ITO, New Delhi V. M/s. Smart Digivision Pvt.Ltd., New Delhi

ITA 6112/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3690 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIT KUMAR
• Assessee Lawyers: RANU JA IN
• Keywords: Capital receipt
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH G NEW DELHI BEFORE : SHRI BHAVNESH SAINI , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6112/DEL./2013 ASSTT. YEAR : 2008 - 09 INCOME - TAX OFFICER, VS. SMART DIGIVISION PVT. LTD., WARD 9(1), NEW DELHI. 8, COMMERCIAL COMPLEX, MASJID MOTH, G.K. - II, NEW DELHI. (PAN - AALCS 1437P) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. AMRIT KUMAR, SR. DR R ESPONDENT BY : SMT. RANU JAIN, ADVOCATE DATE OF HEARING : 06.04.2017 DATE OF PRONOUNCEMENT : 07 .04.2017 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) - XII, NEW DELHI DATED 08.08.2013 FOR THE ASSESSMENT YEAR 2008 - 09 ON THE FOLLOWING GROUND : 1. THE LD. CIT(A) IGNORED THE DECISION OF THE SUPREME COURT IN THE CASE OF M/S. TUTICORN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. COMMISSIONER OF INCOME TAX, 227 ITR 172 (SC) 1997. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING IPTV (INTERNET PROTOCOL TELE VISION) SERVICES ALL OVER ITA NO. 6112/DEL./2013 2 INDIA IN 53 CITIES, FOR WHICH THE COMPANY HAS ENTERED INTO AN AGREEMENT WITH BHARAT SANCHAR NIGAM LTD. (BSNL) . AS PER TERMS AND CONDITIONS OF THE AGREEMENT, THE COMPANY HAS GIVEN BANK GUARANTEE IN FAVOUR OF BSNL. FOR ISSUING BANK GUARANTEE, FDR AGGREGATING TO RS.19.31 CRORES WAS MADE AND PLEDGED WITH THE BANK AS MARGIN MONEY. DURING THE FINANCIAL YEAR, THE COMPAN Y HAD NOT STARTED ITS BUSINESS. THE ASSESSEE HAD CLAIMED TOTAL CAPITALIZATION OF EXPENSES AMOUNTING TO RS.1,34,36,699/ - AFTER ADJUSTING THE INTEREST INCOME OF RS.59,91,767/ - FROM TOTAL PRE - OPERATIVE EXPENSES OF RS.1,94,28,466/ - . THE CASE WAS REOPENED U/S. 147 AND THE ASSESSMENT WAS FRAMED U/S. 143(3)/147 OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE INTEREST INCOME OF RS. 5 9,91,767/ - FOR ADJUSTMENT ON CAPITALIZATION OF EXPENSES AND TREATED IT AS AN INTEREST INCOME EARNED ON FDR . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAWS RELIED BY HIMSELF AND ASSESSEE AS WELL AS THE DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 IN I TA NO. 3717/DEL./2012 PASSED BY THE ITAT, ALLOWED THE APPEAL OF THE ASSESSEE VIDE IMPUGNED ORDER. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 6112/DEL./2013 3 3. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND REFER RED THE CONTENTS OF GROUND RAISED IN THIS APPEAL. IT WAS SUBMITTED THAT THE LD. CIT(A) WAS, ACCORDINGLY, NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE LD. ASSESSING OFFICER, WHICH NEEDS TO BE RESTORED. 4. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE IMPUGNED ADDITION IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2009 - 10 IN ITA NO. 3717/DEL./2012 DATED 15.02.2013 WHICH HAS BEEN CONFIRMED BY HON BLE HIGH COUR T VIDE ORDER DATED 03.01.2014 IN ITA NO. 499/2013. 5. AFTER HEARING THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 15.02.2013 OF CO - ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2009 - 10 IN ITA NO. 3717/DEL./2012 AND THIS DECISION HAS BEEN AFFIRMED BY HON BLE JURISDICTIONAL HIGH COURT IN ITA NO. 499/2013 VIDE ORDER DATED 03.01.2014. FOR RE ADY REFERENCE, THE RELEVANT PORTION OF TRIBUNAL ORDER IS REPRODUCED AS UNDER : 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE LEARNED CIT(A) HAS ALLOWED THE RELIEF TO ITA NO. 6112/DEL./2013 4 THE ASSESSEE FOLLOWING THE DECISION OF HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JAYPEE DSC VENTURES LTD. (2011) 335 ITR 132 (DELHI), WHEREIN IT WAS HELD AS UNDER: - AS IS NOTICEABLE FROM THE STIPULATIONS IN THE AGREEMENT, THE PERFORMANCE GUARANTEE BY WAY OF BANK GUARANTEE WAS RE QUIRED FOR FAITHFUL PERFORMANCE OF ITS OBLIGATIONS. THE NON - SUBMISSION OF THE GUARANTEE WOULD HAVE ENTAILED IN TERMINATION OF THE AGREEMENT AND NHAI WOULD HAVE BEEN AT LIBERTY TO APPROPRIATE BID SECURITY. THAT APART, THE RELEASE OF SUCH PERFORMANCE SECURIT Y DEPENDED UPON CERTAIN CONDITIONS. THUS, IT IS CLEARLY EVINCIBLE THAT THE BANK GUARANTEE WAS FURNISHED AS A CONDITION PRECEDENT TO ENTERING THE CONTRACT AND FURTHER IT WAS TO BE KEPT ALIVE TO FULFILL THE OBLIGATIONS. QUITE APART FROM THE ABOVE, THE RELEAS E OF THE SAME WAS DEPENDENT ON THE SATISFACTION OF CERTAIN CONDITIONS. THUS, THE PRESENT CASE IS NOT ONE WHERE THE ASSESSEE HAD MADE THE DEPOSIT OF SURPLUS MONEY LYING IDLE WITH IT IN ORDER TO EARN INTEREST; ON THE CONTRARY, THE AMOUNT OF INTEREST WAS EARN ED FROM FIXED DEPOSIT WHICH WAS KEPT IN THE BANK FOR FURNISHING THE BANK GUARANTEE. IT HAD AN INEXTRICABLE NEXUS WITH SECURING THE CONTRACT. THE VIEW EXPRESSED BY THE TRIBUNAL CANNOT BE FOUND FAULT WITH. THE TRIBUNAL WAS THEREFORE JUSTIFIED IN HOLDING THAT THE INTEREST EARNED BY THE ASSESSEE ON THE FDRS HAS INTRINSIC AND INSEGGREGABLE NEXUS WITH THE WORK UNDERTAKEN AND, THEREFORE, THE INTEREST EARNED BY THE ASSESSEE IS CAPITAL IN NATURE AND SHALL GO TOWARDS ADJUSTMENT AGAINST THE PROJECT EXPENDITURE AND THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 4. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AND THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE S CASE WHICH IS EVIDENT FROM THE ASSESSEE S LETTER DATED 1ST NOVEMBER, 2011 WRITTEN TO THE ASSESSING OFFICER AND REPRODUCED IN THE ASSESSMENT ORDER. FOR READY REFERENCE, THE SAME IS REPRODUCED BELOW: - AS THE MAIN ACTIVITY OF THE COMPANY IS TO PROVIDE IPTV SERVICE ALL OVER INDIA FOR WHICH COMPANY HAS BEEN AWARDED LICENSE BY BSNL GOVT. OF INDIA. FOR GETTING THE LICENSE THE COMPANY HAS TO ITA NO. 6112/DEL./2013 5 GIVE A BANK GUARANTEE TO BSNL GOVT. OF INDIA FOR ISSUING THE BANK GUARANTEES THE REQUIRE MARGIN MONEY I N THE FORM OF FDR ONLY. ACCORDING THE COMPANY HAS TO MAKE A FDR OF RS.19.31 CRORE AND THE SAME HAS BEEN PLEDGED WITH THE BANK AS MARGIN MONEY FOR ISSUING THE BANK GUARANTEE. THE COMPANY HAS EARNED INTEREST OF RS.16501064/ - ON FDR PLEDGED WITH BANK AS MARGI N MONEY FOR ISSUING BANK GUARANTEE. THE SAME HAS BEEN SHOWN UNDER MISCELLANEOUS INCOME IN THE SCHEDULE 4 OF THE ACCOUNTS AND BEING SET OFF WITH THE PREOPERATIVE EXPENSES. THE PROJECT IS NOT COMMENCED DURING THE CURRENT FINANCIAL YEAR. HENCE NO PROFIT & LOS S ACCOUNT IS PREPARED RATHER A STATEMENT OF PREOPERATIVE EXPENSES (PENDING ALLOCATION) IS PREPARED AS PER SCHEDULE 4 OF THE ANNUAL ACCOUNTS FOR ALL THE EXPENSES AND INTEREST EARNED ON FRD HAS BEEN SET OFF WITH THE EXPENSES. THIS IS, THEREFORE, NOT A CASE W HERE ANY SURPLUS SHARE CAPITAL MONEY WHICH WAS LYING IDLE HAD BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNING INTEREST. THE DEPOSIT OF MONEY IN PRESENT CASE WAS DIRECTLY LINKED WITH THE BUSINESS ACTIVITY OF THE COMPANY. THE SAME IS INTRICATELY CONNEC TED WITH THE BUSINESS ACTIVITY OF THE COMPANY. HENCE ANY INCOME EARNED ON SUCH DEPOSIT WAS INCIDENTAL TO THE BUSINESS OPERATION ACTIVITY. THE INTEREST WAS A CAPITAL RECEIPT, WHICH WOULD GOT REDUCE THE COST OF ASSET. HENCE INTEREST EARNED SHOULD NOT FORM PA RT OF PROFIT & LOSS ACCOUNT AND ACCORDINGLY CAN NOT BE TAXED AS INCOME. 5. SINCE THE FACTS IN THE CASE OF THE ASSESSEE ARE IDENTICAL TO THE FACTS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JAYPEE DSC VENTURES LTD. (SUPRA), IN OUR OPINION, LEARNED CIT(A), RIGHTLY RELYING UPON THE ABOVE DECISION, DELETED THE ADDITION. WE, THEREFORE, UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. THE ONLY CONTENTION OF THE REVENUE AS CONTAINED IN GROUND OF APPEAL THAT THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF TUTICORN ALKALI CHEMICALS(SUPRA) WAS NOT CONSIDERED BY LD. CIT(A) IS NOT FOUND CORRECT, AS THE SAID DECISION OF HON BLE SUPREME C OURT HAS BEEN REFERRED AND SUBSEQUENT ITA NO. 6112/DEL./2013 6 DECISIONS OF HON BLE SUPREME COURT DISCUSSING THE DECISION IN THE CASE OF TUTICORN ALKALI CHEMICALS, HAVE BEEN TAKEN INTO ACCOUNT BY THE LD. CIT(A) IN THE IMPUGNED ORDER. NO OTHER CONTENTION OR GROUND IS RAISED BY THE REVENUE IN THE MEMO OF THIS APPEAL. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH OF TRIBUNAL WHICH STOOD CONFIRMED BY JURISDICTIONAL HIGH COURT, WE ARE INCLINED TO DISMISS TH E APPEAL OF THE REVENUE. ACCORDINGLY, THE APPEAL OF THE REVE NUE DESERVES TO FAIL. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.04.2017 . SD/ - SD/ - (BHAVNESH SAINI) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.04.2017 *AK S/ - COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI