DCIT 8(1)(1), MUMBAI V. REWAS PORTS LTD, MUMBAI

ITA 3238/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1503 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH JAIN; GAUTAM THAKKAR
• Assessee Lawyers: CHAITANYA ANJARIA SR AR
• Keywords: Capital receipt; Revenue expenditure; Capital expenditure; Set aside
• Section: 36 (1) (iii)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 3074/MUM/17 2012-13 M/S. REWAS PORTS LIMITED, MUMBAI [PAN: AACCR 3698 A] DEPUTY COMMISSIONER OF INCOME TAX-7(2), MUMBAI 3075/MUM/17 2013-14 3238/MUM/17 2013-14 DEPUTY COMMISSIONER OF INCOME TAX-8(1)(1), MUMBAI M/S. REWAS PORTS LIMITED, MUMBAI [PAN: AACCR 3698 A] APPELLANT BY : SHRI GAUTAM THAKKAR & SHRI RAMESH JAIN, RESPONDENT BY : SHRI CHAITANYA A N JA RIA, SR. AR - CIT DATE OF HEARING : 1 5 - 11 - 201 8 DATE OF PRONOUNCEMENT : - 27 - 11 - 201 8 O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER: THE ONLY COMMON ISSUE IN THESE TWO APPEALS OF ASSES SEE I.E., IN ITA NO. 3074/MUM/2017 & 3075/MUM/2017 FOR THE AYS 2012-13 & 2013-14 AND ONE APPEAL FILED BY THE REVEN UE IN ITA NO. 3238/MUM/2017 FOR THE AY 2013-14 IS AS REGARDS THE ORDER ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 2 OF THE COMMISSIONER OF INCOME TAX(APPEALS)-14, MUMB AI, DECIDING THE CLAIM OF DEDUCTION ON ACCOUNT OF PERCE NTAGE ALLOCATION OF INTEREST EXPENSES U/S. 57(III) OF THE INCOME TAX ACT, 1961 [HEREIN AFTER REFERRED TO AS ACT]. FOR THIS , ASSESSEE HAS RAISED IDENTICAL WORDED GROUNDS IN BOTH THE YEARS A ND RELEVANT GROUNDS WE ARE TAKING FROM 2012-13, WHICH READ AS U NDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE INTEREST INCOME EARNED BY THE APPELLANT ON THE FUNDS MEANT FOR CONSTRUCTION OF TH E PORT WAS INEXTRICABLY LINKED TO THE SETTING UP OF THE PROJEC T AND THEREFORE, THE SAME OUGHT TO BE TREATED AS CAPITAL RECEIPTS AND AD JUSTED AGAINST THE WORK IN PROGRESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE PLEA FO R ALLOWING THE ENTIRE INTEREST EXPENDITURE AS REVENUE EXPENDITURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING ONLY PART INTEREST EXPENDITURE CLAIMED U/S. 57(III) OF THE INCOME TAX ACT, 1961 TO THE EXT ENT OF 22,14,514/- AS AGAINST THE CLAIM OF THE APPELLANT TO THE TUNE OF 45,19,842/-. 2. SIMILARLY, REVENUE HAS RAISED THE FOLLOWING GROU NDS: I. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN ALLOWING DEDUCTION ON ACCOUNT OF PERCENTAGE ALLOCATION OF IN TEREST EXPENSES U/S. 57(III) OF THE I.T. ACT, 1961 WITHOUT PROPERLY APPR ECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSESSIN G OFFICER IN HIS ASSESSMENT ORDER. II. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN ALLOWING THE DEDUCTION OF INTEREST EXPENSES U/S. 57(III) OF THE I.T. ACT, 1961 ON THE LOANS TAKEN WITHOUT APPRECIATING THE FACT THAT AN E QUIVALENT AMOUNT HAS TO BE REDUCED FROM CAPITAL WORK IN PROGRESS. ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 3 3. AT THE OUTSET, LD COUNSEL STATED THAT THE ABOVE ISSUE STANDS COVERED BY THE DECISION OF THE CO-ORDINATE B ENCH IN ASSESSEES OWN CASE IN ITA NO. 758/MUM/2012, DATED 12-04- 2017, WHEREIN THE TRIBUNAL VIDE PARA 8 HAS CONSIDER ED THE ISSUE IN DETAIL AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, MATERIAL PLACED BEFORE US AND THE ORDERS OF AUTHORITIES BELOW INCLU DING THE EARLIER DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE. W E FIND MERIT IN THE CONTENTIONS OF THE LD.AR THAT THE FACTS OF THE INST ANT CASE BEFORE US ARE MATERIALLY SAME AS IN THE ASSESSMENT YEARS 2009-10 AND 2010-11 WHICH ATTAINED FINALITY DUE TO WITHDRAWAL OF APPEAL S WHICH WERE ALLOWED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL VI DE ODDER DATED 10.2.2016. THE RELEVANT EXTRACT OF THE LD.CIT(A)S ORDER FOR THE AYS- 2009-10 AND 2010-11 IS REPRODUCED BELOW: 3.6 I HAVE DULY CONSIDERED THE FACTS AND SUBMISSIO NS MADE IN THE CASE. I HAVE ALSO GONE E THROUGH THE DECISION RELIE D UPON BY THE APPELLANT AS MENTIONED ABOVE. THESE FACTS ARE NOT D ISPUTED THAT APPELLANT BORROWED THE MONEY FOR SETTING UP THE PLA NT HOWEVER IT COULD NOT COMMENCE THE BUSINESS AS PORT WAS NOT YET COMPL ETE AND HENCE THESE INTEREST-BEARING FUNDS BEING SURPLUS WITH THE M WERE UTILISED FOR MAKING INTERCORPORATE DEPOSITS AND FIXED DEPOSITS O N WHICH APPELLANT HAVE EARNED INTEREST ALSO. AS FAR AS A.Y 2009-10 IS CONCERNED THIS INTEREST WAS INITIALLY OFFERED BY THE APPELLANT AS INTEREST INCOME HOWEVER THE RETURN WAS REVISED DECLARING TOTAL INCO ME OF RS.26,38,974/-. IT IS NOTED THAT ASSESSING OFFICER AFTER TREATING THE INCOME AS INCOME FROM OTHER SOURCES HAS ASSESSED TO TAL INCOME AT THE FIGURE OF RS.1,39,01,050/ - ONLY. THIS HAS HAPPENED FOR THE REASON THAT THE INTEREST EXPENSES INCURRED ON THE BORROWED CAPI TAL WERE NOT ALLOWABLE UNDER SECTION 36 OF THE I T ACT DUE TO AM ENDED PROVISIONS OFSECTION 36 (1) (III) WITH EFFECT FROM 1.04.2004. 3.7 AS IT IS ACCEPTED PRINCIPLE THAT IN CONSIDERING WHETHER THE INTEREST PAID BY AN ASSESSEE ON LOANS RAISED FOR ACQUISITION OF NEW ASSET, BEFORE THE SAME WAS FIRST PUT TO USE, IS TO BE ADDED TOWAR DS THE COST OF THE ASSET OR THE SAME IS TO BE GRANTED AS A REVENUE EXP ENDITURE FOR THE REASON THAT THE ASSESSEE WAS ALREADY IN. BUSINESS, THE PROVISIONS OF SECTION 36 (L)(III) CANNOT BE READ IN ISOLATION BUT HAVE TO BE READ WITH ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 4 S.43 (1). DCIT VS. CORE HEALTHCARE 251 ITR 61 (GUJ) DISSENTED FROM. FURTHER S. 36(1)(III) DOES NOT CONFER A DEDUCTION B ORROWED FOR THE PURPOSES OF SETTING UP A NEW UNIT EVEN IN THE CASE OF AN ASSESSEE ALREADY IN BUSINESS. DEDUCTION FOR INTEREST ON CAPI TAL BORROWED CAN BE ALLOWED ONLY AFTER THE ASSET IS FIRST PUT TO USE AN D STARTED GENERATING INCOME. THEN IT IS IMPLICIT FROM EXPL 8 TO SEC 43(1 ), WHICH PROVIDES THAT INTEREST PAYABLE AFTER THE ASSET IS PUT TO USE SHAL L NOT BE ADDED TO THE ACTUAL COST, THAT INTEREST PAYABLE BEFORE THE ASSET IS PUT TO USE HAS TO BE ADDED TO THE ACTUAL COST. THUS IN CONFORMITY WITH L AW AND ACCOUNTING PRINCIPLES, INTEREST PAID ON CAPITAL BORROWED FOR A CQUISITION OF AN ASSET HAS TO CAPITALIZED AND CANNOT BE ALLOWED AS A REVEN UE DEDUCTION TILL THE ASSET IS PUT TO USE. THERE IS NO DISTINCTION BETWEE N CAPITAL BORROWED FOR THE SETTING UP OF A NEW BUSINESS AND THE EXPANSION OF AN EXISTING BUSINESS. THUS THE PROVISO TO S. 36(1)(III) INSERTE D BY THE FINANCE ACT 2003 IS TO 'CURB TAX AVOIDANCE' AND IS MERELY CLARI FICATORY. 3.8 NOW COMING TO THE PLEA OF APPELLANT THAT WHILE DOING SO ASSESSING OFFICER HAS NOT ALLOWED EXPENDITURE INCURRED AS INT EREST PAID ON THESE VERY BORROWED CAPITAL'S WHICH HAVE BEEN UTILISED FO R MAKING THESE INTERCORPORATE AS WELL AS FIXED DEPOSITS, I FIND TH AT THIS HAS NOT BEEN DISPUTED BY ASSESSING OFFICER ALSO THAT THESE FUNDS ON WHICH INTEREST IS BEING PAID BY THE APPELLANT ARE HAVING DIRECT LINK WITH THE INVESTMENT MADE BY WAY OF FIXED DEPOSIT AND INTERCORPORATE DEP OSITS. WHAT ALL ASSESSING OFFICER HAS SAID IN THE ASSESSMENT ORDER AS REPRODUCED ABOVE IN PARA 5, AS IS COMING OUT FROM A READING OF THE S AME THAT THE QUESTION OF ADJUSTMENT OF INTEREST PAYABLE BY THE COMPANY AG AINST THE INTEREST EARNED BY IT WILL DEPEND UPON THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER HAS ALSO CLEARLY STATED THAT THIS EXPENDITU RE WOULD HAVE BEEN DEDUCTIBLE AS INCURRED FOR THE PURPOSE OF BUSINESS IF THE ASSESSEE'S BUSINESS HAD COMMENCED BUT THAT IS NOT THE CASE. IN THAT CASE THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE MAY BE ENTITLED TO CAPITALISE THE INTEREST PAYABLE BY IT AT WHAT THE A SSESSEE CANNOT CLAIM ITS ADJUSTMENT OF THIS EXPENDITURE AGAINST THE INTE REST ASSESSABLE UNDER SECTION 56. IT IS HERE THAT I FIND THAT THE CONCLUS ION DRAWN BY ASSESSING OFFICER IS UNSUPPORTED BY THESE DECISIONS AS NONE O F THESE DECISIONS SAY THAT WHEN EXPENSES ARE INEXTRICABLY LINKED, IS STIL L THEY CANNOT BE CLAIMED AS PER PROVISIONS OF THE ACT AGAINST THE IN COME EARNED BY DEPLOYING THE SAME FUNDS. IT IS ALTOGETHER A DIFFER ENT MATTER THAT BEFORE THE AMENDMENT CAME INTO EFFECT III SECTION 36 OF TH E ACT THE INTEREST EARNED WOULD HAVE BEEN TREATED AS A CAPITAL RECEIPT AND THUS WOULD HAVE GONE TO REDUCE THE COST OF ASSET BEING CAPITAL IN NATURE, AS PER THE DECISION GIVEN BY HONOURABLE SUPREME COURT IN THE C ASE OF CIT VERSUS BOKARO STEEL LTD. HOWEVER AS THE AMENDMENT HAS COME INTO EFFECT FROM FIRST OF APRIL 2004 SUCH INTEREST EXPENDITURE CANNO T BE CLAIMED IN THE ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 5 PROFIT AND LOSS ACCOUNT TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. IN VIEW OF THIS IT IS CLEAR THAT THE APPELLANT COULD NOT HAVE CLAIMED THE INTEREST EXPENSES FOR THE REASON THAT THE BUSIN ESS HAD NOT COMMENCED AT ALL DURING THE PERIOD RELEVANT TO A.Y 2009-10 AS WELL AS A.Y 2010-11. 3.9 THIS LEAVES THE QUESTION WHETHER EXPENDITURE IN CURRED AS INTEREST PAID ON THOSE VERY FUND WHICH HAVE BEEN DIRECTLY DE PLOYED FOR MAKING THESE INVESTMENT ON WHICH INTEREST HAS BEEN OR, ARE DEDUCTIBLE OR NOT UJS. 57 OF THE ACT WHEN THE INTEREST EARNED IS BEIN G ASSESSED AS INCOME FROM OTHER SOURCES IN THAT SECTION. THE PROVISIONS OF SECTION 57 (ILL) OF THE ACT CLEARLY SAY THAT ANY EXPENDITURE WHICH IS NOT I N THE NATURE OF CAPITAL EXPENDITURE, LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME WILL BE AL LOWED AS DEDUCTION WHILE COMPUTING INCOME UNDER THE HEAD INCOME FROM O THER SOURCES IN SECTION 57 OF THE ACT. IN THE INSTANT CASE THE AO I S ALSO NOT DISPUTING THE FACT THAT INCOME HAS TO BE ASSESSED UNDER SECTION 5 7 OF THE ACT, WHICH HAS ALREADY BEEN AGREED IN PRINCIPLE. HAVING SAID T HAT ONCE INCOME HAS TO BE ASSESSED U/S 57 OF THE ACT PROVISIONS OF SECT ION 57(III) ALLOWING DEDUCTION WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED FOR EARNING THE SAID INCOME TO BE ALLOWED IN ACCORDANCE WITH THE PR OVISIONS OF THE ACT. IN VIEW OF THIS I AM IN AGREEMENT WITH THE APPELLAN T THAT INTEREST PAID BEING EXPENSES INCURRED ON THE SAME FUND WHICH HAS BEEN DEPLOYED TO ALL THE INTEREST, HAVING DIRECT NEXUS HAS TO BE ALL OWED. THIS VIEW IS ALSO TAKEN BY HONOURABLE COURT OF DELHI IN THE CASE OF N TPC SAIL POWER CO.LTD. FOR THE SAKE OF CLARITY RELEVANT PORTION OF THE SAID DECISION DEALING WITH THE ISSUE ARE REPRODUCED AS UNDER : 'DEDUCTION UNDER SECTION 57 (III) OF THE INCOME TAX ACT IS ALLOWABLE WHEN ANY EXPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCESSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THUS THE EXPENDITURE TO BE DED UCTIBLE UNDER SECTION 57 (III) MUST BE LAID OUT OR EXPENDED WHOLL Y OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. UNLESS TH E EXPENDITURE SOUGHT TO BE DEDUCTED RESULTED IN MAKING OR EARNING INCOME IT COULD NOT BE SAID TO BE LAID OUT OR EXPENDED FOR THE PURPOSE OF MAKING SUCH INCOME. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ADMITTEDLY PREDOMINANT PURPOSE FOR THE LOAN TAKEN W AS FOR THE EXTENSION OF EXISTING BUSINESS BY WAY OF SETTING UP AN NEW POWER GENERATION PLANT AT BHILAI. SINCE ASSESSEE HAD BEEN DENIED THE BENEFIT BY INSERTING A SPECIFIC PROVISO TO SECTION 136 (I) (III), THEREFORE, MATCHING ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 6 PRINCIPLES SHALL HELP ASSESSEE. WHATEVER CANNOT BE ACHIEVED DIRECTLY, IT CAN ALSO NOT BE ACHIEVED INDIRECTLY.' 3.10 THE A.O HAS RIGHTLY CONCLUDED THAT INTEREST EA RNED BY UTILISING SURPLUS FUNDS, BEFORE COMMENCEMENT OF BUSINESS IN T HE INSTANT CASE OF THE APPELLANT HAS TO BE ASSESSED AS 'INCOME FROM OT HER SOURCES'. FOR THE SAME ASSESSING OFFICER HAS RELIED UPON DECISIONS GI VEN BY HONOURABLE COURTS IN THE CASE OF TUTICORIN ALKALI CHEMICALS AN D FERTILISERS LTD VERSUS C.LT (SC) TO 27 ITR 172, C.I.T VERSUS PETROFF IS CO OPERATIVE (GUJ) 241 ITR 139, CIT VERSUS COCHIN SHIPYARD LTD (KER) 158 CTR 2 08, C.I.T V/S RASSII CEMENT LTD (AP) 232 ITR 554, SOUTH INDIA SHI PPING CORPORATION VERSUS ACIT (MAD) 240 ITR 24, C.LT V/S KISAN SAHAKA RI GENIE BILLS (ALL) 280 ITR 617, CHANDERPAUL SUGAR: COMPANY LTD VERSUS C.LT (ALL) 280 ITR 612, BOKARO STEEL LTD VERSUS CIT (PATNA) 170 IT R 545, CIT VERSUS COROMANDEL SIEMENS LTD (SC) 234 ITR 412, C.LT VERSU S AUTO CAST LTD (SC) 248 ITR 110, CONSOLIDATED FIBERS AND CHEMICALS LTD VERSUS CIT (CAL) 273 ITR 353, SKAYEF LTD VERSUS DCIT (ITAT, BA NGALORE) 71 ITD 419, GODAVARI FERTILISERS AND CHEMICALS LTD VERSUS CIT (AP) 198 ITR 388 AND CIT VERSUS HINDUSTAN ELECTRO GRAPHITE'S LTD (MP ) 177 ITR 465, CIT VERSUS TAMIL NADU INDUSTRIAL DEVELOPMENT CORPORATIO N LTD (MAD) 189 ITR 670, CIT VERSUS NEWSCENTRE JUTE MILLS CO-OPERAT IVE LTD (CAL) 118 ITR 1005, CIT VERSUS VP GOPINATHAN (SC) 248 ITR 449 AND CIT VERSUS MANIPUR SHIPPING BILLS CORPORATION LTD (GAU) 26 ITR 551. I HAVE GONE THROUGH THESE DECISIONS AND I AM FULLY IN AGREEMENT WITH THE ASSESSING OFFICER THAT INCOME SO EARNED BEFORE COMMENCEMENT O F THE BUSINESS THOUGH OUT OF BUSINESS FUNDS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. TO THIS EXTENT A.O ACTION OF TREATING THE INTEREST EARNED AS INCOME FROM OTHER SOURCES IS UPHELD. 3.11 IN THE INSTANT CASE AS THE PROJECT WAS AT THE START-UP STAGE OF DEVELOPMENT, OBVIOUSLY THE INTEREST-BEARING FUNDS C OULD NOT HAVE BEEN UTILISED TO THE EXTENT OF 100% IN THE VERY FIRST GO AND HENCE THE SURPLUS FUNDS WERE INVESTED IN INTERCORPORATE DEPOSITS BY T HE APPELLANT. HAVING ACCEPTED THIS, IT IS ALSO IS A FACT THAT THE SAME P OSITION WOULD NOT HAVE BEEN THROUGHOUT THOSE YEARS WHEN PROJECT WAS TAKING SHAPE AND GETTING COMPLETED FOR THE PURPOSE OF BUSINESS OF THE APPELL ANT. OBVIOUSLY IN SUCH A CASE FUNDS DEPLOYED IN THE VERY FIRST YEAR H AVE TO BE WITHDRAWN TO BE DEPLOYED TOWARDS PROJECT DEVELOPMENT. THIS PO SITION VARY YEAR TO YEAR AND GO ON TILL ALL THE FUNDS BORROWED FOR THE PURPOSE OF PROJECT HAVE BEEN PUT TO THE PROJECT DEVELOPMENT, THUS REDUCING THE BALANCE OF FUNDS INVESTED IN SUCH INTERCORPORATE DEPOSITS YEAR AFTER YEAR. IT IS NOTED THE APPELLANT HAS SIMPLY STATED THAT THE ENTIRE INTERES T EXPENDITURE RELATES TO THE INTEREST INCOME EARNED ON SUCH INTERCORPORAT E DEPOSITS WITHOUT GIVING ANY DETAILS OF ACTUAL AMOUNTS OF FUND INVOLV ED IN THE FMANCIAL ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 7 YEAR RELEVANT TO A.Y 2009-10 AND THEN A.Y 2010-11, THESE TWO A.YS WHICH WAS INVOLVED IN THE APPEALS. 3.12 IN VIEW OF THIS APPELLANT WAS ASKED TO PROVIDE A FUND FLOW POSITION SHOWING THE AMOUNT DEPLOYED FOR THE PROJECT AND THE ONE INVESTED IN INTERCORPORATE DEPOSITS, DURING THE FINANCIAL YEAR RELEVANT TO A.Y 2009- 10 AND THEN A.Y 2010-11. THE APPELLANT WAS SPECIFIC ALLY TOLD THAT ONLY THAT PART OF INTEREST. EXPENDITURE WHICH IS RELATED TO THE AMOUNT OF FUNDS DEPLOYED IN INTERCORPORATE DEPOSIT IN THE FINANCIAL YEAR RELEVANT TO A.Y 2009-10, IS ALLOWABLE U/S 57(III) IN THE ASSESSMENT YEAR 2009-10. THEN ON THE SAME LINES FUNDS DEPLOYED YIELDING INTEREST INCOME IN THE FINANCIAL YEAR RELEVANT TO A.Y 2010-11 CAN ONLY BE ALLOWED U/S 57 (III) IN A.Y 2010 - 11. 3.13 IN REPLY THE APPELLANT HAVE SUBMITTED A REPLY FOR A.Y 2010-11 WHEREIN IT HAS BEEN STATED AS UNDER FROM THE PERUSAL OF THE BALANCE SHEET, 'TOTAL INTER EST-BEARING FUNDS (IBF) AT THE BEGINNING OF THE YEAR WAS RUPEES 334.75 CR A ND OUT OF THESE FUNDS AVAILABLE SURPLUS OTHER THAN THOSE HAS BEEN U TILISED FOR THE PURPOSE OF PROJECT HAS BEEN DEPLOYED IN THE NET CUR RENT ASSETS OF RUPEES 140.29 CR.' FURTHER, TOTAL INTERESTBEARING AT THE E ND OF THE YEAR WAS RUPEES 296.34 CR AND OUT OF THESE FUNDS AVAILABLE S URPLUS OTHER THAN THOSE HAS BEEN UTILISED FOR THE PURPOSE OF PROJECT HAD BEEN DEPLOYED IN THE NET CURRENT ASSETS OF RUPEES 90.30 CR, WHICH CL EARLY INDICATES THAT THE COMPANY HAS UTILISED BORROWED FUNDS (AVAILABLE SURPLUS) FOR GIVING ICDS ET CETERA AND HENCE SUCH EXPENDITURE IS ALLOWA BLE U/S 57 (III) OF THE I TACT 1961. THE INTEREST INCOME EARNED ON THES E ICOS HAS NEXUS TO THE INTEREST PAID ON THE BORROWED FUNDS OF THE COMP ANY. HENCE THE INTEREST EXPENSES CLAIMED UNDER SECTION 57 (III) IS JUSTIFIED AND SHOULD BE ALLOWED AS EXPENDITURE AGAINST THE INTEREST EARN ED ON ICDS. FUNDS DEPLOYED FOR THE PURPOSE OF INTERCORPORATE DEPOSITS AT THE BEGINNING OF THE YEAR WAS RUPEES 41.22 CR (GIVEN TO THE GROUP CO MPANIES) AND AT THE END OF THE YEAR IT REMAINS RUPEES 13.73 CR . GIST I S THAT THE FUND WHICH WAS DEPLOYED OUT OF INTEREST-BEARING FUND WAS CONTI NUED DURING THE WHOLE YEAR. THEREFORE. THE DEDUCTION CLAIMED UNDER SECTION 57 (III) IS JUSTIFIED AND SHOULD BE ALLOWED AND ACCORDINGLY.' 3.14. A READING OF THE SAME MAKES IT CLEAR THAT APP ELLANT HAS ONLY REITERATED ITS SUBMISSIONS MADE DURING THE ASSESSME NT PROCEEDING BEFORE THE AO AND THUS HAS ONLY TRIED TO JUSTIFY TH E LINKAGE OF INTERESTBEARING FUNDS TO THE INTEREST INCOME EARNED IN GENERAL AND THUS TO CLAIM ALLOWABILITY U/S. 57 (III) OF THE LT ACT 1 961, WITHOUT QUANTIFYING THE AMOUNT ADMISSIBLE UNDER SECTION 57 (III) OF THE ACT. THUS IT IS SEEN THAT DESPITE BEING ASKED FOR TO QUANTIFY THE AMOUNT BY GIVING THE ACTUAL ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 8 AMOUNT OF FUN DEPLOYED, THE APPELLANT HAVE ONLY SUB MITTED THAT INTEREST EXPENSES SHOULD BE ALLOWED UNDER SECTION 57 (ILL) O F THE ACT. IN THE GIVEN FACTS IN THE CASE THAT WITH EACH YEAR OF PROGRESS O F PROJECT DEVELOPMENT SUCH SURPLUS FUNDS DEPLOYED IN INTERCORPORATE DEPOS ITS HAVE TO BE WITHDRAWN IN ORDER TO BE DEPLOYED FOR THE PURPOSE O F PROJECT DEVELOPMENT, FOR WHICH THEY WERE BORROWED FROM FINA NCIAL INSTITUTIONS. AS THE APPELLANT HAVE NOT COME UP WITH THE SPECIFIC DETAILS AND HAVE RELIED UPON BALANCE SHEET FIGURES, THAT TOO AT THE BEGINNING AND AT THE END OF THE FINANCIAL YEAR ON! RATHER THAN GIVING AC TUAL AMOUNT OF FUN DEPLOYED THROUGHOUT THE YEAR AND CALCULATION OF INT EREST PAID ON THE SAME, AS ASKED FOR, I AM OF THE CONSIDERED VIEW THA T BASED ON BALANCE SHEET FIGURES ONLY, THE INTEREST EXPENSES PAID ON T HE BORROWED FUNDS, WHICH WERE DEPLOYED THROUGHOUT THE PERIOD, CAN ONLY BE ALLOWED XX]. 57 (ILL OF THE ACT AND THE BALANCE AMOUNT OF INTERE ST EXPENDITURE HAS TO BE CAPITALISED IN THE COST OF PROJECT FOR THE REASO N THAT THE ASSET HAS NOT YET TAKEN SHAPE IN THESE TWO F.YS I.E. F.Y 2008- 09 AND 2009-10 RELEVANT TO A.YS 2009-10 AND A.Y. 2010-11, THOSE IN VOLVED IN THESE TWO INSTANT APPEALS. 3.15 AS FAR AS A.Y 2010-11 IS CONCERNED, THE APPELL ANT HAVE THEMSELVES SUBMITTED THAT THE FUNDS DEPLOYED AT THE BEGINNING OF THE YEAR FOR THE PURPOSE OF INTERCORPORATE DEPOSITS WAS RS.41.22 CR WHEREAS AT THE END OF THE YEAR THE FIGURE WAS RS.13.73 CR, THUS IT IS CLEAR THAT THE BALANCE FUNDS I.E. RS. 27.49 CR WERE TAKEN OUT DURING THE Y EAR FOR THE PURPOSE OF PROJECT. EVEN GOING ON PROPORTIONATE BASIS IT IS SE EN THAT THE FUNDS DEPLOYED IN INTERCORPORATE DEPOSITS AND FIXED DEPOS ITS WHICH ARE FORMING PART OF NET CURRENT ASSETS, IN THE BEGINNIN G OF THE YEAR FUNDS WHICH WERE AT RS. 334.75 CR HAVE BEEN REDUCED TO RS .140.29 CR AT THE END OF THE YEAR. THIS MEANS FUNDS DEPLOYED IN NET C URRENT ASSETS AT THE BEGINNING OF THE YEAR AT RS.334.75 CR HAVE REDUCED TO AT THEIR 23.86% I.E. LESS THAN 1/3 OF THE SAME. THEN COMING TO FUND S DEPLOYED ONLY FOR INTERCORPORATE DEPOSITS, IT IS SEEN THAT AT THE BEG INNING OF THE YEAR REDUCED TO LESS THAN THEIR 1/3RD AT THE END OF THE YEAR (RS. 41.2 TO CRI RS. 13.73 CR = 30.02%) . IN VIEW OF THIS INTEREST P AID FOR THE BALANCE AMOUNT OF FUNDS CANNOT BE TAKEN AS INVESTED IN INTE RCORPORATE DEPOSITS TO EARN INTEREST INCOME AND HENCE HAS TO BE CAPITAL ISED IN THE COST OF PROJECT IN VIEW OF THE DISCUSSIONS MADE IN THE LIGH T OF DECISIONS AVAILABLE ON THE ISSUE, AS CITED ABOVE ALREADY. ACC ORDINGLY I AM OF THE CONSIDERED VIEW THAT OUT OF THE INTEREST EXPENDITUR E DEBITED IN THE PROFIT AND LOSS ACCOUNT BY THE APPELLANT AT RS.2,30,730,63 /- AT THE MAXIMUM THE PROPORTIONATE EXPENDITURE, EVEN IF TAKEN ON THE HIGHER SIDE I.E. 30.02% CAN ONLY BE ATTRIBUTED TO EARNING OF INTERES T INCOME ON INTERCORPORATE DEPOSITS MADE BY THE APPELLANT, WHER EAS APPELLANT HAS CLAIMED ENTIRE INTEREST EXPENDITURE AS REVENUE EXPE NDITURE BY DEBITING ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 9 THE SAME IN THE PROFIT AND LOSS ACCOUNT. APPLYING T HE WEIGHTED AVERAGE THEORY FOR THESE TWO SEGMENTS, AS HIGHER AMOUNT OF FUNDS DEPLOYED IN NET CURRENT ASSETS HAVE BEEN REDUCED TO 23.86% WHER EAS A SMALLER PART OF THE FUND RELATED TO INTERCORPORATE DEPOSITS HAVE BEEN REDUCED TO 30.02%, I AM OF THE VIEW THAT IT CAN BE TAKEN THAT APPROXIMATELY 25% OF THE FUNDS HAVE GONE AS INVESTMENT IN THESE INTERCOR PORATE DEPOSITS AND FIXED DEPOSITS, WHICH HAVE YIELDED INTEREST INCOME AND HENCE TAKING THE SAME, 25% OF THE AMOUNT OF INTEREST EXPENSES DEBITE D IN THE PROFIT AND LOSS ACCOUNT, CAN BE ATTRIBUTED TO EARNING OF INTER EST INCOME AND THUS ALLOWABLE UNDER SECTION 57 (ILL) OF THE ACT, WHEREA S THE BALANCE 75% EXPENSES SHOULD BE CAPITALISED TO BE TAKEN AS. PROJ ECT OF THE COST. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO AL LOW 25% OF THE INTEREST EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR THE A.Y 2010-11. 3.16. AS FAR AS THE A.Y 2009-10 IS CONCERNED, IT IS SEEN THAT THE APPELLANT HAVE NOT SUBMITTED THESE DETAILS FOR ASSE SSMENT YEAR 2009- 10 DURING THE APPELLATE PROCEEDINGS. A READING OF T HE ASSESSMENT ORDER SHOWS SUBMISSIONS DURING THE ASSESSMENT PROCEEDINGS BEFORE THE AO THAT TOTAL INTEREST-BEARING FUND (I BF) AND THE BEG INNING OF THE YEAR WERE RS 264.79 CR AND OUT OF THESE FUNDS AVAILABLE SURPL US OTHER THAN THOSE HAS BEEN UTILIZED FOR THE PROJECT HAS BEEN DEPLOYED IN NET CURRENT ASSETS OF RS. 92.67 CR. THEN APPELLANT HAD SUBMITTED BEFOR E A.O. DURING THE ASSESSMENT PROCEEDINGS THEN ALSO THAT THE FUNDS DEP LOYED AT THE BEGINNING OF THE YEAR FOR THE PURPOSE OF INTERCORPO RATE DEPOSITS WAS RS.41.22 CR WHEREAS AT THE END OF THE YEAR THE FIGU RE WAS RS.13.73 CR. THUS RATIO OF INTEREST BEARING FUND DEPLOYED IN NET CURRENT ASSETS IS (92.7/264.79) AGAIN IS COMING TO 34.99% AND THAT OF FUNDS DEPLOYED TO INTERCORPORATE DEPOSITS AND FIXED DEPOSITS FOR A.Y. 2009-10, FIGURES BEING THE SAME POSITION REMAINS THE SAME, AS FOR A. Y. 2009-10 THE FUNDS DEPLOYED THE BEGINNING OF THE YEAR REDUCED TO LESS THAN THEIR 1/3RD AT THE END OF THE YEAR (RS. 41.2 TO CRI RS.13 .73 CR = 30.02%). HERE THE RANGE IS BETWEEN 30.25 TO 34.99%. SO TAKIN G AN AVERAGE IN ABSENCE OF ACTUAL PERIOD OF FUNDS DEPLOYED, AN APPR OXIMATE RATIO OF 33% CAN BE TAKEN FOR A.Y. 2009-10. ACCORDINGLY, FOR A.Y 2009-10, 1/3 RD RATIO IS APPLIED FOR WORKING OUT ADMISSIBLE INTERES T EXPENSES OUT OF TOTAL AMOUNT OF INTEREST EXPENSES DEBITED IN THE PROFIT A ND LOSS ACCOUNT FOR THE A.Y 2009-10 . ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO ALLOW 1/3RD OF INTEREST EXPENSES DEBITED IN THE PROFIT AN D LOSS ACCOUNT FOR THE A.Y 2009-10, AND TO CAPITALISE 2/3RD OF THE AMOUNT OF INTEREST EXPENSES DEBITED BY APPELLANT IN THE PROFIT AND LOSS ACCOUNT FOR CAPITALIZING THAT IN PROJECT COST. THE GROUND NUMBERS 2 AS TAKEN BY A PPELLANT IN BOTH THESE APPEALS, BEING IDENTICAL THUS ARE PARTLY ALLO WED. WE, THEREFORE, IN VIEW OF THE SAID DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, SET ASIDE THE ORDER OF THE LD.CIT(A) AND RESTORE THE ISSUE TO THE ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 10 FILE OF THE AO TO DECIDE THE SAME AFRESH AS PER LAW AND FACTS IN THE LIGHT OF THE DECISION OF CIT(A) IN THE ASSESSMENT YEARS 2 09-10 AND 2010-11 AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. 4. LD. SR. DR, HOWEVER, OPPOSED THE CONTENTION OF A SSESSEE BUT COULD NOT CONTROVERT THAT THE ISSUE IS COVERED. 5. WE FIND THAT THE ISSUE IS EXACTLY IDENTICAL AS I N AY 2008-09, WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE AND ON S IMILAR LINES DECIDED BY CIT(A) IN AY 2009-10 AND 2010-11, WHICH WAS NOT APPEALED AGAINST. ACCORDINGLY, TAKING A CONSISTENT VIEW AND RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH FOR THE AY 2008-09 AND FURTHER THE ORDER IN ITA NO. 738/MUM/2015, DATED 17-11-2017, WHEREIN THE EARLIER YEAR WAS FOLLOWED, WE DIRECT THE AO TO FOLLOW THE SAME. 5.1. HOWEVER, LD.COUNSEL BEFORE US HAS NOT PRESSED THE ISSUE OF CAPITAL GAINS I.E., RAISED BY WAY OF COMMON GROUND IN BOTH THE APPEALS OF ASSESSEE VIDE GROUND NO. 2: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE CAPITAL GA IN INCOME EARNED BY THE APPELLANT ON THE FUNDS MEANT FOR CONSTRUCTION O F THE PORT WAS INEXTRICABLY LINKED TO THE SETTING UP OF THE PROJEC T AND THEREFORE, THE SAME OUGHT TO BE TREATED AS CAPITAL RECEIPTS AND AD JUSTED AGAINST THE WORK IN PROGRESS. ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 11 5.2. THIS GROUND IS COMMON IN BOTH THE YEARS AND LD . COUNSEL BEFORE US HAS NOT PRESSED THIS ISSUE. HENCE THE SA ME IS DISMISSED, AS NOT PRESSED. 6. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF NOVEMBER, 2018 SD/- SD/- (RAJESH KUMAR) (MAHAV IR SINGH) ACCOUNTANT MEMBER JUDICIA L MEMBER MUMBAI; DATED: 27 TH NOVEMBER, 2018 TNMM ITA NOS. 3074, 3075/MUM/2017 & 3238/MUM/2017 12 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, D BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI