M/s. Tawlandi Sabo Power Ltd, MANSA V. The Income-tax Officer, MANSA

ITA 635/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8930 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 06-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency; Additional evidence; Wholly owned subsidiary; Capital receipt; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR (SMC) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER ITA NO.635(ASR)/2014 ASSESSMENT YEAR:2010-11 PAN: AACCT67 75G M/S. TALWANDI SABO POWER LTD. VS. INCOME TAX OFFICE R, VILL. BANAWALA, WARD-1(4), MANSA. MANSA. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. AJAY VOHRA, SR. ADV. RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING: 06/10/2015 DATE OF PRONOUNCEMENT: 01/01/2016 ORDER THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2010-11, AGAINST THE ORDER DATED 02.07.2014 PASSED BY THE LD . CIT(A), BATHINDA, CONTENDING THAT THE LD. CIT(A) HAS ERRED IN NOT CON SIDERING THE DETAILS AND BIFURCATION OF RS.9,40,082/-, OBSERVING THAT TH ESE DETAILS WERE NOT FURNISHED BEFORE THE AO AND HENCE, LIABLE FOR REJEC TION UNDER RULE 46A(1) OF THE INCOME TAX RULES, 1962 AND THEREBY BRINGING TO TAX THE AMOUNT OF RS.9,40,000/- AS INTEREST FROM DEPOSITS. 2. THE FACTS ARE THAT THE ASSESSEE FILED E-RETURN D ECLARING INCOME OF RS.2,58,580/- UNDER THE HEAD OF INCOME FROM OTHER S OURCES. A REVISED E- RETURN WAS FILED, WHEREIN, THE ASSESSEE DECLARED NI L INCOME. THE AO ASSESSED THE INCOME OF THE ASSESSEE AT RS.9,40,000/ - UNDER THE HEAD OF ITA NO.635(ASR)/2014) 2 INCOME FROM OTHER SOURCES. THE AO OBSERVED THAT THE ASSESSEE COMPANY WAS SETTING UP A THERMAL POWER PLANT AT MANSA. THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF M/S. STERLINE ENERGY LTD, TAMIL NADU, AS 100% OF THE EQUITY SHARES OF THE COMPANY ARE HELD BY M/S. STERLINE ENERGY LTD. SINCE THE ASSESSEE COMPANY WAS SETTIN G UP A POWER PROJECT, NO COMMERCIAL ACTIVITIES HAD BEEN STARTED. THE AO F OUND THAT THE ASSESSEE HAD SURPLUS FUNDS WHICH WERE NOT REQUIRE D IMMEDIATELY FOR SETTING UP THE POWER PROJECT. THESE FUNDS WERE INVE STED IN SHORT-TERM DEPOSIT, AS WELL AS IN MUTUAL FUNDS. IN THE ORIGINA L RETURN, THE ASSESSEE DECLARED INTEREST INCOME UNDER THE HEAD OF INCOME FROM OTHER SOURCES, WHEREAS IN THE REVISED RETURN, THE ASSESSEE DID NOT OFFER ANY INTEREST INCOME. THE AO FOUND THE FACTS OF THE ASSESSEES C ASE TO BE IN PARI- MATERIA WITH THOSE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT, 227 ITR 172 (SC). THE AO, THEREFORE, ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INTEREST REFLECTED BY THE ASSES SEE AS DEPOSITS BE NOT ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY UN DER THE HEAD OF INCOME FROM OTHER SOURCES. IT WAS STATED BY THE AO THAT AS IN THE ASSESSEES CASE, IN TUTICORIN ALKALI CHEMICALS & F ERTILIZERS LTD. VS. CIT (SUPRA) ALSO, PART OF INTEREST BEARING FUNDS BORRO WED FOR SETTING UP OF THE THERMAL POWER PROJECT, WHICH FUNDS WERE NOT IMMEDIA TELY REQUIRED BY TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD., FOR THE SAID SETTING UP OF THE THERMAL POWER PROJECT AND WHICH FUNDS WERE SURP LUS FUNDS, WERE INVESTED IN SHORT-TERM DEPOSITS AND THE HONBLE SU PREME COURT, AFTER ITA NO.635(ASR)/2014) 3 GIVING DETAILED REASONS, HELD THAT THE INTEREST REC EIVED/DIVIDEND ON THE SAID DEPOSITS WOULD BE CHARGEABLE UNDER THE HEAD I NCOME FROM OTHER SOURCES. THE AO FURTHER STATED THAT THE INTEREST P AID ON BORROWED FUNDS WAS NOT ADJUSTABLE AGAINST THE INTEREST RECEIVED AN D THE SAME WAS REQUIRED TO BE CAPITALIZED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CHELLAPALLI SUGAR LTD. VS CIT , 98 ITR 167(SC). 3. THE ASSESSEE RESPONDED BY STATING THAT DURING TH E YEAR, THE ASSESSEE COMPANY HAD NOT COMMENCED ITS BUSINESS OF GENERATION OF POWER AND THE ENTIRE NET EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT HAD BEEN SUBSEQUENTLY TRANSFERRED TO CAPITAL WORK I N PROGRESS; THAT THE INCOME OF THE YEAR DID NOT INCLUDE ANY INCOME FROM FUNDS INVESTED IN SHORT TERM DEPOSITS; THAT THE INVESTMENTS WERE MAD E OUT OF THE FUNDS IMMEDIATELY NOT REQUIRED, BUT RAISED TO MEET THE CONTRACTUAL REQUIREMENTS OF THE PROJECT, IN MUTUAL FUNDS, ON WH ICH, DIVIDEND HAD BEEN RECEIVED BY THE COMPANY, IN ACCORDANCE WITH T HE PRINCIPLE OF CAPITALIZING EXPENDITURE/INCOME DURING THE CONSTRU CTION OF THE PROJECT; THAT THE SAID INCOME HAD BEEN CAPITALIZED DURING TH E YEAR; AND THAT THE MATTER REGARDING NOT TREATING SUCH INCOME UNDER TH E HEAD OF INCOME FROM OTHER SOURCES STOOD CONSIDERED IN NUMEROUS JUD GMENTS. THESE JUDGMENTS WERE ENUMERATED BY THE ASSESSEE. IT WAS FURTHER CONTENDED THAT TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (SUPRA), WAS ALSO DISTINGUISHED IN INDIAN OIL PANIPAT POWER CON SORTIUM LTD. VS. ITO, 315 ITR 255 (DEL.). IT WAS CONTENDED THAT BESIDES, DIVIDEND RECEIVED FROM ITA NO.635(ASR)/2014) 4 MUTUAL FUNDS IS EXEMPT U/S 10(35) OF THE ACT, AS PE R WHICH, INCOME RECEIVED IN RESPECT OF THE UNITS OF THE MUTUAL FUND S DOES NOT FORM A PART OF THE TOTAL INCOME; AND THAT DIVIDEND DISTRIB UTION TAX HAS ALREADY BEEN PAID ON THE SAME; AND THAT THE ASSESSEE HAD C APITALIZED THE NET AMOUNT OF EXPENDITURE/INCOME, SINCE THE SAME WAS I NEXTRICABLY LINKED WITH THE SETTING UP OF THE PLANT AND WOULD GO TO R EDUCE THE CAPITAL COST OF THE PLANT AND WOULD NOT BE ASSESSABLE AS INCOME FROM OTHER SOURCES. 4. THE AO, HOWEVER, REJECTED THE ASSESSEES CONTEN TION AND ASSESSED THE ASSESSEES INCOME OF RS.9,40,000/- UNDER THE HE AD INCOME FROM OTHER SOURCES, BY FOLLOWING TUTICORIN ALKALI CHEM ICALS & FERTILIZERS LTD. VS. CIT (SUPRA). 5. BEFORE THE LD. CIT(A), THE ASSESSEE GAVE A BIFUR CATION OF THE AMOUNT OF RS.9,40,000/- [AS PER THE LD. CIT(A), TAKEN AT R S.9,40,003/- BY THE AO AND AT RS.9,40,082/- BY THE ASSESSEE]. THIS BIFURCA TION IS AS FOLLOWS: SL.NO. PARTICULARS AMOUNT 1. EXCESS PROVISION WRITTEN BACK 66,8518 2. PROFIT FROM INVESTMENT (INCL. OF MARKET TO MARKET GAIN RS.37711) 64,879 3. INTEREST INCOME 2,01,705 4. MISCELLANEOUS INCOME 4,980 TOTAL 9,40,082/- 6. THE LD. CIT(A), HOWEVER, IN PARA 1.5 OF THE IMPU GNED ORDER, OBSERVED THAT THIS BIFURCATION WAS NOT FURNISHED B Y THE ASSESSEE BEFORE ITA NO.635(ASR)/2014) 5 THE AO DURING THE ASSESSMENT PROCEEDINGS AND IT HAD BEEN ADMITTED BY THE ASSESSEE IN ITS REPLY FILED BEFORE THE AO, THAT THE INVESTMENT HAD BEEN MADE OUT OF THE FUNDS IMMEDIATELY NOT REQUIRE D TO MEET THE CONTRACTUAL REQUIREMENT OF THE BUSINESS. THE LD. CI T(A) OBSERVED THAT NO CORROBORATIVE EVIDENCE HAD BEEN FILED IN THE APPEL LATE PROCEEDINGS TO JUSTIFY THE BIFURCATION OF RS.9,40,003; AND THAT TH E SAME ALSO DID NOT ARISE FROM THE GROUNDS OF APPEAL ON ACCOUNT OF LACK OF EVIDENCE. IT WAS OBSERVED THAT RULE 46A(1) OF THE I.T. RULES PROHI BITS THE LD. CIT(A) FROM ADMITTING ANY ADDITIONAL EVIDENCE WITHOUT ANY APPLI CATION STATING WHY THE ASSESSEE COULD NOT PRODUCE THE SAME BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS. IT WAS, THEREFORE, THAT THE LD. CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE AND THE ENTIRE AMOUNT OF RS.9,40,000/- WAS TREATED AS INTEREST FROM DEPOSITS, AS HELD BY THE A O. 7. THE LD. CIT(A) FURTHER OBSERVED THAT ON MERIT A LSO, THE CASE OF THE ASSESSEE IS COVERED BY THE ORDER DATED 31.12.2013 O F THE AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF HPCL MITTAL ENERGY LIMITED VILL PHOOLOKHARI, TALWANDI SABO, IN ITA NOS.445 & 446(A SR)/2013, WHEREIN IT HAS BEEN HELD THAT SUCH INTEREST IS NOT A CAPITA L RECEIPT AND IS INCOME OF REVENUE NATURE. 8. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 9. ON BEHALF OF THE ASSESSEE, IT HAS BEEN CONTENDED AS FOLLOWS: THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE DET AILS/BIFURCATION OF RS.9,40,000/- . THESE DETAILS/BIFURCATION WERE A VAILABLE IN THE ASSESSEES BOOKS OF ACCOUNT, LUCIDLY DEPICTED IN THE BALANCE SHEET. THIS BIFURCATION IS SELF-EXPLANATORY FOR AS CERTAINING THE NATURE OF ENTRIES AND NOT BEING IN THE NATURE OF AN Y ADDITIONAL EVIDENCE. THE LD. CIT(A) FAILED TO APPRECIATE THAT IN THE ASSESSMENT PROCEEDINGS, THE AO HAD MERELY DISPUTED THE TAXABI LITY OF INTEREST ITA NO.635(ASR)/2014) 6 RECEIVED/RECEIVABLE ON SHORT-TERM DEPOSITS WITH TH E BANK. AS SUCH, THE ASSESSEE HAD NO OCCASION TO DEAL WITH TH E ENTRIES. THE LD. CIT(A) HAS, THEREBY ERRED IN NOT CONSIDERING SU CH BIFURCATION ERRONEOUSLY OBSERVING THE CASE OF THE ASSESSEE TO BE HIT BY RULE 46A(1) OF THE I.T. RULES. WHILE DOING SO, THE LD. C IT(A) FAILED TO APPRECIATE THE POWER AVAILABLE TO HIM UNDER RULE 4 6A(1) OF THE I.T. RULES AS WELL AS U/S(S) 250(4) AND 250(5) OF THE A CT. IT HAS BEEN CONTENDED THAT WITHOUT PREJUDICE, THE TAXATION OF T HE AMOUNT OF RS.9,40,000/- UNDER THE HEAD INCOME FROM OTHER SOU RCES INSTEAD OF ABATING THE WORK IN PROGRESS ACCOUNT, IS ARBIT RARY AND UNJUST AND AT ANY RATE, VERY EXCESSIVE. IT IS ALSO COMPLET ELY AGAINST THE RULE OF CONSISTENCY VIS-A-VIS THE METHOD OF ACCOUNT ANCY EARLIER ACCEPTED. 10. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER C ONTENDED THAT THE LD. CIT(A) HAS ERRED IN OBSERVING THAT BIFURCATION OF T HE AMOUNT OF RS.9,40,003/- WAS NOT FURNISHED BY THE ASSESSEE BEF ORE THE AO DURING THE ASSESSMENT PROCEEDINGS, AND THAT NO CORROBORATI VE EVIDENCE HAD BEEN FURNISHED IN THE APPELLATE PROCEEDINGS TO JUS TIFY SUCH BIFURCATION AND THEREFORE, THE SAME COULD NOT BE ADMITTED AS AD DITIONAL EVIDENCE. IT HAS BEEN CONTENDED THAT THE BIFURCATION IS SELF EXP LANATORY AND IT DOES NOT COMPRISE ANY ADDITIONAL EVIDENCE. ATTENTION IN THIS REGARD HAS BEEN DRAWN TO THE TABLE AT PAGE-11 OF THE IMPUGNED ORDER , WHICH IS THE BIFURCATION ITSELF AND READS AS FOLLOWS: SL.NO. PARTICULARS AMOUNT 1. EXCESS PROVISION WRITTEN BACK 66,8518 2. PROFIT FROM INVESTMENT (INCL. OF MARKET TO MARKET GAIN RS.37711) 64,879 3. INTEREST INCOME 2,01,705 4. MISCELLANEOUS INCOME 4,980 TOTAL 9,40,082/- 11. IT HAS BEEN CONTENDED THAT THIS VERY BIFURCATIO N WAS AVAILABLE WITH THE AO DURING THE ASSESSMENT PROCEEDINGS, FILED BY THE ASSESSEE AS PART OF THE AUDITED FINANCIAL STATEMENTS OF THE ASSESSEE FOR THE PREVIOUS YEAR ENDING 31.03.2010 RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION ITA NO.635(ASR)/2014) 7 AND BY SCHEDULES FORMING PART OF THE ACCOUNTS FOR T HE YEAR ENDED 31.03.2010. FOR THIS ATTENTION HAS BEEN DRAWN TO PA GE 12 OF THE APB. 12. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER AR GUED THAT THE LD. CIT(A) HAS ERRED IN OBSERVING THAT THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE JURISDICTIONAL BENCH OF THE TRI BUNAL IN THE CASE OF HPCL MITTAL ENERGY LIMITED VS. ACIT, ITA NOS. 445 & 446(ASR)/2013. AS PER THE LD. CIT(A), ACCORDING TO THE SAID TRIBUN AL ORDER, INTEREST, LIKE THE ONE INVOLVED HEREIN, IS NOT A CAPITAL RECEIPT A ND IS INCOME OF REVENUE NATURE. 13. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO COPY OF THE SAID ORDER OF THE TRIBUNAL, WHICH IS CONTAINED AT APB 51 TO 89 , HAS TAKEN ME THROUGH PARAS 8 TO 18 OF THE SAID TRIBUNAL ORDER (A PB 68-86). IT HAS BEEN CONTENDED THAT IN THAT CASE, INTEREST WAS EARNED O N SHORT-TERM DEPOSITS MADE BY THE ASSESSEE WITH THE BANK AND THE HPCL. TH E LD. COUNSEL FOR THE ASSESSEE HAS STRESSED THAT IN THE PRESENT CASE NO INTEREST HAS BEEN EARNED. IT HAS BEEN ARGUED THAT THEREFORE, HPCL MIT TAL ENERGY LTD. (SUPRA), IS NOT AT ALL APPLICABLE TO THE FACTS OF T HE PRESENT CASE. FURTHER, I HAVE ALSO BEEN TAKEN THROUGH THE ASSESSEES WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A) ALONGWITH BIFURCATION OF THE AMOUNT IN QUESTION. A COPY OF THE SAID WRITTEN SUBMISSIONS HAS BEEN PLACE D AT APB110-123. AT APB 119 TO 126, IN THE SAID WRITTEN SUBMISSIONS, TH E BREAK UP OF THE AMOUNT OF RS.9,40,003/- HAS BEEN DEALT WITH IN DETA IL, SHOWING THAT NO INTEREST HAS BEEN EARNED. IT WAS CONTENDED THAT T UTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) AND HPCL MIT TAL ENERGY LIMITED (SUPRA), ARE NOT AT ALL APPLICABLE TO THE PRESENT C ASE. 14. STRONG RELIANCE HAS BEEN PLACED BY THE LD. COUN SEL FOR THE ASSESSEE ON CIT VS. BOKARO STEEL LTD., 102 TAXMAN 94 (SC) [CLPB 1-6 ], CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD., 243 ITR 2 (S C) [CLPB -7], CIT VS. ITA NO.635(ASR)/2014) 8 KARNATAKA POWER CORPORATION, 247 ITR 268 (SC) [CLP B-8-9], BONGAIGAON REFINERY AND PETROCHEMICALS LTD. VS. CI T, 251 ITR 329 (SC) [CLPB10-11], INDIAN OIL PANIPAT POWER CONSORTIUM LT D. VS. ITO, 315 ITR 255 (DEL) [CLPB 12-15] AND NTPC SAIL POWER COMPANY PVT. LTD. VS. CIT, ORDER DATED 17.07.2012, OF THE HONBLE DELHI HIGH COURT IN ITA NO.1238/2011 [CLPB 16-27). 15. IN BOKARO STEEL LTD. (SUPRA), THE ASSESSEE WA S IN PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT AND HAD NOT STA RTED ANY BUSINESS DURING RELEVANT ASSESSMENT YEARS. IT RECEIVED CERT AIN AMOUNTS THROUGH (I) RENT CHARGED BY THE ASSESSEE FROM ITS CONTRACTO RS FOR HOUSING WORKERS AND STAFF EMPLOYED BY THE CONT5RACTOR FOR THE CONS TRUCTION WORK OF THE ASSESSEE (II) HIRE CHARGES FOR PLANT AND MACHINERY GIVEN TO THE CONTRACTORS FOR USE IN THE CONSTRUCTION WORK OF THE ASSESSEE AND (III) INTEREST FROM ADVANCES MADE TO CONTRACTORS FOR THE PURPOSE OF FACILITATING WORK OF CONSTRUCTION. THESE RECEIPTS H AD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND, THUS, THEY HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THE HONBLE SUP REME COURT HELD THAT ALL THESE THREE RECEIPTS, BEING INTRINSICALLY CONNE CTED WITH CONSTRUCTION OF ASSESSEES PLANT WOULD BE CAPITAL RECEIPT AND NOT T HE ASSESSEES INCOME FROM ANY INDEPENDENT SOURCE. THERE WAS ANOTHER RECE IPT, I.E., ROYALTY FOR EXCAVATION AND USE OF STONES LYING ON ASSESSEES L AND FOR CONSTRUCTION WORK. IT WAS HELD THAT THIS RECEIPT BEING ROYALTY R ECEIVED FOR STONE EXCAVATED FROM THE ASSESSEES LAND WOULD GO TO REDU CE COST OF PLANT AND COULD NOT BE TAXED AS INCOME. 16. IN KARNAL CO-OPERATIVE SUGAR MILLS LTD. (SUPR A), THE ASSESSEE HAD DEPOSITED MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MACHINERY REQUIRED FOR SETTING UP ITS PLANT IN TERM S OF THE ASSESSEES AGREEMENT WITH THE SUPPLIER. SOME INTEREST HAD BEE N EARNED ON THE MONEY SO DEPOSITED. THE HONBLE SUPREME COURT HELD THAT IT WAS NOT A CASE WHERE ANY SURPLUS SHARE CAPITAL MONEY WHICH WA S LYING IDLE, HAD ITA NO.635(ASR)/2014) 9 BEEN DEPOSITED IN THE BANK FOR THE PURPOSE OF EARNI NG INTEREST. THE DEPOSIT OF MONEY WAS HELD TO BE DIRECTLY LINKED WI TH THE PURCHASE OF PLANT AND MACHINERY AND IT WAS HELD THAT ANY INCOME EARNED ON SUCH DEPOSITS WAS INCIDENTAL TO THE ACQUISITION OF THE A SSETS FOR SETTING UP OF THE PLANT AND MACHINERY. THE INTEREST WAS HELD TO BE CAPITAL RECEIPT, WHICH WILL GO TO REDUCE THE COST OF ASSET. 17. IN KARNATAKA POWER CORPORATION (SUPRA), THE H ONBLE SUPREME COURT CONFIRMED THE ORDER OF THE TRIBUNAL UPHOLDING THE LD. CIT(A)S ACTION IN DELETING THE ADDITION BEING INTEREST RECE IPTS AND HIRE CHARGES FROM CONTRACTORS BY HOLDING THAT THE SAME WERE IN T HE NATURE OF CAPITAL RECEIPTS WHICH WOULD GO TO REDUCE CAPITAL COST. 18. IN BONGAIGAON REFINERY AND PETROCHEMICALS LTD. (SUPRA), THE HONBLE GAUHATI HIGH COURT, HELD THAT THE INCOME FR OM HOUSE PROPERTY, GUEST HOUSE, HIRE CHARGES FOR EQUIPMENT AND RECOVER IES FROM CONTRACTORS FOR SUPPLY OF WATER AND ELECTRICITY SUPPLY RECEIVED DURING THE PERIOD OF FORMATION OF ASSESSEE-COMPANYS MAIN BUSINESS OF OI L REFINERY AND PETROCHEMICALS WHICH WAS BEING SET UP WERE TAXABLE AS INCOME FROM OTHER SOURCES. REVERSING THE DECISION OF THE HIGH COURT, THE HONBLE SUPREME COURT HELD THAT THESE ITEMS OF RECEIPTS W ERE NOT TAXABLE INCOME, BUT WERE TO BE ADJUSTED AGAINST THE PROJECT COST FOR THE BUSINESS OF OIL REFINERY AND PETROCHEMICALS. BOKARO STEEL (S UPRA), WAS APPLIED. KARNAL CO-OPERATIVE SUGAR MILS LTD (SUPRA), KARNATA KA POWER CORPORATION (SUPRA) AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) WERE REFERRED TO. 19. IN INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS . ITO (SUPRA), THE ASSESSEE-COMPANY WAS INCORPORATED IN PURSUANCE OF A JOINT VENTURE ENTERED INTO BETWEEN INDIAN OIL CORPORATION AND MA RUBENI CORPORATION OF JAPAN TO SET UP A POWER PROJECT. TO EFFECTUATE THE PURPOSE FOR WHICH JOINT VENTURE WAS CONCEIVED, SHARE CAPITAL WAS CONT RIBUTED BY THE TWO ITA NO.635(ASR)/2014) 10 CORPORATIONS COMPRISING IT. THIS INCLUDED RS.20 CRO RES BY WAY OF ADDITIONAL SHARE CAPITAL. THE ASSESSEE TEMPORARILY PLACED MONEY RECEIVED AS SHARE CAPITAL IN A FIXED DEPOSIT TEMPORARILY AWA ITING ACQUISITION OF LAND WHICH HAD RUN INTO LEGAL ENTANGLEMENTS ON ACCO UNT OF TITLE. THE AO TREATED THE INTEREST RECEIVED THEREON AS INCOME FR OM OTHER SOURCES. THE LD. CIT(A) ACCEPTED THE ASSESSEES STAND THAT THE INTEREST WAS IN THE NATURE OF CAPITAL RECEIPT, LIABLE TO BE SET OFF AGA INST PRE-OPERATIVE EXPENSES. THE HONBLE DELHI HIGH COURT HELD THAT T HE FUNDS IN THE FORM OF SHARE CAPITAL WERE INFUSED FOR THE PURPOSE OF A CQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE; THAT THEREFORE, THE INTEREST EARNED ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINES S, COULD NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCE; AND THAT SI NCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINES S IT WAS IN THE NATURE OF A CAPITAL RECEIPT AND WAS REQUIRED TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES. BOKARO STEEL LTD. WAS REFERR ED TO. TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. WAS DISTINGUISHED. W HILE DOING SO, IT WAS OBSERVED THAT THE TEST WHICH PERMEATES THROUGH THE TUTICORIN ALKALI CHEMICALS (SUPRA), IS THAT IF THE FUNDS HAVE BEEN B ORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN, B Y VIRTUE OF THAT CIRCUMSTANCE, THEY ARE INVESTED IN FIXED DEPOSITS, THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES; THAT ON THE OTHER HAND, RATIO IN BOKARO STEEL LTD. (SUPRA) IS THAT IF INCOME IS EARNED, WHETHER BY WAY OF INTERST OR IN ANY OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICABLY LI NKED TO THE SETTING UP OF THE PLANT, SUCH INCOME IS REQUIRED TO BE CAPI TALIZED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. IT WAS OBSERVED THA T THE TEST IN WHETHER ACTIVITY TAKEN UP FOR SETTING UP OF THE BUSINESS A ND THE FUNDS WHICH ARE GARNERED ARE INEXTRICABLY CONNECTED TO THE SETTING UP OF THE PLANT; ONCE IT IS HELD THAT THE ASESSEES INCOME IS CONNECTED WITH BUSINESS, IT CANNOT BE HELD THAT INCOME DERIVED BY PARKING THE FUNDS TEMPO RARILY WILL RESULT IN THE CHARACTER OF THE FUNDS BEING CHANGED; THAT WHER E THE FUNDS ARE ITA NO.635(ASR)/2014) 11 INFUSED IN THE BUSINESS FOR SPECIFIC PURPOSE, THE I NTEREST EARNED THEREON CANNOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES , AS INCOME RECEIVED CANNOT BE DISCUSSED AS INCOME FROM OTHER SOURCES ON LY IF IT DOES NOT FALL UNDER ANY OTHER HEAD OF INCOME; THAT SINCE THE INCO ME EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IS IN THE NATURE OF CAPITAL RECEIPT REQUIRED TO BE SET OFF AGAINST PRE-OPERATIV E EXPENSES; THAT WHEREAS IN TUTICORIN ALKALI CHEMICALS (SUPRA), SI NCE THE FUNDS AVAILABLE WERE SURPLUS FUNDS, THE HONBLE SUPREME COURT HELD THE INTEREST EARNED THEREON LIABLE TO BE TREATED AS INCOME FROM OTHER SOURCES. IN BOKARO STEEL LIMITED (SUPRA), THE INTEREST WAS FOUND TO B E INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT, LEAVING TO BE HELD TO BE A CAPITAL RECEIPT PERMITTED TO BE SET OFF AGAINST PRE-OPERATIVE EXPEN SES. 20. IN NTPC SAIL POWER COMPANY PVT. LTD. (SUPRA), THE HONBLE DELHI HIGH COURT CONSIDERED THE TUTICORIN ALKALI CHEMIC ALS (SUPRA), BOKARO STEEL LTD. (SUPRA), INDIAN OIL PANIPAT POWER CONS ORTIUM LTD. (SUPRA), KARNATAKA POWER CORPORATION (SUPRA) AND BONGAIOG AON REFINERY & PETROCHEMICALS LTD. (SUPRA). IT WAS OBSERVED THAT IN ALL THESE CASE, THE INTEREST WAS RECEIVED BY THE ASSESSEE ON BORROWED F UNDS INVESTED, WHICH FUNDS COULD NOT BE IMMEDIATELY PUT TO USE FOR THE P URPOSE FOR WHICH THEY WERE TAKEN AND IT WAS HELD BOTH, BY THE HONBLE DE LHI HIGH COURT AND THE HONBLE SUPREME COURT THAT IF THE RECEIPT WAS I NEXTRICABLY LINKED TO SETTING UP OF THE PROJECT, IT WILL BE CAPITAL RECEI PT NOT LIABLE TO TAX BUT WOULD ULTIMATELY BE USED TO REDUCE THE COST OF THE PROJECT. THIS VERY REASONING WAS APPLIED TO THE CASE OF NTPC SAIL POW ER COMPANY PVT. LTD. (SUPRA) . WHERE THE ASSESSEE WAS IN THE PROCE SS OF ITS EXPANSION OF BUSINESS BY SETTING UP NEW UNITS AT BHILAI FOR GENE RATION OF POWER, ADDITIONAL CAPITAL WAS RAISED FOR FINANCING THE EXP ANSION PLANS AND INTEREST WAS EARNED ON TEMPORARY DEPOSITS MADE FROM SURPLUS FUNDS AND ON THE DEPOSITS MADE WITH BANKS BY WAY OF MARGIN OR GIVING ADVANCES, ETC., FOR THE PURPOSE OF EXPANSION, THE INTEREST EA RNED ON THE SURPLUS ITA NO.635(ASR)/2014) 12 FUNDS BY WAY OF MARGIN OR GIVING ADVANCES FOR THE P URPOSE OF EXPANSION HAVING BEEN ADJUSTED TO THE INCIDENTAL EXPENSES DU RING CONSTRUCTION, THE AO HAVING TREATED THIS INTEREST AS INCOME FROM OTHER SOURCES, THE LD. CIT(A) HAVING ACCEPTED THE ASSESSEES APPEAL AND T HE TRIBUNAL HAVING REVERSED THE LD. CIT(A)S ORDER ON APPEAL BY THE DE PARTMENT. 21. THE LD. DR, ON THE OTHER HAND, HAS SOUGHT TO PL ACE STRONG RELIANCE ON THE OBSERVATIONS OF THE LD. CIT(A), MADE IN PARA 1.5 AND 1.6 OF THE IMPUGNED ORDER, AS ABOVE. HE HAS CONTENDED THAT TH E ASSESSEE HAS NOT BEEN ABLE TO DISLODGE THE CATEGORICAL FINDING RECOR DED BY THE LD. CIT(A) THAT THE BIFURCATION OF THE AMOUNT OF RS. 9,40,03/- HAD NEVER BEEN FURNISHED BY THE ASSESSEE BEFORE THE AO IN THE ASSE SSMENT PROCEEDINGS, THAT EVEN IN THE APPELLATE PROCEEDINGS BEFORE THE L D. CIT(A), THE ASSESSEE HAD NOT FILED ANY CORROBORATIVE EVIDENCE TO JUSTIFY THE SAID BIFURCATION AND THAT THE SAID BIFURCATION WAS NOT ADMISSIBLE BY WAY OF ADDITIONAL EVIDENCE, FOR THESE REASONS. IT HAS BEEN CONTENDED THAT THE ASSESSEE HAS ALSO NOT BEEN ABLE TO COME OUT OF ITS ADMISSION IN THE REPLY FILED BEFORE THE AO AS CORRECTLY TAKEN NOTE BY THE LD. CIT(A) TH AT THE INVESTMENT WAS MADE OUT OF FUNDS IMMEDIATELY NOT REQUIRED. IT HAS FURTHER BEEN SUBMITTED THAT ALTERNATIVELY THE MATTER BE REMITTE D TO THE FILED OF THE LD. CIT(A), IN CASE THE BIFURCATION FILED BY THE ASSESS EE IS FOUND TO BE JUSTIFIED AND ADMISSIBLE IN EVIDENCE. 22. I HAVE CONSIDERED THE MATTER IN THE LIGHT OF TH E RIVAL CONTENTIONS AND THE MATERIAL PLACED ON RECORD. FIRST OF ALL, IT WOULD BE APPROPRIATE TO JUXTAPOSE THE ASSESSEES SCHEDULE FORMING PART OF T HE ACCOUNTS FOR THE YEAR ENDED 31.03.2010. THE BIFURCATION SOUGHT TO BE PRODUCED BY THE ASSESSEE BEFORE THE LD. CIT(A), WHICH THE LD. CIT(A ) REFUSED TO TAKE INTO CONSIDERATION. AGAINST WHICH BIFURCATION IS GIVEN B Y WAY OF CHART/TABLE AT PAGE 11 OF THE IMPUGNED ORDER AS FOLLOWS: ITA NO.635(ASR)/2014) 13 SL.NO. PARTICULARS AMOUNT 1. EXCESS PROVISION WRITTEN BACK 66,8518 2. PROFIT FROM INVESTMENT (INCL. OF MARKET TO MARKET GAIN RS.37711) 64,879 3. INTEREST INCOME 2,01,705 4. MISCELLANEOUS INCOME 4,980 TOTAL 9,40,082/- 23. A COPY THEREOF HAS BEEN FILED AT APB-12 AS FOLL OWS: SCHEDULES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31,2010 MARCH-10 MARCH-09 OTHER INCOME DIVIDEND FROM MUTUAL FUND 7,923,515 4,069,223 PROFIT FROM INVESTMENT (INCLUDING MARKED TO MARKET GAIN RS.37.711 64,879 - INTEREST INCOME 201,705 25,899,242 MISC. INCOME 4,980 - EXCESS PROVISION WRITTEN BACK 668,518 - 8,863,597 29,968,865 24. THE COMPARATIVE EXAMINATION OF THESE DOCUMENTS SHOWS THAT THE BIFURCATION PRESENTED BY THE ASSESSEE BEFORE THE LD . CIT(A) IS NOTHING NEW, WHICH COULD BE TERMED AS ADDITIONAL EVIDENCE N OT PRODUCED BY THE ASSESSEE BEFORE THE AO FOR ANY GOOD REASON AND, THE REFORE, NOT ADMISSIBLE UNDER RULE 46A OF THE I.T. RULES, 1962. IN FACT, AS CORRECTLY POINTED OUT ON BEHALF OF THE ASSESSEE, EACH OF THE ITEMS OF THE SAID BIFURCATION ARE COMPRISED IN THE SCHEDULE FORMING P ART OF THE ASSESSEES ACCOUNTS FOR THE YEAR ENDED 31.03.2010. THE EXCESS PROVISION WRITTEN BACK OF RS.6,68,518/-, WHICH IS ITEM NO.1 IN THE BIFURCATION, IS THE LAST ITEM IN THE SCHEDULE. THE PROFIT FROM INVESTMENT AM OUNTING TO RS.64,879/- AT ITEM NO.2 OF THE BIFURCATION, IS IT EM NO.2 OF THE SCHEDULE. INTEREST INCOME OF RS.2,01,705/-, ITEM NO.3 IN THE BIFURCATION, IS THE THIRD ITEM IN THE SCHEDULE. LASTLY, MISC. INCOME, I TEM NO.4 IN THE BIFURCATION, I.E., MISC. INCOME OF RS.4,980/-, IS T HE FOURTH ITEM IN THE SCHEDULE. ITA NO.635(ASR)/2014) 14 IT CANNOT BE DISPUTED, AS HAS ALSO NOT BEEN DONE BY THE AUTHORITIES BELOW, THAT THE AFORESAID SCHEDULE FORMING PART OF THE ACCOUNTS OF THE ASSESSEE FOR THE YEAR ENDED 31.03.2010 WAS FILED BY THE ASSESSEE ALONGWITH THE RETURN OF INCOME BEFORE THE AO. THIS IS THE PRIMARY REQUIREMENT FOR THE ASSESSMENT TO BE MADE. IN THE I NDEX OF THE PAPER BOOK FILED BEFORE THIS BENCH ALSO, THIS SCHEDULE HA S BEEN CERTIFIED TO HAVE BEEN DRAWN FROM THE RECORDS OF THE LOWER AUTHO RITIES, WHICH FACT ALSO REMAINS UNDISPUTED. THEREFORE, IT CANNOT, IN A NY MANNER WHATSOEVER, BE SAID THAT THE BIFURCATION FILED BY T HE ASSESSEE WAS NOTHING NEW FILED FOR THE FIRST TIME BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS OBVIOUSLY ERRED IN OBSERVING THAT THIS BIFURCAT ION WAS NOT FURNISHED BY THE ASSESSEE BEFORE THE AO IN THE ASSESSMENT PRO CEEDINGS; THAT THERE WAS NO CORROBORATIVE EVIDENCE TO JUSTIFY SUCH BIFUR CATION; THAT THE SAME ALSO DID NOT ARISE FROM THE GROUNDS OF APPEAL BEFOR E THE LD. CIT(A) ON ACCOUNT OF LACK OF EVIDENCE; THAT IT WAS PROHIBITED FROM BEING ADMITTED AS ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TA X RULES, 1962. THE FACT REMAINS, AS DISCUSSED, THAT THE SCHEDULE FORMI NG PART OF THE ASSESSEES ACCOUNTS FOR THE YEAR ENDED 31.03.2010 C ONTAINS ALL THE ITEMS OF THIS BIFURCATION. FURTHER, EVEN IN THE ASSESSEE S WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A), THIS BREAK UP HAS BEEN EXPLAINED IN DETAIL, AS FOLLOWS: KEEPING INTO CONSIDERATION THE ABOVE PRINCIPLES, E ACH ITEM WHICH INCLUDED IN THE AMOUNT OF RS.9,40,003/- IS DISCUSSE D AS UNDER: (I) RS.6,68,518/-: EXCESS PROVISIONS WRITTEN BACK IT COMPRISES OF THE FOLLOWING (A) PROVISIONS FOR LEGAL EXPENSES RS.5,00,227/- (B) PROVISION FOR OFFICE EXPENSES RS.1,68,290/- THE ABOVE PROVISIONS WERE ACTUALLY MADE IN FINANCIA L YEAR 2008-09, I.E. PRECEDING YEAR AND WERE ACCOUNTED IN PRE- OPERATIVE EXPENSES SHOWN IN THE BALANCE SHEET UNDER THE HEAD CAPITAL WORK IN PROGRESS, MEANING THEREBY TH AT IN PRECEDING YEAR ON ACCOUNT OF SUCH PROVISION THE CA PITAL WORK ON PROGRESS AS SHOWN IN THE BALANCE SHEET WAS INCRE ASED. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, IT WA S NO LONGER REQUIRED AND ACCORDINGLY THE APPELLANT-COMPA NY ITA NO.635(ASR)/2014) 15 EXCLUDED THE SAME OUT OF THE CAPITAL WORK IN PROGRE SS ACCOUNT, THEREBY CREDITING THE WORK IN PROGRESS ACCOUNT BY S AME. THE AMOUNT OF RS.6,68,518/- BEING THE PROVISION RETURNE D BACK AMOUNTS TO REVERSAL OF ENTRIES MADE IN PRECEDING YE AR. IT IS NOT AN INCOME EARNED BY THE APPELLANT MADE ON ACCO UNT OF INVESTMENT OF ANY FUNDS. IT IS ONLY AN ADJUSTMENT E NTRY NULLIFYING , THE ENTRY MADE EARLIER IN THE WORK IN PROGRESS ACCOUNT AND HENCE BY NO STRETCH OF IMAGINATION IT C AN BE CONSIDERED AS INCOME BECAUSE ITS NATURE WILL REMAIN THE SAME, I.E. CAPITAL. IN EARLIER YEAR, THE PROVISION SO MADE WAS NOT CLAIMED AS REVENUE EXPENSES AND ACCORDINGLY, IT S WRITE- BACK CANNOT BE TREATED AS INCOME IN THE YEAR UNDER CONSIDERATION. (II) RS.64879/-: PROFIT FROM INVESTMENT (INCLUSI VE OF MARK TO MARKET (MTM) GAIN OF RS.37,711/-. THE ABOVE COMPRISES OF MARK TO MARKET GAIN OF RS.37 ,711/- AND PROFIT FROM INVESTMENT IN MUTUAL FUND ON SWITCH ING FROM GROWTH SCHEME TO GROWTH PLUS LIQUID SCHEME OF RS.27 ,168/-. THE INVESTMENT IN MUTUAL FUNDS WAS TEMPORARILY PLAC ED BY THE APPELLANT COMPANY IN ORDER TO ENSURE LIQUIDITY AND AVAILABILITY OF MONEY AS AND WHEN REQUIRED AND ACCO RDINGLY INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWE R PLANT AS HELD BY THE HONBLE SUPREME COURT AND HONBLE DELHI HIGH COURT IN THE CASES EXPLAINED ABOVE. WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, SO FAR A S MARK TO MARKET GAIN OF RS.37,711/- IS CONCERNED, IT MAY BE NOTED THAT THE SAME HAS ARISEN DUE TO VALUATION OF MUTUAL FUND AT ITS MARKET VALUE ON THE CLOSING DAY OF THE FINANCIAL YE AR AND THE SAME THUS IS AN UNREALIZED GAIN. THE APPELLANT COMP ANY WOULD LIKE TO PLACE RELIANCE ON INSTRUCTION NO.03/ 2010 DATED 23.03.2010 WHEREIN THE FOLLOWING TREATMENT HAS BEEN SPECIFIED FOR THE UNREALIZED MTM LOSSES: IN CASES WHERE NO SALE OR SETTLEMENT HAS ACTUALLY TAKEN PLACE AND THE LOSS ON MARKED TO MARKET BASIS HAS RESULTED IN REDUCTION OF BOOK PROFITS, SUCH A NOTIONAL LOSS WOU LD BE CONTINGENT IN NATURE AND CANNOT BE ALLOWED TO BE SE T OFF AGAINST THE TAXABLE INCOME. THE SAME SHOULD THEREFO RE BE ADDED BACK FOR THE PURPOSE OF COMPUTING THE TAXABLE INCOME OF AN ASSESSEE APPLYING THE ABOVE PRINCIPLE TO THE FACTS OF THE PR ESENT CASE, IT WOULD BE ABUNDANTLY CLEAR THAT THE ACTION OF THE LD . AO OF DEMANDING INCOME TAX ON THE AMOUNT OF UNREALIZED MT M GAIN IS TOTALLY ARBITRARY AND HENCE, NOT SUSTAINABLE IN AS MUCH AS THE SAID INCOME IS NOTIONAL IN NATURE. ITA NO.635(ASR)/2014) 16 IT IS NOT OUT OF PLACE TO MENTION HERE THAT UNDER T HE INCOME TAX ACT, THE ENTRIES DO NOT GENERATE ANY INCOME: UNDER THE ACT, THE INCOME CHARGEABLE TO TAX IS THE INCOME THAT IS RECE IVED OR IS DEEMED TO BE RECEIVED IN INDIA IN THE PREVIOUS YEAR RELEVANT TO THE YEAR FOR WHICH ASSESSMENT IS MADE OR THE INCOME THAT ACCRUES OR ARISES OR IS DEEMED TO BE RECEIVED OR A RISE IN INDIA DURING SUCH YEAR. (III) RS.2,01,705/-/- INTEREST THE ABOVE COMPRISES OF (A) RS.8,000/- ON FDS MADE WITH THE BANK FOR FURNIS HING BANK GUARANTEE TO VAT DEPARTMENT. DURING THE COURSE OF CONSTRUCTION AND ERECTION OF PLANT AND MACHINERY, T HE APPELLANT COMPANY REQUIRED VARIOUS STATUTORY ITEMS ETC. FROM THE VAT DEPARTMENT. FOR THIS PURPOSE, THE APPELLANT HAD TO OBTAIN REGISTRATION UNDER THE VAT/CST LAW AND AS PE R THE STATUTORY REQUIREMENTS THE APPELLANT COMPANY WAS RE QUIRED TO FURNISH THE BANK GUARANTEE TO VAT DEPARTMENT. THE AMOUNT OF RS.8,000/- WAS EARNED BY THE APPELLANT AS INTERE ST ON SUCH FDS MADE WITH THE BANK FOR FURNISHING BANK GUARANTE E TO THE VAT DEPARTMENT AND BECAUSE THE FURNISHING OF BANK GUARANTEE IS INEXTRICABLY LINKED WITH THE SETTING U P OF THE POWER PLANT, HENCE THE INTEREST THEREON IS LIABLE TO BE ADJUSTED AGAINST THE EXPENSES INCURRED BY THE APPEL LANT WHICH HAS BEEN CAPITALIZED IN VIEW OF THE ABOVE JUD ICIAL PRONOUNCEMENTS. (B) RS.1,93,705/- BEING THE INTEREST RECEIVED FROM INCOME TAX DEPARTMENT ON ACCOUNT OF TDS REFUND. IN THE FINANCIAL YEAR 2007-08, FUNDS WERE BORROWED FOR THE ACQUISITION OF LAND FOR THE PROJECT SITE AND OTHER PROJECT RELATED ACTIVITIES. THE SAME WERE TEMPORARILY INVESTED IN F IXED DEPOSITS WHICH YIELDED SOME INTEREST INCOME. HOWEV ER, IN LINE WITH THE JUDICIAL PRONOUNCEMENTS, THE BORROWIN G COST WAS CAPITALIZED AFTER NETTING OFF THE INTEREST INCOME A ND ACCORDINGLY, IN TDS DEDUCTED ON INTEREST INCOME WAS CLAIMED AS RETURNED IN THE INCOME TAX RETURN OF THE FINANCI AL YEAR 2007-08. THE SAID TDS WAS REFUNDED BY THE INCOME TA X DEPARTMENT IN THE FINANCIAL YEAR 2009-10 ALONGWITH APPLICABLE INTEREST. FROM THE ABOVE, IT WOULD BE CL EAR THAT THE INTEREST ON TDS HAS BEEN EARNED FROM THE FUNDS BORR OWED FOR THE PURPOSE OF ACQUISITION OF LAND AND OTHER PROJEC T RELATED ACTIVITIES AND THUS THE SAME HAS BEEN RIGHTLY ADJUS TED FROM ITA NO.635(ASR)/2014) 17 THE INTEREST COST INCURRED ON SUCH BORROWED FUNDS. ACCORDINGLY, THE ACTION OF THE LD. AO OF DISALLOWIN G THE SAID ADJUSTMENT IS INCORRECT IN VIEW OF THE JUDICIAL PRO NOUNCEMENTS AS EXPLAINED ABOVE. IT MAY PARTICULARLY BE NOTED TH AT THE APPELLANT COMPANY WAS HAVING STATE CAPITAL OF RS.5 LAKHS ONLY AT THE RELEVANT TIME WHICH HAD ALREADY BEEN UT ILIZED IN EARLIER YEARS PRIOR TO THE COMMENCEMENT OF CONSTRUC TION ACTIVITIES. THE INTEREST OF RS.1,93,705/- AS RECEIVED ON ACCOUN T OF EXCESS DEDUCTION OF TDS MADE DURING THE COURSE OF CONSTRUC TION ACTIVITIES IS INEXTRICABLY LINKED WITH THE SETTING UP OF THE POWER PLANT AND IS LIABLE TO BE ADJUSTED AGAINST THE EXP ENDITURE CAPITALIZED IN WORK IN PROGRESS AS EXPLAINED IN ABO VE CASES. RS.4,980/-: MISCELLANEOUS INCOME IT REPRESENTS THE CONSIDERATION OF DATA CARDS TRANS FERRED TO BHARAT ALUMINIUM CO. LTD. THE DATA CARDS AS AND WHE N PURCHASED IN EARLIER YEARS WERE CAPITALIZED IN THE BOOKS UNDER THE HEAD WORK IN PROGRESS AND ACCORDINGLY T HE CONSIDERATION RECEIVED ON ACCOUNT OF SUCH DATA CARD S IS ALSO A CAPITAL RECEIPT LIABLE TO BE ADJUSTED AGAINST THE E XPENSES INCURRED IN WORK IN PROGRESS AS EXPLAINED ABOVE. THEREFORE, IN VIEW OF THE ABOVE FACTS, CIRCUMSTANC ES AND THE JUDICIAL PRINCIPLE PRONOUNCED BY THE HONBLE SU PREME COURT AND THE HIGH COURTS FROM TIME TO TIME NONE OF THE ITEMS COMPRISED IN THE FIGURE OF RS.9,40,003/- DESERVES T O BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCORDINGLY DESERVES TO BE EXCLUDED OUT OF THE INCO ME ASSESSED. 25. THE LD. CIT(A) IS ALSO FOUND TO BE INCORRECT I N HOLDING THE ASSESSEES CASE TO BE COVERED BY HPCL MITTAL ENERG Y LIMITED (SUPRA). AS AVAILABLE FROM PARA-8 (APB 68 TO 76), IN THAT CA SE, INTEREST WAS EARNED BY HPCL MITTAL ENERGY LIMITED TO THE TUNE OF RS.26, 81,85,996/- ON SHORT-TERM DEPOSITS WITH THE BANK AND HPCL. 26. PER-CONTRA, IN THE PRESENT CASE, NO INTEREST HA S BEEN EARNED. RATHER, DIVIDEND HAD BEEN RECEIVED BY THE COMPANY O N INVESTMENTS MADE OUT OF FUNDS IMMEDIATELY NOT REQUIRED TO MEET THE CONTRACTUAL REQUIREMENT OF THE PROJECT, IN MUTUAL FUNDS, WHICH INCOME WAS ITA NO.635(ASR)/2014) 18 CAPITALIZED DURING THE YEAR IN ACCORDANCE WITH THE PRINCIPLE OF CAPITALIZED EXPENDITURE/INCOME DURING THE CONSTRUCTION OF THE P ROJECT. REMARKABLY, THERE IS NO CONTROVERSION BY THE TAXING AUTHORITIES TO THE ASSESSEES ASSERTION THAT THE DIVIDEND FROM MUTUAL FUNDS IS E XEMPT U/S 10(35) OF THE ACT, AS PER WHICH, INCOME RECEIVED IN RESPECT O F UNITS OF MUTUAL FUNDS DOES NOT FORM PART OF THE TOTAL INCOME. ANYWA Y, AT THE OUTSET, ON FACTS, HPCL (SUPRA) IS NOT APPLICABLE AND THE LD. CIT(A) WRONGLY HELD IT TO COVER THE ASSESSEES CASE. 27. THERE IS, ACCORDINGLY, NO MERIT IN THE DEPARTME NTS CONTENTION THAT THE MATTER BE REMITTED TO THE FILE OF THE LD. CIT(A ) FOR DECISION AFRESH. THE ASSESSEES CONTENTION THAT THIS IS A LEGAL ISSUE, Q UA WHICH, ALL RELEVANT MATERIAL IS AVAILABLE BEFORE ME AND NOTHING FURTHER NEEDS TO BE GONE INTO, NOTWITHSTANDING, EVEN OTHERWISE, AS SEEN HEREINABOV E, SINCE THE BIFURCATION WAS ALL ALONG AVAILABLE WITH THE AO BY WAY OF THE SCHEDULE TO THE ASSESSEES ACCOUNTS FOR THE YEAR ENDED 31.03.20 10, THE LD. CIT(A) FELL IN ERROR IN NOT TAKING THE SAME INTO CONSIDERATION, AS HAS BEEN HELD IN THE PRECEDING PARAGRAPHS. SINCE THERE WAS NO INTERE ST INCOME TO THE ASSESSEE FROM THE FUNDS INVESTED IN SHORT-TERM DEPO SITS, THE ASSESSEE IS HELD TO BE JUSTIFIED IN NOT OFFERING ANY INTEREST I NCOME FOR TAXATION IN THE REVISED RETURN FILED. 28. IN VIEW OF THE ABOVE DISCUSSION, THE GRIEVANCE OF THE ASSESSEE IS FOUND TO BE CORRECT. THE SAME IS HEREBY ACCEPTED. T HE ORDER OF THE LD. CIT(A) IS CANCELLED. THE ADDITION OF RS.9,40,003/- IS DELETED. 29. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/01/2016 . SD/- (A.D. JAIN) JUDICIAL MEMBER DATED: 01/01/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE: M/S. TALWANDI SABO POWER LTD. MANS A ITA NO.635(ASR)/2014) 19 2. THE ITO, WARD 1(4), MANSA 3. THE CIT(A), BATHINDA. 4. THE CIT, BATHINDA 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.