ITO, New Delhi V. M/s. National High Power Test Laboratory Pvt. Ltd., New Delhi

ITA 5740/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4407 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: SUDHIR KUMAR
• Keywords: Source of fund; Capital receipt
• Section: 143(3); 56

Judgement Text

1 ITA NO. 5740/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 5740/DEL/2015 ( A .Y 2012-13) ITO WARD-17(4), ROOM NO. 225D, C. R. BUILDING, I.P. ESTATE NEW DELHI (APPELLANT) VS NATIONAL HIGH POWER TEST LABORATORY PVT. LTD. CORE 8, 1 ST FLOOR, SCOPE COMPLEX, 7 INSTITUTIONAL AREA, LODHI ROAD NEW DELHI AADCN0782A (RESPONDENT) APPELLANT BY SH. SURENDER PAL, SR. DR RESPONDENT BY SH. SUDHIR KUMAR, FCA ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 28/07/2015 PASSED BY CIT(A)-6, NEW DELHI FOR ASSESSMENT YEAR 2 012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,61,63,104/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INCOME FROM OTHER SOURCES? 2. THAT THE ORDER OF THE LD.CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 3. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ELECTRONICALLY ON 12.09.2012 DECLARING NIL INCOME. THE COMPANY WAS IN CORPORATED ON 22ND MAY 2009 WITH AN AUTHORIZED SHARE CAPITAL OF RS.120 CRORES WITH THE MAIN DATE OF HEARING 11.02.2019 DATE OF PRONOUNCEMENT 15.02.2019 2 ITA NO. 5740/DEL/2015 OBJECT TO ESTABLISH ON LINE HIGH POWER SHORT CIRCUI T TEST LABORATORY IN BINA, MADHYA PRADESH WHICH WILL PROVIDE FULL RANGE OF SHO RT CIRCUIT TESTING FOR THE ELECTRICAL EQUIPMENT INDUSTRY AND POWER SUPPLY UTIL ITIES IN CONFORMANCE TO INDIAN AND INTERNATIONAL STANDARDS. THE COMPANY IS A JOINT VENTURE COMPANY OF GOVT, ORGANIZATIONS VIZ. NTPC LIMITED, POWER GRI D CORPORATION OF INDIA LIMITED, NHPC LIMITED, DAMODAR VALLEY CORPORATION, AND CENTRAL POWER RESEARCH INSTITUTE, EACH PARTICIPATING EQUALLY IN E QUITY. THE MAIN WORK OF CONSTRUCTION OF TEST LABORATORY WAS STARTED IN THE YEAR 2011 WHICH WAS EXPECTED TO BE COMPLETE IN THE FINANCIAL YEAR 2015- 16. THE FUNDS FOR THE ENTIRE PROJECT HAD BEEN PLANNED TO BE FINANCED BY WAY OF 4 0 % AS EQUITY CONTRIBUTION FROM THE SHAREHOLDERS AND THE BALANCE 60% BY RAISIN G DEBT FUNDS. THE ASSESSING OFFICER MADE THE ADDITION ON ACCOUNT OF I NTEREST INCOME FROM BANKS AMOUNTING TO RS.1,61,63,104/- TREATING THE SAME AS REVENUE RECEIPT UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 56 WHILE FRAMING ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL. 5. THE LD. DR SUBMITTED THAT THE ASSESSEE COMPANY I NVESTED THE SURPLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED BY IT, I N FDRS. THE DEPOSITS GIVEN BY THE COMPANY WERE NOT IN THE REGULAR COURSE OF BU SINESS NOR WAS IF THE BUSINESS OF THE COMPANY TO MAKE DEPOSITS AND EARN I NTEREST. THE INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE TO THE ACT IVITIES OF THE COMPANY. THE INTEREST HAD ACCRUED ON THE FUNDS, WHICH WERE NOT I MMEDIATELY REQUIRED BY THE ASSESSEE COMPANY FOR ITS BUSINESS PURPOSES AND WHIC H WERE INVESTED IN FDRS. THE LD. DR FURTHER SUBMITTED THAT THE INTEREST EARN ON FDRS NOT EARN OUT OF BUSINESS REGULARLY CARRIED OUT BY THE ASSESSEE COMP ANY. THE LD. DR SUBMITTED THAT THE CASE OF THE ASSESSEE COMPANY IS SQUARELY COVERED BY THE HONBLE APEX COURT DECISION IN CASE OF TUTICORIN AL KALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172(SC). TH US, THE LD. DR RELIED UPON 3 ITA NO. 5740/DEL/2015 THE ASSESSMENT ORDER. 5. THE LD. AR RELIED UPON THE DECISION OF THE CIT(A ) AND ALSO RELIED UPON THE DECISION OF THE APEX COURT IN CASE OF CIT VS. B OKARO STEEL LIMITED (1999) 236 ITR 315. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE CIT (A) HELD AS UNDER:- CIT (APPEALS)S DECISION GROUND NO. 2 RELATES TO ADDING, ALTERING OR AMENDING ANY/ALL GRO UNDS OF APPEAL. THE ASSESSEE HAS NOT ALTERED OR AMENDED ANY GROUNDS OF APPEAL. IT HAS NOT ADDED ANY NEW GROUND OF APPEAL. IT HAS NOT PRESSED ON THIS GROUND DURING APPEAL PROCEEDINGS. HENCE, IT IS TREATED AS WITHDRAWN/DISMISSED. GROUND NO. 1 RELATES TO RECEIPT OF INTEREST FROM BANKS OF RS. 16 1.63 LAKHS. THE FACTS ARE AS UNDER:- THE COMPANY WAS INCORPORATED ON 22ND MAY 2009 WITH AN AUTHORIZED SHARE CAPITAL OF RS.120 CRORES WITH THE MAIN OBJECT TO ES TABLISH A STATE OF ART ON LINE HIGH POWER SHORT CIRCUIT TEST LABORATORY IN BI NA, THE COMPANY IS A JOINT VENTURE COMPANY FORMED BY NT PC LIMITED, POWER GRID CORPORATION OF INDIA LIMITED (PGCIL), NATIONAL HYDROELECTRIC POWER CORPORATION LIMITED (NHPC), DAMODAR VALLEY CORPORAT ION (DVC), AND CENTRAL POWER RESEARCH INSTITUTE (CPR1), EACH PARTICIPATING EQUALLY IN EQUITY. THE TOTAL REVISED ESTIMATED COST OF THE PROJECT IS RS.3 80 CRORES. THE FUNDS WERE RAISED THROUGH EQUITY CAPITAL FROM J OINT VENTURE PARTNERS AND WERE PLACED IN TEMPORARY DEPOSITS WITH BANKS SO THA T LIQUIDITY WAS ENSURED AND MONEY WOULD REMAIN AVAILABLE WHEN REQUIRED FOR PROJECT. 4 ITA NO. 5740/DEL/2015 HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT CONSORTIUM LTD. VS. ITO (2009) 315 ITR 255 (DEL.) [REFER PAGE NO.27 TO 33 OF THE PAPER BOOK] HELD THAT WHERE INTEREST ON MONEY RECEIVED AS SHARE CAPI TAL IS TEMPORARILY PLACED IN FIXED DEPOSIT, A CLAIM THAT SUCH INTEREST IS A C APITAL RECEIPT ENTITLED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES, IS ADMISSIBLE, AS THE FUNDS RECEIVED BY THE APPELLANT COMPANY FOR DEVELOPMENT OF INFRASTRUC TURE OF PROJECT BY THE JOINT VENTURE PARTNERS ARE 'INEXTRICABLY LINKED' WITH THE SETTING UP OF THE PROJECT AND SUCH INTEREST EARNED CANNOT BE TREATED AS INCOM E FROM OTHER SOURCES. THE AO IN THE ASSESSMENT ORDER TREATED THE INTEREST RECEIPTS AS REVENUE IN NATURE AND TAXED IT AS INCOME FROM OTHER SOURCES. R ELIANCE WAS MADE ON THE JUDGMENT OF HONBLE SUPREME COURT DELIVERED IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. CONCLUSION GOING BY THE FACTS AND THE NATURE OF THE RECEIPTS, THE JUDGMENT IN THE CASE OF INDIAN OIL PANIPATH POWER CONSORTIUM (DELHI HIGH CO URT), SQUARELY APPLIES TO THE PRESENT CASE. DELHI HIGH COURT RELIED ON THE SUPREME COURT JUDGME NT IN CIT VS. BOKARO STEEL LIMITED (SUPRA) THAT IF INCOME IS EARNED, WHE THER BY WAY OF INTEREST OR IN ANY OTHER MANNER ON FUNDS DELHI HIGH COURT RELIED O N THE SUPREME COURT JUDGMENT IN C1T VS. BOKARO STEEL LIMITED (SUPRA) IF INCOME IS EARNED, WHETHER BY WAY OF INTEREST OR IN ANY OTHER MANNER O N FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP O F PLANT, SUCH INCOME IS REQUIRED TO CAPITALIZED TO BE SET OFF AGAINST PRE-O PERATIVE EXPENSES. THE HON'BLE DELHI HIGH COURT HAD ALSO DISTINGUISHED THE FACTS BEFORE THEM FROM THE FACTS WHICH WERE BEFORE THE APEX COURT IN THE C ASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD, V CIT. THE AO FAILED TO ESTABLISH THAT THESE WERE SURPLUS FUNDS PARKED IN THE BANKS 5 ITA NO. 5740/DEL/2015 TO EARNED INTEREST. THE ASSESSEE, A PUBLIC SECTOR U NDERTAKING COULD PROVE THAT THE SOURCE OF FUNDS IS FROM CAPITAL CONTRIBUTED BY DIFFERENT CONSTITUENTS OF THE JOINT VENTURE CONSORTIUM AND PARKING OF THE FUNDS I S LINKED TO THE EXECUTION OF PROJECTS. GOING BY THE FACTS AND VARIOUS DECISIONS CITED ABOV E INCLUDING THE DECISION OF DIFFERENT APPELLATE AUTHORITIES OF OTHER GROUP CONC ERNS MENTIONED ABOVE, THE INTEREST RECEIPTS ARE TREATED AS CAPITAL IN NATURE AND THE ADDITION MADE IS HEREBY DELETED. THE CIT(A) HAS GIVEN DETAILED FINDING AFTER CONSIDE RING THE APEX COURT DECISIONS IN CASE OF TUTICORIN ALKALI CHEMICA LS & FERTILIZERS LTD. (SUPRA) AS WELL AS BOKARO STEEL LTD. THE CIT(A) RIGHTLY HE LD THAT THE ASSESSING OFFICER FAILED TO ESTABLISH THAT THESE WERE SURPLUS FUNDS P ARKED IN THE BANKS TO EARN INTEREST. IN THE PRESENT CASE, THE ASSESSEE COMPANY ESTABLISHED THAT INTEREST INCOME INEXTRICABLY LINKED WITH THE SETTING UP OF T HE PROJECT IS A CAPITAL RECEIPT AND THUS IT REQUIRES TO BE CAPITALIZED TO BE SET OF F AGAINST THE PRE-OPERATIVE EXPENSES AS CAPITAL WORK IN PROGRESS. IN FACT, THE LD. AR POINTED OUT THAT THE WORK WAS COMMENCED IN THE YEAR 2017 ITSELF. IT CAN BE SEEN THAT IN BOTH THE ASSESSMENT ORDERS THE COMMENCEMENT OF THE BUSINESS WAS NOT STARTED BUT WAS ONLY TO THE EXTENT THAT THE COMPANY WAS SETTING UP A PLANT ACTIVITIES LIKE LAND ACQUISITION, STATUTORY, CLEARANCE, DEVELOPMENT OF I NFRASTRUCTURE BUT THE BUSINESS ACTIVITY WAS NOT STARTED IN THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US. IN THE PRESENT CASE, THE INTEREST WAS N OT EARNED ON THE SURPLUS FUNDS BUT WERE EQUITY CONTRIBUTION BY THE JOINT VEN TURE OF PARTNERS FOR ACQUISITION, CONSTRUCTION AND SETTING UP OF A PLANT AND OTHER INFRASTRUCTURE FACILITIES. THE FUNDS KEPT IN THE CURRENT ACCOUNT O F THE COMPANY WERE USED FOR ON-GOING CONSTRUCTION ACTIVITY AS AND WHEN REQUIRED . THE RATIO LAID DOWN IN CASE OF BOKARO STEEL, WILL NOT BE APPLICABLE IN THE PRESENT CASE. IN THE PRESENT CASE, INTEREST INCOME INEXTRICABLY LINKED WITH THE SETTING UP OF THE PROJECT IS A CAPITAL RECEIPT AND THUS IT REQUIRES TO BE CAPITALI ZED TO BE SET OFF AGAINST THE 6 ITA NO. 5740/DEL/2015 PRE-OPERATIVE EXPENSES AS CAPITAL WORK IN PROGRESS. THERE WAS NO INTENTION OF THE ASSESSEE TO EARN ANY INTEREST ON SUCH FUNDS. T HE FUNDS WERE KEPT IN LIQUID SO AS TO USED THEM AS AND WHEN REQUIRED. THE INTERE ST WAS NOT EARNED OUT OF THE SURPLUS FUNDS, SO TREATING THE SAID INCOME AS I NCOME FROM OTHER SOURCE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. THEREFORE, THE CIT(A) HAS CORRECTLY APPLIED THE RATIO LAID DOWN BY THE APEX COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). HENCE, THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH FEBRU ARY, 2019 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/02/2019 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 5740/DEL/2015 DATE OF DICTATION 11.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 1 5 . 02.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 1 5 . 02.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 5 . 02.2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER