Yash Papers Ltd., Kanpur V. Asstt. Commissioner of Income Tax-4, Kanpur

ITA 32/LKW/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100446 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 21-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P K KAPOOR
• Keywords: Depreciation; Principle of natural justice; Additional evidence; Revenue expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.31 & 32/LKW/2013 ASSESSMENT YEAR: 2006 07 & 2007 08 M/S YASH PAPERS LTD., 47/81, HATIA BAZAR, KANPUR 208001. PAN:AAACY0482H VS. ADDL. CIT 4, KANPUR (APPELLANT) (RESPONDENT) A SSESSEE BY SHRI P. K. KAPOOR , C. A. REVENUE BY S HRI RANJAN SRIVASTAVA , SR. DR DATE OF HEARING 18/09/2015 DATE OF PRONOUNCEMENT 2 9 / 1 0/201 5 O R D E R PER A. K. GARODIA, A.M. BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LEARNED CIT (A) I, K ANPUR BOTH DATED 14.08.2012. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. THE GROUNDS RAISED IN A.Y. 200607 ARE AS UNDER: - 1. BECAUSE VARIATION' BETWEEN THE 'R ETURNED INCOME' AND 'ASSESSED INCOME', AS MADE UP OF THE ADDITIONS/DISA LLOWANCES ON ACCOUNT OF; (RS.) A) INTEREST RECEIVED ON FIXED DEPOSIT RECEIPT S (CLAIMED AS SET OFF AGAINST SHARE ISSUE 57,82,38 6 EXPENSES AND COST OF CAPITAL WORK-IN-PROGRESS) B) INCOME FROM INVESTMENT IN MUTUAL FUNDS (CLAIMED AS SET OFF AGAINST THE COST UNDER THE 20 ,10,594 HEAD CAPITAL WORKS-IN PROGRESS) C) DEPRECIATION ON NON-FACTORY BUILDING 2, 65,555 2 DESERVES TO BE QUASHED, AS THE REGULAR ASSESSMENT P ROCEEDINGS, AS INITIATED BY THE ACIT-4, KANPUR BY ISSUE OF NOTICE UNDER SECTION 143(2) DATED 09.10.2007 WAS NOT VALID FOR THE REASON AS TH E MANDATORY REQUIREMENT OF RECORDING THE REQUISITE SATISFACTION , HAD NOT BEEN COMPLIED WITH. 2. BECAUSE THE VARIATION BETWEEN T HE 'RETURNED INCOME' AND THE 'ASSESSED INCOME', IN SO FAR AS THE SAME RELATES TO ADDITION/DISALLOWANCE OF (RS.) A) INTEREST RECEIVED ON FIXED DEPOSIT RECEIPT S (CLAIMED AS SET OFF AGAINST SHARE ISSUE EXPENSES 57,82,396 AND COST OF CAPITAL WORK-IN-PROGRESS) B) INCOME FROM INVESTMENT IN MUTUAL FUNDS 20,10,594 (CLAIMED AS SET OFF AGAINST THE COST UNDER THE HEAD CAPITAL WORKS-IN PROGRESS) C) DEPRECIATION ON NON-FACTORY BUILDING 2,65,555 IS WHOLLY ILLEGAL AND UNAUTHORIZED TOO AS THE ADDL . CIT, RANGE -IV, KANPUR COULD NOT HAVE ACTED AS ASSESSING OFFICER IN THE CASE OF THE 'APPELLANT' AND MAKE ASSESSMENT UNDER SECTION 143(3 ) OF THE ACT. 3. BECAUSE LOOKING TO THE FACTS THAT, IN RELATION TO THE 'RETURN' E-FILED ON 28.11.2006; (A) THE ASSTT. COMMISSIONER OF INCOME TAX-4, KANP UR HAD INITIATED REGULAR ASSESSMENT PROCEEDINGS BY ISSUE OF NOTICE U NDER SECTION 143(2) DATED 09.10.2007; AND (B) THERE EXISTED 'NO ORDER UNDER SECTION 127(2) ' PASSED BY THE COMMISSIONER OF INCOME TAX (TRANSFERRING JURISDICTI ON FROM ACIT TO ADDL. CIT); THE ADDL. CIT, RANGE - IV, KANPUR, COULD NOT HAVE A CTED AS ASSESSING OFFICER IN THE CASE OF THE 'APPELLANT' AN D THE VARIATION' BETWEEN THE 'RETURNED INCOME' AND 'ASSESSED INCOME' AS REFERRED TO IN GROUNDS NO.1 & 2 HEREINFORE AND AS STOOD COM PRISED IN THE ASSESSMENT ORDER DATED 24.12.2008 (AS PASSED BY THE ADDL.CIT), WAS NOT MAINTAINABLE. 3 4. BECAUSE IN THE PRESENT CASE, THE ADDL. CIT, RAN GE -IV, KANPUR DID NOT EVEN FALL WITHIN THE DEFINITION OF ' ASSESSING OFFICER' AS CONTAINED IN SECTION 2(7A) OF THE ACT A ND THE ASSESSMENT ORDER AS PASSED BY HER CONTAINING THE 'V ARIATION' AS REFERRED TO IN GROUND NO.L ABOVE, IS VOID AB-INI TIO. WITHOUT PREJUDICE TO THE AFORESAID 5.1 BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN L AW AND ON FACTS IN HOLDING THAT INTEREST AMOUNTING TO RS. 17,70,413 (R S. 17,26,249 + RS.44,164) AS HAD BEEN ALLOWED BY ICICI BANK ON F IXED DEPOSIT RECEIPTS AS OBTAINED OUT OF FUNDS RECEIVED ON 'PUBL IC ISSUE' AS HAD BEEN BROUGHT OUT BY THE 'APPELLANT' FOR FINANCING I TS NEW PROJECT, CONSTITUTED A SEPARATE SOURCE OF INCOME AND IN ADDI NG THE SAME TO ITS INCOME UNDER THE HEAD 'INCOME FROM OTHER SOU RCES'. 5.2 BECAUSE THE RECEIPT AMOUNTING TO RS, 17,70,413 RELATED TO THE PROCEEDS OF 'PUBLIC ISSUE' MEANT FOR FINANCING THE PROJECT FOR MANUFACTURING OF POSTER PAPER, AND THE SAME WAS LIA BLE TO BE SET OFF AGAINST 'PUBLIC ISSUE EXPENSES' AND VIEW TO THE CONTRARY AS HAS BEEN TAKEN BY THE AUTHORITIES BELOW 6.1 BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN L AW AND ON FACTS IN HOLDING THAT INTEREST ON FIXED DEPOSIT RECEIPTS AMO UNTING TO RS.40,11,973 AS HAD BEEN EARNED BY THE 'APPELLANT', BY UTILIZING THE 'TERM LOAN' AS DISBURSED BY THE BANKS (WHICH RE MAINED UNUTILIZED AT PERIODIC INTERVALS), CONSTITUTED A SE PARATE AND INDEPENDENT SOURCE OF INCOME AND IN SUBJECTING THE SAME TO ASSESSMENT UNDER THE HEAD INCOME FROM OTHER SOURCES . 6.2 BECAUSE THE RECEIPTS IN QUESTION REPRESENTED M ERE RECOVERY OF OVERALL COST OF CAPITAL WORKS-IN-PROGRESS AND 'APPE LLANT'S' CLAIM FOR SET OFF OF THE SAME AGAINST SUCH 'COST' WAS LIA BLE TO BE ALLOWED. 7. BECAUSE, WHOLLY WITHOUT PREJUDICE TO THE CONT ENTIONS RAISED IN GROUNDS NO.5, 6.1 AND 6.2 ABOVE, INTEREST AMOUNTING TO RS. 19,69,673 AS HAD BEEN PAID ON 'TERM LOAN' AND CAPIT ALIZED BY THE 'APPELLANT' UNDER THE HEAD COST OF 'CAPITAL WOR KS-IN-PROGRESS' WAS LIABLE TO BE ALLOWED AS DEDUCTION. 8. BECAUSE SIMILARLY INCOME EARNED FROM INVESTMEN T IN 'MUTUAL FUND' OUT OF PROCEEDS OF TERM LOAN', DURING THE PER IOD IN WHICH SUCH 'LOAN RECEIPTS' REMAINED UNUTILIZED, HAD THE E FFECT OF 4 REDUCING THE COST OF 'CAPITAL WORKS-IN-PROGRESS' AN D THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN TREATING THE SAME AS INCOME UNDER THE HEAD INCOME FROM OTHER SOU RCES AND TAXING THE SAME AS SUCH. 9. BECAUSE IN ANY CASE AND WHOLLY WITHOUT PREJUDI CE TO THE CONTENTIONS RAISED IN GROUND NO.8 ABOVE, SUCH RECEI PTS, AFTER BEING SUBJECTED TO ADJUSTMENT FROM SHORT TERM CAPI TAL LOSS AS BROUGHT FORWARD FROM EARLIER YEAR, SHOULD HAVE BEEN TREATED AS 'SHORT TERM CAPITAL GAIN', LIABLE FOR TAXATION AT A REDUCED RATE OF 10%. 10.1 BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN L AW AND ON FACTS IN DISALLOWING/UPHOLDING THE DISALLOWANCE OF 'APPELLAN T'S' CLAIM FOR DEPRECIATION ALLOWANCE AMOUNTING TO RS.2,65,555 ON THE 'COST' OF NON-FACTORY BUILDING, ON THE GROUND THAT THE PLANT SET UP FOR MANUFACTURING OF POSTER PAPER HAD NOT BEEN COMMISSI ONED DURING THE RELEVANT PREVIOUS YEAR. 10.2 BECAUSE THE NON-FACTORY BUILDING, ON THE COST OF WHICH THE SAID CLAIM FOR DEPRECIATION HAD BEEN MADE, HAD DULY BEEN PUT TO USE IRRESPECTIVE OF COMMISSIONING OF NEW PROJECT AND DI SALLOWANCE OF 'APPELLANT'S' CLAIM FOR DEPRECIATION IS WHOLLY ERRO NEOUS AS BEING BASED ON A WRONG PREMISE. 11. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS LAW AND PRINCIPLES OF NATURAL JUSTICE. 3. THE GROUNDS RAISED IN A.Y. 2007 08 ARE AS UNDE R:- 1. BECAUSE THE 'VARIATION' BETWEEN THE 'RETURNED INCOME' AND THE 'ASSESSED INCOME' AS REPRESENTED BY THE DISALLOWANC E OF 'APPELLANT'S' CLAIM FOR SET OFF OF INTEREST AMOUNTI NG TO RS.8,17,855/-, OUT OF COST OF CAPITAL WORKS-IN-PROG RESS IS WHOLLY ILLEGAL AND UNAUTHORIZED TOO AS THE NOTICE UNDER SE CTION 143(2) HAD NOT BEEN VALIDLY ISSUED. 2. BECAUSE THE MANDATORY REQUIREMENT OF LAW AS REF ERRED TO IN CLAUSE (II) OF SUBSECTION) OF SECTION 143 HAVING N OT BEEN COMPLIED WITH, THE NOTICE ISSUED UNDER SECTION 143( 2) DATED 25.06.2008 IS WHOLLY ILLEGAL AND CONSEQUENTLY THE ' VARIATION' BETWEEN THE 'RETURNED INCOME AND THE 'ASSESSED INCO ME' IS NOT SUSTAINABLE IN THE EYES OF LAW. 5 WITHOUT PREJUDICE TO THE AFORESAID 3. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LA W AND ON FACTS IN HOLDING THAT INTEREST AMOUNTING TO RS.8,17,855/- AS HAD BEEN RECEIVED ON FIXED DEPOSIT RECEIPTS (OBTAINED OUT OF PROCEEDS OF TERM LOAN MEANT FOR FINANCING THE PROJECT) CONSTITU TED A SEPARATE SOURCE OF INCOME AND IN ADDING /UPHOLDING THE ADDIT ION THEREOF TO THE INCOME OF THE 'APPELLANT'. 4. BECAUSE THE RECEIPT IN QUESTION REPRESENTED REC OVERY OF COST (WHICH INCLUDED A SUM OF RS.3,60,91,249/- BY WAY OF INTEREST ON TERM LOAN) AND THE SAME WAS LIABLE TO BE LEGITIMATE LY SET OFF AGAINST THE 'COST' OF NEW PROJECT AND VIEW TO THE C ONTRARY AS HAS BEEN TAKEN BY THE AUTHORITIES BELOW IS WHOLLY ERRON EOUS. 5. BECAUSE, IN ANY CASE, INTEREST AMOUNTING TO RS .3,60,91,249/- PAID BY THE 'APPELLANT' ON TERM LOAN BORROWED FOR THE PU RPOSES OF EXPANSIVE, AS ADJUSTED BY THE RECOVERY OF RS.8,17,8 55, WAS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE AS THE SAME HA D BEEN INCURRED BY A 'GOING CONCERN' AND DURING THE COURSE OF CARRYING ON OF ITS BUSINESS. 6. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS LAW AND PRINCIPLES OF NATURAL JUSTICE. 4. WE FIRST DECIDE THE APPEAL FOR A.Y. 2006 07. I T WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT AS PER PAGE 3 OF AD DITIONAL EVIDENCE, ON 25.02.2002, UPSIDC ASKED THE ASSESSEE COMPANY TO DE POSIT ADVANCE OF RS. 35,000/- SO THAT LAND ACQUISITION PROCEEDINGS MAY B E STARTED AND THE SAME WAS DEPOSITED ON 25.03.2002 BY DRAFT DATED 21.03.20 02 ALONG WITH LETTER DATED 21.03.2002 AVAILABLE ON PAGE 4 OF ADDITIONAL EVIDENCE. HE ALSO SUBMITTED THAT AS PER THE SAME, IT HAS TO BE ACCEPT ED THAT THE PROJECT WORK STARTED IN MARCH 2002 AND THEREFORE, INTEREST INCOM E SHOULD BE CAPITALIZED AS PER THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. BOKARO STEEL LTD., AS REPORTED IN 236 ITR 315 (SC). HE ALSO SUBMITTED THAT THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDER ED IN THE CASE OF CIT VS. INDO GULF FERTILIZER & CHEMICAL CORPORATION LTD., 2 80 ITR 621 IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. REGARDING THE TRI BUNAL ORDER RENDERED IN THE CASE OF ACIT VS. M/S Z SQUARE SHOPPING MALL PVT. LT D., IN ITA NO. 659 TO 6 661/LKW/2013 DATED 09.09.2015 ON WHICH RELIANCE WAS PLACED BY THE LEARNED DR OF THE REVENUE, HE SUBMITTED THAT THIS T RIBUNAL ORDER IS ALSO NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. HE FUR THER SUBMITTED THAT IN FACT, AS PER PARA 16 ON PAGE 18 OF THIS TRIBUNAL ORDER, T HE TRIBUNAL HAS NOTED A JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN TH E CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO, 315 ITR 255 (DELHI) AND AS PER THIS JUDGMENT, THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE. REGARDING GROUND NO. 5.1 & 5.2, HE SUBMITTED THAT THIS INTEREST INCO ME IS IN COURSE OF PUBLIC ISSUE AS PER BANK CERTIFICATE AVAILABLE ON PAGES 28 & 29 OF THE PAPER BOOK. HE ALSO PLACED RELIANCE ON THE FOLLOWING JUDICIAL P RONOUNCEMENTS:- A) CIT VS. KARNAL CO OPERATIVE SUGAR MILLS LTD., 24 3 ITR 2 (SC) B) CIT VS. KARNATKA POWER CORPORATION, 247 ITR 268 (SC) C) CIT VS. JAYPEE DSC VENTURES LTD. AS REPORTED IN 335 ITR 132 (DEL) D) NTPC SAIL POWER COMPANY PVT. LTD. VS. CIT, 210 T AXMAN 358 (DEL) E) CIT VS. VGR FOUNDATIONS, AS REPORTED IN 298 ITR 132 (MAD) F) INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO , 315 ITR 255 (DEL) 4.1 LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND RELIANCE WAS PLACED BY HIM ON THE JUDGMEN T OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. INDO GUL F FERTILIZER & CHEMICAL CORPORATION LTD., 280 ITR 621 AND ON THE TRIBUNAL O RDER RENDERED IN THE CASE OF ACIT VS. M/S Z SQUARE SHOPPING MALL PVT. LTD., I N ITA NO. 659 TO 661/LKW/2013 DATED 09.09.2015. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST WE EXAMINE THE APPLICABILITY OF THE JUDGMENT OF HONBLE JURISDICTI ONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. INDO GULF FERTILIZER & CHEMICAL CORPORATION LTD. (SUPRA). IN THIS CASE, THE FACTS WERE NOTED BY HONBLE HIGH COURT IN PARA 4. AS PER THE SAME, IN THE RELEVANT YEAR, THE PLANT WAS UNDER CON STRUCTION. SOME LOANS WERE AVAILED BY THE ASSESSEE IN THAT CASE FROM FINA NCIAL INSTITUTIONS WITH THE STIPULATION THAT ANY INTEREST EARNED ON SUCH AMOUNT OF LOAN NOT UTILIZED 7 TEMPORARILY WOULD GO TO REDUCE THE LIABILITY OF THE LOAN. DUE TO CERTAIN UNEXPECTED DELAY, THE AMOUNT OF LOAN RECEIVED REMAI NED LYING WITH BANKERS AND THE ASSESSEE GOT SOME INTEREST FROM BANKS. THE DISPUTE WAS THIS AS TO WHETHER SUCH INTEREST INCOME IS TAXABLE OR NOT. IT WAS HELD IN THAT CASE BY HONBLE JURISDICTIONAL HIGH COURT THAT THE COMPANY HAS CHOSEN NOT TO KEEP ITS SURPLUS CAPITAL IDLE BUT HAS DECIDED TO INVEST IT F RUITFULLY AND THE FRUITS OF SUCH INVESTMENT WILL CLEARLY BE OF REVENUE NATURE. THE R ATIO OF THIS JUDGMENT AS NOTED ON PAGER 626 OF 280 ITR IS THAT IF THE CAPITA L OF A COMPANY IS FRUITFULLY UTILIZED INSTEAD OF KEEPING IT IDLE, THE INCOME THU S GENERATED WILL BE OF REVENUE NATURE AND NOT ACCRETION TO CAPITAL. IT WAS HELD THAT INTEREST INCOME SO EARNED IS TAXABLE AS INCOME FROM OTHER SOURCES. IN THE PRESENT CASE ALSO, THE FACTS ARE IDENTICAL EXCEPT THIS THAT INSTEAD OF BORROWED FUNDS IN THAT CASE, THE FUNDS IN THE PRESENT CASE ARE OWN FUNDS BUT THI S DIFFERENCE IS NOT RELEVANT FOR THE ISSUE IN DISPUTE. IN FACT, THIS IS CLEARLY STATED BY HONBLE JURISDICTIONAL HIGH COURT ITSELF IN THE SAME PARA OF THIS JUDGMENT THAT WHETHER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORROWING WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE THAT IF THE C APITAL OF A COMPANY IS FRUITFULLY UTILIZED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERATED WILL BE OF REVENUE NATURE AND NOT AN ACCRETION TO CAPITAL. AS PER THE LEARNED AR OF THE ASSESSEE, THE FUNDS WERE SURPLUS FOR NO FAULT O F THE ASSESSEE BECAUSE THE PROJECT WAS DELAYED FOR THIS REASON THAT LAND COULD NOT BE ACQUIRED AND PROVIDED BY UPSIDC BUT IN OUR CONSIDERED OPINION, I N VIEW OF THE RATIO OF THIS JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT THAT IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILIZED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERATED WILL BE OF REVENUE NATURE AND NOT ACCRETION TO CAPITAL, EVEN THIS REASON FOR DELAY IN PROJECT IS ALSO NOT RELEVANT FOR THE ISSUE IN DI SPUTE. IN OUR CONSIDERED OPINION, THE ISSUE IN DISPUTE IS SQUARELY COVERED A GAINST THE ASSESSEE BY THIS JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT UNLES S WE FIND THAT ANY JUDGMENT OF HONBLE APEX COURT IS RENDERING ANY HEL P TO THE ASSESSEE OR THERE 8 IS SOME OTHER JUDGMENT IN FAVOUR OF THE ASSESSEE ON IDENTICAL FACTS ON A DIFFERENT ASPECT OF THE PRESENT MATTER AND THAT ASP ECT WAS NOT CONSIDERED AND DECIDED BY HONBLE JURISDICTIONAL HIGH COURT. 6. NOW WE EXAMINE THE APPLICABILITY OF TWO JUDGMENT S OF HONBLE APEX COURT CITED BY THE LEARNED AR OF THE ASSESSEE AS NO TED ABOVE. THE FIRST JUDGMENT OF HONBLE APEX COURT IS THE JUDGMENT REND ERED IN THE CASE OF CIT VS. KARNAL CO OPERATIVE SUGAR MILLS LTD. (SUPRA). I N THIS CASE, INTEREST WAS EARNED ON MONEY DEPOSITED TO OPEN LETTER OF CREDIT FOR PURCHASE OF MACHINERY REQUIRED FOR SETTING UP THE PLANT AND UND ER THESE FACTS, IT WAS FOUND THAT THE DEPOSIT IS DIRECTLY LINKED WITH PURC HASE OF MACHINERY AND HENCE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCIDEN TAL TO ACQUISITION OF ASSETS AND HAS TO BE CAPITALIZED AND CANNOT BE ASSE SSED AS INCOME FROM OTHER SOURCES. IN THE PRESENT CASE, DEPOSIT IS NOT INCIDENTAL TO ACQUISITION OF ASSETS AS IN THAT CASE AND THEREFORE, THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE. THE SECOND JUDGMENT OF HONBLE APEX C OURT IS THE JUDGMENT RENDERED IN THE CASE OF CIT VS. KARNATAKA POWER COR PORATION (SUPRA). IN THIS CASE, HIRE CHARGES WERE REALIZED FROM CONTRACTORS O N PLANT AND MACHINERY GIVEN TO CONTRACTORS FOR USE IN CONSTRUCTION WORK A ND INTEREST WAS REALIZED ON ADVANCES TO THEM. HENCE, IT IS SEEN THAT IN THIS CA SE ALSO, THERE WAS DIRECT LINK BETWEEN INCOME EARNED AND ACQUISITION OF ASSET S. IN THE PRESENT CASE, THERE IS NO SUCH FACT AND THEREFORE, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 7. NOW WE EXAMINE THE APPLICABILITY OF OTHER JUDGME NTS CITED BY THE LEARNED AR OF THE ASSESSEE. WE FIND THAT THESE JUDG MENTS ARE OF VARIOUS NON JURISDICTIONAL HIGH COURTS. HENCE, THESE JUDGMENTS ARE REQUIRED TO BE CONSIDERED SEPARATELY IF THE SAME ARE ON AN ASPECT WHICH WAS NOT DECIDED BY HONBLE JURISDICTIONAL HIGH COURT BECAUSE ON THE S AME ASPECT, IF IT IS FOUND THAT AS PER THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT, THE ISSUE IN DISPUTE IS COVERED AGAINST THE ASSESSEE, ANY JUDGME NT OF A DIFFERENT HIGH 9 COURT EVEN IF IN FAVOUR OF THE ASSESSEE IS NOT RELE VANT BECAUSE WE ARE DUTY BOUND TO FOLLOW THE JUDGMENT OF HONBLE JURISDICTIO NAL HIGH COURT. WHEN WE CONSIDER THESE JUDGMENTS, WE FIND THAT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (SUPRA), THE JUDGMENT OF HONBLE DELHI HIGH COURT IS ON THIS ASPECT ALSO THAT AS PER SECTION 3 OF THE INCOME TAX ACT, FOR A NEWLY SET UP BUSINESS THE PREVIOUS YEAR SHALL BE TH E PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINESS AND AS PER C HARGING SECTION I.E. SECTION 4 OF THE INCOME TAX ACT, INCOME WHICH ARISES TO THE ASSESSEE FROM THE DATE OF SETTING UP OF THE BUSINESS BUT PRIOR TO COMMENCE MENT IS CHARGEABLE TO TAX DEPENDING ON WHETHER IT IS OF REVENUE NATURE OR CAP ITAL RECEIPT. HENCE EVEN INCOME OF REVENUE NATURE RECEIVED PRIOR TO SETTING UP OF BUSINESS IS NOT CHARGEABLE TO TAX AS PER THIS JUDGMENT. THIS ASPECT WAS NOT UNDER CONSIDERATION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INDO GULF FERTILIZER & CHEMICAL CORPORATION LTD. (SUPRA) AND HENCE WE EXAMINE THE APPLICABILITY OF THIS JUDGMENT OF HONBLE DELHI HIG H COURT IN THE FACTS OF THE PRESENT CASE ON THIS LIMITED ASPECT AND IF IT IS FO UND THAT THE BUSINESS OF THE PRESENT ASSESSEE WAS NOT SET UP THEN THE INTEREST I NCOME IN THE PRESENT CASE CANNOT BE TAXED. BUT AS PER THE FACTS OF THE PRESEN T CASE, WE FIND THAT THE PROFIT & LOSS A/C FOR THE YEAR ENDING ON 31.03.2006 AVAILABLE ON PAGE 7 OF THE PAPER BOOK, IT IS SEEN THAT THERE WAS SALES OF RS. 32.61 LACS IN THE PRESENT YEAR AND RS. 27.82 LACS IN THE PRECEDING YEAR. HENC E, IN THE PRESENT CASE, BUSINESS OF THE ASSESSEE WAS NOT ONLY SET UP BUT CO MMENCED ALSO AND THAT TOO IN THE EARLIER PERIOD PRIOR TO COMMENCEMENT OF THE PREVIOUS YEAR RELEVANT TO A. Y. 2006 07 AND THE ASSESSEE IS PUTTING UP A NEW PROJECT ONLY. THEREFORE, IN THE PRESENT CASE, THE FACTS ARE DIFFE RENT. IT IS NOT A CASE WHERE THE BUSINESS OF THE ASSESSEE WAS NOT SET UP. AFTER SETTING UP OF BUSINESS, THE RECEIPT OF REVENUE NATURE IS TAXABLE AS PER THIS JU DGMENT AND AS PER THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. INDO GULF FERTILIZER & CHEMICAL CORPORATION LTD. (SUPRA), THE RECEIPT IN QUESTION IS OF 10 REVENUE NATURE. THEREFORE, THE ASSESSEE DOES NOT GE T ANY HELP FROM THIS JUDGMENT OF HONBLE DELI HIGH COURT. 7.1 IN THE CASE OF CIT VS. JAYPEE DSC VENTURES LTD. (SUPRA), THERE WAS DIRECT NEXUS OF INTEREST INCOME AND THE PROJECT BEI NG PUT UP BECAUSE IT WAS ON FD FOR PERFORMANCE GUARANTEE OF CONTRACT AND SIN CE THE FACTS OF THE PRESENT CASE ARE NOT SIMILAR, THE ASSESSEE DOES NOT GET ANY HELP FROM THIS JUDGMENT OF HONBLE DELI HIGH COURT. 7.2 IN THE CASE OF NTPC SAIL POWER COMPANY PVT. LTD . VS. CIT (SUPRA) ALSO, THE INTEREST EARNED WAS IN RESPECT OF DEPOSIT S MADE WITH BANKS BY WAY OF MARGIN OR ADVANCES GIVEN FOR THE PURPOSE OF EXPA NSION AND HENCE, FOR THE SAME REASONS, THIS JUDGMENT ALSO IS OF NO HELP TO T HE ASSESSEE. 7.3 IN THE CASE OF CIT VS. VGR FOUNDATIONS (SUPRA), IT WAS HELD BY HONBLE MADRAS HIGH COURT THAT THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF TUTICORIN ALKALI, 227 ITR 172 (SC) IS APPLI CABLE ONLY IN THOSE CASES WHERE INTEREST IS EARNED OUT OF BORROWED FUNDS AND NOT IN THOSE CASES WHERE INTEREST IS EARNED BY INVESTING OWN FUNDS BUT WE FI ND THAT IN THE CASE OF INDO GULF FERTILIZER & CHEMICAL CORPORATION LTD. (SUPRA) , THIS IS A CATEGORICAL FINDING OF HONBLE JURISDICTIONAL HIGH COURT THAT WHETHER T HE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORR OWING WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE THAT IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILIZED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERAT ED WILL BE OF REVENUE NATURE AND NOT AN ACCRETION TO CAPITAL. THIS FINDIN G IS ON PAGE 626 OF 280 ITR. HENCE, WE ARE BOUND TO FOLLOW THE JUDGMENT OF HONB LE JURISDICTIONAL HIGH COURT IN PREFERENCE TO THIS JUDGMENT OF HONBLE MAD RAS HIGH COURT AND THEREFORE, WE HOLD THAT THIS JUDGMENT OF HONBLE MA DRAS HIGH COURT IS OF NO HELP TO THE ASSESSEE. 11 8. AS PER ABOVE DISCUSSION, WE FIND THAT NONE OF TH E JUDGMENTS CITED BY THE LEARNED AR OF THE ASSESSEE IS RENDERING ANY HEL P TO THE ASSESSEE. HENCE, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE JURI SDICTIONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. INDO GULF FERTILIZE R & CHEMICAL CORPORATION LTD. (SUPRA), WE HOLD THAT INTEREST INCOME FROM BAN K IS TAXABLE AS INCOME FROM OTHER SOURCES EXCEPT INTEREST INCOME OF RS. 17 ,70,413/- EARNED IN COURSE OF PUBLIC ISSUE OF SHARES AS PER GROUND NO. 5.1 RAISED BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THIS INCOME SHOULD BE SE T OFF AGAINST PUBLIC ISSUE EXPENSES BECAUSE INTEREST EARNED WAS INEXTRICABLY L INKED WITH RAISING OF SHARE CAPITAL AND WAS THUS ADJUSTABLE TOWARDS THE EXPENDI TURES INVOLVED FOR THE SHARE ISSUE. THIS VIEW OF US IS SUPPORTED BY A JUDG MENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. PANAMA P ETROCHEM LIMITED IN TAX APPEAL NO. 315 OF 2010 DATED 26.07.2011 AND ALSO BY A TRIBUNAL ORDER OF AHMEDABAD BENCH RENDERED IN THE CASE OF ACIT VS. SH REE RAMA MULTITECH LTD., ITA NO. 240/AHD/2008 DATED 21.10.2011. WE HOL D ACCORDINGLY AND DIRECT THE A.O. THAT TO THE EXTENT OF EXPENSES INCU RRED FOR PUBLIC ISSUE OF SHARES, THE AMOUNT OF INTEREST INCOME OF RS. 17,70, 413/- EARNED IN COURSE OF PUBLIC ISSUE OF SHARES SHOULD BE SET OFF AGAINST SU CH EXPENSES BUT IF THE AMOUNT OF INTEREST INCOME ON SHARE APPLICATION MONE Y IS MORE THAN THE EXPENSES INCURRED FOR PUBLIC ISSUE OF SHARES, THEN SUCH EXCESS INTEREST INCOME SHOULD BE TAXED AS INCOME FROM OTHER SOURCES. GROUN D NO. 5.1 & 5.2 ARE ALLOWED FOR STATISTICAL PURPOSES. 9. REGARDING GROUND NO. 7 & 8, WE FIND THAT THESE I SSUES ARE COVERED AGAINST THE ASSESSEE BY THE SAME JUDGMENT OF HONBL E JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. INDO GULF FER TILIZER & CHEMICAL CORPORATION LTD. (SUPRA). RESPECTFULLY FOLLOWING TH E SAME, THESE GROUNDS ARE REJECTED. 10. NOW WE DEAL WITH GROUND NO. 10.1 AND 10.2. ON T HIS ISSUE, LEARNED AR OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEF ORE CIT (A) AND LEARNED 12 DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHO RITIES BELOW. WE FIND THAT IT IS NOTED BY THE A.O. ON PAGE 11 OF THE ASSESSMEN T ORDER THAT SINCE BUSINESS WAS NOT IN EXISTENCE, DEPRECIATION IS NOT ALLOWABLE BECAUSE AS PER SECTION 32, DEPRECIATION IS ALLOWABLE ON ASSETS USE D FOR BUSINESS. HE HAS ALSO RELIED ON THE JUDGMENT OF HONBLE APEX COURT RENDER ED IN THE CASE OF BOKARO STEEL LTD., 236 ITR 315 (SC) AND HELD THAT IF THE A SSET IS USED IN CONSTRUCTION OF PROJECT, DEPRECIATION HAS TO BE CAPITALIZED AND NOT ALLOWABLE AS REVENUE EXPENDITURE. IN PARA 6 OF HIS ORDER, IT IS NOTED BY CIT (A) THAT NO SUBMISSION WAS MADE ON THIS ISSUE. WE FIND NO INFIRMITY IN THE ASSESSMENT ORDER ON THIS ISSUE AND THEREFORE, THIS GROUND IS REJECTED. 11. EXCEPT GROUND NO. 5.1 & 5.2 WHICH ARE ALLOWED F OR STATISTICAL PURPOSES, ALL OTHER GROUNDS ARE REJECTED INCLUDING GROUND NO. 1 ABOUT NON RECORDING OF SATISFACTION FOR ISSUE OF NOTICE U/S 143 (2) BECAUS E WE DO NOT FIND ANY MERIT IN THESE GROUNDS. 12. IN THE RESULT, THE APPEAL OF THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. NOW, WE PROCEED TO DECIDE THE APPEAL FOR A.Y. 2 007 08. IN THIS YEAR, ONE ISSUE IS REGARDING THIS CONTENTION THAT NOTICE U/S 143 (2) WAS NOT VALIDLY ISSUED. LEARNED AR OF THE ASSESSEE DID NOT MAKE ANY SUBMISSION ON THIS ISSUE. MOREOVER, THIS ISSUE DOES NOT ARISE OUT OF T HE ORDER OF CIT (A) BECAUSE NO SUCH ISSUE WAS RAISED BEFORE HIM. HENCE, THIS IS SUE IS DECIDED AGAINST THE ASSESSEE. THE REMAINING ISSUE IS ABOUT INTEREST INC OME OF RS. 817,855/- TAXED BY THE A.O. AS INCOME FROM OTHER SOURCES BUT AS PER THE ASSESSEE, IT SHOULD BE SET OFF AGAINST CAPITAL WORK IN PROGRESS. BOTH S IDES AGREED THAT THE FACTS ON THIS ISSUE ARE IDENTICAL WITH FACTS IN A.Y. 2006 07 AND HENCE, THIS ISSUE IN THIS YEAR CAN BE DECIDED IN LINE WITH OUR DECISION ON THIS ISSUE IN A. Y. 2006 07. IN THAT YEAR, WE HAVE DECIDED THIS ISSUE AGAINS T THE ASSESSEE AND ACCORDINGLY, IN THE PRESENT YEAR ALSO, THIS ISSUE I S DECIDED AGAINST THE ASSESSEE. 13 14. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS D ISMISSED. 15. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE FOR A.Y. 2006 07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE ASSESSEE FOR A.Y. 2007 08 IS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/- SD/- (SUNIL KUMAR YADAV) ( A. K. GAR ODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29/10/2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGIST RAR