Kalinga Coal Mining Pvt. Ltd., Bhubaneswar V. ACIT, Bhubaneswar

ITA 557/CTK/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7585 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: RAMAN CHAWLA
• Keywords: Business income; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK SMC BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER ITA NO. 557/CTK/2013 ASSESSMENT YEAR :2008 - 09 M/S. KALINGA COAL MINING PVT LTD., C - 30, PALASPALLI, AERODROME AREA, BHUBANESWAR. VS. ACIT, CIRCLE - 1(1), AAYAKAR BHAVAN, RAJASWA VIHAR, BHUBANESWAR. PAN/GIR NO. AACCK 3729 P (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI RAMAN CHAWLA, AR REVENUE BY : SHRI D.K.PRADHAN, DR DATE OF HEARING : 17 /10/ 2016 DATE OF PRONOUNCEMENT : 17 /10/ 2016 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), BERHAMPUR DATED 23.9.2013, FOR THE ASSESSMENT YEAR 2008 - 2009. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT LD CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS.6,70,416/ - BY TREATING THE INTEREST RECEIVED ON FIXED DEPOSIT AS INCOME FROM OTHER SOURCES. 3. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACT OF THE CASE ARE THAT THE ASSESSEE EARNED INTEREST INCOM E OF RS.6,70,416/ - FROM FIXED DEPOSIT WITH AXIS BANK ON WHICH TDS OF RS.1,38,106/ - WAS 2 ITA NO. 557/CTK/2013 ASSESSMENT YEAR :2008 - 09 MADE. THE ESSESSEE EXPLAINED THAT THE INTEREST INCOME WAS DEDUCTED AGAINST INCIDENTAL EXPENSES DURING DEVELOPMENT PENDING ALLOCATION. IT WAS SUBMITTED THAT THE INTERES T INCOME WAS INEXTRICABLY LINKED TO THE PROJECT U NDER DEVELOPMENT AS THE SAME HAD ACCRUED OUT OF THE FIXED DEPOSITS MAINTAINED AS A PRECONDITION FOR DEBT SERVICE. THE AO REJECTED THE EXPLANATION OF THE ASSESSEE AND FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD VS CIT, 227 ITR 172 (SC) HELD THAT INTEREST ON FIXED DEPOSITS IS INCOME FROM OTHER SOURCES AN D BROUGHT THE SAME TO TAX. 4. ON APPEAL, LD CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER OBSERVING THAT THE ASSESSEE RECEIVED RS.6,70,416/ - AS INTEREST INCOME ON THE FIXED DEPOSITS KEPT WITH THE AXIS BANK LTD, WHICH WAS MADE FROM MONEY BORROWED FRO M THE SAID BANK AND, THEREFORE, THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF TUTICORI N ALKALI CHEMICALS & FERTILISERS (SUPRA) RELIED UPON BY THE AO IS CLEARLY APPLICABLE TO THE ASSESSEES CASE. 5. BEFORE ME, LD A.R. OF THE ASSESSEE RELIED ON THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAYPEE DSC VENTURES LTD., (2012 ) 17 TAXMANN.COM 257 (DELHI), WHEREIN, IT WAS HELD THAT THE ASSESSEE FURNISHED PERFORMANCE GUARANTEE IN FAVOUR OF NHAI TO GET CONTRACT AWARDED IN ITS FAVOUR AND TO PRO CURE SAID GUARANTEE, IT HAD KEPT CERTAIN AMOUNT AS FIXED DEPOSIT IN BANK. THE ASSESSEE TREATED INTEREST INCOME FROM FIXED DEPOSIT AS BUSINESS INCOME AND SET OFF SAME AGAINST PROJECT EXPENSES. THE AO HELD THAT INTEREST RECEIVED BY COMPANY ON BANK DE P OSIT WAS TAXABLE AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND THUS, PROJECT EXPENSES COULD NOT BE 3 ITA NO. 557/CTK/2013 ASSESSMENT YEAR :2008 - 09 ALLOWED TO BE SET OFF AGAINST INTEREST INCOME. THE TRIBUNAL ALLOWED THE ASSESSEES CLAIM. THE HONBLE HIGH COURT HELD THAT IT WAS APPARENT FROM RECORDS THAT BANK GUARANTEE WAS FURNISHED AS A CONDITION PRECEDENT TO ENTERING INTO CONTRACT AND FURTHER IT WAS TO BE KEPT ALIVE TO FULFIL CERTAIN OBLIGATIONS. FURTHER, RELEASE OF FIXED DEPOSIT WAS DEPENDENT ON SATISFACTION OF CERTAIN CONDITIONS. THEREFO RE, THE ASSESSEE FURNI SHED BANK GUARANTEE, WHICH HAS INEXTRICABLE NEXUS FOR SECURING THE CONTRACT. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE ASSESSEES CLAIM. LD A.R. ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF NTPC SAIL POWER COMPANY PVT LTD VS. CIT (ITA NO.1238/2011) ORDER DATED 17.7.2012, WHEREIN, IT WAS HELD THAT T HIS COURT, IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD VS. ITO (2009) 315 ITR 255 (DEL.) HELD THAT WHERE INTEREST ON MONEY RECEIVED AS SHARE CAPITAL IS TEMPORARILY PLACED IN FIXED DEPOSIT AWAITING ACQUISITION OF LAND, A CLAIM THAT SUCH INTEREST IS A CAPITAL RECEIPT ENTITLED TO BE SET OFF AGAINST PRE - OPERATIVE EXPENSES , IS ADMISSIBLE; AS THE FUNDS RECEIVED BY THE ASSESSEE COMPANY BY THE JOINT VENTURE PARTNERS ARE 'INEXTRICABLY LINKED' WITH THE SETTING UP OF THE PLANT AND SUCH INTEREST EARNED CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. THE REASONING IN INDIAN OIL IS IN LINE WITH BOKARO STEEL LTD. SIMILARLY, THE HONBLE SUPREME COURT IN CIT VS. KARNATAKA POWER CORPORATION, 247 I.T.R. 268 (SC) AND BONGAIGAON V REFINERY AND PETRO CHEMICAL CO. LTD. VS. COMMISSIONER INCOME TAX , 251 I.T.R. 329(SC) HELD THAT SUCH RECEIPTS AR E NOT INCOME. IT FURTHER HELD THAT IT IS NO DOUBT CORRECT THAT THE PROVISO TO SECTION 36(L)(III) OF THE INCOME TAX ACT ENACTS THAT ANY AMOUNT OF THE INTEREST PAID TOWARDS CAPITAL BORROWED FOR ACQUISITION OF AN ASSET OR FOR EXTENSION OF EXISTING BUSINESS R EGARDLESS OF ITS CAPITALIZATION IN THE BOOKS OR OTHERWISE, 'FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR 4 ITA NO. 557/CTK/2013 ASSESSMENT YEAR :2008 - 09 ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE ' WOULD NOT QUALIFY AS DEDUCTION. HOWEVE R, IN ALL THESE 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 HONBLE SUPREME 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 THE PROJECT. BY THE SAME LOGIC, IN THIS CASE TOO, THE FUNDS INVESTED BY T HE ASSESSEE COMPANY AND THE INTEREST EARNED WERE INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT. FURTHER, THE TRIBUNAL HAS NOT FOUND THAT THE DEPOSITS MADE AS MARGIN MONIES WERE NOT LIMITED TO THE CONSTRUCTION ACTIVITY CONNECTED TO THE EXPANSIO N OF THE BUSINESS BY WAY OF SETTING UP OF A NEW POWER GENERATION PLANT. THEREFORE, IT WAS HELD THAT THE TRIBUNAL AND THE LOWER AUTHORITIES FELL INTO ERROR IN HOLDING THAT THE INTEREST EARNED ON FIXED DEPOSIT OF AMOUNTS BORROWED, WHICH IS THE SUBJECT MATTE R OF THE PRESENT APPEAL, WOULD HAVE TO BE TREATED AS REVENUE RECEIPT. 6. LD A.R. OF THE ASSESSEE SUBMITTED BEFORE ME THAT THE ASSESSEE BORROWED RS.25,00,00,000/ - FROM UTI BANK ON 8.10.2006 WHICH IS EVIDENCED FROM THE LETTER DATED 26.10.2006 OF UTI BANK PL ACED AT PAGE 102 OF PAPER BOOK. HE FURTHER SUBMITTED THAT AS PER THE TERMS AND CONDITION OF SANCTION OF RS.25,00,00,000/ - , THE ASSESSEE WAS REQ UIRED TO MAINTAIN DEBT SERVICE C OVERAGE EQUIVALENT TO ONE MONTH INTEREST AND ONE QUARTER PRINCIPAL REPAYMENT WIT H LIEN MARKED IN FAVOUR OF BANK. THEREFORE, THE ASSESSEE HAD TO KEEP FIXED DEPOSIT WITH THE BANK ON WHICH IT EARNED INTEREST RS.6,70,416/ - . HENCE, THE INTEREST OF RS.6,70,416/ - EARNED BY THE ASSESSEE WAS CAPITAL RECEIPT NOT 5 ITA NO. 557/CTK/2013 ASSESSMENT YEAR :2008 - 09 LIABLE TO TAX AND THE SAME WA S TO BE ADJUSTED AGAINST THE INCIDENTAL EXPENSES DURING DEVELOPMENT PENDING ALLOCATION. FURTHER, THERE IS NO FINDING EITHER BY THE AO OR THE CIT(A) THAT THE FIXED DEPOSITS WERE NOT LIMITED TO THE PROJECT UNDER DEVELOPMENT. 7. LD D.R. COULD NOT CONTROVERT THE SUBMISSIONS MADE BY LD A.R. OF THE ASSESSEE. 8. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE DECISION S OF HONBLE DELHI HIGH COURT IN THE CASE OF JAYPEE DSC VENTURES :LTD (SUPRA) AND NTPC SAIL POWER COMPANY PV T LTD (SUPRA) SQUARELY APPLY TO THE ASSESSEES CASE. THEREFORE, I HOLD THAT THE INTEREST OF RS.6,70,416/ - EARNED BY THE ASSESSEE ON FIXED DEPOSIT WITH AXIS BANK IS NOT LIABLE TO TAX AND WAS RIGHTLY ADJUSTED BY THE ASSESSEE AGAINST THE INCIDENTAL EXPENSES DURING DEVELOPMENT PENDING ALLOCATION. HENCE, I DELETE ADDITION OF RS.6,70,416/ - MADE BY THE AO AND CONFIRMED BY THE LD CIT(A). 9 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRON OUNCED IN THE OPEN COURT ON 17 /10/2016 IN THE PRESENC E OF PARTIES. SD/ - ( N.S SAINI) A CCOUNTANT MEMBER CUTTACK; DATED 17 /10 /2016 6 ITA NO. 557/CTK/2013 ASSESSMENT YEAR :2008 - 09 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASST.REGISTRAR, ITAT, CUTTACK 1. THE APPELLANT : M/S. KALINGA COAL MINING PVT LTD., C - 30, PALASPALLI, AERODROME AREA, BHUBANESWAR 2. THE RESPONDENT : ACIT, CIRCLE - 1(1), AAYAKAR BHAVAN, RAJASWA VIHAR, BHUBANESWAR. 3. THE CIT(A), BERHAMPUR 4. CIT , BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//