ITO, New Delhi V. M/s. Pench Power Ltd, New Delhi

ITA 4556/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5555 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEV NAOREN
• Assessee Lawyers: PROF S SAMPATH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.4556/DEL/2009 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER, WARD 14 (2), NEW DELHI. VS. M/S PENCH POWER LTD., 254, OKHLA INDUSTRIAL AREA, PHASE III, NEW DELHI. PAN : AAACP7468C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI (PROF) S. SAMPATH REVENUE BY : MS BANITA DEV NAOREN, SR. DR ORDER PER : I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST THE ORDER OF THE CIT (A) DATED 29 TH SEPTEMBER, 2009 FOR ASSESSMENT YEAR 2005-06. GROUN DS OF APPEAL READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO DELETE THE ADDITION OF RS.568,126/- ON ACCOUNT OF I NTEREST INCOME RECEIVED FROM MPSEB. 2. THE APPELLANT CRAVES TO BE ALLOWED TO AMEND, DE LETE OR ADD ANY OTHER GROUNDS OF APPEAL. 2. AT THE OUTSET, IT WAS SUBMITTED BY LD. AR THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER DECISIONS OF THE TRIBUNAL IN RESPECT OF ASSESSMENT YEARS 1999-2000, 2002-03 AND 2003-04. H E HAS SUBMITTED BEFORE US COPIES OF SUCH DECISIONS. IT WAS FURTHER SUBMIT TED THAT HONBLE HIGH COURT ITA NO.4556/DEL/2009 2 ALSO VIDE THEIR ORDER DATED 15 TH JANUARY, 2009 IN ITA NO.854/2006 HAS UPHELD THE ORDERS OF ITAT. THE QUESTIONS FRAMED BEFORE TH E HONBLE HIGH COURT WERE AS UNDER:- AFTER HEARING LEARNED COUNSEL FOR THE PARTIES THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW ARE FRAMED:- (A) WHETHER THE TRIBUNAL WAS CORRECT IN LAW IN HOLD ING THAT THE ASSESSEE COULD SET-OFF INTEREST EARNED FROM MPSEB D EPOSIT AGAINST INTEREST PAID ON BORROWINGS FROM GE CAPITAL SERVICE FOR THE SAID PURPOSE AND CAPITALIZE THE DIFFERENCE AS PRE-OPERAT IVE EXPENSES? (B) WHETHER THE TRIBUNAL WAS CORRECT IN LAW IN ACCE PTING THE ALTERNATIVE PLEA OF THE ASSESSEE THAT EVEN IF INTER EST EARNED ON MPSEB DEPOSIT IS HELD AS INCOME FROM OTHER SOURCES, THE INTEREST PAID ON BORROWINGS COULD BE SET-OFF UNDER SECTION 5 7 (III) OF THE INCOME TAX ACT, 1961? (C) WHETHER THE ORDER PASSED BY THE LEARNED ITAT IS PERVERSE. THESE APPEALS PERTAIN TO THE ASSESSMENT YEARS (AY) 1999-2000, 2002-2003 AND 2003-2004. THE ASSESSEE/RESPONDENT H AD FILED RETURN DECLARING NIL INCOME, AFTER SETTING-OFF IN TEREST EARNED BY IT FROM SHORT TERM DEPOSITS AGAINST INTEREST PAID ON T HE CAPITAL BORROWED BY IT, AS PER THE FOLLOWING TABLE: 3. THE RELEVANT PORTION OF HONBLE HIGH COURTS ORD ER IS REPRODUCED BELOW:- IN THE PRESENT CASE, THE ASSESEE HAD DEPOSITED MON EY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEES AGREEMENT W ITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTERES T HAS BEEN EARNED. THIS IS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSITE D IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MO NEY IN PRESENT CASE IS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCIDEN TAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLA NT AND MACHINERY. IN THIS VIEW OF THE MATTER THE RATIO LAID DOWN BY T HIS COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 WILL NOT BE ATTRACTED. THE MORE APPROPRIAT E DECISION IN THE FACTUAL SITUATION IN THE PRESENT CASE IS IN CIT V. BOKARO STEEL LTD. (1999) 236 ITR 315 (SC). THE APPEAL IS DISMISSED. THERE WILL BE NO ORDER AS TO COSTS. ITA NO.4556/DEL/2009 3 AS REGARDS THE ASSESEES ALTERNATIVE PLEA THAT EVEN IF INTEREST INCOME IS TREATED AS INCOME FROM OTHER SOURCES, THE INTEREST PAID ON BORROWINGS TAKEN FOR THE PURPOSE OF MAKING THE D EPOSIT WITH MPSEB WILL BE AVAILABLE FOR SET-OFF UNDER SECTION 5 7(III) OF THE ACT, HAS TO BE ACCEPTED. THE TRIBUNAL HAS RETURNED A FI NDING OF FACT THAT THE PURPOSE FOR WHICH LOAN WAS TAKEN WAS TO MAKE A DEPOSIT WITH MPSEB. THERE IS A DIRECT NEXUS BETWEEN TAKING OF L OAN AND THE DEPOSIT BY THE ASSESSEE WITH THE MPSEB. THEREFORE, UNDOUBTEDLY, THIS EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE SAID PURPOSE AND HENCE, THE DEDUCTION UNDER SECTION 57(I II) OF THE ACT WILL BE AVAILABLE TO THE ASSESSEE. MR. R.D. JOLLY, LEARNED COUNSEL FOR THE REVENUE, SOUGHT TO RELY UPON CIT VS. SHRI R AM HONDA POWER EQUIP (2007) 289 ITR 475 TO SUPPORT HIS SUBMI SSION THAT THE INTEREST RECEIVED ON DEPOSIT WITH MPSEB, BY THE ASS ESSEE COULD ONLY BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. A CAREFUL PERUSAL OF PARAGRAPH 35 OF THE JUDGMENT IN SHRI RAM HONDA WOULD SHOW THAT A DIVISION BENCH OF THIS COUR T THAT AN ASSESSEE WHOSE INCOME IS ASSESSED UNDER THE HEAD I NCOME FROM OTHER SOURCES THE ASSESSEE WOULD BE ENTITLED TO DE DUCTION IN TERMS OF SECTION 57(III) OF THE ACT PROVIDED THERE IS DIR ECT NEXUS BETWEEN EXPENSE INCURRED AND INCOME EARNED. THE TRIBUNAL H AS, THEREFORE, ACCORDING TO US, APPLIED THE CORRECT PRINCIPLES OF LAW EVEN ON THIS ASPECT OF THE MATTER. BOTH THE QUESTIONS ARE ANSWE RED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE RESUL T, THE APPEALS ARE DISMISSED. 4. IN THIS VIEW OF THE SITUATION, AS THE SIMILARITY OF FACTS AND CIRCUMSTANCES AND DISALLOWANCE IS NOT DISPUTED BY THE REVENUE, RE SPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF HONBLE HIGH COURT, WE F IND NO MERIT IN THE APPEAL FILED BY THE REVENUE AND THE SAME IS DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.02.201 0. [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 12.02.2010. DK ITA NO.4556/DEL/2009 4 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES