SHARUS STEEL PRODUCTS P. LTD, MUMBAI V. ITO 2(3)(4), MUMBAI

ITA 4728/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8098 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

I.T.A NO.4728/ MUM/2010 SHARUS STEEL PRODUCTS PVT LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, MUMBAI. [ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ] I.T.A NO.4728/ MUM/2010 ASSESSMENT YEAR: 2007-08 SHARUS STEEL PRODUCTS PVT LTD. .. APPELLANT 70, NAGINDAS MASTER ROAD, FORT, MUMBAI-23. PA NO.AAJCS 5153 N VS INCOME TAX OFFICER WARD 2(3)(4) ,. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: BEHARILAL, FOR THE APPELLANT R.K.GUPTA, FOR THE RESPONDENT O R D E R 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 24 TH MARCH, 2010 OF THE CIT (A)-6, MUMBAI FOR THE ASSESSMENT YEAR 2007-08. 2. THE ONLY GRIEVANCE RAISED IN THIS APPEAL WHETHER O R NOT THE CIT (A) WAS JUSTIFIED IN CONFIRMING THE ORDER OF THE ORDER OF TH E AO TREATING THE INTEREST INCOME FROM FIXED DEPOSIT AS INCOME FROM OTHER SOURCES. 3. BRIEFLY STATED THE MATERIAL FACTS ARE LIKE THIS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSE E HAS RECEIVED INTEREST INCOME OF ` .3,50,760. THE ASSESSEE WAS ASKED TO EXPLAINED AS TO WH Y INTEREST RECEIVED SHOWN AS ` .3,50,760 SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN RESPONSE TO THE ASSESSING OFFICERS REQUISITION, IT WAS, INTER ALIA, I.T.A NO.4728/ MUM/2010 SHARUS STEEL PRODUCTS PVT LTD. 2 SUBMITTED THAT THE FUNDS WERE KEPT AS FIXED DEPOSIT TO RAISE THE BANK LOANS AND AS SUCH HAS DIRECT LINK WITH THE BUSINESS OF THE ASSESSEE AND THE INTEREST RECEIVED FROM FIXED DEPOSIT IS ADJUSTED AGAINST THE PRE-OPERATIVE EXP ENDITURE INCURRED WHICH IS ULTIMATELY CAPITALIZED ON COMPLETION OF PROJECT. T HE ASSESSING OFFICER DECLINED TO ACCEPT THE ASSESSEES CONTENTION. HE WAS OF THE VIEW THA T THE SURPLUS FUNDS HAVE BEEN PARKED IN THE BANKS AND INTEREST HAS BEEN EARNED ON SUCH DEPOSITS AND FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMTIED V CIT, 227 ITR 172, TREATED THE INTEREST INCOME RECEIVED FROM BANK AS INCOME FROM OTHER SOURCES. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). BEFORE T HE CIT (A), THE ASSESSEES CONTENTION WAS THAT THE ASSESSEES CASE WOULD COVER BY TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD., 236 ITR 315 AND HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SWISS JEWELS LTD ., 284 ITR 389. HOWEVER, THE RELIANCE PLACED WAS NOT ACCEPTABLE TO HIM. HE CONFI RMED THE ACTION SO TAKEN BY THE AO. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE L EGAL POSITION. 5. I FIND THAT THE ASSESSEE COMPANY COMMENCED THE CONSTR UCTION OF FACTORY BUILDING AND OTHER INFRASTRUCTURAL FACILITIES DURING THE YEAR UNDER CONSIDERATION. TO RAISE TERM LOANS FROM BANK FOR THE PURPOSE OF BUSINESS OF COMPANY, AS PER THE REQUIREMENT OF THE BANK, ASSESSEE HAD TO DEPOSIT THE PR OMOTERS CONTRIBUTION. TILL THE PROJECT IS COMPLETED, THE FUND WAS KEPT IN SHORT T ERM FIXED DEPOSIT WITH THE BANK ON WHICH BANK HAVE ALSO LIEN. OUT OF THE FIXED DEPO SIT, THE ASSESSEE HAS EARNED INTEREST INCOME. HOWEVER, THE DEPARTMENT HAS TREATED THE INTEREST EARNED BY THE ASSESSEE AS REVENUE FIELD AND HAS TAXED UNDER THE HEAD I NCOME FROM OTHER SOURCES. BOTH THE DEPARTMENTAL AUTHORITIES HAVE FOLLOWED THE DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LIMITED (SUPRA) FOR T HIS PROPOSITION. 6. IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERT LISERS LIMTIED (SUPRA), IF THE SURPLUS FUNDS ARE INVESTED FOR THE PURPOSE OF EARNING I NTEREST, THEN THE INTEREST I.T.A NO.4728/ MUM/2010 SHARUS STEEL PRODUCTS PVT LTD. 3 INCOME IS TO BE TREATED AS INCOME FROM OTHER SOURCES. HOWEVER, IF THE FUNDS HAVE BEEN INVESTED AS A REQUIREMENT OF THE BUSINESS, THE INT EREST EARNED IS OF CAPITAL NATURE AS PER THE HONBLE SUPREME COURTS JUDGEMENT IN THE CASE OF BOKARO STEEL LTD, 236 ITR 315(SC). 7. IN THE PRESENT CASE, THE MONEY WAS BORROWED BY A NE WLY STARTED COMPANY WHICH WAS IN THE PROCESS OF CONSTRUCTING AND ERECTING THE PLANT. THE FUNDS HAVE BEEN DEPOSITED IN THE BANK FOR GETTING LOAN FROM THE BANK . IN FACT THE DEPOSIT IN THE BANK WAS A REQUIREMENT FOR GRANTING THE LOAN TO THE ASSESSEE. THEREFORE, THE FUNDS WERE INVESTED AS A REQUIREMENT OF THE BUSINESS OF THE ASSESSEE AN D NOT FOR EARNING THE INTEREST INCOME. THEREFORE, THE SAME IS COVERED BY TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD (SUPRA) . THIS VIEW ALSO IS SUPPORTED BY A DIVISION BENCH DECISION DATED 20 TH APRIL, 2009 IN THE CASE OF SHAPOORJI PALLONJI POWE R CO V. ITO, IN ITA NOS.4843 & 759/M/2006, STATED TO BE A SISTER CONCERN OF THE ASSESSEE COMPANY. IN VIEW OF THESE DISCUSSIONS, I UPHOLD THE GRIEVANCE OF THE ASSESSEE AN D DIRECT THE AO TO DELETE THE DISALLOWANCE. 8. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2011 SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 14 TH MARCH, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),6, MUMBAI 4. COMMISSIONER OF INCOME TAX, 2, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH SMC, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI I.T.A NO.4728/ MUM/2010 SHARUS STEEL PRODUCTS PVT LTD. 4 I.T.A NO.4728/ MUM/2010 SHARUS STEEL PRODUCTS PVT LTD. 5