Trimex Sands Private Limited, CHENNAI V. JCIT, CHENNAI

ITA 383/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3986 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 14-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N MADHAVANJCIT
• Assessee Lawyers: B S PURUSHOTHAM
• Keywords: Capital asset; Depreciation; Question of law; Notional interest; Capital receipt; Commercial expediency; Revised return
• Section: 14A; 37; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER . / ITA NOS. 383 & 384/MDS/2017 / ASSESSMENT YEARS : 2011-12 & 2012-13 M/S. TRIMEX SANDS PVT. LTD., NO.1, SUBBARAYA AVENUE, CP RAMASWAMY ROAD, ALWARPET, CHENNAI 600 018. PAN AABCE3846Q ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-3(1), CHENNAI. (/ RESPONDENT) . / ITA NOS. 418 & 419/MDS/2017 / ASSESSMENT YEARS : 2011-12 & 2012-13 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-3(1), CHENNAI. ( /APPELLANT) V. M/S. TRIMEX SANDS PVT. LTD., CHENNAI. PAN AABCE3846Q (/ RESPONDENT) ASSESSEE BY : SHRI B.S.PURUSHOTHAM, CA DEPARTME NT BY : SHRI N. MADHAVAN, JCIT ! ' # $%& / DATE OF HEARING : 24.05.2017 '( # $%& / DATE OF PRONOUNCEMENT: 26.07.2017 - - ITA 383, 384, 4 18 419/MDS/2017 2 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY THE ASSESSEE AND BY THE REVENUE ARE DIRECTED AGAINST COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-11, CHENNAI DA TED 30.11.2016. 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA NOS. 383 & 384/MDS/2017. 2.1 THE FIRST COMMON GROUND IN THESE TWO APPEALS I S WITH REGARD TO CONFIRMING THE DISALLOWANCE MADE BY THE A O U/S.14A R.W. RULE 8D OF THE I.T.RULES. 3. THE ASSESSEE HAD ADVANCED MONEY TOWARDS INVESTME NT IN TRIMEX HEAVY MINERALS PVT. LTD. TOWARDS PURCHASE OF SHARES, WHICH WAS NOT EARNED ANY INCOME. HENCE, THE AO INV OKING THE PROVISIONS OF SEC.14A R.W. RULE 8D, DISALLOWED THE SUM OF 31,12,952/- AND 29,97,140/- FOR THE ASSESSMENT YEARS 2011- 12 AND 2012-13 RESPECTIVELY. AGGRIEVED, THE ASSESS EE WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO CONFIRMED THE F INDING OF THE - - ITA 383, 384, 4 18 419/MDS/2017 3 AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDERATION BEFOR E THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD., IN T.C NO.520/16 DATED 23.12.2016 WHEREIN HELD THAT:- 13. RELIANCE IS ALSO PLACED ON A DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF BEACH MINERALS COMPANY PVT. LT D. VS. ASSISTANT COMMISSIONER OF INCOME TAX IN TCA NO.681 OF 2013, D ATED 2.12.2013. IN THAT CASE, PAYMENTS OF INTEREST BY THE ASSESSEE WERE SOUGHT TO BE DISALLOWED INVOKING THE PROVISIONS OF S.14A ON THE PREMISE THAT THE SAME RELATED TO BORROWINGS THAT HAD BEEN INVESTED A ND WOULD YIELD EXEMPT RETURNS. THE ASSESSEE CONTESTED THE DISALLOW ANCE U/S 14A ON MULTIPLE GROUNDS. IT WAS CONTENDED THAT THERE WERE SUFFICIENT RESERVES AND SURPLUSES AVAILABLE FOR THE PURPOSE OF INVESTME NTS, AND BORROWED FUNDS, FOR WHICH THE PAYMENT OF INTEREST HAD BEEN I NCURRED, HAD NOT BEEN INVESTED. THE ASSESSEE SOUGHT TO DRAW A NEXUS BETWEEN THE BORROWED FUNDS AND THE INTEREST PAYMENTS, HIGHLIGHT ING THE POSITION THAT THE QUANTUM OF AVAILABLE FREE FUNDS WAS FAR IN EXCE SS OF THE INVESTMENTS MADE. THE BENCH, IN THE LIGHT OF THE AB OVE SUBMISSIONS, REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO BE CONSIDERED DE NOVO AND AFTER CONDUCTING A PROPER ENQUIRY. INTE R ALIA A DIRECTION WAS ISSUED TO THE ASSESSEE TO TENDER A PROPER EXPLANATI ON FOR THE INTEREST PAYMENTS. THE OPEN REMAND WAS MADE IN THE FACTS AND CIRCUMSTANCES OF THAT CASE AND NO CONCLUSION WAS DRAWN BY THE BEN CH ON THE POSITION OF LAW INVOLVED. IN FACT, THE SUBSTANTIAL QUESTION OF LAW RAISED IN THAT CASE FOR THE CONSIDERATION OF THE COURT WAS COUCHED IN GENERAL TERMS AS FOLLOWS - - ITA 383, 384, 4 18 419/MDS/2017 4 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE. THE INCOME TAR APPELLATE TRIBUNAL IS RIGHT IN LAW IN CO NFIRMING THE DISALLOWANCE UNDER SECTION 11.1 OF THE INCOME TAX A CT, OF AN AMOUNT OF RS.55,00.000/- IN RELATION TO ASSESSMENT YEAR 2007- 2008? 14. NOTHING MUCH TURNS ON THE USE OF THE WORD INCL UDABLE AND THE PHRASE UNDER THE ACT IN S. 14A AND WE ARE NOT PER SUADED TO ACCEPT THE EMPHASIS LAID OR THE INTERPRETATION OF THE SAME BY THE REVENUE. AN ASSESSMENT IN TERMS OF THE INCOME TAX ACT IS SPECIF IC TO AN ASSESSMENT YEAR AND THE RELATED PREVIOUS YEAR. S.4 OF THE ACT, WHICH IMPOSES THE CHARGE TO TAX READS THUS : CHARGE OF INCOME-TAX 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME TA X SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATE S, INCOME- TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FO R THAT YEAR IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS (INCL UDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME-TAX) O F, THIS ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF T HIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOM E OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME TAX SHA LL BE CHARGED ACCORDINGLY. THUS, WHERE THE STATUTE INDENTED THAT INCOME SHALL BE RECOGNIZED FOR TAXATION IN RESPECT OF ANY PREVIOUS OTHER THAN THAT IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR, THE PROVISI ON SHALL EXPRESSLY STATE SO. THE PROVISIONS OF S.1O IN CHAPTER III OF THE ACT DEALING WITH INCOMES NOT INCLUDED IN TOTAL INCOME COMMENCES WI TH THE PHRASE IN - - ITA 383, 384, 4 18 419/MDS/2017 5 COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED. 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE O THER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMP T INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION L TD. VS. CIT (225 ITR 802). HE LANGUAE OF S.14A(1) SHOULD BE READ I N THE CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 4.1 THE SAME VIEW WAS TAKEN BY JURISDICTIONAL HIGH COURT IN THE CASE OF CHETTINADU LOGISTICS IN TAX CASE NO.24 OF 2 017 VIDE ORDER DATED 13.03.2017. ACCORDINGLY, SINCE THE IN VESTMENT DOES NOT EARN ANY EXEMPTED INCOME, THERE CANNOT BE ANY APPLICABILITY OF SEC.14A R.W. RULE 8D OF THE INCOME TAX RULES,1962. ACCORDINGLY, THIS GROUND OF THE ASSESS EE IN BOTH THESE APPEALS IS ALLOWED. 5. THE NEXT COMMON GROUND IN THE ASSESSES APPEAL I S WITH REGARD TO DISALLOWANCE OF INTEREST EXPENDITURE. 6. THE ASSESSEE HAD ADVANCED INTEREST FREE LOANS TO TRIMEX - - ITA 383, 384, 4 18 419/MDS/2017 6 INDUSTRIES PVT. LTD. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT WAS ADVANCED TO ITS HOLDING COMPANY IN THE COURS E OF BUSINESS FROM ITS OWN FUNDS. HOWEVER, THE AO DISALLOWED A S UM OF 34,09,190/- OUT OF THE TOTAL INTEREST EXPENDITURE O F 21,58,59,642/- FOR THE ASSESSMENT YEAR 2012-13 AND 2,12,55,381/- FOR THE ASSESSMENT YEAR 2011-12. AG GRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) , WHO CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE QUESTION INVOLVED IN THIS CASE IS O NLY ABOUT THE ALLOWABILITY OF THE INTEREST ON BORROWED FUNDS AND HENCE WE ARE DEALING ONLY WITH THAT QUESTION. IN THIS CONNECTION, WE REFER TO S. 36(1)(III) OF THE IT ACT, 1961 WHICH STATES THAT 'T HE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSES OF THE BUSINESS OR PROFESSION' HAS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME-TAX UNDER S. 28 OF THE ACT. 7.1 IN OUR CONSIDERED OPINION THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THAN - - ITA 383, 384, 4 18 419/MDS/2017 7 THE EXPRESSION 'FOR THE PURPOSE OF EARNING INCOME, PROFITS OR GAINS'. 7.2 IN OUR OPINION, THE A.O HAS APPROACHED THE MATTER F ROM AN ERRONEOUS ANGLE. IN THE PRESENT CASE, EVEN IF THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT IT TO ITS SISTER-CONCERN, AS INTEREST-FREE LOAN, THE TEST IN SUCH A CASE IS R EALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY OR N OT. 7.3 IN OUR OPINION, THE DECISIONS RELATING TO S. 37 OF THE ACT WILL ALSO BE APPLICABLE TO S. 36(1)(III) BECAUSE IN S. 3 7 ALSO THE EXPRESSION USED IS 'FOR THE PURPOSE OF BUSINESS'. I T HAS BEEN CONSISTENTLY HELD IN DECISIONS RELATING TO S. 37 TH AT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY, AND IT IS IMMAT ERIAL IF A THIRD PARTY ALSO BENEFITS THEREBY. 7.4 IN OUR CONSIDERED OPINION, IN ORDER TO CL AIM A DEDUCTION, IT IS ENOUGH TO SHOW THAT THE MONEY IS EXPENDED, NOT O F NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT, BU T VOLUNTARILY AND ON GROUNDS OF COMMERCIAL EXPEDIENCY AND IN ORDE R TO INDIRECTLY FACILITATE THE CARRYING ON THE BUSINESS. THE ABOVE TEST - - ITA 383, 384, 4 18 419/MDS/2017 8 HAS BEEN APPROVED BY THE SUPREME COURT IN SEVERAL D ECISIONS E.G. EASTERN INVESTMENTS LTD. VS. CIT (1951) 20 ITR 1 (SC), CIT VS. CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC ), SA BUILDERS LTD. V. CIT ( 288 ITR 1 (SC) ), HERO CYLCES PVT LTD. VS. CIT (379 ITR 347)(SC) ETC. 7.5 IN OUR OPINION, THE A.O SHOULD HAVE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWE D FUNDS FROM THE ABOVE ANGLE. IN OTHER WORDS, THE A.O SHOULD HA VE ENQUIRED AS TO WHETHER THE INTEREST-FREE LOAN WAS GIVEN TO T HE SISTER COMPANY, OR TO A SUBSIDIARY OF THE ASSESSEE AS A ME ASURE OF COMMERCIAL EXPEDIENCY, AND IF IT WAS, IT SHOULD HAV E BEEN ALLOWED. 7.6 THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRES SION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A P RUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXP ENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. - - ITA 383, 384, 4 18 419/MDS/2017 9 7.7 THUS, THE RATIO OF MADHAV PRASAD JATIAS CASE (118 ITR 200) (SC) IS THAT THE BORROWED FUND ADVANCED TO A T HIRD PARTY SHOULD BE FOR COMMERCIAL EXPEDIENCY IF IT IS SOUGHT TO BE ALLOWED UNDER S. 36(1)(III) OF THE ACT. 7.8 AS HOLD BY VARIOUS COURTS, THE AMOUNT ADVANCED TO T HE SISTER-CONCERN WAS BY WAY OF COMMERCIAL EXPEDIENCY, AND INCURRED FOR THE PURPOSE OF BUSINESS OF ITS SISTER CONCERNS WHICH INDIRECTLY FACILITATE THE CARRYING ON THE BUSINESS OF THE ASSESSEE, THEN THAT INTEREST TO BE ALLOWED. IT HAS BEEN REPE ATEDLY HELD BY SUPREME COURT THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURP OSE OF EARNING PROFITS' VIDE CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 140 (SC), CIT VS. BIRLA COTTON SPINNING & WEAVI NG MILLS LTD. (1971) 82 ITR 166 (SC), SA BUILDERS LTD. V. CIT ( 288 ITR 1 (SC) ), HERO CYLCES PVT LTD. VS. CIT (379 ITR 347)(SC) E TC. 7.9 THE A.O SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER-CONCERN, AND WHAT THE SISTER-CONCERN DID WITH THIS MONEY, IN ORDER TO DECIDE - - ITA 383, 384, 4 18 419/MDS/2017 10 WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY, BUT THAT HAS NOT BEEN DONE BY HIM. 7.10 IT IS TRUE THAT THE BORROWED AMOUNT IN QUESTION WAS NOT UTILIZED BY THE ASSESSEE TO ADVANCE TO SISTER CONCE RN, BUT HAD BEEN ADVANCED INTEREST-FREE FUND TO ITS SISTER-CONC ERN. WHAT IS RELEVANT IS WHETHER THE ASSESSEE ADVANCED SUCH AMOU NT TO ITS SISTER-CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENC Y AND IF SUCH A CASE, NO NOTIONAL INTEREST COULD BE DISALLOW ED. 7.11 IT IS TO BE NOTED THAT THE DELHI HIGH COURT IN CIT VS. DALMIA CEMENT (BHARAT) LTD. 254 ITR 377 (DEL) IS AP PLICABLE TO THE FACTS OF THE PRESENT CASE. IT WAS HELD THAT ON CE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSA RILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNO T JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESS MAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE C OMPELLED TO MAXIMIZE ITS PROFIT. THE LOWER AUTHORITIES MUST PUT THEMSELVES - - ITA 383, 384, 4 18 419/MDS/2017 11 IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOO K AT THE MATTER FROM THEIR OWN VIEWPOINT BUT THAT OF A PRUDE NT BUSINESSMAN. AS ALREADY STATED ABOVE, WE HAVE TO SE E THE TRANSFER OF THE BORROWED FUNDS TO A SISTER-CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE P OINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS . IN SUCH CIRCUMSTANCES, IT IS NOT POSSIBLE TO US TO CONFIRM THE DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT. 7.12 THUS, IN OUR OPINION, EVEN IF THE MONEY WAS B ORROWED FOR LENDING TO TRIMEX INDUSTRIES PVT. LTD. AND IT RESUL TED TO PROMOTE THE BUSINESS OF THE ASSESSEE AS WELL AS HELPFUL TO THE ASSESSEE FOR HAVING MANAGEMENT CONTROL OVER SAID SUCH COMPAN Y, THEN THE INTEREST EXPENDITURE SHOULD BE ALLOWED U/S.36(1 )(III) OF THE ACT. - - ITA 383, 384, 4 18 419/MDS/2017 12 7.13 IN THE PRESENT CASE, AS RIGHTLY SUBMITTED BY THE LD. A.R THAT THE ASSESSEE DIVERTED THE FUNDS FOR MAKING ADV ANCE TO THE ABOVE COMPANY ON ACCOUNT OF COMMERCIAL EXPEDIENCY, HENCE, WE ARE OF THE OPINION THAT THE AO CANNOT DISALLOW T HE NOTIONAL INTEREST, IT IS NOT THE CASE OF THE REVENUE THAT TH E SAID COMPANIES HAD MISUSED THE FUNDS FOR ANY OTHER PURPO SE. IN OTHER WORDS, SINCE THE SISTER CONCERN USED THE FUND S FOR THEIR BUSINESS PURPOSE, AND THERE IS NEXUS BETWEEN THE BU SINESS OF THE ASSESSEE AND THE SUBSIDIARIES, WHICH FACILITATE D THE BUSINESS ADVANTAGE OF THE ASSESSEE COMPANY, THERE CANNOT BE ANY DISALLOWANCE TOWARDS NOTIONAL INTEREST AS HELD BY T HE SUPREME COURT IN THE M/S.S.A BUILDERS (288 ITR 1). FURTHER, THIS VIEW HAS ALSO BEEN ADVANCED BY THE DELHI HIGH COURT IN THE C ASE OF DALMIA CEMENT LTD. V. CIT (354 ITR 377). 7.14. IT IS ALSO DEMONSTRATED BY THE ASSESSEE THAT THE ASSESSEE HAS NOT BORROWED TO LEND MONEY TO TRIMEX INDUSTRIE S PVT. LTD. AND IT IS HAVING OF ITS OWN FUNDS TO ADVANCE TO THE ASSESSEE, I.E. OUT OF FIXED DEPOSIT MATURITY PROCEEDS AND ALSO FOR M THE EXPORT PACKAGING CREDIT, WHICH WAS INTERNALLY GENERATED FU NDS AND HAVING NO INTEREST BORROWING FUNDS, WHICH WERE USED TO ADVANCE - - ITA 383, 384, 4 18 419/MDS/2017 13 TO THAT COMPANY. IT IS ALSO EXPLAINED BY THE ASSES SEE THAT OUTSIDE THE BORROWINGS HAS BEEN REDUCED FROM EARLIE R FINANCIAL YEAR TO THIS FINANCIAL YEAR AND THE ADVANCE TO TRIM EX INDUSTRIES PVT. LTD., IS NOT RESULTED IN ANY ADDITIONAL INTERE ST COST TO THE ASSESSEE. MORE SO, WHEN THE INTEREST FREE FUNDS AR E AVAILABLE TO MAKE ADVANCE TO SUBSIDIARY COMPANIES, THE DISALLOWA NCE CANNOT BE MADE. ACCORDINGLY, IN OUR OPINION, PLACING RELIA NCE ON THE ABOVE DECISIONS CITED SUPRA, THE CLAIM OF THE ASSES SEE TO BE ALLOWED. HENCE, THIS GROUND OF ASSESSEE IS ALLOWED ON ITS APPEALS. 8. THE NEXT GROUND IN ASSESSEES APPEAL IN ITA NO.384/MDS/2017 IS WITH REGARD TO DISALLOWANCE OF 1,99,35,914/- TOWARDS DAMAGES. 9. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY HAS ENTERED INTO AN INCLUSIVE FIXED PRICE AGREEMENT WIT H M/S.WALCHANDNAGAR INDUSTRIES LTD. (WIL) FOR CONSTRU CTION OF THE PLANT FOR TOTAL CONSIDERATION OF 145.3 CRORES. THE PLANT WAS SCHEDULED TO BE CONSTRUCTED IN THE YEAR 2008-09 BUT WIL COMPLETED THE CONSTRUCTION IN THE YEAR 2009-10. IN VIEW OF THE - - ITA 383, 384, 4 18 419/MDS/2017 14 DELAY IN CONSTRUCTION AND THE CONSEQUENT LOSS TO TH E COMPANY, CERTAIN PAYMENTS DUE TO WIL WERE WITHHELD. AFTER A SERIES OF CLAIMS AND COUNTER CLAIMS THE ISSUE WAS FINALLY SET TLED THROUGH ARBITRATION TRIBUNAL. AS PER THE AWARD OF THE TRIB UNAL, CERTAIN AMOUNTS DETERMINED TO BE PAYABLE TO WIL WAS PAID AN D THE BALANCE AMOUNT NOT PAYABLE AMOUNTING TO 6,78,13,832/- WAS SHOWN AS OTHER INCOME IN THE FINANCIALS BUT THE S AME WAS TREATED AS CAPITAL RECEIPT FOR TAX PURPOSES RELYING ON THE DECISION RENDERED IN CIT VS. SAURASHTRA CEMENT & CHEMICAL IN DUSTRIES LTD. [2002], 172 CTR 119(GUJ) 11/[2002] 253 ITR 37 3(GUJ.), WHEREIN IT WAS HELD THAT LIQUIDATED DAMAGES RECEIVE D BY THE ASSESSEE FOR DELAY IN SUPPLY OF MACHINERY WAS A CAP ITAL RECEIPT AND WAS NOT A RECEIPT IN THE COURSE OF PROFIT-MAKIN G PROCESS, THE ASSESSEE COMPANY, IN THE COMPUTATION STATEMENT, TRE ATING THE RECEIPT AS CAPITAL IN NATURE, CLAIMED DEDUCTION OF THE AMOUNT. IT MAY BE PERTINENT TO NOTE THAT THE SAID DECISION WAS AFFIRMED BY THE APEX COURT IN [2010] 233 CTR 0209/[2010] 325 IT R 0422. THE ASSESSEE COMPANY ALSO DREW SUPPORT FROM THE DEC ISIONS IN [1964] 53 ITR 261(SC) AND THE BOMBAY HIGH COURT DEC ISION IN MAHINDRA & MAHINDRA LTD. [1973] 91 ITR 130 (BOM.). - - ITA 383, 384, 4 18 419/MDS/2017 15 9.1 IT WOULD APPEAR FROM A READING OF THE ASSES SMENT ORDER THAT THE AO PROPOSED TO TAX 1,99,35,914/- UNDER THE MISTAKEN IMPRESSION THAT THE ASSESSEE OFFERED LESSER AMOUNT. THE CONFUSION IN RECONCILIATION COULD HAVE BEEN AVOIDED HAD THE ASSESSEE WAS GIVEN OPPORTUNITY TO EXPLAIN. THE A O WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE CO MPANY DISALLOWED THE CLAIM RELYING ON THE APEX COURT JUDG MENT IN GOETS CASE WHICH HAS BEEN RENDERED IN AN ENTIRELY DIFFERENT CONTEXT AND HAS NO RELEVANCE TO THE CLAIM MADE BY T HE ASSESSEE IN THE RETURN OF INCOME FILED. IN THE CASE RELIED ON BY THE AO, THE ISSUE WAS WHETHER THE ASSESSEE CAN MAKE A FRESH CLA IM BY SUBMITTING REVISED COMPUTATION AND WITHOUT FURNISHI NG A REVISED RETURN OF INCOME. IT WAS HELD THAT ANY FRESH CLAIM CAN BE MADE ONLY BY FILING A REVISED RETURN OF INCOME. IN THE ASSESSEES CASE, THE CLAIM WAS MADE IN THE RETURN OF INCOME FILED UN DER SEC.139(1) OF THE ACT AND THAT NO REVISED COMPUTATI ON OF INCOME WAS SUBMITTED TO MAKE ANY FRESH CLAIM. HENCE, ACCO RDING TO THE ASSESSEE, THE AOS RELIANCE ON GOETS CASE IS MISPL ACED. AGGRIEVED BY THE DISALLOWANCE MADE BY THE AO, THE A SSESSEE - - ITA 383, 384, 4 18 419/MDS/2017 16 WENT IN APPEAL BEFORE THE CIT(APPEALS), WHO RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. MANNA RAMJI & CO. (86 ITR 29), OBSERVED THAT THE RECEIPT OF DAMAGE BY THE ASSESSEE HAS BEEN TREATED AS A TAXABLE REVENUE RECEIPT AND DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. A GAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ASSESSEE RECEIVED THE IMP UGNED AMOUNT FROM M/S.WALCHANDNAGAR INDUSTRIES LTD., TOWA RDS LIQUIDATED DAMAGE TOWARDS DELAY IN CONSTRUCTION OF ASSESSEE COMPANYS PLANT, WHICH IS A CAPITAL ASSET. THE LIQ UIDATED DAMAGES HAVE DIRECT NEXUS WITH PROCUREMENT OF CAPI TAL ASSET OF THE ASSESSEE, WHICH IS NOT AN ORDINARY COURSE OF BU SINESS OF ASSESSEE. THE PLANT AND MACHINERY BEING IN A CAPITA L FIELD, RECEIPT OF AMOUNT TOWARDS DELAY IN INSTALLATION OF PLANT AND MACHINERY CANNOT BE CONSIDERED AS IN THE REVENUE F IELD, UNLESS THE ASSESSEE IN THE BUSINESS OF TRADING IN SAME PLA NT AND MACHINERY. IN THE PRESENT CASE, THE BUSINESS OF AS SESSEE IS TO EXPLORATION, EXTRACTION AND SEPARATION OF MINERALS FROM BEACH - - ITA 383, 384, 4 18 419/MDS/2017 17 SAND. THE INSTALLATION OF PLANT AND MACHINERY BY T HE ASSESSEE IS AN INCOME EARNING APPARATUS OF THE ASSESSEE AND IT IS NOT TRADING ASSET OF THE ASSESSEE. THEREFORE, ANY INCO ME, WHICH IS EARNED HAVING A DIRECT NEXUS WITH THE INSTALLATION OF PLANT AND MACHINERY TO BE CONSIDERED AS A CAPITAL RECEIPT, CA NNOT BE CONSIDERED AS A TRADING RECEIPT. 10.1. IN THE PRESENT CASE, THE DELAY IN CONSTRUCTI ON OF PLANT AND MACHINERY CAUSED IN RECEIPT OF LIQUIDATED DAMAGES F ROM M/S.WALCHANDNAGAR INDUSTRIES LTD. AND IT IS A DIREC T NEXUS WITH THE DELAY CAUSED IN CONSTRUCTION OF THE PLANT AND M ACHINERY AND ON ACCOUNT OF WHICH THE ASSESSEE RECEIVED THE COMPE NSATION OR DAMAGES, WHICH IS IN THE CAPITAL FIELD AS THE SOURC E IS A CAPITAL ASSET. THE SAID AMOUNT WAS RECEIVED IN THE COURSE OF INSTALLATION OF CAPITAL EARNING ASSET AND TO BE CON SIDERED AS CAPITAL RECEIPT AND JUDGEMENT RELIED BY THE LD.A.R IN THE COURSE OF CIT VS. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. [2002], 172 CTR 119(GUJ) ON THE ISSUE, WHICH WAS DELIVERED AFTER CONSIDERING THE JUDGEMENT OF JURISDICTIONAL HIGH C OURT IN THE CASE OF E. I. D. PARRY LTD. IN [1998] 233 ITR 335 (MAD). HENCE, IN OUR OPINION, IT IS TO BE APPLIED IN FULL FORCE AND ACCORDINGLY, WE - - ITA 383, 384, 4 18 419/MDS/2017 18 HOLD THAT THE AMOUNT OF DAMAGES RECEIVED BY THE ASS ESSEE TO BE CONSIDERED AS A CAPITAL RECEIPT ONLY AND CANNOT BE BROUGHT INTO TAX. HOWEVER, THAT SHOULD BE REDUCED FROM THE BLOC K OF ASSETS AS PLANT AND MACHINERY ENTERED IN THE BLOCK OF ASS ETS. WITH THIS OBSERVATION, WE PARTLY ALLOW THE GROUND TAKEN BY TH E ASSESSEE. 11. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NOS .418 & 419/MDS/2017. THE ONLY COMMON ISSUE IN THIS APPEA L IS WITH REGARD TO GRANTING OF DEPRECIATION BY THE CIT(APPEA LS). 12. THE FACTS OF THE CASE ARE THAT THE AO HAS DISAL LOWED THE DEPRECIATION ON ROADS CLAIMED BY THE ASSESSEE ON TH E GROUND THAT THE LAND ON WHICH ROADS WERE LAID BELONGED TO ANDHRA PRADESH GOVERNMENT AND HENCE THE ASSESSEE COULD NOT BE SAID TO BE THE OWNER OF THE ASSET AND ALSO HELD THAT THE ROADS WERE BEING USED BY PUBLIC AS WELL AND HENCE THE SAME COU LD NOT BE CONSIDERED AS A PRIVATE PROPERTY. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 13. ON APPEAL, THE CIT(APPEALS) RELIED ON THE DECIS ION OF THE TRIBUNAL IN THE CASE OF M/S. TAMIL NADU ROAD DEVELO PMENT - - ITA 383, 384, 4 18 419/MDS/2017 19 CORPORATION LTD. IN ITA NO.2082/MDS/2008 AND 817/MD S/2007 DATED 24.10.2008 FOR THE ASSESSMENT YEARS 2003-04 A ND 2004- 05, WHEREIN SIMILAR ISSUE WAS DECIDED BY THE TRIBUN AL VIDE PG. NO.24 PARA NO.21, WHICH READS AS UNDER: ...............IN THE ABOVE DETAILED DISCUSSION WE HAVE COME TO THE CONCLUSION THAT THE ASSESSEE HAS CONSTRUCTED ONLY A ROAD. NOW, THE QUESTION IS WHETHER THE CAPITAL, AS EXPENDITURE INCURRED ON SUCH ROAD WOULD MAKE IT ELIGIBLE FOR DEPRECIATION U NDER THE HEAD BUILDING. THE SAME HAS BEEN DENIED BY THE DEPART MENT ON THE BASIS OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDORE MUNICIPAL CORPORATION V. CIT (SUPRA). A CAR EFUL PERUSAL OF THIS DECISION WOULD SHOW THAT THIS MATTER AROSE OUT OF SPECIAL LEAVE BY ORDER DATED 5.8.2013. THOUGH THE ASST. YE AR IS NOT MENTIONED IN THE JUDGMENT BUT FROM THE ORDER REGARD ING SPECIAL LEAVE, IT BECOMES CLEAR THAT IT MUST BE RELATED TO THE EARLIER YEARS BECAUSE IT WOULD TAKE SOME TIME FOR THE MATTER TO T RAVEL TO THE SUPREME COURT. A CAREFUL PERUSAL OF VARIOUS APPEND ICES WHICH PRESCRIBE THE TABLE OF RATES BY WHICH DEPRECIATION IS ADMISSIBLE WOULD SHOW THAT ALL APPENDIX I WHICH WAS APPLICABLE TO THE ASST. YEAR 1984-85 TO 1987-88 DID NOT MENTION IN THE NOTE S THAT BUILDINGS INCLUDE ROADS, BRIDGES, CULVERTS, WELLS A ND TUBE WELLS. IN THE LATER APPENDICES WHICH IS APPLICABLE FROM ASST. YEAR 1988-89 TO 2002-03 AND 2003-04 AND 2005-06 AND THE LATEST A PPENDIX WHICH IS APPLICABLE FOR THE ASST. YEAR 2006-07 CONT AIN THE FOLLOWING NOTE:- NOTE: BUILDING INCLUDES ROADS, BRIDGES, CULV ERTS, WELLS AND TUBE WELLS. THEREFORE, IT IS ABSOLUTELY CLEAR THAT THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF INDORE MUNICI PAL - - ITA 383, 384, 4 18 419/MDS/2017 20 CORPORATION THAT THE BUILDINGS WOULD NOT INCLUDE RO ADS BECAUSE APPENDIX I DID NOT CLARIFY THAT ROADS WOULD BE INCL UDED IN THE BUILDING. AS POINTED OUT, AFTER THE ASST. YEAR 198 8-89 ALL THE APPENDICES HAVE THE NOTE THAT BUILDING WOULD INCLUD E ROADS. THEREFORE, IN OUR VIEW, THE ASSESSEE WOULD BECOME E NTITLED TO DEPRECIATION ON THE ROAD IN THE CATEGORY OF BUILDIN G. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(AP PEALS) ON LEGALLY AND RIGHTFULLY ELIGIBLE EVEN AT THE RATE OF 10% AS ALLOWED BY THE DEPARTMENT. THE LEARNED AO HAS NOT PASSED THE RECTIFICATI ON ORDERS AND HENCE THE ASSESSEE HAS BEEN DENIED THE BENEFIT OF S ET OFF DEPRECIATION LOSS OF PREVIOUS YEARS. 13.1 RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, THE CIT(APPEALS) DIRECTED THE AO TO ALLOW DEPRECIAT ION @ 10% ON THE ROAD BY TREATING IT AS BUILDING AND THIS ISS UE IS PARTLY ALLOWED. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.CIT(A) IN THIS CASE FOLLOWED THE BINDING DECISION OF THE CHENNAI TRIBUNAL IN THE CASE OF M/S . TAMIL NADU ROAD DEVELOPMENT CORPORATION LTD., FOR THE ASSESSME NT YEARS 2003-04 AND 2004-05, DATED 24.10.2008 (SUPRA) AS DI SCUSSED ABOVE. BEING SO, WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF - - ITA 383, 384, 4 18 419/MDS/2017 21 LD.CIT(A) ON THIS ISSUE AND GRANT DEPRECIATION @ 10 % ON THE ROAD BY TREATING IT AS BUILDING AND THE ORDER OF LD .CIT(A) IS CONFIRMED. HENCE, THIS GROUND RAISED IN BOTH THE RE VENUES APPEALS STAND REJECTED. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E FOR ASSESSMENT YEARS 2011-12 & 2012-13 ARE PARTLY ALLOW ED AND BOTH THE APPEALS FILED BY THE REVENUE FOR ASSESSME NT YEARS 2011-12 & 2012-13 ARE DISMISSED. ORDER PRONOUNCED ON 26 TH JULY, 2017 AT CHENNAI. SD/- SD/- ( ! ) ! * . + ,-. ) ( / 0 1 2% ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) < => /JUDICIAL MEMBER ,& =>/ACCOUNTANT MEMBER /,< ' /CHENNAI, D= /DATED, THE 26 TH JULY,2017. K S SUNDARAM =,E # $FG H,G$ / COPY TO: 1 . / APPELLANT 3. ! I$ () / CIT(A) 5. GJK $ L / DR 2. / RESPONDENT 4. ! I$ / CIT 6. K. M' / GF