Patna Bakhtiyarpur Tollway Limited, Hyderabad V. Income Tax Officer, Ward-16(2), Hyderabad

ITA 547/Hyd/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6557 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 14-07-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 23-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D V ANJANEYULU
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Question of law; Capital receipt; Capital expenditure; TDS; Capital Gains
• Section: 37(1); 201; 251; 13; 22; 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO. 2122 /H/20 1 8 ASSESSMENT YEAR: 2 0 1 3 - 1 4 GODHRA EXPRESSWAYS PVT. LTD., (FORMERLY KNOWN AS BSCPL GODHRA TOLLWAYS LTD.), HYDERABAD. PAN AAECB 0747N VS. INCOME - TAX OFFICER, WARD 1(3), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 547 & 548 /H/20 1 8 ASSESSMENT YEAR: 201 3 - 14 & 2014 - 15 PATNA BKHTIYARPUR TOLLWAY LTD., HYDERABAD. PAN AAFCP 9577K VS. INCOME - TAX OFFICER, WARD 16(2), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI D.V. ANJANEYULU REVENUE BY: SHRI ROHIT MUJUMDAR DATE OF HEARING: 1 4 /0 7 /2021 DATE OF PRONOUNCEMENT: 07 / 0 9 /2021 O R D E R PER L.P. SAHU, A.M. : T H E S E APPEAL S FILED BY THE ASSESSEES ARE DIRECTED AGAINST CIT(A) S HYDERABAD S SEPARATE ORDER S FOR AY 20 13 - 1 4 INVOLVING PROCEEDINGS U/S 14 3(3) OF THE INCOME - TAX I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 2 - : ACT, 1961; IN SHORT THE ACT . AS IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS, THE SAME WERE CLUBBED AND HEARD TOGETHER AND THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. THE DECISION TAKEN IN ITA NO. 2122 /HYD/201 8 MUTATIS - MUTANDIS SHALL APPLY TO ITA NO. 547 & 548 /HYD/201 8. 1.1 WE NOTICE AT THE OUTSET THAT ASSESSEES INSTANT APPEAL S SUFFER FROM 57 DAYS IN ITA NO. 2122/HYD/2018 AND 10 DAYS IN ITA NO. 547/HYD/2018 DELAY IN FILING. TO THIS EFFECT, THE LD. AR FILED A PETITION ALONG WITH AN AFFIDAVIT AFFIRMING THEREIN THAT ASSESSEE COMPANIES MDS WERE PREOCCUPIED WITH OTHER IMPORTANT WORKS, WHICH CAUSED THE IMPUGNED DELAY IN FILING OF THE INSTANT APPEAL. CASE LAW COLLECTOR LAND ACQUISITION VS MST. KATIJ I & ORS, 1987 AIR 1353 (SC) AND UNIVERSITY OF DELHI VS. UNION OF INDIA, CIVIL APPEAL NO. 9488 & 9489/2019 DATED 17 DECEMBER, 2019, HOLD THAT SUCH A DELAY; SUPPORTED BY COGENT REASONS, DESERVES TO BE CONDONED SO AS TO MAKE WAY FOR THE CAUSE OF SUBSTANTIA L JUSTICE. WE ACCORDINGLY HOLD THAT REVENUE S IMPUGNED DELAY S ARE NEITHER INTENTIONAL NOR DELIBERATE BUT DUE TO THE CIRCUMSTANCES BEYOND ITS CONTROL. THE SAME STANDS CONDONED. CASE S ARE NOW TAKEN UP FOR ADJUDICATION ON MERITS. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 3 - : 2. THE GROUNDS RAISED IN T HE SE APPEALS ARE COMMON, THEREFORE, THE GROUNDS RAISED IN AY 2122 /HYD/201 8 ARE AS UNDER: 1. THE ORDER OF LD. CITCA) CONFIRMING THE AO'S ORDER IS ERRONEOUS IN LAW, CONTRARY TO FACTS, PROBABILITIES OF THE CASE AND AGAINST THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE. 2. THE LD. CITCA) ERRED IN TREATING INTEREST EARNED ON UNUTILIZED FUNDS AMOUN TING TO RS. 87,73,686 / - , WHICH WERE INEXTRICABLY LINKED FOR THE PURPOSES OF DEVELOPING HIGHWAY AS TAXABLE INCOME, KEPT IN ACCORDANCE WITH NHAI MANDATE WITH NO LIBERTY TO UTILIZE AT FREE DISCRETION AND WHICH WAS REDUCED FROM COST OF PROJECT, RELYING ON CAS E LAWS WHICH ARE EASILY DISTINGUISHABLE ON FACTS. 3. THE LD. CITCA) ERRED IN DISALLOWING THE EXPENDITURE & TREATING THE SAME AS TAXABLE INCOME AMOUNTING TO RS. 17,03,927 / - BEING AMOUNT PAID TOWARDS INCOME TAX AND INTEREST ON TDS ADDED TO CAPITAL WORK IN PROGRESS AS THE AMOUNT WAS NOT CLAIMED AS EXPENDITURE AT ALL IN THE FIRST PLACE AS THERE IS NO COMMENCEMENT OF BUSINESS. 4. FOR THESE AND OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THE HONORABLE TRIBUNAL TO KINDLY DELETE THE ADDITIONS MADE BY AO AND SUSTAINED BY CIT ( A). 3. BRIEFLY THE FAC T S OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION, OPERATION AND MAINTENANCE OF ROAD PROJECTS , FILED ITS RETURN OF INCOME FOR THE A.Y.2013 - 14 ON 24.09.2013 ADMITTING INCOME AT NIL. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES UFS.143(2) & UFS.142(1) WERE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 4 - : I SSUED. THE ASSESSMENT WAS COMPLETED U / S.143(3) ON 15.03.2016 BY DETERMINING TOTAL INCOME AT RS.1,04,77,610 / - BY MAKING THE FOLLOWING ADDITIONS: 1. ADDITION OF RS. 87,73,686/ - TOWARDS INTEREST INCOME 2. DISALLOWANCE OF RS. 17,03,927/ - ON ACCOUNT OF INTEREST ON LATE PAYMENTS OF TDS. 4. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE C IT(A), THE CIT(A) CONFIRMED THE ORDER OF AO. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. THE ASSESSEE HAS RAISED FOUR GROUNDS OF APPEAL, OUT OF WHICH GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, HENCE, NEED NO ADJUDICATION. 7. WITH REGARD GROUND NO. 2 REGARDING ADDITION OF RS. 87,73,686/ - , D URING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HA D EARNED AN AMOUNT OF RS.87,73,686/ - AS INTEREST INCOME FROM SHORT TERM INVESTMENTS. THE ASSESSEE COMPANY HA S NOT STARTED ITS BUSINESS ACTIVITY/OPERATIONS DURING THE F INANCIAL Y EAR (FY) RELEVANT TO A SSESSMENT Y EAR ( AY ) 2013 - 14. THIS IS THE PRE - COMMENCEMENT PERIOD OF ITS BUSINESS ACTIVITY / OPERATIONS. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE INTEREST INCOME OF RS.87,73,686/EARNED ON THE SHORT TERM INVESTMENTS SHOULD NOT BE ASSESSED AS 'INCOME FRO M OTHER I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 5 - : SOURCES', AS THE BUSINESS HAS NOT COMMENCED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. IN RESPONSE, THE ASSESSEE SUBMITTED AS FOLLOWS: 'DURING THE F. Y.2012 - 13, SOME OF THE TEMPORARY EXCESS FUNDS HAVE BEEN INVESTED BY WAY OF FIXED TERM DEPOSI TS WITH VARIOUS BANKS AND MUTUAL FUNDS AND INCOME RECEIVED ON SUCH DEPOSITS. FURTHER THE SAID RECEIPTS HAVE BEEN ADJUSTED AND DEDUCTED FROM CAPITAL WORK IN PROGRESS FOR THE F. Y.2012 - 13. THEREFORE THIS IS AS PER GENERALLY ACCEPTED ACCOUNTING PROCEDURE AND AS PER PROVISIONS OF INCOME TAX ACT AS SUCH INVESTMENTS WERE MADE OUT OF TEMPORARY UN UTILIZED FUNDS DURING THE COURSE OF ROAD DEVELOPMENT ACTIVITY. ' 7.1 AFTER CONSIDERING THE ASSESSEE'S REPLY, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE COMPANY D EPOSITED THE SURPLUS FUNDS IN THE VARIOUS BANKS & MUTUAL FUNDS, AND EARNED INTEREST INCOME AMOUNTING TO RS.87,73,686/ - . IN THIS CASE, THE DEPOSITS MADE WERE NOT FOR GIVING BANK GUARANTEE/MARGIN MONEY DEPOSIT. THE IDEAL FUNDS LYING WITH THE COMPANY WERE DEP OSITED AS FIXED DEPOSITS IN THE VARIOUS BANKS & MUTUAL FUNDS. THE ASSESSING OFFICER CONCLUDED THAT THE DEPOSITS WERE NOT COMPULSION TO THE ASSESSEE COMPANY, HENCE THE INTEREST RECEIVED ON THIS DEPOSITS WERE NOT BUSINESS INCOME TO THE COMPANY AND TAXABLE UN DER THE HEAD 'OTHER SOURCE OF INCOME' TO THE COMPANY. THE ASSESSING OFFICER RELYING ON THE DECISION OF THE APEX COURT IN THE CASE OF M / S. TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD TREATED THE TOTAL INTEREST INCOME RECEIVED FROM VARIOUS BANKS & MUTUAL FUNDS OF I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 6 - : RS.87,73,686/ - AS 'OTHER SOURCE OF INCOME', AND ALSO NOT ALLOWED ANY EXPENDITURE AGAINST THIS INCOME U / S, 57(III) OF THE ACT. 8. BEFORE THE CIT(A) THE APPELLANT , INTER - ALIA SUBMITTED THAT THE COMPANY IS REGISTERED UNDER COMPANIES ACT, 1956 ACTIN G AS CONCESSIONAIRE IN RESPECT OF PROJECTS AWARDED BY NHAI FOR DESIGN, BUILD, FINANCE, OPERATE AND TRANSFER OF INFRASTRUCTURAL FACILITIES LIKE ROAD ETC UNDER BOT SYSTEM. SINCE THE APPELLANT'S OPERATIONS ARE IN WORK - IN PROGRESS AND ALSO USING FUNDS AS PER T HE TERMS OF AGREEMENT WITH NHAI. AS THERE IS A TIME GAP BETWEEN THE SUPPLY OF MATERIAL PUT TO USE FOR CONSTRUCTION AND THE PAYMENT SCHEDULE AS SUCH TEMPORARILY DEPOSITED IN BANKS AND MUTUAL FUNDS EARNED INTEREST OF RS.14,73,686/ - AND RS.73,00,000 / - FROM SA LE OF MUTUAL FUNDS AS STIPULATED UNDER MANDATE AS PER THE TERMS OF THE AGREEMENT WITH NHAI, AS THERE IS NO DISCRETION / POWER TO THE APPELLANT AND NEEDS TO BE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BOT, WHICH READ AS UNDER: '(I) THE BORROWER SHALL INSTRUCT THE ESCROW BANK IN A CERTIFICATE SIGNED BY ITS FINANCIAL OFFICER FROM TIME TO TIME TO INVEST AMOUNTS DEPOSITED AND LYING IN ANY SUB - ACCOUNT IN AUTHORISED INVESTMENTS. ALL SUCH A UTHORISED INVESTMENTS SHALL BE MADE IN THE NAME OF THE BORROWER. ( II) UPON REALISATION OF ANY AUTHORISED INVESTMENT MADE PURSUANT TO THIS SUB CLAUSE THE ESCROW BANK SHALL CREDIT THE PROCEEDS OF SUCH REALISATION AND WILL DEPOSIT TO THE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 7 - : RESPECTIVE SUB - ACCOUNTS FROM WHICH AUTHORISED INVESTMENTS HAVE BEEN MADE AND INTEREST E ARNED ON SUCH AUTHROISED INVESTMENTS SHALL BE CREDITED TO THE CONSTRUCTION FUND ACCOUNT OR OPERATING FUND ACCOUNT, AS THE CASE MAY BE. ' 8.1 THE APPELLANT SUBMITTED THAT AS THE AMOUNTS WERE INVESTED UNDER MANDATE AND ALSO THE TERMS OF AGREEMENT AND PUT T O USE FOR SPECIFIC PURPOSE, ALSO THERE IS NO POWER / RIGHT EXCEPT TO MANDATE THE NHAI TERMS AND THEREFORE, IT CANNOT BE TREATED AS SURPLUS INVESTED TO EARN THE INCOME AND TH EREFORE, IT IS RIGHTLY DEDUCTED FROM CAPITAL WORK IN PROGRESS. 8.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSEE. 9. BEFORE US, THE LD. AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS WHICH ARE A S UNDER: 2. WITH RESPECT TO THE FIRST ISSUE BEING INTEREST ON BANK DEPOSITS, APPELLANT IS IT IS HEREBY SUBMITTED THAT APPELLANT IS A SPV REGISTERED UNDER COMPANIES ACT, 1956 ACTING AS CONCESSIONAIRE IN RESPECT OF PROJECTS AWARDED BY NHAI FOR DESIGN, BUIL D, FINANCE, OPERATE AND TRANSFER OF INFRASTRUCTURAL FACILITIES LIKE ROADS ETC . UNDER DBFOT SYSTEM. 'IT IS ALSO SUBMITTED THAT ORIGINALLY THE WORK WAS ALLOCATED TO THE CONSORTIUM OF BSCPL INFRASTRUCTURE LIMITED AND C&C CONSTRUCTION LIMITED AND LATER ON THE SPV WAS FORMED BY THE CONSORTIUM MEMBER AS WAS REQUIRED BY THE NHAI, THE SPV IS SPECIFICALLY FORMED TO ENSURE THAT THE FUNDS ARE UTILIZED EXCLUSIVELY FOR THE STATED PURPOSE. SINCE, THE APPELLANT'S OPERATIONS ARE IN WORK IN PROGRESS AND ALSO I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 8 - : USING THE FUNDS AS PER THE TERMS OF AGREEMENT WITH NHAI AS THERE IS A TIME GAP BETWEEN THE SUPPLY OF MATERIAL PUT TO USE FOR CONSTRUCTION AND THE PAYMENT SCHEDULE AS SUCH TEMPORARILY DEPOSITED IN BANKS AND EARNED INTEREST OF RS. 29,60,558/ - FOR AY 2013 - 14 & RS. 23,60,589 / - FOR AY 2014 - 15 AS STIPULATED UNDER MANDATE AS PER THE TERMS OF THE AGREEMENT WITH NHAI AS THERE IS NO DISCRETION / POWER TO THE APPELLANT AND NEEDS TO BE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BOT WHICH READS AS UNDER; '(I) THE BORROWER SHALL INSTRUCT THE ESCROW BANK IN A CERTIFICATE SIGNED BY ITS FINANCIAL OFFICER FROM TIME TO TIME TO INVEST AMOUNTS DEPOSITED AND LYING IN ANY SUB - ACCOUNT IN AUTHORIZED INVESTMENTS. ALL SUCH AUTHORIZED INVESTMENTS SHALL BE MADE IN THE NAM E OF THE BORROWER. II) UPON REALIZATION OF ANY AUTHORIZED INVESTMENT MADE PURSUANT TO THIS SUB CLAUSE THE ESCROW BANK SHALL CREDIT THE PROCEEDS OF SUCH REALIZATION AND WILL DEPOSIT TO THE RESPECTIVE SUB - ACCOUNTS FROM WHICH AUTHORIZED INVESTMENTS HAVE BEE N MADE AND INTEREST EARNED ON SUCH AUTHORIZED INVESTMENTS SHALL BE CREDITED TO THE CONSTRUCTION FUND ACCOUNT OR OPERATING FUND ACCOUNT, AS THE CASE MAY BE.' 2.1 FURTHER THE AMENDED AND RESTATED DETAILED MANDATES FOR ESCROW AGREEMENT AMONG APPELLANT AND B ANKERS READS AS FOLLOWS: '8. PERMITTED INVESTMENTS 8.1 INSTRUMENTS (A) SO LONG AS THE ESCROW BANK IS NOT NOTIFIED OF A DEFAULT BY THE LENDERS' REPRESENTATIVE OR THE BORROWER, THE ESCROW BANK SHALL INVEST IN PERMITTED INVESTMENTS (AS PROVIDED IN THE R ESTATED FACILITY AGREEMENT) ON THE INSTRUCTIONS OF THE BORROWER, AS PROVIDED IN THIS AGREEMENT, FROM SUCH PART OF THE AMOUNTS STANDING TO I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 9 - : THE CREDIT OF ANY OF THE ACCOUNTS, IN EACH CASE WITH RESPECT TO THOSE AMOUNTS NEXT ANTICIPATED CASH WITHDRAWA L OR TRAN SFER FROM SUCH ACCOUNT IN ACCORDANCE WITH THESE AMENDED AND RESTATED MANDATES AND IN ANY CASE SUCH INVESTMENT SHOU L D BE IN SUCH INSTRUMENTS WHICH CAN BE LIQUIDATED AT NO ADVERSE COSTS WITH NOT MORE THAN 1 (ONE) BUSINESS DAYS' NOTICE. 2.2 AO HAS RELIED ON FEW DECISIONS OF HON'BLE SUPREME COURT INCLUDING TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LIMITED VS CIT (SC) ~27 ITR 172 AS STATED IN ASSESSMENT ORDER WHICH CAN BE CLEARLY DISTINGUISHABLE ON FACTS. FURTHER HON'BLE APEX COURT IN THE CASE OF [1999] 236 I TR 315 (SC) CIT VS. BOKARO STEELS LTD REFERRED AND DISTINGUISHED TUTICORIN ALKALI STATED SUPRA AND HELD AS UNDER: 'THE APPELLANT, HOWEVER, RELIED UPON THE DECISION OF THIS COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. 'S CASE (SUPRA). THAT CASE DEALT WITH THE QUESTION WHETHER THE INVESTMENT OF BORROWED FUNDS PRIOR TO COMMENCEMENT OF BUSINESS, RESULTING IN EARNING OF INTEREST BY THE ASSESSEE, WOULD AMOUNT TO THE ASSESSEE EARNING ANY INCOME. THIS COURT HELD THAT IF A PERSON BORROWS MONEY FOR BUSINESS PURPOSES, BUT UTILISES THAT MONEY TO EARN INTEREST, HOWEVER, TEMPORARILY, THE INTEREST SO GENERATED WILL BE HIS INCOME. THIS INCOME CAN BE UTILISED BY THE ASSESSEE WHICHEVER WAY HE LIKES. MERELY BECAUSE HE UTILISED IT TO REPAY THE INTEREST ON THE LOAN TAKEN WILL NOT MAKE THE INTEREST INCOME AS A CAPITAL RECEIPT. THE DEPARTMENT RELIED UPON THE OBSERVATIONS MADE IN THAT JUDGMENT (AT PAGE 179) TO THE EFFECT THAT IF THE COMPANY, EVEN BEFORE IT COMMENCES BUSINESS, INVESTS SURPLUS FUNDS IN ITS HANDS FOR PURCHASE OF LAND OR HOUSE PROPERTY AND LATER SELLS IT AT PROFIT, THE GAIN MADE BY THE COMPANY WILL BE ASSESSABLE UNDER THE HEAD 'CAPITAL GAINS'. SIMILARLY, IF A COMPANY PURCHASES RENTED HOUSE AND G ETS RENT, SUCH RENT WILL BE ASSESSABLE TO TAX UNDER SECTION 22 AS INCOME FROM HOUSE PROPERTY. LIKEWISE, THE COMPANY I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 10 - : MAY HAVE INCOME FROM OTHER SOURCES. THE COMPANY MAY ALSO, AS IN THAT CASE, KEEP THE SURPLUS FUNDS IN SHORT - TERM DEPOSITS IN ORDER TO EARN IN TEREST. SUCH INTEREST WILL BE CHARGEABLE UNDER SECTION 56 OF THE ACT. THIS COURT ALSO EMPHASIZED THE FACT THAT THE COMPANY WAS NOT BOUND TO UTILISE THE INTEREST SO EARNED TO ADJUST IT AGAINST THE INTEREST PAID ON BORROWED CAPITAL. THE COMPANY WAS FREE TO U SE THIS INCOME IN ANY MANNER IT LIKED. HOWEVER, WHILE INTEREST EARNED BY INVESTING BORROWED CAPITAL IN SHORT - TERM DEPOSITS IS AN INDEPENDENT SOURCE OF INCOME NOT CONNECTED WITH THE CONSTRUCTION ACTIVITIES OR BUSINESS ACTIVITIES OF THE ASSESSEE, THE SAME CA NNOT BE SAID IN THE PRESENT CASE WHERE THE UTILISATION OF VARIOUS ASSETS OF THE COMPANY AND THE PAYMENTS RECEIVED FOR SUCH UTILISATION ARE DIRECTLY LINKED WITH THE ACTIVITY OF SETTING UP THE STEEL PLANT OF THE ASSESSEE. THESE RECEIPTS ARE INEXTRICABLY LINK ED WITH THE SETTING UP OF THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY. THEY MUST, THEREFORE, BE VIEWED AS CAPITAL RECEIPTS GOING TO REDUCE THE COST OF CONSTRUCTION. IN THE CASE OF CHALLAPALLI SUGARS LTD. V. CIT [1975J 98 ITR 167, THIS COURT EXAMINED THE QUESTION WHETHER INTEREST PAID BEFORE THE COMMENCEMENT OF PRODUCTION BY A COMPANY ON AMOUNTS BORROWED FOR THE ACQUISITION AND INSTALLATION OF PLANT AND MACHINERY WOULD FORM A PART OF THE ACTUAL COST OF THE ASSET TO THE ASSESSEE WITHIN THE MEANING OF THAT E XPRESSION IN SECTION 10(5) OF THE INDIA N INCOME - TAX ACT, 1922 AND WHETHER THE ASSESSEE WILL BE ENTITLED TO DEPRECIATION ALLOWANCES AND DEVELOPMENT REBATE WITH REFERENCE TO SUCH INTEREST ALSO. THE COURT HELD THAT THE ACCEPTED ACCOUNTANCY RULE FOR DETERMININ G COST OF FIXED ASSETS IS TO INCLUDE ALL EXPENDITURE NECESSARY TO BRING ASSETS INTO EXISTENCE AND TO PUT THEM IN WORKING CONDITION. IN CASE MONEY IS BORR OWED BY A NEWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF THE FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. BY THE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 11 - : SAME REASONING IF THE ASSESSEE RECEIVES ANY AMOUNTS WHICH ARE INEXT RICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS. THESE ARE RECEIPTS OF A CAPITAL NATURE AND CANNOT BE TAXED AS INCOME. II 2.3 THE ABOVE DECISION OF APEX COURT IN BOKARO STEEL W AS APPLIED LATER IN [2000] 243 ITR 2 CIT VS KAMAL CO - OPERATIVE SUGAR MILLS LTD WHERE IN HELD: 'IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERMS O F THE ASSESSEE'S AGREEMENT WITH THE SUPPLIER. IT WAS ON THE MONEY SO DEPOSITED THAT SOME INTEREST HAS BEEN EARNED. THIS IS, THEREFORE, NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH IS LYING IDLE HAS BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EA RNING INTEREST. THE DEPOSIT OF MONEY IN THE PRESENT CASE IS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY. HENCE, ANY INCOME EARNED ON SUCH DEPOSIT IS INCIDENTAL TO THE ACQUISITION OF ASSETS FOR THE SETTING UP OF THE PLANT AND MACHINERY. IN THIS VIEW OF THE MATTER THE RATIO LAID DOWN BY THIS COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CIT [1997J 227 ITR 172, WILL NOT BE ATTRACTED. THE MORE APPROPRIATE DECISION IN THE FACTUAL SITUATION IN THE PRESENT CASE IS IN CIT V. BOKARO STEEL LT D. [1999J 236 ITR 315 (SC). THE APPEAL IS DISMISSED. THERE WILL BE NO ORDER AS TO COSTS.' 2.4 THE POSITION OF CAPITALIZING INTEREST INCOME WAS FURTHER COMPREHENSIVELY ANALYZED IN THE RECENT DECISION OF HON'BLE SUPREME COURT IN [2018] 403 ITR 426 CIT VS. SHREE RAMA MULTI TECH LTD, WHERE IN WHILE DISMISSING THE APPEAL HELD AS UNDER: (COPY OF ORDER ENCLOSED) 'THE COMMON RATIONALE THAT IS FOLLOWED IN ALL THESE JUDGMENT IS THAT IF THERE IS ANY SURPLUS MONEY WHICH IS LYING IDLE AND IT HAS BEEN DEPOSITED IN TH E BANK FOR THE PURPOSE OF EARNING INTEREST THEN IT IS LIABLE TO BE TAXED I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 12 - : AS INCOME FROM OTHER SOURCES BUT IF THE INCOME ACCRUED IS MERELY INCIDENTAL AND NOT THE PRIME PURPOSE OF DOING THE ACT IN QUESTION WHICH RESULTED INTO ACCRUAL OF SOME ADDITIONAL INCOM E THEN THE INCOME IS NOT LIABLE TO BE ASSESSED AND IS ELIGIBLE TO BE CLAIMED AS DEDUCTION. PUTTING THE ABOVE RATIONALE IN TERMS OF THE INSTANT CASE, IF THE SHARE APPLICATION MONEY THAT IS RECEIVED IS DEPOSITED IN THE BANK IN LIGHT OF THE STATUTORY MANDATOR Y REQUIREMENT THEN THE ACCRUED INTEREST IS NOT LIABLE TO BE TAXED AND IS ELIGIBLE FOR DEDUCTION AGAINST THE PUBLIC ISSUE EXPENSES. THE ISSUE OF SHARE RELATES TO CAPITAL STRUCTURE OF THE COMPANY AND HENCE EXPENSES INCURRED IN CONNECTION WITH THE ISSUE OF S HARES ARE TO BE CAPITALIZED BECAUSE THE PURPOSE OF SUCH DEPOSIT IS NOT TO MAKE SOME ADDITIONAL INCOME BUT TO COMPLY WITH THE STATUTORY REQUIREMENT, AND INTEREST ACCRUED ON SUCH DEPOSIT IS MERELY INCIDENTAL. IN THE INSTANT CASE, THE ASSESSEE WAS STATUTORILY REQUIRED TO KEEP THE SHARE APPLICATION MONEY IN THE BANK TILL THE ALLOTMENT OF SHARES WAS COMPLETE. IN THAT SENSE, THE HIGH COURT WAS RIGHT IN HOLDING THAT THE INTEREST ACCRUED TO SUCH DEPOSIT OF MONEY IN THE BANK IS LIABLE TO BE SET OFF AGAINST THE PUBLI C ISSUE EXPENSES THAT THE COMPANY HAS INCURRED AS THE INTEREST EARNED WAS INEXTRICABLY LINKED WITH REQUIREMENT OF THE COMPANY TO RAISE SHARE CAPITAL AND WAS THUS ADJUSTABLE TOWARDS THE EXPENDITURE INVOLVED FOR THE SHARE ISSUE.[PARA 12J IN VIEW OF THE FOR GOING DISCUSSION, THE HIGH COURT WAS RIGHT IN UPHOLDING THE DECISION OF THE TRIBUNAL DATED 21 - 10 - 2011 THAT THE INTEREST INCOME EARNED OUT OF THE SHARE APPLICATION MONEY IS LIABLE TO BE SET OFF AGAINST THE PUBLIC ISSUE EXPENSES. THE JUDGMENT PASSED BY THE D IVISION BENCH OF THE HIGH COURT IN REMANDING THE MATTER TO THE TRIBUNAL ON OTHER ISSUES REQUIRES NO INTERFERENCE.[PARA 13]' 2.5 RELYING ON THE ABOVE DECISION OF SUPREME COURT, IN THE CASE OF [2018] 412 ITR 415 (KAR.)PCIT V BANK NOTE PAPER MILL INDIA P LTD HON'BLE KARNATAKA HIGH COURT I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 13 - : HAS DISMISSED THE APPEAL (COPY OF ORDER ENCLOSED). IT IS ALSO PERTINENT TO NOTE THAT RECENTLY I N [2019] 175 LTD 347 (KOLKATA - TRIB.) ITO, WARD - 2(3), KOLKATA V. KOLKATA METRO RAIL CORPN. LTD. RELYING THE SUPREME COURT DECISIONS STATED SUPRA HAS HELD THAT: (COPY OF ORDER ENCLOSED) 'SECTION 56 OF THE INCOME - TAX ACT, 1961 - INCOME FROM OTHER SOURCE S - CHARGEABLE AS (INTEREST) - ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 - ASSESSEE - COMPANY WAS ENGAGED IN CONSTRUCTION WORK FOR METRO RAIL UNDER METRO PROJECT IN CAPACITY OF JOINT VENTURE OF CENTRAL GOVERNMENT AND STATE GOVERNMENT - ASSESSEE OBTAINED MONEY FRO M CENTRAL GOVERNMENT AND STATE GOVERNMENT FOR EXECUTION OF CONSTRUCTION WORK FOR PROJECT ASSESSEE PARKED MONEY SO RECEIVED IN BANK DURING UNUTLLISED PERIOD AND INTEREST WAS EARNED - ASSESSING OFFICER TREATED INTEREST SO EARNED TO BE AN INCOME OF ASSESSEE U NDER HEAD 'INCOME FROM OTHER SOURCES' AND BROUGHT SAME TO TAX - WHETHER ENTIRE FUND ENTRUSTED AND INTEREST ACCRUED THEREFROM ON DEPOSITS IN BANK THOUGH IN NAME OF ASSESSEE HAD TO BE APPLIED ONLY FOR PURPOSE OF WELFARE OF STATE - HELD, YES - WHETHER, THEREF ORE, INTEREST EARNED ON BANK DEPOSIT COULD NOT BE BROUGHT TO TAX UNDER HEAD INCOME FROM OTHER SOURCES IN HANDS OF ASSESSEE - HELD, YES [PARA 8]' 2.6 A DIGEST OF THE ABOVE CASE LAWS REVEALS THAT IF: I) IF THE INCOME ACCRUED IS MERELY INCIDENTAL AND NO T THE PRIME PURPOSE OF DOING THE ACT IN QUESTION WHICH RESULTED INTO ACCRUAL OF SOME ADDITIONAL INCOME, AND II) COMPANY IS NOT FREE TO USE THIS INCOME IN ANY MANNER IT LIKED THEN THE INCOME IS NOT LIABLE TO BE ASSESSED AND IS ELIGIBLE TO BE CLAIMED AS DEDUCTION. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 14 - : 2.7 IN THE INSTANT CASE, THE APPELLANT IS BOUND BY THE ESCROW AGREEMENT AS REPRODUCED SUPRA TO MANDATORILY INVEST THE IDLE FUNDS IN THE PERMITTED INVESTMENTS AND INCOME FROM SUCH INVESTMENT SHALL BE UTILIZED TOWARDS REDUCING THE PROJECT COST A ND NOT FOR ANY OTHER PURPOSE. THUS, APPELLANT IS NOT AT LIBERTY TO SPEND THESE FUNDS AND THIS INCOME ACCRUED IS ONLY INCIDENTAL TO THE PRIME PURPOSE, I.E., COMPLYING WITH TERMS OF THE ESCROW AGREEMENT WITHOUT WHICH BUSINESS CANNOT BE FUNCTIONED. 2.8 FURT HER, THE CASE LAW RELIED BY HON'BLE CIT(A) IN BONAGAIGOAN REFINERY VS. CIT [2001] 251 ITR 329 SC DOES NOT LAY DOWN THE CORRECT LEGAL POSITION AS WHEN THIS CASE WAS DECIDED BY HIGH COURT (245 ITR 708 (GOW)), THE RATIO LAID DOWN BY SUPREME COURT IN BOKARO ST EELS WAS NOT AVAILABLE AS THE BOKARO STEELS CASE WAS PRONOUNCED ON 18/12/1998 WHEREAS THE HIGH COURT OF GUWAHATI HAS PRONOUNCED THE ORDER ON 29/06/1998 RELYING ON TUTICORIN ALKALI CHEMICALS & FERTILIZERS CASE AND AS SUCH APPELLANT HAS NOT PREFERRED AN APPE AL ON THE GROUND OF INTEREST INCOME BEFORE THE SUPREME COURT. HENCE THIS CASE CANNOT BE TAKEN AS A LEGALLY BINDING PRECEDENT. 2.9 THUS, THE INTEREST INCOME EARNED IS RIGHTLY DEDUCTED FROM THE WORK IN PROGRESS AND CANNOT BE TREATED AS TAXABLE INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. IN ADDITION TO THE PAPER BOOK FILED ON 03/05/2019 ALONG WITH DETAILED SUBMISSIONS, WE HUMBLY SUBMIT THE FOLLOWING: 1. LD. DR HAS FILED PAPER BOOK ON 13/05/2019 WHEREIN IN PARA NO.3 OF THE WRITTEN SUBMISSIONS IT WAS MEN TIONED THAT THE RATIO OF [1997] 227 ITR 172 TUTICORIN ALKALI LTD IS SQUARELY APPLICABLE AND THE FACTS OF THE CASE DOES NOT MERIT THE APPLICATION OF [1999] 236 ITR 315 BOKARO STEELS LIMITED AS THERE IS NO OBLIGATION OR COMPULSION ON THE ASSESSEE ARISING OUT OF BUSINESS TO I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 15 - : KEEP THE IDLE FUNDS IN THE FD, IGNORING THE FACT THAT THE ASSESSING OFFICER HIMSELF HAS IN PARA NO. 3.2 OF THE ASSESSMENT ORDER OBSERVED THAT 'THOUGH THE ASSESSEE HAS MADE DEPOSITS AS PER THE DECISION OF THE CONSORTIUM BANKERS' WHICH CLEARL Y STATES THAT THERE IS A COMPULSION ON ASSESSEE AS PER ESCROW AGREEMENT ENTERED WITH BANKERS AND AS SUCH THE RATIO LAID DOWN IN BOKARO STEELS LIMITED CASE IS APPLICABLE. THUS, THE INTEREST INCOME EARNED IS RIGHTLY DEDUCTED FROM THE WORK IN PROGRESS AND CAN NOT BE TREATED AS TAXABLE INCOME FROM OTHER SOURCES U/S 56 OF THE ACT. 2. AS PER RECENT APEX COURT DECISION IN THE CASE OF [2018] 403 ITR 426 (SC) CIT V SHREE RAMA MULTI TECH. LTD WHEREIN CLEARLY HELD THAT INTEREST ACCRUED ON ACCOUNT OF DEPOSIT OF SHARE APPLICATION MONEY IS NOT TAXABLE INCOME. COPY OF ORDER IS ALREADY PART OF RECORD IN PAPER BOOK PAGE NO. 15 TO 19. FURTHER SIMILAR VIEWS WAS UPHELD BY VARIOUS HIGH COURTS IN (2020) 422 ITR, PG: - 244 (P & H) ORDER DT - 03.02.2020, CIT V. PUNJAB POLICE HOUSING C ORPORATION; (2009) 355 ITR, PG: - 255 (DEL) ORDER DT - 26.02.2009, INDIAN OIL PANIPAT POWER CONSORTIUM LTD V. ITO AND (2016) 380 ITR, PG: - 474 (DEL) ORDER DT - 07.01.2016, PCIT V. FACOR POWER LTD (COPIES OF ORDERS ENCLOSED) ALONG WITH OTHER RECENT TRIBUNAL JUDGME NTS IN (2020) 189 DTR, PG: - 46 (MUM) ORDER DT - 05.02.2020, ACIT V. LOOP TELECOM LTD; (2019) 178 ITO , PG: - 659 (MUM) ORDER DT - 20.03.2019, KARANJA TERMINAL & LOGISTICS (P) LTD. V. DCIT AND (2016) 158 ITO, PG: - 909 (LUCK) ORDER DT: - 26.02.2016, PRAYAGRAJ POWER GE NERATION CO LTD V. ITO COPIES OF WHICH ARE ENCLOSED AS PAPER BOOK. 3. FURTHER IN ALL THE JUDGMENTS RELIED BY DEPARTMENT, THERE IS NO MANDATE OR ESCROW AGREEMENT/ACCOUNT WHICH RESTRICT THE FUNDS USAGE & IMPOSE COMPULSIONS AND HENCE ARE NOT APPLICABLE TO T HE FACTS OF THE INSTANT CASE. THUS IN VIEW OF THE ABOVE FACTUAL MATRIX AND BINDING LEGAL PRECEDENTS OF THE APEX COURT WE PRAY THE HON'BLE ITAT TO KINDLY DELETE THE ADDITIONS MADE. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 16 - : 10. THE LD. DR, ON THE OTHER HAND, ALSO FILED WRITTEN SUBMISSIONS, WHICH A RE AS UNDER: 1. IT IS HUMBLY SUBMITTED THAT THE FIRST ISSUE INVOLVED IN THE APPEALS IS W HETHER INTEREST INCOME ON IDLE FUNDS KEPT IN SHORT TERM INVESTMENTS IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES OR NOT. IT IS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE DEPARTMENT AS PER THE DECISIONS OF JURISDICTIONAL HIGH C OURT IN THE CASES OF SPONGE IRON INDIA LTD (201 ITR 770) AND RAASI CEMENT LTD (232 ITR 554). 2. IN THE BOTH THE ABOVE DECISIONS, IT WAS UNAMBIGUOUSLY HELD THAT INTEREST INCOME ON SURPLUS FUNDS KEPT AS FDS HAS TO BE TAXED AS INCOME FROM OTHER SOURCES. IT WAS ALSO CLEARLY HELD THAT ONLY SUCH EXPENDITURE THAT IS INCURRED IN EARNING THE INTEREST INCOME WOULD BE ALLOWED AS DEDUCTION. 3. THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD (227 ITR 172) IS ALSO SQUARELY APPLICABLE TO THE PRESENT CASE. THE FACTS OF THE CASE DOES NOT MERIT APPLICATION OF THE DECISION OF SUPREME COURT IN THE CASE OF BOKARO STEEL LTD (236 ITR 315). THIS IS BECAUSE THERE IS NO OBLIGATION OR COMPULSION ON THE ASSESSEE ARISING O UT OF THE BUSINESS TO KEEP IDLE FUNDS IN FDS. FOR INSTANCE, THERE IS NO MARGIN MONEY REQUIREMENT AS IN THE CASE OF BOKARO STEEL. 4. AS PER THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD, THE F ACT THAT THE FUNDS ARE AVAILABLE FROM SHARE CAPITAL OR BORROWED SOURCES IS OF NO CONSEQUENCE FOR THE PURPOSE OF TAXATION UNDER THE HEAD INCOME FROM OTHER SOURCES. THE REASONS FOR WHICH THE ASSESSEE WAS UNABLE TO UTILIZED THE FUNDS IS ALSO IMMATERIAL. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 17 - : 5 . IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD, THE APEX COURT HELD AS UNDER: 'IF THE CAPITAL OF A COMPANY IS FRUITFULLY UTILISED INSTEAD OF KEEPING IT IDLE, THE INCOME THUS GENERATED WILL BE OF THE REVENUE NATURE AND NOT ACCRETION OF CAPI TAL WHETHER THE COMPANY RAISED THE CAPITAL BY ISSUE OF SHARES OR DEBENTURES OR BY BORROWING WILL NOT MAKE ANY DIFFERENCE TO THIS PRINCIPLE. IF BORROWED CAPITAL IS USED FOR THE PURPOSE OF EARNING INCOME, THAT INCOME WILL HAVE TO BE TAXED IN ACCORDANCE WITH LAW. INCOME IS SOMETHING WHICH FLOWS FROM THE PROPERTY. SOMETHING RECEIVED IN PLACE OF THE PROPERTY WILL BE CAPITAL RECEIPT. THE AMOUNT OF INTEREST RECEIVED BY THE COMPANY FLOWS FROM ITS INVESTMENTS AND IS ITS INCOME AND IS CLEARLY TAXABLE EVEN THOUGH THE INTEREST AMOUNT IS EARNED BY UTILISING BORROWED CAPITAL. IT IS TRUE THAT THE COMPANY WILL HAVE TO PAY INTEREST ON THE MONEY BORROWED BY IT. BUT THAT CANNOT BE A GROUND FOR EXEMPTION OF INTEREST EARNED BY THE COMPANY BY UTILISING THE BORROWED FUNDS AS ITS I NCOME. THE INTEREST EARNED BY THE ASSESSEE WAS CLEARLY ITS INCOME AND UNLESS IT COULD BE SHOWN THAT ANY PROVISION LIKE SECTION 10 HAD EXEMPTED IT FROM TAX, IT WILL BE TAXABLE. THE FACT THAT THE SOURCE OF INCOME WAS BORROWED MONEY DID NOT DETRACT ANYTHING F ROM THE REVENUE CHARACTER OF THE RECEIPT. THE QUESTION OF ADJUSTMENT OF INTEREST PAYABLE BY THE COMPANY AGAINST THE INTEREST EARNED BY IT WILL DEPEND UPON THE PROVISIONS OF THE ACT. THE EXPENDITURE WOULD HAVE BEEN DEDUCTIBLE AS INCURRED FOR THE PURPOSE OF BUSINESS IF THE ASSESSEE'S BUSINESS HAD COMMENCED. BUT THAT WAS NOT THE CASE IN THE INSTANT CASE. THE ASSESSEE MAY BE ENTITLED TO CAPITALISE THE INTEREST PAYABLE BY IT. BUT WHAT THE ASSESSEE COULD NOT CLAIM WAS ADJUSTMENT OF THIS EXPENDITURE AGAINST INTERE ST ASSESSABLE UNDER SECTION 56. SECTION 57 SETS OUT IN ITS CLAUSES (I) TO (III) THE EXPENDITURES WHICH ARE ALLOWABLE AS DEDUCTION FROM INCOME ASSESSABLE UNDER SECTION 56. IT IS NOT THE CASE OF THE ASSESSEE THAT THE INTEREST PAYABLE BY IT ON TERM LOANS IS A LLOWABLE AS DEDUCTION UNDER SECTION 57'. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 18 - : 6. THE APEX COURT ALSO HELD THAT: 'THE COMPANY WAS AT LIBERTY TO USE THE INTEREST INCOME AS IT LIKED IT WAS UNDER NO OBLIGATION TO UTILISE THIS INTEREST INCOME TO REDUCE ITS LIABILITY 'TO PAY INTEREST TO ITS CR EDITORS. IT COULD RE - INVEST THE INTEREST INCOME IN LAND OR SHARES, IT COULD PURCHASE SECURITIES, IT COULD BUY HOUSE PROPERTY, IT COULD ALSO SETUP ANOTHER LINE OF BUSINESS, IT MIGHT EVEN PAY DIVIDENDS OUT OF THIS INCOME TO ITS SHAREHOLDERS. THERE WAS NO OVE RRIDING TITLE OF ANYBODY DIVERTING THE INCOME AT SOURCE TO PAY THE AMOUNT TO THE CREDITORS OF THE COMPANY IT IS WE LL - SETTLED THAT TAX IS ATTRACTED AT THE POINT WHEN THE INCOME IS EARNED TAXABILITY OF INCOME IS NOT DEPENDENT UPON ITS DESTINATION OR THE MANN ER OF ITS UTILISATION. IT HAS TO BE SEEN WHETHER AT THE POINT OF ACCRUAL, THE AMOUNT IS OF THE REVENUE NATURE AND IF SO, THE AMOUNT WILL HAVE TO BE TAXED. IT IS TRUE THAT THE SUPREME COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBLE IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING T O THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OVERRIDE SECTION 56 OR ANY OTHER PROVISION OF THE ACT. WHETHER A PARTICULAR RECEIPT IS OF THE NATURE OF INCOME AND FALLS WITHIN THE CHARGE OF SECTION 4 IS A QUESTION OF LAW WHICH HAS TO BE DECIDED BY THE COURT ON THE BASIS OF THE PROVISIONS OF THE ACT AND THE INTERPRETATION OF THE TERM 'INCOME' GIVEN IN A LARGE NUMBER OF DECISIONS OF THE HIGH COURTS, THE PRIVY COUNCIL AND ALSO THIS COURT. IT IS WELL - SETTLED THAT INCOME ATTRACTS TAX AS SOON AS IT ACCRUES. THE APPLICATION OR DESTINATION OF THE INCOME HAS NOTHING TO DO WITH ITS ACCRUAL OR TAXABILITY. IT IS I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 19 - : ALSO WELL - SETTLED THAT INTEREST INCOME IS ALWAYS OF A REVENUE NATURE UNLESS IT IS RECEIVED BY WAY OF DAMA GES OR COMPENSATION. IN THE CASE OF BERCO UNDERWRITINGS (INDIA) PVT. LTD (DECISION DATED 17/06/2013 IN ITA .. 0: 1678/HYD/20 12), THE JURISDICTIONAL BENCH OF HON'BLE IT AT EXAMINED THE MATTER IN DETAIL. IN THE SAID DECISION, HON'BLE IT A T DISCUSSED ON T HE ORDER OF PREFERENCE OF BINDING PRECEDENTS AND FOLLOWED THE DECISIONS OF HON'BLE AP HIGH COURT IN THE CASES OF SPONGE IRON INDIA LTD AND RAASI CEMENT LTD. 8. IN THE CASE OF CONSOLIDATED FIBRES AND CHEMICALS LTD (273 ITR 353), THE HON'BLE CALCUTTA HIGH COURT EXAMINED THE ISSUE OF DEDUCTION OF INTEREST INCURRED BY THE ASSESSEE FROM THE INTEREST INCOME AT LENGTH AND HELD AS UNDER: 'UNTIL THE BUSINESS COMMENCES THE INTEREST PAID ON THE BORROWED CAPITAL FOR ACQUIRING ASSET IS INCLUDIBLE IN THE ACTUAL COST WITHIN THE MEANING OF EXPLANATION 8 TO SECTION 43(1) AND IT WOULD NOT BE A BUSINESS EXPENDITURE TILL THE ASSET IS FIRST PUT TO USE AND UNTIL THE BUSINESS COMMENCES THE INTEREST RECEIVED ON INVESTMENT OF UNUTILISED FUNDS WILL NOT BE A BUSINESS INCOME, WHEN SUCH INTEREST, UNTIL THE BUSINESS COMMENCES, IS IN THE NATURE OF CAPITAL EXPENDITURE AND IS ELIGIBLE FOR BEING CAPITALISED. THE PURPOSE OF THE BORROWING WAS FOR THE PURPOSE OF CONSTRUCTION OF THE PROJECT AND THE INTEREST WOULD HAVE BEEN PAID EVEN IF IT WOU LD NOT HAVE BEEN INVESTED. THEREFORE, THIS INTEREST COULD NOT BE SAID TO HAVE BEEN LAID OUT OR EXPENDED FOR THE PURPOSE OF EARNING THE INCOME PARTICULARLY WHEN THE INTEREST PAID IS ELIGIBLE FOR BEING CAPITALISED, THE EXPENDITURE THAT HAS BEEN INCURRED BEIN G IN THE NATURE OF CAPITAL EXPENDITURE, AND AS SUCH IT WOULD NOT COME WITHIN THE PURVIEW OF SECTION 57(III) '. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 20 - : THE SPECIAL BENCH OF HON'BLE IT AT EXAMINED THE ISSUE OF SURPLUS FUNDS IN THE CASE OF N ATIONAL THERMAL POWER [1988] 24 ITD 1 (DELHI)(SB) AND HE LD AS UNDER: 'THE QUESTION OF FUNDS BEING SURPLUS IS NOT DEPENDENT UPON THE ULTIMATE UTILISATION OF THE FUNDS. THIS IS A CONCEPT OF THE SHORT RUN. THE FUNDS ARE SURPLUS IN T HE SENSE WHEN THERE ARE FUNDS IN EXCESS OF THE IMMEDIATE REQUIREMENTS. IT IS TOO OBVIOUS THAT THE SANCTIONED FUNDS RUNNING INTO CRORES OF RUPEES COULD NOT BE SPENT IMMEDIATELY AND THEY HAD TO BE UTILISED OVER A PERIOD OF TIME. THE INCOME - TAX ASSESSMENT OF A PARTICULAR ASSESSMENT YEAR IS ALSO BASED ON A UNIT OF TIME AND THAT IS EQUIVALENT TO ONE YEAR. UNDER THE SCHEME OF THE ACT, THE INCOME ARISING FROM A PARTICULAR SOURCE ATTRACTS TAX LIABILITY, THE MOMENT IT ARISES UNDER THE MERCANTILE SYSTEM OF ACCOUNTING , AND THE CHARGE THAT GETS FASTENED TO SUCH ACCRUED INCOME CANNOT DISAPPEAR BY ANY CONSIDERATION OF SUBSEQUENT UTILISATION OF SUCH INCOME. THE FACTS WHICH ARE RELEVANT TO BE NOTED, THEREFORE, RELATE TO AVAILABILITY OF THE SURPLUS FUNDS IN THAT UNIT OF TIME . IN THE PRESENT CASE, THERE INDEED WERE SURPLUS FUNDS AVAILABLE TO THE ASSESSEE FROM TIME TO TIME AND IT COULD BE SEEN FROM THE BALANCE SHEET THAT DUE TO THE EXISTENCE OF SUCH SURPLUS FUNDS, IT STARTED INVESTING THEM IN SHORT - TERM DEPOSITS WITH THE SCHEDU LED BANKS WHICH YIELDED INTEREST INCOME. THE SOURCE OF INTEREST INCOME EARNED FROM SHORT TERM DEPOSITS TAKEN FROM SCHEDULED BANKS WAS THE CONTRACT WITH THE BANKS TO ADVANCE THE MONEY ON INTEREST WHICH WAS A CONSCIOUS DECISION TAKEN BY THE ASSESSEE. 10. T HE HON'BLE SPECIAL BENCH ALSO HELD THAT: 'IN FACT ONCE THE FUNDS CONTRIBUTED BY WAY OF SHARE CAPITAL OR THE LOAN GRANTED BY THE GOVERNMENT OF INDIA REACHED THE HANDS OF THE ASSESSEE THEY BECOME THE PROPERTY OF THE ASSESSEE AND THE ASSESSEE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 21 - : WAS AT LIBE RTY TO UTILISE AND HOLD THOSE IN THE MANNER IT LIKED PRIOR TO THEIR BEING FINALLY UTILISED FOR THE MAIN OBJECT OF SETTING UP OF THERMAL POWER PLANTS. THE FACT THAT FUNDS WERE BORROWED INITIALLY LOST ITS IMPORTANCE WHEN THE ISSUE TO BE CONSIDERED WAS THE MA NNER IN WHICH THESE FUNDS WERE UTILIZED AND THE TAXABILITY OF THE INCOME RESULTING THEREFROM. THERE ARE A NUMBER OF AUTHORITIES OF THE HIGH COURTS TO SHOW THAT IN THE CASE OF A BUSINESS YET TO BE SET UP, INTEREST EARNED BY PLACING SURPLUS FUNDS IN SHORT - TE RM DEPOSITS WITH THE BANKS, ARISES FROM AN INDEPENDENT SOURCE, I.E., A SOURCE INDEPENDENT FROM THE BUSINESS TO BE SET UP. THERE IS AN ESTABLISHED ACCOUNTANCY PRACTICE ABOUT THE CAPITALISATION OF EXPENDITURE LIKE PAYMENT OF INTEREST TOWARDS THE COST OF ASSE TS AND FOR SHOWING THE INCOME EARNED DURING THE CONSTRUCTION PERIOD SEPARATELY IN THE ACCOUNTS AND ALSO OF MAKING TAX PROVISION FOR SUCH INCOME AND, FURTHER, FOR SETTING OFF INCOME AGAINST RELATED ITEMS OF EXPENDITURE SO THAT ONLY THE NET AMOUNT OF THE EXP ENDITURE IS CAPITALISED HOWEVER, IT IS A THING QUITE DIFFERENT FROM THE SET OFF OF INTEREST INCOME AGAINST THE COST OF CONSTRUCTION AS A WHOLE AS THIS EXPENDITURE CANNOT BE CONSIDERED TO BE RELATED TO THIS INTEREST INCOME. THE ACCOUNTANCY PRACTICE DID NOT SUPPORT THE ASSESSEE'S CASE INSOFAR AS IT RELATED TO INTEREST ON SHORT - TERM BANK DEPOSITS APART FROM THE ACCOUNTANCY PRACTICE THE QUESTION OF TAXABILITY OF THE INCOME IS AN ENTIRELY DIFFERENT ISSUE AND IT DEPENDS ON THE PROVISIONS OF THE INCOME - TAX LAW. IN TEREST ON SHORT - TERM BANK DEPOSITS IS FROM AN INDEPENDENT SOURCE NOT DIRECTLY RELATED TO THE CONSTRUCTION WORK AND, THEREFORE, SUCH AN INCOME CANNOT BE TAKEN OUT OF THE NET OF TAXATION. THEREFORE, THE INTEREST EARNED BY THE ASSESSEE BY TAKING SHORT - TERM CA LL DEPOSITS WITH THE SCHEDULED BANK FROM TIME TO TIME WAS INCOME LIABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 11 . RELIANCE IS ALSO PLACED ON THE DECISIONS OF THE JURISDICTIONAL BENCH OF HON'BLE IT A T IN THE CASE OF KAKINADA SEZ PVT. LTD (IT A NO: 1218/HYD/2010 DATED I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 22 - : 29112/2010) AND IN THE CASE OF THERMAL POWERTECH CORPORATION INDIA LTD [2017] 81 TAXMANN.COM 168 (HYDERABAD - TRIB.). RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF AUTOKAST LTD (248 ITR 110). RELI ANCE IS ALSO PLACED ON THE DECISION OF THIS HON'BLE TRIBUNAL IN THE CASE OF DRS WAREHOUSING (SOUTH) PVT. LTD (ITA NO: 1210/HYD/2016 DATED 09/05/2017). 12. IT IS HUMBLY SUBMITTED THAT THE DECISION OF DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWE R CONSORTIUM LTD CANNOT BE FOLLOWED WHEN THERE ARE DECISIONS OF JURISDICTIONAL HIGH COURT TO THE CONTRARY. THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD IS NOT APPLICABLE TO THE PRESENT FACTS BECAUSE THERE WAS NO COMPULSION TO KEEP THE IDLE FUNDS IN SHORT TERM INVESTMENTS. THE INTEREST INCOME EARNED BY THE ASSESSEE IS NOT DIRECTLY CONNECTED OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF HIGHWAY NOR THE ASSESSEE COULD SHOW ANY MANDATE FROM NHAI THAT IT IS INEXTRICABLY LINKED WITH THE B USINESS OPERATIONS. THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT EARNING OF FDR INTEREST IN ITS CASE IS INEXTRICABLY LINKED TO THE SETTING UP OF ITS BUSINESS. THEREFORE, THE SAME IS NOT A CAPITAL RECEIPT AND PURELY IN THE NATURE OF REVENUE RECEIPT. IT MAY BE MENTIONED HERE THAT, IN THE CASE OF BOKARO STEELS LTD. THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURING PRE - COMMENCEMENT PERIOD WHICH WAS FOUND TO BE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE WAS A CAPITAL RECEIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE - OPERATIVE EXPENSES. 13. IN THIS CASE, IT IS THE APPELLANT'S CONTENTION THAT, IT IS BOUND BY THE ESCROW AGREEMENT TO MANDATORILY INVEST THE IDLE FUNDS IN THE PERMITTED INVESTMENTS AND INCOME FROM SUCH INVESTMENTS SHALL BE UTILIZED TOWARDS REDUCING THE PROJECT COST AND NOT FOR ANY OTHER PURPOSE. THE APPELLANT HAS SUBMITTED THAT IT IS NOT AT LIBERTY TO SPEND THESE FUNDS AND THIS INCOME ACCRUED IS ONLY I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 23 - : INCIDENTAL TO THE PRIME PURPOSE, I.E. COMPL YING WITH TERMS OF THE ESCROW AGREEMENT WITHOUT WHICH BUSINESS CANNOT BE FUNCTIONED. THE CONTENTION OF THE APPELLANT IS CLEARLY NOT BORNE OUT BE FACTS. KIND ATTENTION OF THE BENCH IS DRAWN TO PAGES 8 TO 10 OF THE PAPER BOOK DATED: 02.5.2019 SUBMITTED ON 03 .5.2019 SUBMITTED BY THE APPELLANT WHEREIN; COPY OF THE CONCESSION AGREEMENT OF NHAI STATING ARTICLE 31 OF THE SAID AGREEMENT ON 'ESCROW ACCOUNT' HAS BEEN SUBMITTED. ARTICLE 31.2 OF THE AGREEMENT TALKS OF 'DEPOSITS INTO ESCROW ACCOUNT' AND ARTICLE 31.3 DIS CUSSED ' WITHDRAWALS DURING CONCESSION PERIOD'. RELEVANT PORTION OF ARTICLE 31.3 IS REPRODUCED BELOW FOR EASE OF REFERENCE: 31.3 WITHDRAWALS DURING CONCESSION PERIOD 31.3.1 THE CONCESSIONAIRE SHALL, AT THE TIME OF OPENING THE ESCROW ACCOUNT, GIVE IRREVO CABLE INSTRUCTIONS, BY WAY OF AN ESCROW AGREEMENT, TO THE ESCROW BANK INSTRUCTING, INTER ALIA, THAT DEPOSITS IN THE ESCROW ACCOUNT SHALL BE APPROPRIATED IN THE FOLLOWING ORDER EVERY MONTH, OR AT SHORTER INTERVALS AS NECESSARY, AND IF NOT DUE IN A MONTH THE N APPROPRIATED PROPORTIONATELY IN SUCH MONTH AND RETAINED IN THE ESCROW ACCOUNT AND PAID OUT THEREFROM IN THE MONTH WHEN DUE: (A) ALL TAXES DUE AND PAYABLE BY THE CONCESSIONAIRE FOR AND IN RESPECT OF THE PROJECT HIGHWAY; ............................... . (J) BALANCE, IF ANY, IN ACCORDANCE WITH THE INSTRUCTIONS OF THE CONCESSIONAIRE. IT IS THEREFORE CLEAR THAT THE APPELLANT IS UNDER NO OBLIGATION TO INVEST THE SURPLUS FUNDS (BALANCE) IN SHORT TERM DEPOSITS. THE CONCESSIONAIRE IS THE APPELLANT. THEREFO RE, THE APPELLANT IS AT LIBERTY TO UTILISE THE BALANCE FREELY WITHOUT ANY FETTERS AND THE NHAI I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 24 - : (AUTHORITY) HAS NOWHERE IN THE CONCESSION AGREEMENT INSTRUCTED THE APPELLANT (CONCESSIONAIRE) TO INVEST BALANCE IN SHORT TERM SPECIFIED INVESTMENTS. THE APPELLAN T IS RELYING ON ITS AGREEMENT WITH BANKERS WHICH IN EFFECT ARE THE TERMS LAID DOWN BY THE APPELLANT FOR UTILISATION OF THE SURPLUS FUNDS. 14. IT IS FURTHER RESPECTFULLY SUBMITTED THAT, THE CASE LAWS RELIED UPON BY THE APPELLANT ARE DISTINGUISHABLE ON FAC TS AND CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE AS UNDER: 1. COMMISSIONER OF INCOME - TAX - IV, AHMEDABAD V. SHREE MONEY , 92 TAXMANN.COM 363 (SC) - INTEREST ACCRUED ON ACCOUNT OF DEPOSIT OF SHARE APPLICATION HELD AS INEXTRICABLY LINKED WITH REQUIREMENT OF RAMA MULTI TECH LTD., COMPANY TO RAISE SHARE CAPITAL AND IS THUS LIABLE TO BE SET OFF AGAINST PUBLIC ISSUE EXPENSES. HELD THAT INTEREST INCOME EARNE D BY THE ASSESSEE - COMPANY ON BANK DEPOSITS MADE OUT OF SHARE CAPITAL RECEIVED BY IT FROM RESERVE BANK OF INDIA COULD NOT BE TAXED AAS 'INCOME FROM OTHER SOURCES'. CLEARLY, FACTS OF THE CASE ARE DIFFERENT THAN THAT OF THE APPELLANT. 2. I PI. CIT AND ANOTH ER V. BANK NOTE PAPER MILL INDIA PVT. , 412 ITR 415 (KARN.) - HELD THAT INTEREST INCOME EARNED BY THE ASSESSEE - COMPANY ON BANK DEPOSITS MADE OUT OF SHARE CAPITAL RECEIVED BY IT LTD., FROM RESERVE BANK OF INDIA COULD NOT BE TAXED AS 'INCOME FROM OTHER SOURC ES'. CLEARLY, FACTS OF THE CASE ARE DIFFERENT THAN THAT OF THE APPELLANT. 3. INCOME - TAX OFFICER, WARD - 2(3) , VS KOLKATA METRO RAIL CORPN. LTD. 102TAXMANN.COM 419 (KOL - TRIB) ASSESSEE HERE IS A GOVERNMENT COMPANY IN THE FORM OF V. KOLKATA JOINT VENTURE OF GOVERNMENT OF INDIA AND GOVERNMENT OF WEST BENGAL. IT HAS BEEN POINTED OUT THAT THE FUNDS FROM THE CENTRAL AND STATE GOVTS. FLOW DIRECTLY TO THE ASSESSEE COMPANY AS EQUITY AND SUBORDINATE DEBT / LOANS. THE OBJECTIVE IS TO CREATE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 25 - : AND MAINTAIN A FUND FOR THE DEVELOPMENT OF INFRASTRUCTURAL ASSETS ON A CONTINUING BASIS AND THEREFORE THE ASSESSEE IS A SPV FORMED BY THE GOVT. OF INDIA AND GOVT. OF WEST BENGAL AS PER THE GUIDELINES; THERE IS NO PROFIT MOTIVE AS THE ENTIRE FUND ENTRUSTED AND INTEREST ACCRUED THEREF ROM ON DEPOSITS IN BANK THROUGH IN THE NAME OF THE ASSESSEE HAS TO BE APPLIED ONLY FOR THE PURPOSE OF WELFARE OF STATE AS PROVIDED IN THE GUIDELINES. THE FACTS OF THE CASE ARE TOTALLY DIFFERENT TO THAT OF THE APPELLANT. IN ADDITION TO ABOVE , HE RELIED ON THE ORDERS O F LOWER AUTHORITIES AND WRITTEN SUBM ISSIONS , HE VEHEMENTLY ARGUED THE CASE AND SUBMITTED THAT THE CASE LAWS RELIED BY THE LD. AR IS DISTINGUISHABLE ON FACTS OF THE PRESENT CASH ON HAND. 11. WE HA VE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES AND ALSO PERUSED THE PAPER BOOKS FILED BY BOTH THE PARTIES. BEFORE US, THE LD. AR SUBMITTED THAT THE CONTRACT HAS BEEN RECEIVE D FROM NHAI AND AVAILABLE FUNDS W ERE TO BE KEPT IN ESCROW ACCOUNT AND DREW OUR ATTENTION TO THE PAPER BOOK PAGE NO. 8 TO 14 WITH REGARD TO THE MAINTAINING/OPERATING OF ESCROW ACCOUNT . ON PERUSAL OF THE SAME, IT IS CLEAR THAT THERE ARE SO MANY STIPULATIONS CONTAINED AND IT IS CLEAR THAT THERE IS STRATEGIC INVESTMENT POLICY IN EXISTENCE AND THE ASSESSEE HAS RECEIVED THE INCOME FROM STRATEGIC INVESTMENTS. WE FOUND SUBSTANCE IN THE SUBMISSIONS MADE BY THE LD. DR. BY RELYING ON SOME JUDGEMENTS. THE LD. DR HAS P LACED A PAPER BOOK CONTAINING PAGES 01 TO 98 IN WHICH HE HAS RELIED ON I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 26 - : THE JUDGMENTS INCLUDING THE JUDGEMENT IN THE CASE OF THERMAL POWERTECH CORPORATION INDIA LTD. OF COORDINATE BENCH OF ITAT HYDERABAD, REPORTED IN 81 TAXMANN,COM 168, DATED 26.04.2017 P LACED AT PB. PAGE NO. 84 TO 98 IN WHICH MANY CASE LAWS HAVE BEEN CONSIDERED AND DECIDED THE ISSUE IN FAVOUR OF THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE JUDGEMENT , WE ALSO UPHOLD THAT THE INCOME RECEIVED FROM THE INVESTMENTS MADE FROM ESCROW ACCOUNT AND DEPOSITED IT INTO GENERAL PROCEEDINGS ACCOUNT, IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S . FURTHER , GOING THROUGH THE CONDITIONS OF ESCROW ACCOUNT . ANY VALUE ADDITION IS MA DE EITHER IN THE FORM OF INTEREST CREDITED OR PROFIT ON SALE OF INVESTMENTS FROM PERMITTED INVESTMENTS ARE TO BE DEPOSITED IN THE G ENERAL P ROCEEDINGS A CCOUNT AS PER CLAUSE 8.2 ( C )(III) R.W.S. CLAUSE 8.5 . BOTH THE PARTIES HAVE NOT BROUGHT TO OUR NOTI CE ABOUT THE USE OF AMOUNT DEPOSITED IN G ENERAL P ROCEEDINGS A CCOUNT. IF THE SAID ACCOUNT IS TO BE TREATED WITH PARITY TO THE ESCROW ACCOUNT, THEN , THE ASSESSEE IS LIABLE TO TAX ON INCOME RECEIVED IN THE YEAR IN WHICH THE ASSESSEE IS ELIGIBLE TO UTILIZE TH E DISPUTED AMOUNT. IN VIEW OF THE ABOVE OBSERVATIONS, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISSUE AS PER PAGES 8 TO 14 OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE US. THUS, THE GROUND RAISED BY THE ASESSSEE ON THIS ISSUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 27 - : 1 2 . AS REGARDS GROUND NO. 3 RELATING TO DISALLOWANCE OF INTEREST ON LATE PAYMENTS OF TDS AMOUNTING TO RS. 17,03,927/ - , DURING THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE ON THE FOLLOWING: 1. INTEREST ON TDS (PROFESSIONAL) RS. 804/ - 2. INTEREST ON TDS (194A) RS. 68,399/ - 3. INTEREST ON TDS (CIVIL WORK) RS. 5,84,769/ - 4. INTEREST ON TDS (SAL ARIES) RS. 2,730/ - 5. INCOME TAX RS.10,47,225/ - TOTAL RS. 17,03,927/ - 1 2 .1 ACCORDING TO THE AO, SINCE THE A BOVE EXPENSES WE RE NOT AN ALLOWABLE EXPENDITURE U / S.37 OF THE ACT, DISALLOWED RS.17,03,927 / - : AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE 1 3 . B EFORE THE CIT(A) , THE APPELLANT SUBMITTED THAT THE INTEREST ON TDS IS NOTHING BUT A COMPENSATORY NATURE FOR DELAY PAYMENT OF TDS TERMED AS INTEREST ON TDS AND NOT IN THE NATURE OF PENAL INTEREST OR PENALTY AND IS NOT A PROHIBITED EXPENDITURE AS ENVISAGED UNDER THE AMBIT O F EXPLANATION SECTION 37(1). THE APPELLANT SUBMITTED THAT THE QUESTION OF DISALLOWING THIS EXPENDITURE AND LEVYING TAX ON IT DOES NOT ARISE AS IT WAS NOT AT ALL CLAIMED. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 28 - : 1 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE DISA LLOWANCE BY OBSERVING AS UNDER: 7.3 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. THE APPELLANT CLAIMED RS.17,03,927 / - AS ADMINISTRATIVE EXPENDITURE U / S.37 WHICH IS ACTUALLY INCOME TAX. THE APPELLANT HAS DEDUCTED TDS BUT NOT REMITTED TO THE GOVERNMENT ACCOUNT FOR WHICH THE APPELLANT HAD TO PAY PENAL INTEREST WHICH HAS BEEN CLAIMED BY THE APPELLANT AS BUSINESS EXPENDITURE. IT IS A SERIOUS AND CRIMINAL OFFENCE FOR NOT REMITTING TAX DEDUCTED AT SOURCE TO THE GOVERNMENT TREASURY IN TIME. RS. 17,03,927 / - IS THE PENAL INTEREST PAID BY THE APPELLANT FOR NON - REMITTANCES OF TDS TO GOVERNMENT ACCOUNT. ALSO, SECTION 37 DOES NOT INCLUDE INCOME TAX AS ALLOWABLE EXPENDITURE. THE CONTENTION OF THE APPELLANT IS NOT ACCEPTED. HENCE, THE ADDITION MADE BY TH E ASSESSING OFFICER IS UPHOLD. 1 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. THE GRIEVANCE OF THE REVENUE AUTHORITIES IS THAT THE APPELLANT HAS DEDUCTED TDS BU T NOT REMITTED TO THE GOVERNMENT ACCOUNT WITHIN THE STIPULATED TIME FOR WHICH THE APPELLANT HAD TO PAY PENAL INTEREST WHICH HAS BEEN CLAIMED BY THE APPELLANT AS BUSINESS EXPENDITURE. WHILE MAKING PAYMENTS UNDER VARIOUS HEADS AND THE TDS IS DEDUCTED ON SUCH PAYMENTS, THE SAME HAS TO BE REMITTED TO THE GOVT. ACCOUNT WITHIN T HE STIPULATED TIME , SIMILAR ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH OF ITAT, JAIPUR IN THE CASE OF GOVINDAM CLEARING AGENCIES PVT. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 29 - : LTD. VS. DCIT, IN ITA NO. 70/JP/2019, VIDE ORDER DATED 01/09/2020 WHEREIN THE COORDINATE BENCH HAS OBSERVED AS UNDER: 4.2 THE ID.AR APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE THE LD. CIT (A) .AND ALSO RELIED ON THE WRITTEN SUBMISSIONS SUBMITTED BEFORE US WHICH ARE REPRODUCED BELOW. SUBMISSION OF ASSEESSEE: - I) THE P ROVISION OF SECTION 37(1) THAT ANY EXPENSES NOT BEING IN CAPITAL NATURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED SHALL BE ALLOWABLE TO THE ASSESSEE SUBJECT TO EXPLANATION 1 WHICH PROVIDE THAT EXPENDITURE WHICH IS OFFE NCE OR PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR BUSINESS AND NO DEDUCTION SHALL BE MADE. THE INTEREST ON DELAY DEPOSIT OF TDS ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. THE INTEREST PA YMENT IS NEITHER AN OFFENCE OR NOR PROHIBITED UNDER INCOME TAX ACT, 1961. THE INTEREST ON TDS IS NOT IN PENAL NATURE BUT IT'S A COMPENSATING IN THE NATURE FOR DELAY DEPOSIT OF TDS TO THE CREDIT OF GOVT. II) THE HON'BLE APEX COURT IN THE CASE OF LACHMANDA S MATHURA VS. CIT REPORTED IN 254 ITR 799 HELD THAT THE INTEREST ON ARREARS OF TAX IS COMPENSATORY IN NATURE AND NOT PENAL. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW: - 'THE HIGH COURT HAS PROCEEDED ON THE BASIS THAT THE INTEREST ON AN - EARS OF SALES TAX IS PENAL IN NATURE AND HAS REJECTED THE CONTENTION OF THE ASSESSEE THAT IT IS COMPENSATORY IN NATURE. IN TAKING THE SAID VIEW THE HIGH COURT HAS PLACED RELIANCE ON ITS FULL BENCH'S DECISION IN SARAYA SUGAR MILLS (P.) LTD. V. CIT [1979] 116 IT R 387 (ALL.) THE LEARNED COUNSEL APPEARING FOR I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 30 - : THE APPELLANT - ASSESSEE STATES THAT THE SAID JUDGMENT OF THE FULL BENCH HAS BEEN REVERSED BY THE LARGER BENCH OF THE HIGH COURT IN TRIVENI ENGG. WORKS LTD. V. CIT [1983] 144 ITR 732 (ALL.) (FE), WHEREIN IT HAS BEEN HELD THAT INTEREST ON ARREARS OF TAX IS COMPENSATORY IN NATURE AND NOT PENAL. THIS QUESTION HAS ALSO BEEN CONSIDERED BY THIS COURT IN CIVIL APPEAL NO. 830 OF 1979 TITLED SARAYA SUGAR MILLS (P.) LTD. V. CIT DECIDED ON 29 - 21996. IN THAT VIEW OF THE MATT ER, THE APPEAL IS ALLOWED AND QUESTION NOS. LAND 2 ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' III) THE ABOVE PRINCIPLES CAN BE APPLIED TO THE INTEREST EXPENSES LEVIED ON ACCOUNT OF DELAYED PAYMENT OF TDS, THEREFORE THE SAME IS ALLOW ABLE TO THE ASSESSEE. IV) FURTHER HON'BLE ITAT KOLKATA RELYING ON THE VERDICT OF HON'BLE APEX COURT (SUPRA) IN THE CASE OF DCIT, CIRCLE - 3(1), KOLKATA VS MIS NARAYANI ISPAT PVT VIDE ITA NO. 2127/KO1/2014 HELD AS UNDER: - THUS, IN OUR CONSIDERED VIEW, THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. (SUPRA) IS NOT APPLICABLE IN THE INSTANT FACTS OF THE CASE. THUS, WE HOLD THAT THE ASSESSING OFFICER IN THE INSTANT CASE HAS W RONGLY APPLIED THE PRINCIPLE LAID DOWN BY THE HON 'BLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. (SUPRA). WE ALSO FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF LACHMANDAS MATHURA (SUPRA) HAS ALLOWED THE DEDUCTION ON ACCOUNT OF INTER EST ON LATE DEPOSIT OF SALES TAX U1S 37( 1) OF THE ACT. IN VIEW OF THE ABOVE, WE CONCLUDE THAT THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF DELAYED DEPOSIT OF SERVICE TAX AS WELL AS TDS LIABILITY ARE ALLOWABLE EXPENSES U/S 37(1) OF THE ACT. IN THIS VIEW OF THE MATTER, WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) AND WE UPHOLD THE SAME. HENCE, THIS GROUND OF REVENUE IS DISMISSED. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 31 - : THUS, IN VIEW OF ABOVE SUBMISSION THE INTEREST ON DELAY PAYMENT OF TDS SHOULD BE ALLOWABLE TO THE AS SESSEE. THE PAYMENT OF TDS IS NOT DIRECT TAX FOR THE ASSESSEE AND THE SAME IS PAID ON DEFERMENT OF LIABILITY AND AKIN TO THE INTEREST PAID TO THE CREDITORS.' 4.3 ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 4.4 WE HAVE HEARD THE LD. COUNSEL FOR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE MATERIALS PLACED ON RECORD, JUDGEMENTS CITED BY THE PARTIES AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. FROM THE FACTS AVAILABLE BEFORE US, WE NOTICED THAT THE AO HAD DISALLOWED THE INTEREST AND MADE AN ADDITION OF RS. 18,315/ - ON ACCOUNT OF LATE DEPOSIT OF TDS BY THE ASSESSEE. WE HAVE GONE THROUGH THE JUDGEMENTS RELIED BY BOTH THE PARTIES AND ALSO WE ARE OF THE VIEW THAT THE FACTS PARA MATERIA CONTAINED IN THE PRE SENT CASE ARE DISTINGUISHABLE FROM THE FACTS CONTAINED IN THE JUDGEMENTS/ ORDERS RELIED ON BY THE ASSESSEE. IN THE CASE OF LACHMANDAS MATHURA VS CIT , 254 ITR 799 AND THE DECISION OF IT AT KOLKATA BENCH IN THE CASE OF DCIT, CIRCLE 3(1), KOLKATA VS NARAYANI ISPAT PVT. LTD(ITA NO.2127 /KO120 14) WHEREIN FACTS WERE RELATING TO LIABILITIES OF INTEREST ON ARREARS OF SALES TAX, HOWEVER, ON THE CONTRARY WE RELY ON THE DECISION OF IT AT MUMBAI BENCH IN THE CASE OF DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) VS ADIT (INTERNATIONAL TAXATION) (ITA NO.4687/MUM/2016 DATED 31 - 05 - 2017) WHEREIN IT WAS HELD AS UNDER: - '3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BRIEF FACTS ARE THAT ME . - \ .0 PERUSING THE PROFIT A ND LOSS ACCOUNT NOTICED THAT THE ASSE - VEE BAS PAID AN AMOUNT OF RS. 73,913/ - BEING INTEREST ON DELAYED PAYMENT OF T DS AND HE REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOR BE DISALLOWED. THE ASSESSEE CLAIMED THAT THE TDS RELATES TO PAYMENT TO VARIOUS I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 32 - : TRADERS AND THE SAME IN CONNECTION AND FOR THE PURPOSE OF BUSINESS. THE AO NOTED THAT THIS AMOUNT IS INCURRED ON DELAYED PAYMENT OF TDS AND TDS BEING TAX ON INCOME AND SAME CANNO T BE ALLOWED AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT . ACCORDINGLY, THE SAME WAS DISALLOWED. AGGRIEVED, THE ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A). THE CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING AS UNDER: - ' CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND THE REASONS RECORDED BY THE AQ & BASED ON THE ABOVE DISCUSSION AND FACTS OF THE CASE, I AM OF THE OPINION THAT THE SAID ADJUSTMENT RELATING TO INTEREST ON DELAYED PAYMENT OF TDS IS NOT DEDUCTIBLE AS AN EXPENSE UNDER THE ACT AND IS THEREFORE, DISALLOWED. THE EXPENSES IN THIS CASE WERE IN CURRED FOR A VERY DIFFERENT PURPOSE. WHEN INTEREST IS PAID FOR COMMITTING A DEFAULT IN RESPECT OF STATUTORY LIABILITIES, THE AMOUNT PAID AND THE EXPENDITURE INCURRED IN CONNECTION TO THIS ARE IN NO WAY CONNECTED TO PRESERVING OR PROMOTING THE BUSINESS OF T HE APPELLANT. IN VIEW OF THE SAME, THE APPELLANT IS NOT ALLOWED TO TAKE THE BENEFIT OF INTEREST PAID ON DELAYED PAYMENT OF TDS AN ELIGIBLE EXPENSE. ' 4. WE FIND THAT THE FACTS ARE UNDISPUTED THAT THE ASSESSEE HAS CLAIMED INTEREST AS EXPENSE INCURRED FOR DELAYED PAYMENT OF TDS. WE FIND THAT THIS INTEREST IS PAID FOR DEFAULT IN RESPECT TO STATUTORY LIABILITIES AND THIS INTEREST CANNOT BE TREATED AS BUSINESS EXPENDITURE UNDER SECTION 37( 1) OF THE ACT. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND HENCE TH E SAME IS CONFIRMED. THE APPEAL OF ASSESSEE IS DISMISSED.' THEREFORE, KEEPING IN VIEW OF OUR ABOVE DISCUSSIONS AS WELL AS THE DECISION OF IT A T KOLKATA BENCH IN THE CASE OF DNV GL AS VS ADIT (INTERNATIONAL TAXATION), SUPRA, WE ARE OF THE VIEW THAT THE I NTEREST PAID BY THE ASSESSEE FOR DELAYED PAYMENT OF TDS IN RESPECT OF STATUTORY LIABILITIES AND THUS THIS INTEREST AMOUNT CANNOT BE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 33 - : TREATED AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. THEREFORE, WE FIND NO INF IR MITY IN THE ORDER OF THE LD. CIT(A) WHICH I S CONFIRMED. THUS GROUND NO.2 OF THE ASSESSEE IS DISMISSED. 1 5 .1 IN THE CASE ON HAND, AS PER PARAGRAPH 15, OUT OF THE BIFURCATION6 OF THE AMOUNT OF RS. 17,03,927/ - , SL. NO. 1 TO 4, IS RELATED TO INTEREST ON TDS, TO WHICH, THE ASSESSEE HAS NOT REMITTED THE TDS AMOUNTS WITHIN STIPULATED TIME AND PAID INTEREST ON TDS, WHICH IS NOT ALLOWABLE EXPENDITURE U/S 37 (1) OF THE INCOME TAX ACT. 1961 . AT SL. NO. 5 I.E. THE INCOME TA X PAID BY THE ASSESSEE OF AN AMOUNT OF RS. 10,47,225/ - IS ALSO NOT ALLOWABLE AS PER SECTION 37(1) OF THE ACT. THEREFORE, FOLLOWING THE SAID DECISION OF THE JAIPUR BENCH, WE UPHOLD THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 17,03,927/ - MA DE BY THE AO ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE ON TDS /INCOME - TAX . THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 1 6 . IN ITA NO. 547 & 548 /HYD/2018, THE ASSESSEE HAS RAISED FOUR GROUNDS OF APPEAL, OUT OF WHICH 1 & 4 ARE GENERAL IN NAT URE, HENCE, NEED NO ADJUDICATION. 1 7 . AS REGARDS GROUND NO. 2 IN BOTH THE APPEALS , RELATING TO INTEREST EARNED AS OTHER SOURCE OF INCOME IS SIMILAR TO GROUND NO. 2 RAISED IN ITA NO. 2122/HYD/2018. THEREFORE, FOLLOWING THE DECISION TAKEN VIDE PARA NO. 1 1 (SUPRA), THIS I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 34 - : GROUND IS ALLOWED FOR STATISTICAL PURPOSES IN BOTH THE APPEALS. 18 . AS REGARDS GROUND NO. 3 IN BOTH THE APPEALS, RELATING TO CREDIT FOR TDS IS NOT ALLOWED, THE FACTS AS TAKEN FROM ITA NO. 547/HYD/2018 ARE THAT THE AO OBSERVED THAT TH E ASSESSEE HA D CLAIMED CREDIT FOR TDS TO THE TUNE OF RS.13,02,893/ - . OUT OF THIS RS.2,96,061/ - PERTAINS TO THE INTEREST RECEIVED BY THE ASSESSEE WHICH IS BROUGHT TO TAX T HE REMAINING AMOUNT OF RS. 1 0,06,832/ - REPRESENT S TDS MADE ON UTILITY SHIFT ADVANCES AND MOBILIZATION ADVANCES. THE AO, THEREFORE, HELD THAT A S NO INCOME HAS BEEN OFFERED DURING THE YEAR, CREDIT FOR TDS IS NOT ALLOWED AND ACCORDI NGLY, TDS CREDIT WA S RESTRICTED TO RS.2,96,061/ - . ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION. 1 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. WE DO NOT FIND ANY ERROR IN RESTRICTING THE TDS CREDIT TO RS. 2,96,061/ - AS THE ASSESSEE HAS NOT OFFERED THE CORRESPONDIN G RECEIPTS AS INCOME IN THE IMPUGNE D AYS. THE AO IS DIRECTED TO GIVE CREDIT IN THE YEAR IN WHICH THE CORRESPONDING RECEIPTS HAVE BEEN OFFERED AS INCOME BY THE ASSESSEE AND GIVE CREDIT AFTER DUE VERIFICATION AS PER LAW. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE THE NECESSARY DOCUMENTARY EVIDENCE FOR PROOF OF PAYMENT OF TDS BY THE DEDUCTOR IN THE NAME OF THE I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 35 - : ASSESSEE . THEREFORE, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS TH E GROUND RAISED BY THE ASSESSEE . 20 . IN THE RESULT, ALL THE APPEALS UNDER CONSIDERATION ARE PARTLY ALLOWED IN ABOVE TERMS. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER , 2021 . SD/ - SD/ - ( S.S. GODARA ) (L . P . SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 7 TH SEPTEMBER , 20 2 1 . K V C OPY TO : 1 2 M/S GODHRA EXPRESSWAYS PVT. LTD., PATNA BAKHTIYARPUR TOLLWAY LTD., M/S ANJANEYULU & CO., CAS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYD 500 080 3 ITO, WARD - 1(3), HYDERABAD 4 ITO, WARD - 16(2), HYDERABAD 5 CIT(A) 1, HYDERABAD. 6 PR. CIT - 1 , HYDERABAD. 7 PR. CIT - 4 , HYDERABAD 8 ITAT, DR, HYDERABAD. 9 GUARD FILE. I TA NO S . 2122 & 547 & 548/ HYD /20 18 : - 36 - : S.NO. DETAILS DATE 1 DRAFT DICTATED ON 2 DRAFT PLACED BEFORE AUTHOR 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER