Meja Urja Nigam (P) Ltd, Allahabad V. ACIT,Range-II, Allahabad

ITA 44/ALLD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7887 (ITAT-ALLAHABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJKUMAR LACHHIRAMANKA
• Assessee Lawyers: PARV AGARWAL
• Keywords: Source of fund; Capital receipt

Judgement Text

1 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH ALLAHABAD BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND MS.SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.44/ALLD/2014 ASSESSMENT YEAR: 2009-10 MEJA URJA NIGAM PVT. LTD. 5 TH FLOOR, SANGAM PLACE, CIVIL LINES, ALLAHABAD PAN: AAFCM8107L VS. ACIT RANGE-II, ALLAHABAD (APPELLANT) (RESPONDENT) ITA NO.85/ALLD/2016 ASSESSMENT YEAR: 2010-11 MEJA URJA NIGAM PVT. LTD. 5 TH FLOOR, SANGAM PLACE, CIVIL LINES, ALLAHABAD PAN: AAFCM8107L VS. ACIT RANGE-II, ALLAHABAD (APPELLANT) (RESPONDENT) REVENUE BY SHRI RAJKUMAR LACHHIRAMANKA, CIT DR ASSESSEE(S) BY : SHRI PARV AGARWAL, ADV / DATE OF HEARING : 28/06/2017 /DATE OF PRONOUNCEMENT: 16/08/2017 ORDER PER BENCH: THESE APPEALS ARE FILED AGAINST THE ORDER DATED 10 /10/2013 & 18/12/2015 PASSED BY CIT(A)-ALLAHABAD. 2. THE GROUNDS OF APPEAL ARE SAME IN BOTH THE ASSES SMENT YEARS THEREFORE, GROUNDS FOR A.Y. 2009-10 ARE REPRODUCED AS UNDER:- 1. THAT THE LEARNED CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF 2 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 RS.2323888/-, RECEIVED AS INTEREST DURING CONSTRUCT ION PERIOD AS INCOME FROM OTHER SOURCES, SINCE THE SAID RECEIPTS ARE INEXTRIC ABLY LINKED WITH PLANT SET UP ACTIVITIES HENCE IS IN THE NATURE OF CAPITAL REC EIPT. 2.THAT THE LEARNED CIT(APPEALS) AND A.O. HAS FAILED TO TAKE INTO CONSIDERATION THAT THE COMPANY HAS NOT COMMENCED ANY BUSINESS ACT IVITIES AND IS SOLELY INVOLVED IN THE PLANT SET UP ACTIVITIES. THE ENTIRE FUNDS RECEIVED BY THE COMPANY WAS FOR THE PURPOSE OF SETTING UP OF PLANT AND WAS BEING SO UTILIZED AS AND WHEN REQUIRED. 3. THE LEARNED CIT(APPEALS) AND A.O. HAS FAILED TO APPRECIATE THAT THE FUNDS DEPOSITED IN BANK WERE NOT SURPLUS FUNDS AS THE SAM E WAS REQUIRED FOR DISBURSAL AND DEPLOYMENT FOR THE PURPOSE OF SETTING UP OF PLANT. 4. THAT THE LEARNED CIT(APPEALS) AND A.O. HAS NOT C ONSIDERED THE FACT THAT SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO CO MMENCEMENT OF BUSINESS AND WAS DIRECTLY INCIDENTAL TO ACQUISITION OF ASSET S AND SETTING UP OF PLANT, IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 3. FOR THE SAKE OF CONVENIENCE, THE FACTS FOR A.Y. 2009-10 ARE TAKEN UP. THE ASSESSEE IS A PRIVATE LTD. COMPANY SET UP AND INCOR PORATED AS A JOINT VENTURE OF NTPC LTD. & UPRUVN LTD. TO SET UP A POWER PLANT AT MEJA URJA ALLAHABAD. DURING THE ASSESSMENT YEAR 2009-10 THE COMPANY WAS INVOLVED IN PLANT SET UP ACTIVITIES LIKE LAND ACQUISITION, STATUTORY CLEARAN CE, DEVELOPMENT OF INFRASTRUCTURE, ETC AND HAS NOT STARTED ANY BUSINES S ACTIVITY SINCE THE PLANT IS UNDER CONSTRUCTION PHASE. DURING THE YEAR COMPANY RECEIVED EQUITY CONTRIBUTIONS AGAINST SHARE CAPITAL FOR THE SPECIFI C PURPOSE OF PLANT ESTABLISHMENT AND REGULATED EXPENSES. THE FUNDS RE CEIVED WAS DEPOSITED IN BANK ACCOUNT ON WHICH INTEREST AMOUNTING TO RS.23,2 3,888/- WAS GIVEN BY BANK. THE SAID AMOUNT IS IN THE NATURE OF CAPITAL RECEIPT WHICH WAS SET OFF AGAINST PRE-OPERATIVE EXPENSES. THE RETURN FOR ASS ESSMENT YEAR 2009-10 WAS FILED AT NIL INCOME. WHILE ASSESSING THE INCOME U/ S 143 (3), THE ASSESSING OFFICER TREATED THE AMOUNT OF INTEREST RECEIVED AS REVENUE INCOME AND ASSESS THE SAME AS INCOME FROM OTHER SOURCES. 3 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 4. AS RELATED TO ASSESSMENT YEAR 2010-11, THE COMPA NY RECEIVED INTEREST AMOUNTING TO RS.19,05,634/- WHICH WAS AGAIN TREATED BY THE ASSESSING OFFICER AS INCOME FROM OTHER SOURCES. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEALS BEFORE THE CIT(A). THE ORDER OF THE CIT(A) FOR A. Y. 2009-10 IS EXTRACTED AS UNDER:- 5. DECISION: THE APPELLANTS MAIN CONTENTION IS THAT THE FUNDS ON WHICH INTEREST EARNED WERE NOT SURPLUS FUNDS OF THE COMPANY, BUT WERE EQUITY CONTRIBUTIONS BY THE JOINT VENTURE PARTNERS, FOR ACQUISITIONS, CONSTRUCTION AND SETTING UP OF THE PLANT AND OTHER INFRASTRUCTURE FACILITIES. I HAVE GONE THROUGH THE ORDER OF THE A.O. IN WHICH HE HAS ALSO QUOTED THE SUBMISSION OF THE; APPELLANT ON THE RECEIPT OF THE INTEREST. BUT I DO NOT FIND ANY HINT AS TO WHETHER OR NOT THE FUNDS ON WHICH IN TEREST WAS EARNED WERE EQUITY CONTRIBUTIONS FOR SETTING UP OF THE BUS INESS AND OTHER INFRASTRUCTURE FACILITIES. THE APPELLANT HAS CLAIME D THAT THE INTEREST EARNED ON SHORT TERM MODS WERE INEXTRICABLY LINKED TO THE CONSTRUCTION AND ACQUISITION ACTIVITIES IN THE REGULAR COURSE OF BUS INESS. AGAIN, I DO NOT FIND ANY SUCH EVIDENCES TO SUGGEST THAT THE INVESTMENTS MADE BY THE ASSESSEE WERE FOR THE CONSTRUCTION AND ACQUISITION ACTIVITY. THE APPELLANT HAS NOT FILED ANY OFFICE MEMO, IN THIS REGARD OR ANY DECISI ON OF THE CONCERNS FORMING THE JOINT VENTURE. THE APPELLANT HAS PRIMAR ILY RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. BOKARO STEEL LTD. (1999) 236 ITR 315. I HAVE GONE THROUGH THE O RDER OF THE HON'BLE SUPREME COURT AND I HAVE ALSO SEEN THE FACTS OF THI S CASE. WHILE DISTINGUISHING THE FACTS IN THE CASE OF TUTICORIN A LKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT(1997) 227 ITR 172 (HON'BLE SUPREME COURT). THE THE HON'BLE COURT HELD THAT IN THE CASE OF BOKARO STEEL THE PAYMENTS RECEIVED WERE DIRECTLY LINKED WITH THE ACTIVITY OF SETTING U P THE STEEL PLANT OF THE ASSESSEE AND, THEREFORE, RECEIPTS ARE INEXTRICABLY LINKED WITH THE SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY . AS FAR AS THE CASE BEFORE ME IS CONCERNED, THE APPELLANT HAS NOT BEEN ABLE TO OUTLINE AND ESTABLISH THE FACTS THAT THE FUNDS WERE INEXTRICABL Y LINKED WITH THE SETTING UP OF THE BUSINESS INFRASTRUCTURE. I ALSO DO NOT AG REE WITH THE SUBMISSION OF THE APPELLANT THAT THE FUNDS WERE NOT SURPLUS. T O MY CONSIDERED VIEW, THE FUNDS WILL BE TREATED SURPLUS, SO LONG THOSE AR E NOT OR AT LEAST NOT CONTEMPLATED TO BE USED FOR ANY OTHER WORK. AS A MA TTER OF FACT, THE USE OF 4 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 THE TERM SURPLUS MAY BE RELATIVE TO THE TIME. IN AN Y CASE, WHERE THE BUSINESS ACTIVITY IS CARRIED OUT, THE FUNDS ARE PAR KED FOR EARNING INTEREST SO THAT IT DOES NOT LIE IDLE AND KEEPS ON GENERATIN G SOME INCOME. THE FACTS OF THE ASSESSEE ARE NOT DIFFERENT AS THE INTEREST H AS BEEN EARNED ON THE FUNDS WHICH WERE NOT USED AND WHICH WERE NOT IMMEDI ATELY REQUIRED FOR SETTING UP OF THE CAPITAL STRUCTURE. I ALSO FIND TH AT THE HONBLE SUPREME COURT HAS NOT OVER RULED ITS DECISION IN THE CASE O F TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. WHICH HOLDS THAT IT IS POSSIBLE FOR A COMPANY TO HAVE SIX DIFFERENT SOURCES OF INCOME, EA CH ONE OF WHICH WILL BE CHARGEABLE TO INCOME TAX. PROFITS & GAINS OF BUSINE SS OR PROFESSION IS ONLY ONE OF THE HEADS UNDER WHICH THE COMPANYS INCOME I S LIABLE TO BE ASSESSED TO TAX. IF A COMPANY HAS NOT COMMENCED BUS INESS, THERE CANNOT BE ANY QUESTION OF ASSESSMENT OF ITS PROFITS & GAIN S OF BUSINESS. THAT DOES NOT MEAN THAT UNTIL AND UNLESS THE COMPANY COM MENCES ITS BUSINESS, ITS INCOME FROM ANY OTHER SPURGE WILL NOT BE TAXED. IF THE COMPANY, EVEN BEFORE IT COMMENCED BUSINESS, INVESTMENTS THE SURPL US FUNDS IN ITS HANDS FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SE LLS IT AT PROFIT, THE GAIN MADE BY THE COMPANY WILL BE ASSESSABLE UNDER THE HE AD CAPITAL GAINS. THE HOBBLE COURT HAS FURTHER GONE ON MAKING THE ME NTION OF DIFFERENT KINDS OF INCOME ASSESSABLE EVEN BEFORE THE COMPANY COMMENCED ITS BUSINESS. I HAVE ALSO PERUSED THE OTHER DECISIONS CITED BY THE A.R FOR THE APPELLANT BUT I FIND THAT THE FACTS OF THESE CASES ARE NOT IDENTICAL TO THE FACTS IN THE CASE OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, THE ADDITION IS C ONFIRMED TOGETHER WITH THE OBSERVATION THAT EVEN THE ASSESSEE HAS PAID ADVANCE TAX AND SELF ASSESSMENT TAX IN ADDITION TO TDS ON THE IMPUGNED I NTEREST INCOME. FOR ASSESSMENT YEAR 2010-11 THE CIT(A) HELD AS UNDE R:- 4.3. SUBSEQUENT THE BOKARO STEEL (SUPRA), THERE H AVE BEEN MANY OTHER DECISIONS OF THE HONBLE SUPREME COURT ON THI S ISSUE. I DISCUSS EACH OF THEM AS UNDER :- IN THE CASE OF BONGAIGAON REFINERY & PETROCHEMICALS LTD. V. CIT [251 ITR 329 (SC)] THE FACTS ARE SIMILAR TO THOSE OF BOKARO STEEL; THUS REQUIRES NO FURTHER ELABORATION. SIMILARLY, THE DECISION RENDER ED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. KARNATAKA POWER CORPORATION [247 ITR 5 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 268 (SC)] WAS CONCERNING INTEREST AND HIRE CHARGES RECEIVED FROM THE CONTRACTORS, WHICH WAS HELD TO BE CAPITAL IN NATURE . THE FACTS OF THE INSTANT CASE ARE MATERIALLY DIFFERENT. IN ANOTHER CASE, NAM ELY THAT OF CIT V. KARNAL CO-OPERATIVE SUGAR MILLS LTD. [243 ITR 2 (SC)], THE HONBLE SUPREME COURT FOUND THAT THE INTEREST HAD BEEN EARNED ON DEPOSITS MADE FOR OPENING LCS (WHICH WAS DIRECTLY LINKED TO THE PURCHASE OF PLANT & MACHINERY) AND, ACCORDINGLY, SUCH INTEREST WAS HELD TO BE INCIDENTA L TO THE ACQUISITION OF ASSETS. THE FACTS OF THIS CASE ARE ALSO CLEARLY DISTINGUISH ABLE FROM THE FACTS OF THE PRESENT CASE, THEREFORE, NOT APPLICABLE. IN VIEW OF THE DISCUSSIONS MADE HEREINABOVE, I UPHO LD THE ORDER OF THE ASSESSING OFFICER. 6. THE LD. AR SUBMITTED THAT THERE IS NO BORROWED F UND TAKEN BY THE ASSESSEE FOR INVESTMENT FOR ASSESSMENT YEAR 2009-10 & 2010-11 AND THE PLANT WAS NOT FUNCTIONAL. THEREFORE, THE AMOUNT AND DEPO SIT WAS RELATED TO THE CAPITAL RECEIPTS AND CANNOT BE TREATED AS INCOME FR OM OTHER SOURCES. 7. THE LD. AR RELIED UPON THE ORDER OF ITAT IN CASE OF ADANI POWER LTD VS. ACIT, ITA NO. 2755/AHD/2011 DATED 27/7/2015 WHEREIN IT WAS HELD IN PARA 24 THAT (RELEVANT EXTRACT) 24..BECAUSE ADMITTEDLY IN THE CASE UNDER APPEAL BEFORE US THE SHARE CAPITAL AS WELL AS LOANS WERE R AISED FOR THE SPECIFIC PURPOSE OF SETTING UP OF THE POWER GENERATION PLANTS. THE BUSINESS OF THE ASSESSEE HAS NOT BEEN ANNEXED AND, THEREFORE, AS PER ABOVE DECIS ION. THE INTEREST RECEIVED IN THE PERIOD PRIOR TO COMMENCEMENT OF BUSINESS WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET UP AGAINST THE PRE -OPERATIVE EXPENSES. THE ASSESSEE HAS ALREADY SET UP THE INTEREST INCOME AGA INST THE PRE-OPERATIVE EXPENSES WHICH IS TITLED AS PROJECT DEVELOPMENT EX PENDITURE. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT THE INTEREST INCOME OF R S.1,35,87,158/- AS WELL AS 7,91,51,306/- WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX DURING THE YEAR UNDER CONSIDERATION. 6 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 8. THE LD. AR ALSO RELIED UPON THE JUDGMENT OF ALLA HABAD HIGH COURT IN CASE OF CIT VS. INDO-GULF FERTILIZERS & CHEMICALS ( 2006) 280 ITR 521 IN THE SAID CASE AS WELL. IT IS HELD IN PARA 12 AS UNDER: - 12. THUS THE PLEA THAT THE INTEREST EARNED BY THE ASSESSEE ON SUCH LOAN IS TO BE SET OFF AGAINST THE INTEREST PAYABLE ON LO AN GIVEN FOR THE PURPOSE OF CONSTRUCTION CANNOT BE ACCEPTED . SO FAR AS THE PL EA THAT THE ASSESSEE WAS FREE TO SUE THE INTEREST INCOME AS IT LIKED AND THE REFORE, THE INTEREST INCOME COULD NOT BE TAXABLE, SUFFICE IT TO MENTION THAT TH E NATURE OF INCOME HAD TO BE SEEN AT THE POINT OF ACCRUAL AND THE TAXABILITY IS NOT DEPENDENT UPON ITS DESTINATION OR THE MANNER OF ITS UTILIZATION. 9. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS RIGHTLY DISALLOWED THE SAME INTEREST AND HELD THAT THE SAME AMOUNTS TO INCOME FROM OTHER SOURCES. THE LD. DR FURTHER SUBMITS THA T THE CASE LAWS REFERRED BY THE LD. AR ARE NOT RELEVANT, BUT THE LD. DR COULD N OT DISTINGUISH THE SAME. AS RELATED TO THE COMMENCEMENT OF THE BUSINESS, THE LD . DR COULD NOT CONTRADICT THE SUBMISSIONS MADE BY THE LD. DR. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT CAN BE SEEN THAT IN BOTH THE ASSESSMENT ORDERS THE COMMENCEMENT OF THE BUSINESS WAS NOT STARTED BUT WAS ONLY TO THE EXTENT THAT THE COMPANY WAS SETTING UP A PLANT ACTIVITIES LIKE LAND ACQUISI TION, STATUTORY, CLEARANCE, DEVELOPMENT OF INFRASTRUCTURE BUT THE BUSINESS ACTI VITY WAS NOT STARTED IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION BEFORE US. IN THE PRESENT CASE, THE INTEREST WAS NOT EARNED ON THE SURPLUS FUNDS BUT WE RE EQUITY CONTRIBUTION BY THE JOINT VENTURE OF PARTNERS FOR ACQUISITION, CONS TRUCTION AND SETTING UP OF A PLANT AND OTHER INFRASTRUCTURE FACILITIES. THE FUND S KEPT IN THE CURRENT ACCOUNT OF THE COMPANY WERE USED FOR ON-GOING CONSTRUCTION ACTIVITY AS AND WHEN REQUIRED. THE CIT(A) RELIED UPON THE CASE OF BOKAR O STEEL, BUT THE SAME IS NOT APPLICABLE IN THE PRESENT CASE. IN THE PRESENT CASE , THE FUNDS WERE NEVER INVESTED OR DEPOSITED IN ANY LONG TERM DEPOSIT INST RUMENT BUT AUTOMATICALLY 7 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 TRANSFERRED BY THE BANK IN SHORT TERM MODS ACCOUNTS IN ACCORDANCE WITH THE ACCOUNT TERMS AND CONDITIONS. THE SAID MODS WERE R EVERSED AUTOMATICALLY AS AND WHEN THE ASSESSEE WITHDREW THE AMOUNTS FROM ACC OUNT. THERE WAS NO INTENTION TO EARN ANY INTEREST ON SUCH FUNDS. THE FUNDS WERE KEPT IN LIQUID SO AS TO USE THEM AS AND WHEN REQUIRED, SINCE, THE INT EREST ON SHORT TERM MODS WERE INEXTRICABLY LINK TO THE CONSTRUCTION AND ACQU ISITION ACTIVITIES IN THE REGULAR COURSES OF THE ASSESSEES ACTIVITIES. THE INTEREST WAS NOT EARNED OUT OF THE SURPLUS FUNDS SO TO TREAT THE SAID INCOME AS IN COME FROM OTHER SOURCE IS NOT JUSTIFIED. THIS CLAIM OF THE ASSESSEE SUSTAINS BECAUSE THE EQUITY CONTRIBUTION BY THE JOINT VENTURE PARTNERS CANNOT B E TERMED AS SURPLUS FUNDS BECAUSE IT WAS HAVING A SHORT TERM MODS AS PER THE REQUIREMENT OF DAY TO DAY CONSTRUCTION ACTIVITIES OF THE ASSESSEE. THEREFORE , THE ASSESSING OFFICER AS WELL AS THE CIT(A) OVER LOOKED THESE ASPECTS AND SIMPLY WITHOUT TAKING COGNIZANCE OF THE CORRECT FACT OF THE PRESENT CASE RELIED UPO N THE JUDGMENTS OF APEX COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. AND BOKARO STEEL WHEREIN THE FACTS WERE DIFFERENT. THE FACTS ARE SIMILAR IN BOTH THE ASSESSMENT YEARS THEREFORE, THE APPEALS ARE ALLOWED IN BOTH THE YEAR S. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE S ARE ALLOWED. ORDER PRONOUNCED ON THE 16 TH DAY OF AUGUST, 2017. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JU DICIAL MEMBER DATED: 16/08/2017 R. NAHEED COPY FORWARDED TO: 8 ITA NO. 44/ALL/2014 A/W ITA NO. 85/ALL/2016 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT AS SISTANT REGISTRAR ITAT ALLAHABAD DATE 1. DRAFT DICTATED ON 13/07/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 13/07/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 12.09.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 12.09 .2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.