Coastal Andhra Power Ltd., Mumbai V. ITO, New Delhi

ITA 3831/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3599 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR SENIOR
• Assessee Lawyers: G C SRIVASTAVA
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3831/DEL./2010 (ASSESSMENT YEAR : 2007-08) M/S. COASTAL ANDHRA POWER LIMITED, VS. ITO, WARD 3 (4), H-BLOCK, 1 ST FLOOR, NEW DELHI. DHIRUBHAI AMBANI KNOWLEDGE CITY, KOPARKHAIRANE, NAVI MUMBAI-400 710. (PAN : AACCC8749D) (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI G.C. SRIVASTAVA, ADVOCATE & MS. GUNJAN JAIN REVENUE BY : MS. Y. KAKKAR, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER OF THE CIT (APPEALS)- VI, NEW DELHI DATED 02.06.2010 FOR THE ASSESSMENT Y EAR 2007-08. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) [HEREINAFTER REFERRED TO AS CIT (A)] ERRED IN NOT H OLDING THAT THE RECEIPT OF INTEREST OF RS.99,77,943/- IS CAPITA L IN NATURE AND THEREFORE NOT LIABLE TO TAX. THE APPELLANT SUBMITS THAT THE RECEIPT OF INTEREST OF RS.99,77,943/- IS INEXTRICABLY LINKED WITH THE PROC ESS OF DEVELOPMENT OF POWER PLANT WHICH SHOULD GOT TO REDU CE THE COST OF THE ASSETS. THEREFORE THE ABOVE RECEIPT OU GHT TO BE HELD ITA NO.3831/DEL./2010 2 AS CAPITAL RECEIPT AND OUGHT TO BE EXCLUDED FROM TH E TAXABLE INCOME. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF RS.99,77,943/- TREATING THE SAME AS CAPITAL EXPENDI TURE AND NOT BEING DIRECTLY RELATED TO THE INTEREST INCOME EARNE D. THE APPELLANT SUBMITS THAT THE INTEREST EXPENSES AR E ALLOWABLE AS CLAIMED AND THE SAME OUGHT TO BE ALLOWED. 2. THE RETURN OF INCOME WAS FILED ON 30.10.2007 DEC LARING NIL INCOME. THE ASSESSEE COMPANY HAS BEEN FORMED TO FACILITATE THE ACQUISITION OF LAND AND COMPLETE PRELIMINARY FORMALITIES REGARDING SEVERAL STATUTORY CLEARANCES INCLUDING THAT OF ENVIRONMENT, FOREST, CRZ, ETC. FOR THE PURPOSE OF E STABLISHING THE ULTRA MEGA POWER PROJECT OF 4000 MW AT KRISHNAPATANAM IN THE STATE O F ANDHRA PRADESH. THE ASSESSEE COMPANY HAS TAKEN COMMITMENT ADVANCE FROM VARIOUS CONCERNS WHICH WERE POWER PROCUREMENT UTILITIES ON WHICH INTEREST WAS PAID. THESE LOANS WERE TAKEN TO PROCURE CAPITAL GOODS AND ALSO FOR VARIOUS EXPENDITURE WHICH HAVE BEEN CAPITALIZED. THE EXCESS OF ADVANCE OVER THE EXPEND ITURE HAD BEEN ADVANCED TO PFC AS SHORT TERM DEPOSIT. THE ASSESSEE CAPITALIZED TH E INTEREST AFTER ADJUSTING IT WITH THE INTEREST RECEIVABLE. 3. AT THE OUTSET OF THE HEARING, THE LEARNED AR SUB MITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, DELHI BENCH G IN ITA NO.2819/DEL/2010 IN THE CASE OF ITO, WARD 7(3), NEW DELHI VS. SASAN POWER LIMITED VIDE ORDER DATED 29.04.2011 AND HE HAS ALSO SUBMITTED A COPY OF THE SAID ORDER OF THE ITAT. ITA NO.3831/DEL./2010 3 4. LEARNED DR HAS ALSO CONSENTED THAT THE ISSUE IS COVERED BY THE AFORESAID DECISION OF THE ITAT WHERE THE SAME FACTS ARE INVOL VED. 5. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE I TAT IN THE CASE OF ITO VS. SASAN POWER LIMITED, CITED SUPRA, HAS DECIDED THE I SSUE AS UNDER :- 10. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSE D THE MATERIAL ON RECORD. IT IS SEEN THAT AS PER THE MINUTES OF TH E MEETING BETWEEN THE SECRETARY, POWER WITH THE MEMBER SECRETARIES OF VARIOUS STATES, IT WAS AGREED THAT THE STATES WOULD PROVIDE FUNDS @ RS .1 CRORE PER 100 MG FOR STATE-WISE ALLOCATION REGARDING ACQUISITION OF LAND FOR POWER PROJECTS AND COALMINES. THESE FUNDS WERE TO BE PROV IDED TO THE SPV IN THE FORM OF COMMITMENT ADVANCE. ALSO, AN AGREEME NT HAD BEEN ENTERED INTO BETWEEN PFC AND THE ASSESSEE. AS PER T HIS AGREEMENT, THE ENTIRE EXPENDITURE ON DEVELOPMENT OF THE PROJEC T WAS TO BE INCURRED BY PFC OUT OF ITS OWN FUNDS, TILL IT RECEI VED THE COMMITMENT ADVANCE FROM THE POWER UTILITIES, AS PROVIDED FOR I N SCHEDULE VIII TO THE BALANCE SHEET OF THE ASSESSEE. THE COMMITMENT A DVANCE RECEIVED HAD BEEN GIVEN TO THE HOLDING COMPANY FOR INCURRING EXPENDITURE FOR THE PROJECT ON BEHALF OF THE COMPAN Y, FOR INVESTMENT OF THE UNUTILIZED PORTION OF THE ADVANCE. THIS UNUT ILIZED PORTION OF THE ADVANCE, WAS PLACED WITH PFC AS AN INTER-CORPORATE LOAN, FOR WHICH, THE INTEREST WAS RECEIVABLE FROM PFC AT THE MONTHLY AVERAGE SHORT TERM DEPOSIT RATE OF PFC. THE ASSESSEE WAS TO PAY I NTEREST TO PFC ON THE EXPENDITURE INCURRED BY IT, OUT OF ITS OWN FUND S, WHEN THE EXPENDITURE WAS INCURRED OUT OF THE COMMITMENT ADVA NCE. THE AO TREATED BOTH, THE RECEIPT, AS WELL AS THE EXPENDITU RE, AS CAPITAL IN NATURE. THE INTEREST INCOME HAD BEEN INADVERTENTLY SHOWN BY THE ASSESSEE AS INCOME FROM OTHER SOURCES AND DEDUCTION WAS CLAIMED U/S 57 OF THE ACT CONCERNING THE INTEREST PAYMENT. 11. IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD.' ( SUPRA), IT HAS BEEN HELD THAT WHERE INTEREST IS ON MONEY RECEIVED AS SHARE CAPITAL, WHICH IS TEMPORARILY PLACED IN FIXED DEPOSIT AWAITI NG ACQUISITION OF LAND, THE CLAIM THAT THE INTEREST IS IN THE NATURE OF A CAPITAL RECEIPT LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES , IS ACCEPTABLE, SINCE THE FUNDS INFUSED IN THE ASSESSEE COMPANY BY THE JO INT VENTURE PARTNERS ARE INEXTRICABLY LINKED WITH THE SETTING U P OF THE PLANT AND THE INTEREST EARNED CANNOT BE TREATED AS INCOME FRO M OTHER SOURCES. 'INDIAN OIL PANIPAT POWER CONSORTIUM LTD.' (SUPRA) IS SQUARELY APPLICABLE TO THE PRESENT CASE, AS DISCUSSED. THIS IS IN CONSONANCE WITH 'BOKARO STEEL LTD.'(SUPRA), 'KARNAL COOPERATIV E SUGAR MILL'(SUPRA), CIT VS. KARNATAKA POWER CORPORATION' , 247 I.T.R. ITA NO.3831/DEL./2010 4 268(SC) AND 'BONGAIGAON REFINERY AND PETRO CHEMICAL CO. LTD. VS. CLT, 251 I.T.R. 329(SC), WHEREIN ALSO, IT HAS BEEN LAID DOWN THAT ANY RECEIPT INEXTRICABLY LINKED TO THE SETTING UP O F THE PROJECT IS CAPITAL RECEIPT NOT LIABLE TO TAX AND GOING TO REDU CE THE COST OF THE PROJECT. IN THE PRESENT CASE TOO, THE FUNDS INFUSE D BY THE ASSESSEE COMPANY WERE INEXTRICABLY LINKED WITH THE SETTING U P OF THE POWER PLANT. LIKEWISE, THE INTEREST PAYMENT WAS ALSO CAP ITAL EXPENDITURE, WHICH FACT WAS CONFIRMED BY THE AO, WHILE OBSERVING THE ENTIRE INCOME OF THE ENTIRE EXPENDITURE WAS CAPITAL IN NAT URE. 12. ALL THESE FACTS HAVE BEEN DULY TAKEN INTO CONSI DERATION BY THE CIT(A) WHILE PASSING THE ORDER UNDER APPEAL. THEREF ORE, THERE IS NO MERIT IN THE GRIEVANCE RAISED BY THE DEPARTMENT BY WAY OF GROUND NOS.1 & 2. ACCORDINGLY, GROUND NOS.L & 2 ARE REJECT ED. SINCE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE AFORESAID ORDER, RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE RELIE F TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 15 TH DAY OF JULY, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 15 TH DAY OF JULY, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.