M/s Task Infotech (P) Ltd., Gurgaon V. ITO, New Delhi

ITA 5531/DEL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3280 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 26-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI CHAUDHURI
• Assessee Lawyers: K V S KRISHNA
• Keywords: Proportionate interest; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.5531/DEL/2016 ASSESSMENT YEAR 2009-10 TASK INFOTECH (P) LTD., 3 RD FLOOR, TOWER-D, GLOBAL BUSINESS PARK, M.G. ROAD, GURGAON. PAN: AACCT 9302R VS. ITO, WARD-25(1), NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : MS. BEDOBANI CHAUDHURI, SR.D.R. ASSESSEE(S) BY : SHRI K.V.S. KRISHNA, C.A. / DATE OF HEARING : 25/04/2017 / DATE OF PRONOUNCEMENT: 28/04/2017 ORDER THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF LEARNED CIT(A)- 33, NEW DELHI, VIDE ORDER DATED 17.08.2016 FOR THE ASSESSMENT YEAR 2009- 10. THE ASSESSEE HAS RAISED THE GROUNDS OF APPEAL A S UNDER: 1. THE ID. CIT(A) AND THE AO HAS ERRED IN LAW AND ON F ACTS IN TAXING INCOME OF RS . 13 , 13 , 926/- BEING INTEREST ON FDR HAVING SOURCE TO FUNDS BORROWED BY THE ASSESSEE , THE ADDITION SHOULD BE DELETED . 2. THE ID. CIT(A) AND AO HAS ERRED ON FACTS AND ON LAW IN NOT APPRECIATING THAT THE INTEREST ON LOAN BORROWED AND THE INTEREST EARN ED ON FDR WHICH HAS SOURCE TO THE BORROWING ARE INEXTRICABLY LINKED AND THEREFORE SHOULD HAVE BEEN SET OFF. THUS NO INTEREST INCOME IS SEPARATELY LIABLE TO BE TAXED . 3. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO ONE AND ANOTHER . THE APPELLANT ALSO PRAYS TO ADD , AMEND , ALTER OR FORGO ANY OF THE GROUNDS AT THE TIME OF HEARING . 2. THE BRIEF FACTS OF THE CASE ARE AS PER ASSESSING OFFICERS ORDER AT PAGES 1 AND 2 WHICH IS REPRODUCED FOR THE SAKE OF C ONVENIENCE AS UNDER: A SSESSEE WAS ASKED TO EXPLA I N THE DETAIL OF INTEREST DEBITED TO PROFIT & LOSS ACCOUNT AM OU N T IN G TO RS. 1 ,06,89,68 7/- . IT I S SEE N F R OM T H E D ETAIL FILE D BY THE ASSESSEE THAT ASSESSEE H AS RECE I VED UN SEC U RED LOAN OF RS. 3 5 ,10,00,000/- (35 CRORE 10 L ACS) AT THE RATE OF 4% PER AN N UM F R OM M/S. SWE T A ESTATE (P) LTD . IT IS FURTHER OBSERVED THAT ASSESSEE HAS INVESTED M AJOR AMOUNT OF OUT OF THIS I N THE PURCHASE OF LAND AND AN AMOUNT OF RS.4 , 69,95,021 / - INVESTED IN THE FIXED DEPO S IT S F R OM W HIC H ASSESSEE HAS DECLARED INTEREST INCOME OF RS. 30 , 91 , 083 / - . THE BUSINES S OF T H E ASSESSEE ITA NO.3511/DEL/2016 2 HAS ' NOT L ET COMMENCED . THEREFO RE INTER E ST PAID ON L OA N AM O U N T FOR PURCH ASE O F L A ND C A NN O T B E TERMED A S BUSINESS E X PEND I TURE OF TH E A SSESS EE A ND IT IS NOT O F REVENUE N A TURE B UT IT I S O F C A PITAL NATURE, AS AMOUN T INV ESTED IN PURCHAS E OF LA ND. T HE LOAN AMOUNT USED FOR PURPOSE OF MAKIN G INVESTMENT IN FDRS IS ALSO NOT THE BUSINESS OF THE ASSESSEE. ANY INCOME RECEIVED FROM INVESTMENT IN FDRS CANNOT BE TREATED AS BUSINESS IN COME BUT IT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. I HAS FURTHER BEEN OBSERVED THAT DURING THE YEAR AS SESSEE HAS INCURRED DEVELOPMENT EXPENSES OF RS.1,06,60,789/- WHICH HAS BEEN TRANSFERRED BY THE ASSESSEE UNDER THE HEAD WORK IN PROGRESS. SINCE THE INTEREST PAID ON LOAN TAKEN AND INVESTED FOR THE PURPOSE OF PURCHASE OF LAND HAS TO BE CAPITALIZED AS COST OF LAND, THE INTEREST PAID IS T O BE ADDED IN THE VALUE OF LAND DECLARED AS COST OF LAND. THIS HAS BEEN WORKED OUT AS UNDER: TOTAL INTEREST DEBITED TO P&L A/C RS.1,37,51,872 /- (-) PROPORTIONATE INTEREST PAID ON FUND INVESTED IN FDR AMOUNTING TO RS.43903738 AND INTEREST THEREON RS.1 756157/- INTEREST AMOUNT CAPITALIZED IN THE VALUE OF LAND R S.1,19,95,715/- 3. LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 4. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE FACTS OF THE CASE. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE, MR. K.V.S. KRISHNA, C.A. THAT INTEREST ON FDR EARNED IS IN THE PRE-COMMENCEMENT P ERIOD WHICH IN FACT HAS BEEN DECLARED IN THE P&L ACCOUNT AND HAS BEEN REDUC ED FROM THE PRE- COMMENCEMENT PERIOD EXPENSES WHICH IN FACT HAS BEEN CAPITALIZED, I.E., THE CAPITAL COST HAS BEEN REDUCED. I FIND NO INFIRMITY IN THE TREATMENT GIVEN TO THE SAID INTEREST INCOME BY THE ASSESSEE. THE RELIA NCE IS PLACED UPON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF NTPC SAIL POWER COMPANY (P) LTD. VS. CIT, REPORTED IN (2012) 210 TA XMAN 358 (DEL) (HON'BLE HIGH COURT). THE RELEVANT PORTION OF THE D ECISION IS REPRODUCED HEREINBELOW: 10. IT IS NO DOUBT CORRECT THAT THE PROVISO TO SEC TION 36(1)(III) OF THE INCOME TAX ACT ENACTS THAT ANY AMOUNT OF THE INTEREST PAID TOWARDS (IN RESPECT OF) CAPITAL BORROWED FOR ACQUISITION OF AN ASSET OR FOR EXTENSION OF EXISTING BUSINESS REGARDLESS OF ITS CAPITALIZATION IN THE BO OKS OR OTHERWISE, FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE WOULD NOT QUALIFY AS DEDUCTION. HOWEVER, IN ALL THE SE CASES, WHEN THE INTEREST WAS RECEIVED BY THE ASSESSEE TOWARDS INTEREST PAID FOR FIXED DEPOSITS WHEN THE BORROWED FUNDS COULD NOT BE IMMEDIATELY PUT TO USE FOR THE PURPOSE FOR WHICH THEY WERE TAKEN, THIS COURT, AND INDEED THE S UPREME COURT HELD THAT IF THE RECEIPT IS INEXTRICABLY LINKED TO THE SETTING UP OF THE PROJECT, IT WOULD BE CAPITAL RECEIPT NOT LIABLE TO TAX BUT ULTIMATELY BE USED TO REDUCE THE COST OF ITA NO.3511/DEL/2016 3 THE PROJECT. BY THE SAME LOGIC, IN THIS CASE TOO, T HE FUNDS INVESTED BY THE ASSESSEE COMPANY AND THE INTEREST EARNED WERE INEXT RICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT. IT MAY BE ADDED THAT THE TRIBUNAL HAS NOT FOUND THAT THE DEPOSITS MADE AS MARGIN MONIES WERE NOT LI MITED TO THE CONSTRUCTION ACTIVITY CONNECTED TO THE EXPANSION OF THE BUSINESS BY WAY OF SETTING UP OF A NEW POWER GENERATION PLANT. 4.1 THE RELIANCE IS ALSO PLACED UPON THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSO RTIUM LTD. VS. ITO, REPORTED IN (2009) 315 ITR 255 (DEL) AND THE RELEVA NT PORTION OF THE DECISION IS REPRODUCED HEREINBELOW: IT IS CLEAR UPON A PERUSAL OF THE FACTS AS FOUND B Y THE AUTHORITIES BELOW THAT THE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR A SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTUR E. THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN T HE BUSINESS COULD NOT HAVE BEEN CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINES S IT WAS IN THE NATURE OF CAPITAL RECEIPT AND HENCE WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. IN THE CASE OF TUTICORIN ALKALI CHEMICALS (SUPRA) IT WAS FOUND BY THE AUTHORITIES THAT THE FUNDS AVAILABLE WITH THE A SSESSEE IN THAT CASE WERE SURPLUS AND, THEREFORE, THE SUPREME COURT HELD THAT THE IN TEREST EARNED ON SURPLUS FUNDS WOULD HAVE TO BE TREATED AS INCOM E FROM OTHER SOURCES . ON THE OTHER HAND IN BOKARO STEEL LTD (SUPRA) WHERE THE ASSESSEE HAD EARNED INTEREST ON ADVANCE PAID TO CONTRACTORS DURI NG PRE-COMMENCEMENT PERIOD WAS FOUND TO BE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT OF THE ASSESSEE AND HENCE WAS HELD TO BE A CAPITAL REC EIPT WHICH WAS PERMITTED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, I FI ND NO INFIRMITY IN THE TREATMENT MADE BY THE ASSESSEE WITH REGARD TO THE P RE-COMMENCEMENT PERIOD INCOME AND ACCORDINGLY NO ADDITION ON THIS ACCOUNT CAN BE MADE AND SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 28 TH APRIL, 2017 SD/- (B.P. JAIN) ACCOUNTANT MEMBER DATED: 28/04/2017