M/s NHDC Ltd., Bhopal V. The ACIT, Bhopal

ITA 375/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2700 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 20-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH; MANOJ KUMAR DRS
• Assessee Lawyers: M C MEHTA; HITESH CHIMNANI CAS
• Keywords: Business expenditure; Capital receipt
• Section: 143(3); 115JB; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.R.KAUSHIK, ACCOUNTANT MEMBER PAN NO. : AABCN1732G I.T.A.NO. 375/IND/2009 A.Y. : 2006-07 M/S.NARMADA HYDROELECTRIC DEVELOPMENT CORPORATION LIMITED, ACIT, 2(1), BHOPAL. BHOPAL. VS APPELLANT RESPONDENT APPELLANT BY : SHRI M. C. MEHTA AND SHRI HITESH CHIMNANI, CAS RESPONDENT BY : SHRI K.K. SINGH AND SHRI MANOJ KUMAR, DRS O R D E R PER B. R. KAUSHIK, A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 11 TH MAY,2009, OF THE LD.CIT(A). 2. THE ASSESSEE IS A GOVERNMENT UNDERTAKING ENGAGED IN THE CONSTRUCTION OPERATION, TRANSMISSION AND GENERATION OF HYDROELECTRIC POWER STATION. RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 WAS FILED DECLARING A LOSS OF RS. 1,38,92,20,436/-. THE ASSES SEE ALSO FILED RETURN U/S 115-JB IN FORM NO.29B ON 17 TH OCTOBER, 2006, DECLARING BOOK PROFIT OF - 2 - 2 RS. 1,37,34,88,532/- AND MINIMUM ALTERNATE TAX OF R S. 11,55,79,060/-. THE AO AS PER ASSESSMENT ORDER DATED 22 ND DECEMBER, 2008, U/S 143(3) OF THE INCOME-TAX ACT,1961, DETERMINING THE ASSESSE D LOSS AT RS.1,28,48,74,436/- AND HELD THAT SINCE THE ASSESSE E WAS HAVING BOOK PROFIT OF RS. 1,37,34,88,532/-, IT WAS LIABLE TO PA Y MINIMUM ALTERNATE TAX U/S 115JB OF RS. 11,55,79,060/-. WHILE DETERMINING THE ASSESSED TOTAL LOSS, THE AO, INTER ALIA, MADE THE ADDITION ON ACCO UNT OF INTEREST ON TERM DEPOSITS/BANKS ACCOUNT AT RS. 9,71,98,000/-, WHICH WAS CONFIRMED BY THE LD. CIT(A) AS PER HIS IMPUGNED ORDER DATED 11 TH MAY, 2009, FOR THE REASONS GIVEN IN HIS CONSOLIDATED ORDER DATED 11 TH SEPTEMBER, 2008, FOR THREE IMMEDIATELY PRECEDING ASSESSMENT YEARS IN VIE W OF THE DECISIONS IN THE CASES OF TUTICORIN ALKALI CHEMICALS AND FERTILI ZERS LIMITED VS. CIT, (1997) 227 ITR 172, ( S.C.) AND CIT VS. BOKARO STEE LS LIMITED, (1999) 236 ITR 315 (S.C.). 3. THE DECISION OF THE LD.CIT(A) HAS BEEN CHALLENGED BY THE ASSESSEE AS PER THIS APPEAL. THE GROUNDS OF APPEAL ARE REPRODUCED BELOW :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD.CIT(A) ERRED IN MAINTAINING ADDITION OF GROSS A MOUNT OF RS. 971.98 LACS TOWARDS INTEREST ON TERM DEPOSITS/B ANK ACCOUNTS AS INCOME FROM OTHER SOURCES WHEN THE SAID INTEREST - 3 - 3 IS IN THE NATURE OF CAPITAL RECEIPT WHICH IS REQUIR ED TO BE DEDUCTED FROM THE COST OF ASSETS. WITHOUT PREJUDICE TO THE ABOVE 2. THE PETITIONER SUBMITS THAT THE SAID INTEREST REQUI RES TO BE REDUCED BY THE AMOUNT OF INTEREST PAID ON LOANS TAK EN. 4. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FAIRLY INFORMED THAT THE ORDER DATED 11.9.2008 OF THE LD.C IT(A) IN EARLIER YEARS WAS SET-ASIDE BY THE I.T.A.T. AS PER ITS ORDER DATE D 22.07.2009 IN I.T.A.NO. 391 TO 493/IND/08__________ FOR FINALIZIN G FRESH ASSESSMENT. HE ALSO INFORMED THAT THE FRESH ASSESSMENTS HAVE BE EN FINALIZED AND THE APPEALS HAVE BEEN FILED AGAINST THE ORDERS OF THE L D.CIT(A), WHICH ARE PENDING. THE LD. COUNSEL ALSO SUBMITTED THE COPY OF ORDER DATED 11 TH SEPTEMBER, 2008, OF THE LD.CIT(A) IN EARLIER YEARS, WHICH HAS BEEN FOLLOWED BY HIM IN DECIDING THE APPEAL OF THIS YEAR AS PER THE IMPUGNED ORDER. 5. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL SUBMITTED THAT THE LOANS WERE OBTAINED FOR DEVELOPM ENT AND CONSTRUCTION OF THE PROJECTS UNDERTAKEN BY THE ASSESSEE AFTER SA NCTION OF THE LOAN AND RELEASE OF THE AMOUNT, UNUTILIZED AMOUNTS FOR SHORT PERIODS WERE PLACED IN SHORT TERM DEPOSITS OF THE BANK AND INTEREST WAS EA RNED BY THE ASSESSEE. THE INTEREST, ACCORDING TO THE LD. COUNSEL, WAS CAP ITAL IN NATURE IN VIEW OF - 4 - 4 THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. BOKARO STEEL LIMITED, 236 ITR 315. IT WAS ALSO CONTENDED T HAT THE HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEELS LIMITED ( SUPRA ) HAVE ALSO REFERRED TO THE DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED VS. CIT, (1997) 227 ITR 172 ( S .C.) AND GODHRA ELECTRIC COMPANY. 6. THE LD. SENIOR D.R. POINTED OUT THAT HON'BLE APEX C OURT IN THE CASE OF CIT VS. AUTOKAST LIMITED, (2001) 248 ITR 11 0 ( S. C.), AFTER FOLLOWING THE DECISION IN THE CASE OF TUTICORIN ALK ALI CHEMICALS AND FERTILIZERS LIMITED VS. CIT (SUPRA), HAS HELD THAT THE INTEREST OF MONEY BORROWED FOR PURCHASE OF PLANT AND MACHINERY PLACED ON SHORT TERM DEPOSIT WITH BANK TILL THE PAYMENT WAS MADE AND USE D IN BILL DISCOUNTING WAS TAXABLE AS INCOME FORM OTHER SOURCES. IT WAS AL SO SUBMITTED THAT IN THE CASE OF CIT VS. DR. V.P.GOPINATHAN, (2001) 248 ITR 449, IT WAS HELD THAT INTEREST FROM FIXED DEPOSIT IN BANK WAS TO BE TAXED AS INCOME FROM OTHER SOURCES. 7. WE HAVE CAREFULLY CONSIDERED THE ISSUE, IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, MATERIALS PLACED ON RECORD A ND RIVAL SUBMISSIONS. IT IS SEEN FROM THE DECISION IN THE CASE OF CIT VS. KA RNATAKA POWER CORPORATION, (2001) 247 ITR 268 ( S.C.) THAT INTERE ST RECEIPTS AND HIRE CHARGES FROM CONTRACTORS WERE HELD TO BE IN THE NAT URE OF CAPITAL RECEIPTS, - 5 - 5 WHICH WOULD GO TO REDUCE THE CAPITAL GOODS OF THE A SSESSEE. THE HON'BLE APEX COURT IN THIS CASE FOLLOWED THE DECISION OF CI T VS. BOKARO STEELS LIMITED (SUPRA). IN THE CASE OF CIT VS. KARNAL COOP . SUGAR MILLS LIMITED, (2000) 243 ITR 2 ( S.C.), THE HON'BLE APEX COURT HA S HELD AS UNDER :- . THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETT ER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED F OR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEES AGREEMENT W ITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOM E INTEREST HAD BEEN EARNED. THIS WAS, THEREFORE, NOT A CASE WH ERE ANY SURPLUS SHARE CAPITAL MONEY WHICH WAS LYING IDLE HA D BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING IN TEREST. THE DEPOSIT OF MONEY IN THE PRESENT CASE WAS DIRECTLY L INKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INC OME EARNED ON SUCH DEPOSIT WAS INCIDENTAL TO THE ACQUIS ITION OF ASSETS FOR THE SETTING UP OF THE PLAN AND MACHINERY . THE INTEREST WAS A CAPITAL RECEIPT, WHICH WOULD GO TO R EDUCE THE COST OF ASSET. 8. IN THIS CASE ALSO, THE HON'BLE APEX COURT APPLIED I TS DECISION IN CIT VS. BOKARO STEELS LIMITED (SUPRA) AND REFERRED TO THE DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED VS. CIT, (SUPRA) THAT INTEREST EARNED ON INVESTMENT OF BORRO WED FUNDS PRIOR TO THE - 6 - 6 COMMENCEMENT OF BUSINESS WAS LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES AS PER PROVISIONS OF SECTION 56 OF TH E INCOME-TAX ACT,1961. AND THAT THE ACCOUNTING PRACTICE COULD NOT BE OVERR IDE SECTION 56 OR ANY OTHER PROVISION OF THE INCOME-TAX ACT,1961. IN THE CASE OF GODAVARI FERTILIZERS AND CHEMICALS LIMITED VS. CIT, 198 ITR 388 ( A.P.), IT WAS HELD THAT INTEREST EARNED ON SHORT TERM DEPOSIT OF SHARE CAPITAL COULD NOT BE SET OFF AGAINST INTEREST PAID ON CAPITAL BORROWE D FOR SETTING UP THE INDUSTRY AND THE INTEREST ON DEPOSIT OF SHARE CAPIT AL WAS LIABLE TOBE ASSESSED U/S 56 OF THE INCOME-TAX ACT,1961, AS THE INCOME FROM OTHER SOURCES. IN THE CASE OF CIT VS. HINDUSTAN ELECTRO G RAPHITES LIMITED, 177 ITR 465 (MP), IT WAS HELD THAT INTEREST ON FIXED DE POSIT AND LATE PAYMENT OF CALL MONEY RECEIVED PRIOR TO SETTING UP OF BUSIN ESS WERE LIABLE TO BE TAXED AS INCOME OF THE ASSESSEE IN ABSENCE OF THE F INDING THAT INTEREST INCOME RECEIVED BY THE ASSESSEE WAS RELATED TO ANY PARTICULAR ITEM OF EXPENDITURE. HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TA MIL NADU INDUSTRIES DEVELOPMENT CORPORATION LIMITED, 189 ITR 671 (T.N.) ,HELD THAT INTEREST PAID ON MONEY BORROWED BUT NOT IMMEDIATELY USED FOR BUSINESS IS NOT BUSINESS EXPENDITURE AND SUCH INTEREST COULD NOT BE ADJUSTED AGAINST INTEREST RECEIVED WHEN SUCH MONEYS WERE INVESTED IN SHORT TERM BANK DEPOSITS, WHICH WAS LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES. - 7 - 7 THE SPECIAL LEAVE PETITION FILED BY THE ASSESSEE AG AINST THIS JUDGMENT WAS DISMISSED AS REPORTED IN 187 ITR (ST) 41 ( S. C .). IN THE CASE OF CIT VS. MANIPUR SPINNING MILLS CORPO RATION LIMITED, 226 ITR 551 ( GAUHATI ), IT WAS HELD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF INTEREST RECEIVED SHOULD NOT BE CONSIDERED FOR BEING TAXED AS REVENUE RECEIPT BUT HAD TO BE SET OF F AGAINST THE INTEREST PAYMENT AND THE BALANCE ALONE HAD TO BE CAPITALIZED . THE HON'BLE GAUHATI HIGH COURT, IN THIS CASE, APPLIED THE DECISION IN T HE CASE OF CHALLAPALLI SUGARS LIMITED VS. CIT, (1975) 98 ITR 167 ( S. C.) AND REFERRED TO DECISION IN THE CASE OF CIT VS. ASSAM PLANTATION CR OPS DEVELOPMENT CORPORATION LIMITED, (1996) 221 ITR 392 (GAU). IN THE CASE OF CIT VS. NEW CENTRAL JUTE MILLS CO. L TD., (1979) 118 ITR 1005 (CAL), IT WAS HELD THAT INTEREST ON AMOUNT OF LOAN KEPT IN DEPOSIT IN BANK TILL UT8ILIZATION FOR STIPULATED PURPOSE, WAS TO BE TAXED AS INCOME OF THE ASSESSEE AND INTEREST PAID IS TO BE CAPITALIZED AND ADDED TO THE COST OF THE PLANT. IN THE CASE OF SKF LIMITED VS. DY. CIT, 71 ITR 419 (BANGALORE), IT WAS HELD THAT THE INTEREST EARNED BY KEEPING SURPLUS MO NEY RECEIVED ON INVITATION OF FRESH CAPITAL IN CERTAIN DEPOSITS WIT H BANK WAS LIABLE TO BE CHARGED AS INCOME UNDER OTHER SOURCES U/S 56 OF THE INCOME-TAX - 8 - 8 ACT,1961., IN VIEW OF THE DECISIONS IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED VS. CIT, (SUPRA). IN THE CASE OF STI POWER INDIA LIMITED, THE I.T.A.T ., INDORE, AS PER ITS DECISION DATED 28 TH FEBRUARY, 2006, HAS HELD THAT INTEREST EARNED FROM THE HOUSING ADVANCES GIVEN TO ITS EMPLOYEES A SECURITY DEPOSIT FOR SUPPLY OF TRACTORS WAS IN THE NATURE OF CAPITAL RECEIPTS. 9. THUS, WE HAVE CONSIDERED THE DECISIONS CITED BY BOT H THE SIDES. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE HAD TAKEN LOANS FOR CONSTRUCTION AND DEVELOPMENT OF ITS PROJECT AND THE PROJECT HAD NOT BEEN COMPLETED. THE AMOUNT OF LOANS NOT UTILIZED IMMEDIA TELY FOR THE PURPOSE OF CONSTRUCTION AND DEVELOPMENT OF THE PROJECT WERE KEPT AS SHORT TERM DEPOSIT WITH THE BANKS AND THE INTEREST WAS EARNED THEREON. THE AO CONSIDERED THE INTEREST SO EARNED AS INCOME FROM OT HER SOURCES AND THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO. THE LD.CI T(A) HELD THAT THE INTEREST INCOME OF TEMPORARY FDRS WAS GOVERNED BY T HE RATIO OF THE DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS LIMITED (SUPRA). HE, THEREFORE, CONFIRMED THE ADDITION RELATING TO INTER EST OF RS. 9,71,98,000 ON TERM DEPOSITS. THE LD.CIT(A) IN HIS IMPUGNED ORDER ALSO REFERRED TO THE DECISION IN THE CASE OF CIT VS. BOKARO STEELS LIMIT ED (SUPRA ) AND HELD THAT INTEREST ON LOAN AND ADVANCES RS. 7,80,000/- A ND MISC. RECEIPTS AND RECOVERIES OF RS. 53,68,000/- WAS GOVERNED BY THE DECISION IN THE CASE OF - 9 - 9 CIT VS. BOKARO STEELS LIMITED, THESE ADDITIONS WERE LIABLE TO BE DELETED. THE ISSUE BEFORE US, IN THIS APPEAL OF THE ASSESSEE IS ONLY REGARDING TAXABILITY OR OTHERWISE OF THE INTEREST ON TERM DEP OSITS AMOUNTING TO RS. 9,71,98,000/-. THE ASSESSEE HAD FILED DETAILS OF IN TEREST RECEIVED AT PAGE 46 OF THE PAPER BOOK FILED ON 10 TH MAY, 2010. IT IS SEEN FROM THESE DETAILS THAT THE INTEREST HAS BEEN EARNED FROM THE BANKS AN D CAPITALIZED DURING THE FINANCIAL YEAR 2005-06. THE TOTAL OF SUCH INTER EST HAS BEEN SHOWN AT RS.9,39,64,275/- AS AGAINST RS. 9,71,98,000/- SHOWN IN THE GROUNDS OF APPEAL. IT IS ALSO SEEN THAT THE INTEREST OF RS. 42 ,059/- IS ON ACCOUNT OF FDR OF RS. 20 CRORES OUT OF EQUITY OSP OF RS. 30 CR ORES & PNB LOAN OF RS. 60 CRORES. INTEREST OF RS. 6,76,027/- IS OUT OF MATURED PROCEEDS OF FDR OF RS. 5 CRORES. SIMILARLY, INTEREST OF RS. 8,1 2,055/- IS SHOWN ON DEPOSITS OF RS. 15 CRORES WITH ICICI BANK OUT OF EQ UITY OSP AND PNB LOAN. THUS, THE BIFURCATION OF INTEREST EARNED OF S HORT TERM DEPOSIT OUT OF THE LOANS TAKEN FOR THE PROJECT AND INTEREST OF FDR OUT OF SURPLUS MONEY OF EQUITY FUNDS IS NOT AVAILABLE. WE ARE, THEREFORE , UNABLE TO BIFURCATE THE INTEREST AMOUNT BETWEEN THE FDR ON SHORT TERM DEPOS ITS TAKEN OUT OF THE LOANS FOR DEVELOPMENT AND CONSTRUCTION OF PROJECT A ND THE DEPOSITS OF SURPLUS EQUITY FUNDS. 10. ON AN ANALYSIS OF CASES, DISCUSSED ABOVE, IT IS VER Y CLEAR THAT THE HON'BLE APEX COURT IN THE CASE OF CIT VS. BOKARO ST EELS LIMITED (SUPRA) - 10 - 10 HAS HELD THAT IN CASE MONEY IS BORROWED BY A NEWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTIN G ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON S UCH BORROWED MONEY CAN BE CAPITALIZED AND ADDED TO THE COST OF T HE FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. BY THE SAME REASON ING IF THE ASSESSEE RECEIVES ANY AMOUNTS WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPTS W ILL GO TO REDUCE THE COST OF ITS ASSETS, BECAUSE THESE ARE RECEIPTS OF A CAPI TAL NATURE AND CANNOT BE TAXED AS INCOME. 11. SIMILARLY, IN THE CASE OF CIT VS. KARNATAKA POWER C ORPORATION (SUPRA), IT WAS HELD THAT INTEREST EARNED ON HIRE C HARGES FROM THE CONTRACTORS CONSIDERED IN THE NATURE OF CAPITAL REC EIPTS WOULD GO TO REDUCE THE CAPITAL COST. THE DECISION IN THE CASE OF CIT V S. DR. V.P. GOPINATHAN (SUPRA) WITH DUE RESPECT IS NOT APPLICABLE TO THE F ACTS OF THE CASE, BECAUSE INTEREST WAS EARNED ON FD AGAINST WHICH THE LOAN HA D BEEN TAKEN BY THE ASSESSEE AND THE INTEREST WAS NOT ON THE TERM FIXED DEPOSIT OUT OF THE FUNDS TAKEN AS THE LOAN FOR THE PURPOSE OF CONSTRUC TION AND DEVELOPMENT OF PLANT. SIMILARLY, THE INTEREST IN THE CASE OF CI T VS. AUTOKAST LIMITED, WAS EARNED ON THE MONEY BORROWED FOR PURCHASE OF PL ANT AND MACHINERY PLACED IN SHORT TERM DEPOSIT WITH THE BANK TILL PAY MENT WAS MADE AND - 11 - 11 WAS USED IN BILL DISCOUNTING. THE FACTS OF THIS CAS E ARE ALSO WITH DUE RESPECT DIFFERENT FROM THE FACTS OF THE CASE OF TH E ASSESSEE. 12. IT IS ALSO VERY CLEAR FROM THE FOREGOING DISCUSSION THAT THE INTEREST EARNED ON SURPLUS FUND OUT OF EQUITY DEPOS IT AS FDR WAS LIABLE TO BE TAXED AS INCOME FROM OTHER SOURCES. SINCE THE NA TURE OF RECEIPT OF INTEREST IS NOT VERY CLEAR FROM THE DETAILS GIVEN O N RECORD, IT IS NOT POSSIBLE TO GIVE ANY FINDING AS TO THE TAXABILITY T HEREOF IN VIEW OF THE DECISION DISCUSSED ABOVE. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT THE ISSUE IS REQUIRED TO BE RESTORED TO THE AO , WHO IS REQUIRED TO EXAMINE THE NATURE OF RECEIPT OF INTEREST AND DECID E THE ISSUE IN VIEW OF THE RATIO OF THE DECISIONS DISCUSSED ABOVE AFTER GI VING PROPER OPPORTUNITY TO THE ASSESSEE. 13. THE APPEAL OF THE ASSESSEE IS, THEREFORE, ALLOWED F OR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2010. SD/- SD/- (JOGINDER SINGH) (B. R. KAUSHIK) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH JULY, 2010. CPU* - 12 - 12 29307