT IN THE CASE OF KAM AT HOTELS (INDIA) LTD., ITA NO. 1078/MUM/2013, ORDER DATED 03/10/2017. IN S UPPORT OF HIS CONTENTION THAT WHERE THE FIXED DEPOSITS ARE INEXTR ICABLY LINKED WITH THE BUSINESS OF THE ASSESSEE, THE INTEREST INCOME THERE FROM HAS TO BE SET OFF AGAINST THE PREOPERATIVE EXPENSES OF THE ASSESSEE, HE PLACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THE ITAT, C HENNAI IN THE CASE OF M/S CHENNAI NETWORK INFRASTRUCTURE PVT. LTD., ITA N O. 1649/MDS/2015, ORDER DATED 9 TH SEPTEMBER, 2016. IN SUPPORT OF HIS CONTENTION THAT INTEREST INCOME EARNED ON FIXED DEPOSITS OF OWN FUNDS CANNOT BE TRE ATED AS INCOME FROM OTHER SOURCES, HE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHREE RAMA MULTI TECH LTD., [2018] 92 TAXMANN.COM 363. 5. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT IN ASS ESSEES OWN CASE FOR THE A.Y 2007-08 AND 2008-09 AND THEREFORE, THE APPE ALS OF THE ASSESSEE SHOULD BE DISMISSED. 9 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. 6. HAVING REGARD TO THE FACTS OF THE CASE AND THE D ECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THAT T HE ASSESSEE HAS DEPOSITED THE FUNDS WHICH WERE NOT IMMEDIATELY REQUIRED FOR T HE ASSESSEES BUSINESS AND AS AND WHEN REQUIRED, THEY WERE IMMEDIATELY WI THDRAWN AND USED FOR BUSINESS PURPOSES. THEREFORE, THERE IS A DISTINCTIO N IN FACTS BETWEEN EARLIER YEARS WHERE THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE, AND THE AYS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE HA S SPECIFICALLY RELIED ON THE DECISION OF THE COORDINATE BENCH AT MUMBAI, ITA T, IN THE CASE OF KAMAT HOTELS (INDIA) LTD. (SUPRA), WHEREIN, AFTER CONSIDE RING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS & FERTILIZERS LTD AND THE DECISION OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF INDIA OIL PANIPAT POWER CONSORTIUM LTD., THE BEN CH HELD AS UNDER: 8.2 IN THIS CONTEXT, WE MAY REFER TO THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED (SUPRA), WHICH HAS EXPLAINED THE JUDGMENTS OF THE H ON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. (SUPRA) AND BOKARO STEEL LTD. (SUPRA). IN THE CASE BEFORE THE HIGH COURT, ASSESSEE WAS A JOINT VENTURE BETWEEN TWO COR PORATIONS TO SET- UP A POWER PROJECT AND WITH THAT OBJECTIVE BOTH JOI NT VENTURE PARTNERS CONTRIBUTED THE SHARE CAPITAL. THE ASSESSEE HAD TEM PORARILY PUT SUCH FUNDS IN FIXED DEPOSITS WITH BANK AND EARNED INTERE ST THEREON AND CLAIMED THAT THE INTEREST INCOME WAS IN THE NATURE OF CAPITAL RECEIPT LIABLE TO BE SET-OFF AGAINST THE PRE-OPERATIVE EXPE NSES, WHEREAS THE REVENUE SOUGHT TO TAX IT AS 'INCOME FROM OTHER SOUR CES'. THE ASSESSEE HAD CLAIMED THAT THE FUNDS WERE REQUIRED F OR PURCHASE OF LAND AND ) INFRASTRUCTURE BUT DUE TO LEGAL ENTANGLE MENT WITH RESPECT TO THE TITLE OF LAND, THE SAME WERE TEMPORARILY PUT IN FIXED DEPOSITS, WHICH EARNED INTEREST. THE CONTROVERSY, WHICH AROSE BEFORE THE HON'BLE HIGH COURT WAS AS TO WHETHER SUCH INTEREST INCOME WAS INEXTRICABLY LINKED WITH SETTING-UP OF POWER PLANT OR IT COULD BE TREATED AS AN INDEPENDENT INCOME ASSESSABLE AS 'INCOME FROM OTHER SOURCES'. THE HON'BLE HIGH COURT, AFTER CONSIDERING THE JUDGM ENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS & FERTILIZERS LTD. (SUPRA) AS WELL AS IN THE CASE OF BOKARO STEEL LTD. (SUPRA), HELD THAT THE INTEREST INCOME WAS IN THE N ATURE OF CAPITAL RECEIPT AND WAS REQUIRED TO BE SET-OFF AGAINST PRE- OPERATIVE EXPENSES. IN COMING TO ITS DECISION, THE HON'BLE HI GH COURT OBSERVED THAT THE TEST IS WHETHER THE ACTIVITY WHICH IS TAKE N UP FOR SETTING UP OF THE BUSINESS AND THE FUNDS WHICH ARE GENERATED ARE INEXTRICABLY CONNECTED TO THE SETTING-UP OF THE PLANT OR NOT. PE RTINENTLY, THE HON'BLE HIGH COURT WAS DEALING WITH A SIMILAR ARGUM ENT THAT IS BEING SET-UP BEFORE US, WHICH IS TO THE EFFECT THAT THE D EPOSIT OF SHARE CAPITAL 10 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. IN SHORT TERM DEPOSITS WITH BANK HAD NO CONNECTION WITH SETTING-UP OF THE POWER PLANT. THE HON'BLE HIGH COURT IN THE CONT EXT OF THE ABOVE ARGUMENTS OBSERVED AS UNDER:- '5. IN OUR OPINION, THE TRIBUNAL HAS MISCONSTRUED T HE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICO RIN ALKALI CHEMICALS FERTILIZERS LTD. (SUPRA) AND THAT OF BOKA RO STEEL LTD. (SUPRA). THE TEST WHICH PERMEATES THROUGH THE JUDGM ENT OF THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTI LIZERS LTD.'S CASE (SUPRA) IS THAT IF FUNDS HAVE BEEN BORROWED FOR SET TING UP OF A PLANT AND IF THE FUNDS ARE ' SURPLUS' AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSITS THE INCOME EARN ED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD ' INCOME FR OM OTHER SOURCES' . ON THE OTHER HAND, THE RATIO OF THE SUPREME COURT JUDGMENT IN BOKARO STEEL LTD.'S CASE (SUPRA) TO OUR MIND IS THA T IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE ' INEXTRICABLY LINKED' TO THE S ETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES. 5.2 IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUN D BY THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL W ERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPM ENT OF INFRASTRUCTURE. THEREFORE, THE INTEREST EARNED ON F UNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EAR NED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NAT URE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINS T PRE-OPERATIVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD., 227 ITR 172 (SC) IT WAS FOUND BY THE AUTHORITIES TH AT THE FUNDS AVAILABLE WITH THE ASSESSEE IN THAT CASE WERE 'SURP LUS' AND, THEREFORE, THE SUPREME COURT HELD THAT THE INTEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS 'INCOME FROM OTHER SOUR CES' . ON THE OTHER HAND IN BOKARO STEEL LTD., 236 ITR 315 (SC) W HERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE- COMMENCEMENT PERIOD WAS FOUND TO BE 'INEXTRICABLY L INKED' TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE W AS HELD TO BE A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF A GAINST PRE-OPERATIVE EXPENSES.'[UNDERLINED FOR EMPHASIS BY US] 8.3 THE AFORESAID DISCUSSION BY THE HON'BLE HIGH CO URT BRINGS OUT THE MANNER IN WHICH THE RATIONALE IN THE TWO JUDGMENTS OF THE HON'BLE SUPREME COURT IN THE CASES OF TUTICORIN ALKALI CHEM ICALS & FERTILIZERS LTD. (SUPRA) AND BOKARO STEEL LTD. (SUPRA) IS TO BE UNDERSTOOD. AT THIS POINT OF TIME, WE MAY ALSO REFER TO THE PLEA OF THE REVENUE THAT IN THE PRESENT CASE, IT IS THE 'IDLE FUNDS' WHICH HAVE YIE LDED THE INTEREST INCOME AND, THEREFORE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD. (SUPRA) WOULD PREVAIL TO TREAT THE INTEREST INCOME AS AN INDEPEND ENT INCOME 11 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. ASSESSABLE AS 'INCOME FROM OTHER SOURCES'. NO DOUBT , AND AS NOTED BY THE HON'BLE DELHI HIGH COURT IN INDIAN OIL PANIP AT POWER CONSORTIUM LTD. (SUPRA), IN THE CASE OF TUTICORIN A LKALI CHEMICALS & FERTILISERS LTD. (SUPRA), THE FUNDS AVAILABLE WITH THE ASSESSEE WERE 'SURPLUS' AND THEREFORE THE HON'BLE SUPREME COURT HELD THAT THE I NTEREST INCOME WOULD BE TREATED AS 'INCOME FROM OTHER SOURCES'. FA CTUALLY SPEAKING, IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE FCCB PROCEEDS HAVE BEEN RAISED WITH THE SPECIFIC PURPOSE OF FUNDING TH E ONGOING NEW HOTEL PROJECTS AND IT IS ONLY DURING THE PERIOD AWA ITING DEPLOYMENT OF FULL FUNDS IN THE CONSTRUCTION OF NEW PROJECTS THAT A PART HAS BEEN PLACED IN THE BANKS, WHICH HAS YIELDED IMPUGNED INT EREST INCOME. IT MAY BE A CASE OF 'IDLE FUNDS', AS THE CIT(A) HAS PU T IT, BUT IT CERTAINLY IS NOT A CASE OF 'SURPLUS' FUNDS, SO AS TO ATTRACT THE RATIONALE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. (SUPR A). BECAUSE IT IS ONLY IN THE INTERREGNUM PERIOD, PENDING UTILISATION IN T HE CONSTRUCTION OF NEW PROJECTS, THAT THE FUNDS HAVE BEEN PUT IN FIXED DEPOSITS WITH BANKS; BUT, THERE IS NO DISPUTE THAT SUCH FUNDS HAV E BEEN RAISED FOR FINANCING THE CONSTRUCTION OF NEW PROJECTS. IT IS N OT THE CASE OF THE REVENUE THAT THE DEPOSITS WITH THE BANK ARE NOT FOR A TEMPORARY PERIOD. IN SUCH A SITUATION, IT IS THE RATIONALE LA ID DOWN IN THE CASE OF BOKARO STEEL LTD. (SUPRA), WHICH IS APPLICABLE. 8.4 IN THIS CONTEXT, WE MAY ALSO REFER TO THE FACT- SITUATION IN THE CASE OF NTPC SAIL POWER COMPANY (P) LTD., (SUPRA) BEFORE THE HON'BLE DELHI HIGH COURT. IN THE CASE OF NTPC SAIL POWER CO MPANY (P) LTD.,(SUPRA), ASSESSEE WAS IN THE BUSINESS OF RUNNI NG POWER PLANT AND IN TERMS OF ITS EXPANSION PLAN, IT PROPOSED TO SET- UP A NEW UNIT. FOR THE SAID PURPOSE, IT RAISED TERM LOANS AND THE INTE REST RELATABLE TO THE BORROWINGS UTILIZED FOR EXPANSION PURPOSE WAS C APITALIZED AS THE COST OF CONSTRUCTION. THE ASSESSEE ALSO EARNED INTE REST ON TEMPORARY DEPOSITS OF SURPLUS FUNDS AND INTEREST ON MARGINS/ ADVANCES MADE FOR THE PURPOSES OF EXPANSION; AND, SUCH INTEREST INCOM E WAS ADJUSTED AGAINST THE COST OF CONSTRUCTION OF THE NEW PROJECT . IN THIS BACKGROUND ALSO, THE HON'BLE HIGH COURT HELD THAT THE FUNDS IN VESTED BY THE ASSESSEE AND INTEREST EARNED WERE INEXTRICABLY LIN KED WITH THE SETTING-UP OF THE POWER PLANT AND, THEREFORE, IT NE GATED THE STAND OF THE REVENUE OF TREATING SUCH INTEREST INCOME AS A R EVENUE RECEIPT. THE FACT-SITUATION BEFORE US IS SIMILAR AND THEREFO RE THE ISSUE HAS TO BE DECIDED IN THE MANNER IN WHICH THE HON'BLE DELHI HIGH COURT HAS RESOLVED THE CONTROVERSY. THUS, IN THE INSTANT CASE ALSO, IT HAS TO BE DEDUCED THAT INTEREST ON FCCB FUNDS TEMPORARILY PLA CED IN FIXED DEPOSITS AWAITING DEPLOYMENT IN THE CONSTRUCTION OF NEW PROJECTS IS A CAPITAL RECEIPT, SINCE THE FCCB PROCEEDS ARE 'INEXT RICABLY LINKED' WITH THE CONSTRUCTION OF NEW PROJECTS, AS THE SAME HAVE BEEN RAISED FOR THAT PURPOSE ALONE. 12 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. 8.5 IN VIEW OF OUR AFORESAID DISCUSSION, AND, HAVIN G REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT HAS TO BE HELD TH AT THE INTEREST EARNED BY THE ASSESSEE BY TEMPORARILY PARKING THE F CCB FUNDS IN BANKS, PENDING ITS FULL DEPLOYMENT IN THE ONGOING C ONSTRUCTION OF HOTEL PROJECTS, WAS IN THE NATURE OF CAPITAL RECEIPT AND WAS THUS, REQUIRED TO BE SET-OFF AGAINST THE COST OF CAPITAL WORK-IN-P ROGRESS. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. 6.1 THIS DECISION IS ON SIMILAR SET OF FACTS AS IN THE CASE OF THE ASSESSEE BEFORE US FOR ALL THE ASSESSMENT YEARS BEFORE US, A ND THEREFORE, IN OUR OPINION, IT IS CLEARLY APPLICABLE TO THE CASE BEFOR E US. ON THE OTHER HAND, WE FIND THAT THE DECISIONS RELIED UPON BY THE LD. DR A RE DISTINGUISHABLE ON FACTS. IN THE CASE OF RAASI CEMENTS LTD., THE JURISDICTION AL HIGH COURT WAS CONSIDERING THE CASE WHERE INTEREST WAS EARNED ON S URPLUS FUNDS DEPOSITED DURING THE INSTALLATION OF ASSESSEE COMPANY AND, TH EREFORE, IT WAS HELD THAT IT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. IN THE CASE OF SPONGE IRON INDIA LTD., (SUPRA), THE ASSESSEE THEREIN HAD SET OFF OF INTEREST ON SHORT TERM DEPOSITS AGAINST THE SETTING UP OF THE PROJECT UNDER THE HEAD EXPLORATION AND GENERAL ADMINISTRATION. SINCE THE A SSESSEE HAD NOT COMMENCED ITS BUSINESS, IT WAS HELD THAT INTEREST I NCOME CANNOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE AND CANNOT BE SE T OFF AGAINST THE EXPENDITURE INCURRED TOWARDS ADMINISTRATION, EXPLOR ATION AND MINING EXPENDITURE. IN THE CASE OF THERMAL POWER TECH COR PORATION INDIA LTD, THE COORDINATE BENCH HAS FOLLOWED THE DECISION OF THE H ONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LT D. THIS DECISION IS DATED 26 TH APRIL, 2017 WHEREAS THE DECISION OF THE MUMBAI BEN CH IN THE CASE OF KAMAT HOTELS (INDIA) LTD. IS DATED03/10/2017 WHEREI N THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKA LI CHEMICALS & FERTILIZERS LTD AND THE DECISION OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF NTPC SAIL POWER COMPANY (P) LTD. WERE CONSIDERED . 6.2 THEREFORE, WE ARE CONVINCED THAT THE DECISION O F THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER AY CANNOT BE FO LLOWED AS FACTS IN THIS YEAR ARE DISTINGUISHABLE AND FOLLOWING THE DECISION OF THE COORDINATE BENCH OF ITAT, MUMBAI IN THE CASE OF KAMAT HOTELS (INDIA) LTD. (SUPRA), WE DIRECT 13 ITA NOS. 598/H/2014 & ITA NOS. 305 TO 307/H/2019 KAKINADA SEZ (P) LTD. THE AO TO ALLOW THE NETTING OFF OF THE INTEREST INC OME AGAINST INTEREST EXPENDITURE. ACCORDINGLY, THE ADDITIONAL GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. SINCE THE ASSESSEE HAS GOT RELIEF IN TH E ADDITIONAL GROUND WHICH IS RAISED AS AN ALTERNATE GROUND TO GROUNDS 1 & 2, THE ORIGINAL GROUNDS 1 & 2 DO NOT NEED ANY ADJUDICATION AT THIS STAGE. THERE FORE, ASSESSEES APPEAL IS PARTLY ALLOWED. 7. IN THE RESULT, ALL THE APPEAL OF THE ASSESSEE AR E PARTLY ALLOWED. 8. THE ORDER IN THIS APPEAL COULD NOT BE PASSED WIT HIN 90 DAYS FROM THE DATE OF HEARING DUE TO COVID-19 NATIONAL LOCK-DOWN. FOLLOWING THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD., IN ITA NO.6264/MUM/2018 & 6103/MUM/2018, AY.2013-14, DT.14 -05-2020, THIS ORDER IS PRONOUNCED ON THIS 9 TH DAY OF JUNE, 2020. SD.- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 9 TH JUNE, 2020. VINODAN/SPS COPY TO: 1 KAKINADA SEZ (P) LTD, 4 TH FLOOR, GHIAL NEW OFFICE BUILDING, RAJIV GANDHI INTERNATIONAL AIRPORT, HYDERABAD 500409 2 ITO WARD 2(1) HYDERABAD 3 CIT (A) - III HYDERABAD 4 CIT II, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER