Lanco Teesta Hydero Power Limited, Hyderabad V. Income Tax Officer, Ward-16(1), Hyderabad

ITA 523/Hyd/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4468 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 11-03-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 16-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K GOPALAKRISHNA
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Business income; Opportunity of being heard
• Section: 143(3); 115JB; 37(1); 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A-SMC, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 523/HYD/2018 ASSESSMENT YEAR: 2013-14 LANCO TEESTA HYDRO POWER LIMITED, HYDERABAD. PAN AAACL7122M VS. ITO, WARD-16(1) HYDERABAD. (APPLICANT) (RES PONDENT) ASSESSEE BY : SRI P. MURALI MOHANA RAO REVENUE BY : SRI K. GOPALA KRISHNA DATE OF HEARING : 11-03-2019 DATE OF PRONOUNCEMENT : 22-03-2019 ORDER PER P. MADHAVI DEVI, J.M.: THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14 AGAI NST THE ORDER OF THE CIT(A)-4, HYDERABAD DATED 21.12.20 17. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF THERMAL POWER, FILED ITS RETURN OF INCOME FOR THE A.Y 2013-14 ON 30.09.2013 ADMITTI NG NIL INCOME UNDER NORMAL PROVISIONS AS WELL AS U/S 115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143( 3) OF THE ACT, VARIOUS DETAILS WERE CALLED FOR AND THE AS SESSEE FURNISHED THE SAME. FROM THE NOTE TO THE BALANCE SH EET RELATING TO EXPENDITURE DURING THE CONSTRUCTION PER IOD PENDING ALLOTMENT, THE A.O NOTICED THAT THE ASSESSE E HAS 2 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. DERIVED INCOME FROM INTEREST AND MISCELLANEOUS INCO ME TOTALING TO RS. 14.10 LAKHS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THIS INCOME SHOULD NOT BE TREATED AS IN COME AS THE BUSINESS HAD YET COMMENCED. 3. THE ASSESSEE SUBMITTED THAT THE MISCELLANEOUS INCOME HAS RESULTED FROM SALE OF EMPTY CEMENT BAGS ETC., AND THEREFORE IT IS BUSINESS INCOME AND WAS ACTUALL Y REDUCED FROM THE TOTAL EXPENDITURE DURING THE CONST RUCTION PERIOD. AS REGARDS THE INTEREST INCOME, IT WAS SUB MITTED THAT THE COMPANY HAD OBTAINED A BANK GUARANTEE OF R S. 25 CRORES FROM PUNJAB NATIONAL BANK (PNB) TO BE PROVID ED TO POWER GRID CORPORATION OF INDIA LIMITED (PGCIL) AND AS PART OF REQUIREMENT, THE COMPANY HAD TO CREATE FIXE D DEPOSITS OF RS. 135 LAKHS WITH PNB AS MARGINAL MONE Y IN LIEU OF THE BANK GUARANTEE. IT IS SUBMITTED THAT TH E INTEREST INCOME OF RS. 12.31 LAKHS COMPRISES OF INTEREST ON THE FIXED DEPOSITS AND THE SAME IS ADJUSTED AGAINST THE INTEREST PAID DURING THE YEAR. IT WAS ALSO SUBMITTED THAT SO ME OF THE INTEREST IS ON SOME FUNDS WHICH WERE RECEIVED F OR CONSTRUCTION OF THE PROJECT AND THAT THE BANK HAD E NABLED A FEATURE OF AUTO SWEEP IN ITS CURRENT ACCOUNT AND THUS THE AMOUNT IN EXCESS OF RS. 2 LAKHS AUTOMATICALLY GOT TRANSFERRED TO AUTO SWEEP ACCOUNT AND THE INTEREST EARNED ON SUCH ACCOUNT ALSO IS ADJUSTED AGAINST THE INTERE ST PAID DURING THE YEAR. 4. THE A.O ALLOWED THE SET OFF OF INTEREST PAID FRO M INTEREST RECEIVED FROM FIXED DEPOSITS AND ALSO INTE REST FROM OTHER CURRENT ACCOUNTS, BUT DISALLOWED ONLY THE INT EREST INCOME FROM THE PNB FROM AUTO SWEEP ACCOUNT, HOLDIN G 3 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. THAT IT IS RECEIVED ON SURPLUS FUNDS AVAILABLE IN T HE ACCOUNTS. THE TOTAL ADDITION IS OF RS. 1,65,865/-. 4.1. FURTHER THE AO ALSO NOTICED THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS. 170.75 LAKHS TOWARD DONATIONS AND SOCIO ECONOMIC DEVELOPMENT EXPENSES I N THE NOTE TO BALANCE SHEET YEAR ENDED 31.03.2013 RELATIN G TO EXPENDITURE DURING THE CONSTRUCTION PERIOD PENDING ALLOTMENT. OBSERVING THAT SINCE THE ASSESSEE IS NOT ENTITLED ALLOCATE THIS AMOUNT AT THE TIME OF CAPITALIZATION, HE DISALLOWED THE SAID EXPENDITURE AND BROUGHT IT TO T AX. 5. AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRME D THE ADDITIONS OF INTEREST INCOME AND ALSO CSR EXPENDITU RE, BUT HAS FURTHER HELD THAT THE EXPENDITURE IS NOT ALLOWA BLE EVEN U/S 37(1) OF THE ACT. AGGRIEVED BY THIS OBSERVATION AND ALSO THE ADDITION, THE ASSESSEE IS IN SECOND APPEAL BEFO RE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD, HAS ERRED IN BOTH IN LAW AND ON FACTS IN PASSING TH E APPELLATE ORDER UPHOLDING THE ASSESSMENT ORDER PASSED BY THE AO U/ S 143(3) ON DT. 15.03.2016. 2. THE LD. CIT(A) ERRED IN UPHOLDING THE ADDITION O F RS 1,65,865/- MADE BY THE A.O. UNDER THE HEAD 'INCOME FROM OTHER SOURCES' TOWARDS RECEIPT OF INTEREST INCOME, WITHOU T APPRECIATING THE FACTS OF THE CASE. 3. THE LD. CIT(A) ERRED IN NOT ADJUDICATING GROUND NOS. 3,4, 7, 8, 9, 10 IN THE APPEAL OF THE APPELLANT. 4. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED ALL SUBM ISSIONS OF THE APPELLANT AND PASS SPEAKING ORDER. 5. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE CASE LAWS SUBMITTED BEFORE HER, WHICH ARE IN FAVOUR OF THE AP PELLANT. 4 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. 6. THE LD. CIT(A) ERRED IN UPHOLDING THE ADDITIONS MADE BY THE AO TOWARDS INCOME FROM OTHER SOURCES, WITHOUT AFFOR DING REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELL ANT. 7. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE INTEREST INCOME REPRESENTS THE INCOME DERIVED ON TH E FUNDS, WHICH WERE RECEIVED FOR THE PURPOSE OF BUSINESS I.E ., FOR CONSTRUCTION OF THE PROJECT. AND THE SAME WAS ADJUS TED THE INTEREST PAID DURING THE YEAR. 8. THE LD. CIT(A) OUGHT HAVE APPRECIATED THE FACT T HAT THE APPELLANT GAVE STANDING ORDERS TO BANKERS THROUGH A UTO SWEEP ARRANGEMENT TO TRANSFER FUNDS TO AUTO SWEEP ACCOUNT WHERE THE FUNDS IN CURRANT ETC EXCEEDS RS.2 LAKHS. 9. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT THE APPELLANT COMPANY HAS MADE THE AUTO-SWEEP DEPOSIT SPECIFICALLY FOR THE PURPOSE OF BUSINESS AND INTERE ST INCOME EARNED ON THE ABOVE DEPOSIT IS PART OF BUSINESS INC OME. 10. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE AO ERRED IN TREATING INTEREST ON BUSINESS FUNDS AS INC OME FROM OTHER SOURCES. 11. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT CHANGE OF HEAD OF INCOME OF INCOME FROM BUSINESS I NCOME TO INCOME FROM OTHER SOURCES IS NOT PERMISSIBLE U/S 145 OF THE ACT. 12. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT APPELLANT COMPANY HAS BEEN FOLLOWING THE SAME SYSTE M OF ACCOUNTING CONSISTENTLY AND ACCORDINGLY THE INTERES T INCOME ON AUTO-SWEEP HAS BEEN TREATED AS INCOME FROM BUSINESS . 13. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE MADE BY THE AO TOWARDS THE DONATION AND SOCIO ECONOMIC DEVE LOPMENT EXPENSES CLAIMED BY THE ASSESSEE COMPANY AMOUNTING TO RS. 170.75 LAKHS. 14. THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS.170.75 LAKS MADE BY THE AO TOWARDS DISALLOWANCE OF APPELLANT CL AIM OF DONATIONS AND SOCIO ECONOMIC DEVELOPMENT EXPENSES. 15. THE LD. CIT(A) ERRED IN NOT ADJUDICATING GROUND NO.5 OF THE APPEAL OF THE APPELLANT. 16. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE SUB MISSIONS MADE BY THE APPELLANT AND PASS A SPEAKING ORDER. 17. THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS.170.75 LAKHS MADE BY THE AO TOWARDS DISALLOWANCE OF EXPENS ES 5 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. TOWARDS DONATIONS AND SOCIO ECONOMIC DEVELOPMENT OP PORTUNITY OF BEING BEARD TO THE APPELLANT. 18. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE EXPENSES TOWARDS SOCIO ECONOMIC DEVELOPMENT ARE PAR T AND PARCEL OF THE BUSINESS OF THERMAL POWER GENERATION AND THEREFORE ALLOWABLE. 19. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT EXPENSES OF RS.170.75 LAKHS TOWARDS SOCIO ECONOMIC DEVELOPMENT ARE NOT CAPITAL IN NATURE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THEREFO RE ALLOWABLE U/ S 37 OF THE ACT. 20. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO VER IFY THE SOURCE OF INCOME TO MEET EXPENSES TOWARDS DONATION AND SOC IO ECONOMIC DEVELOPMENT WHICH IS BEYOND HER JURISDICTI ON. 21. THE ASSESSEE MAY ADD, ALTER OR MODIFY ANY OTHER POINTS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 6. THE LD. COUNSEL FOR THE ASSESSEE ALSO REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, WHIL E, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELO W. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATER IAL PLACED ON RECORD, I FIND THAT THE INTEREST INCOME W HICH HAS BEEN DISALLOWED BY THE AUTHORITIES BELOW IS THE INT EREST ON THE FUNDS WHICH HAVE BEEN KEPT IN THE AUTO SWEEP AC COUNT. THESE ARE NOT SURPLUS FUNDS OF THE ASSESSEE, BUT AR E THE FUNDS AVAILABLE FOR CONSTRUCTION PURPOSES AND SINCE THEY WERE LYING IN THE BANK PENDING UTILIZATION, THE ASS ESSEE HAS EARNED SOME INTEREST INCOME. I FIND THAT THERE WAS VARIOUS OTHER SOURCES OF INTEREST INCOME FROM CURRE NT ACCOUNTS, BUT THE A.O HAS DISALLOWED INTEREST INCOM E FROM ONLY THESE TWO ACCOUNTS. THE A.O HAS TO MAINTAIN A UNIFORM AND CONSISTENT STAND AND SINCE THE FINDING OF THE A.O, THAT THE INTEREST INCOME IS OUT OF SURPLUS FUN DS, IS 6 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. ALSO NOT CORRECT, I DEEM IT FIT AND PROPER TO DIREC T THE A.O TO ALLOW THE SAME TO BE SET OFF AGAINST THE INTERES T EXPENDITURE. THUS THE GROUNDS RELATING TO THIS ISSU E ARE ALLOWED. 7.1. AS REGARDS THE CLAIM OF CSR EXPENDITURE, THE L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAD ACQUIRED A LARGE PIECE OF LAND IN SIKKIM TO ESTABLI SH A HUGE POWER PLANT, THEREFORE, IT WAS HIS DUTY TO INCUR A CORPORATE SOCIAL RESPONSIBILITY AND ACCORDINGLY INCURRED A S UM OF RS. 170.75 LAKHS. HE SUBMITTED THAT THE ASSESSEE HAD TO INCUR SUCH EXPENDITURE IN ORDER TO CARRY ON ITS BUSINESS AND THEREFORE IT HAS TO BE ALLOWED AS BUSINESS EXPENDIT URE AND SINCE THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS, IT HAS TO BE ALLOWED TO BE CAPITALIZED. HE SUBMITTED THAT THE CIT(A) HAS EXCEEDED HER JURISDICTION IN FURTHER HOL DING THAT THE SAME IS NOT ALLOWABLE EVEN U/S 37(1) OF THE ACT EVEN THOUGH THE ASSESSEE HAD MADE NO SUCH CLAIM IN ITS B OOKS OF ACCOUNT. ON THE OTHER HAND, THE LD. DR SUPPORTE D THE ORDERS OF THE AUTHORITIES BELOW. 7.2. HAVING REGARD TO THE RIVAL CONTENTIONS AND MAT ERIAL PLACED ON RECORD, WE FIND THAT THE ASSESSEE IS REQU IRED TO INCUR EXPENDITURE TOWARDS THE CORPORATE SOCIAL RESPONSIBILITY AND ACCORDINGLY IT HAS INCURRED CERT AIN EXPENDITURE WHICH IS NOT DISPUTED BY THE REVENUE AUTHORITIES. THE INCOME TAX ACT DOES NOT PROVIDE TH AT, THE CSR EXPENDITURE HAS TO BE INCURRED ONLY SUBSEQUENT TO THE COMMENCEMENT OF BUSINESS. AS LONG AS IT IS CSR EXPENDITURE, IT HAS TO BE ALLOWED AS A BUSINESS EXP ENDITURE AFTER THE BUSINESS HAS COMMENCED OR IT HAS TO BE 7 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. CAPITALIZED IF THE EXPENDITURE IS PRIOR TO COMMENCE MENT OF THE BUSINESS. THEREFORE, I ALLOW THE GROUNDS OF AP PEAL RAISED ON THIS ISSUE. THE GROUNDS AGAINST ENHANCEME NT BY THE CIT(A) ARE NOT ADJUDICATED AT THIS STAGE, SINCE I HAVE ALLOWED THE ASSESSEES CLAIM OF CAPITALIZATION. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH, 2019. SD/- (P. MADHAVI DEVI) JUD ICIAL MEMBER HYDERABAD, DATED: 22 ND MARCH, 2019 KRK 8 ITA.NO. 523/HYD/2018 LANCO TEESTA HYDRO POWER LIMITED, HYD. 1) LANCO TEESTA HYDRO POWER LIMITED, C/O. P. MURALI & CO. CAS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2) ITO, WARD 16(1), HYDERABAD. 3) CIT(A)-4, HYDERABAD. 4) PR.CIT-4, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 6) GUARD FILE.