DCIT 5(3), MUMBAI V. VADINAR POWER CO.LTD, MUMBAI

ITA 6861/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3267 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 22-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AIRJU JAIKUMAR
• Keywords: Business income; Principle of natural justice; Capital expenditure
• Section: 143(3)

Judgement Text

F BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 6861 /MUM/2013 ( / ASSESSMENT YEAR : 2009-10) DY. COMMISSIONER OF INCOME TAX -5(3), 573, AAYAKAR BHAVAN, 5 TH FLOOR, MUMBAI 400 020. / V. M/S VADINAR POWER CO. LTD., 15, ESSAR HOUSE, 11, KESHAVRAO KHADYE MARG, MAHALAXMI, MUMBAI- 400 034. ./ PAN : AAACV5226C ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI AIRJU JAIKUMAR ASSESSEE BY : NONE / DATE OF HEARING : 12-01-2016 / DATE OF PRONOUNCEMENT : 29-01-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 6 861/MUM/2013, IS DIRECTED AGAINST THE ORDER DATED 17-9-2013 PASSED B Y THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 9, MUMBAI (HE REINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2009-10. 2. THE GROUND RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL READS AS UNDER:- 1. WHETHER ON THE FACTS, AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE, LD.CIT(A) ERRED IN ALLOWING THE CONTENTION OF THE ASSESSEE THAT ONLY THE NET INTEREST INCOME SHOULD BE TAXED UNDER THE HEAD IN COME FROM OTHER SOURCES, WITHOUT APPRECIATING THE FACTS THAT ASSESS EE HAS FAILED TO ITA 6861/MUM/2013 2 PRODUCE ANY DETAILS TO PROVE NEXUS BETWEEN THE SO CAL LED INTEREST EXPENDITURE AND INTEREST INCOME. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 3. AT THE TIME OF HEARING BEFORE US, NONE APPEARED ON BEHALF OF THE ASSESSEE COMPANY. AS PER THE ORDER SHEET, THE APPEA L WAS ADJOURNED TWO TIMES EARLIER SINCE APRIL, 2015 AS THE ASSESSEE COM PANY WAS NOT APPEARING DESPITE NOTICES ISSUED TO THE ASSESSEE COMPANY AND DULY SERVED UPON THE ASSESSEE COMPANY. THEREFORE, WE PROCEED TO DISPOSE OF THE APPEAL AFTER HEARING THE LD. D.R. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY HAS SET UP AND OPERATES 77MW CAPTIVE CO-GENERATION POWER AND S TEAM PLANT AT VADINAR, DISTT. JAMNAGAR, GUJARAT. THIS PLANT WAS CAPITALIZE D ON 1ST MAY, 2008 AND CATERS TO THE POWER AND STEAM REQUIREMENTS OF ESSAR LOL LTD.S REFINERY. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) READ W ITH SECTION 143(2) OF INCOME TAX ACT,1961(HEREINAFTER CALLED THE ACT) , THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) OBSERVED THA T THE ASSESSEE COMPANY HAS SHOWN INTEREST RECEIPT OF RS. 4,33,16,023/- WHICH W AS SHOWN AS BUSINESS INCOME, THE DETAILS OF WHICH ARE AS FOLLOWS:- S NO. PARTICULARS AMOUNT 1 INTEREST ON FIXED DEPOSITS WITH BANKS RS. 17,85,886 2 INTEREST @ 8% ON DEPOSIT WITH EPOL RS. 98,63,014 3 INTEREST @ 8% ON DEPOSIT WITH EOL RS. 61,36,986 4 INTEREST @ 11% ON DEPOSIT WITH EIL RS. 49,27,397 5 INTEREST @ 8% ON DEPOSIT WITH EPOL RS. 2,06,02,74 0 TOTAL RS. 4,33,16,023 THE ASSESSEE COMPANY WAS ASKED BY THE AO TO EXPLAIN AS TO WHY INTEREST INCOME SHOULD NOT BE ASSESSED UNDER THE HEAD INCOM E FROM OTHER SOURCES ITA 6861/MUM/2013 3 AND THERE BY DEDUCTION BE DISALLOWED U/S 80IA OF TH E ACT. IN REPLY, THE ASSESSEE COMPANY SUBMITTED THAT WITH RESPECT TO THE CLAIM OF THE ASSESSEE COMPANY U/S 80IA OF THE ACT, THE INTEREST INCOME IS NOTHING BUT PROFITS AND GAINS FROM BUSINESS OR PROFESSION, HENCE, THE DEDUC TIONS AS CLAIMED AND AS PER THE CERTIFICATE PROVIDED BY AN INDEPENDENT CHAR TERED ACCOUNTANT MAY BE CONSIDERED FOR THE ASSESSMENT YEAR UNDER REFERENCE. . THE ASSESSEE COMPANY RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. MADRAS REFINERY LTD. , 228 ITR 354 WHEREBY IT WAS H ELD BY THE HONBLE COURT THAT WHERE THE DEPOSIT OF MONEY WAS INTERLINKED WIT H THE CARRYING ON OF BUSINESS, ANY INCOME EARNED BY THE FUNDS EMPLOYED W OULD AUTOMATICALLY BE TREATED AS BUSINESS INCOME. THE ASSESSEE COMPANY A LSO RELIED ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF B OKARO STEEL LTD., 236 ITR 315 AND IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILISERS LTD. V. CIT, 22 ITR 172. WITHOUT PREJUDICE, THE ASSESSEE COMPANY S UBMITTED THAT IF IT IS TO BE HELD THAT THE INTEREST INCOME EARNED BY THE ASSE SSEE COMPANY IS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES, THEN THE I NTEREST INCOME EARNED FROM THE FUNDS THAT WAS BORROWED FOR THE PURPOSE OF CONSTRUCTION OF THE POWER PLANT IS ALLOWABLE AS DEDUCTION AS PER SECTIO N 57(III) OF THE ACT SINCE THERE IS A DIRECT NEXUS BETWEEN THE INTEREST PAID O N THE LOANS BORROWED AND THE INTEREST EARNED ON THE ICDS, THE INTEREST PAID ON THE LOAN BORROWED MUST BE ALLOWED AS A DEDUCTION BEFORE TAXING THE INTERES T EARNED ON ICDS AS INCOME FROM OTHER SOURCES. THE ASSESSEE COMPANY ALS O SUBMITTED THAT IF THE INTEREST INCOME IS TREATED AS INCOME FROM OTHER SOU RCES AND NOT PROFIT AND GAINS FROM BUSINESS OR PROFESSION, THE EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME SHOULD BE ALLOWED AS DEDUCTION. WITH REGARD TO THE QUERY WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S 80IA OF THE ACT VIS- -VIS THE INTEREST EARNED DURING THE FINANCIAL YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY SUBMITTED THAT INTEREST EARNED DURING THE ASSESSMEN T YEAR IS A BUSINESS INCOME AND IS ELIGIBLE FOR DEDUCTION U/S 80IA OF TH E ACT. HOWEVER, THE A.O. ITA 6861/MUM/2013 4 REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY TH AT INTEREST RECEIVED SHOULD BE ASSESSED AS BUSINESS INCOME ALLOWING DEDU CTION U/S 80IA OF THE ACT ON THE GROUND THAT THE ASSESSEE COMPANY HAS FAI LED TO EXPLAIN AS TO HOW THE INTEREST INCOME IS DERIVED FROM ITS BUSINESS OF GENERATING POWER AND INTEREST INCOME DOES NOT CONSTITUTE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND DEDUCTION U/S 80IA OF THE ACT WAS D ENIED TO THE ASSESSEE COMPANY BY THE AO VIDE ASSESSMENT ORDER DATED 29.12 .2011 PASSED U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE ORDERS DATED 29.12.2011 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND MADE DETAIL SUBMISSIONS WHICH WERE MADE BEFORE THE A.O. THE ASSESSEE COMPANY CONTENDED THAT IT HAS EARNED INTEREST INCOM E FROM BANK OF RS17,85,866/- ON FDRS WITH BANK KEPT AS MARGIN MON EY FOR ISSUING LETTER OF CREDIT AND BANK GUARANTEES AND INTEREST OF RS.4,15, 30,137/- AS INTEREST FROM INTER CORPORATE DEPOSIT(ICD) WITH GROUP COMPANIES . THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY HAS RECEIVED FU NDS FOR THE PURPOSE OF ACQUISITION OF PLANT AND MACHINERY FOR ITS POWER GE NERATION PLANT AND SINCE THE FUNDS WILL BE DEPLOYED IN 3-5 YEARS GRADUALLY, THE SURPLUS FUNDS WERE INVESTED IN ICD WITH GROUP COMPANIES TO REDUCE COS T OF BORROWINGS. THE CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE COMP ANY SO FAR AS THE DEDUCTION 80IA OF THE ACT AS THE SAME COULD NOT BE HELD AS DERIVED FROM THE ELIGIBLE BUSINESS OF THE UNDERTAKING AS THE ASSESSE E COMPANY HAS DEPLOYED SURPLUS FUNDS WITH VARIOUS GROUP COMPANIES AND THE BANKS WITH AN INTENTION TO EARN INTEREST AND ALSO MOST OF THE DEPOSIT ARE M ADE FOR LONGER PERIOD OF TIME. HOWEVER, THE CIT(A) ACCEPTED THE ALTERNATIVE CLAIM THAT ONLY AFTER THE NETTING OFF , THE INTEREST INCOME OF THE ASSESSEE C OMPANY SHOULD BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES BECAUSE TH E ASSESSEE COMPANY HAS MADE HUGE BORROWINGS THEREFORE WHEN THE ASSESSE E COMPANY ON ONE HAND PAID INTEREST ON THE BORROWINGS AND ON THE OTH ER HAND RECEIVED INTEREST ITA 6861/MUM/2013 5 ON FDRS/ADVANCES, THE PART DEPOSITS HAVE COME OUT F ROM THE BORROWED CAPITAL. THUS, THE CIT(A) PARTLY ALLOWED THE APPEA L VIDE ORDERS DATED 17.09.2013. 6. AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 17.0 9.2013, THE REVENUE IS IN APPEAL BEFORE US. 7. THE LD. D.R. SUBMITTED BEFORE US THAT THE CIT(A) WAS NOT CORRECT IN AGREEING WITH THE CLAIM OF THE ASSESSEE THAT ONLY A FTER NETTING OFF THE INTEREST INCOME SHOULD BE TAXED UNDER THE HEAD INCOME FROM O THER SOURCES WITHOUT VERIFYING THE RECORD. 8. WE HAVE HEARD THE LD. D.R. AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE CASE LAWS RELIED UPON. WE HAVE OBSE RVED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST ON ICD/ FDRS AMOUNTING TO RS. 4,33,16,023/-. WE HAVE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS SET UP AND OPERATES 77MW CAPTIVE CO-GENERATION POWER AND STEAM PLANT AT VADINAR, DISTT. JAMNAGAR, GUJARAT WHICH WAS CAPITALIZED ON 1ST MAY, 2008. WE HAVE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS MADE BORROW INGS FOR SETTING UP OF THE PLANT WHICH IS STATED TO HAVE BEEN UTILIZED FOR TAKING FDRS/ICD. SECTION 57(III) OF THE ACT STIPULATES THAT ANY EXPENDITURE INCURRED ( NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE ) LAID OUT OR EXPENDE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME HAS TO BE ALLOWED AS DEDUCTION. THE ASSESSEE COMPANY HAS EARNED INTERES T INCOME OF RS. 4,33,16,023/- ON FDRS/ICD AND IT IS INCUMBENT ON T HE ASSESSEE COMPANY TO CORRELATE THE EXPENSES INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF EARNING THE INCOME TO GET THE NECESSARY DEDUCTION P ROVIDED ALL CONDITIONS AS STIPULATED U/S 57(III) OF THE ACT ARE COMPLIED WITH . THUS, IT IS INCUMBENT ON THE ASSESSEE COMPANY TO DEMONSTRATE BEFORE THE AO W ITH COGENT EVIDENCES AND MATERIAL THAT INTEREST BEARING FUNDS ARE UTILIZ ED FOR MAKING FDR/ICDS ON ITA 6861/MUM/2013 6 WHICH INTEREST INCOME IS EARNED TO GET THE DEDUCTIO N AS STIPULATED U/S 57(III) OF THE ACT. IN OUR CONSIDERED OPINION, THE MATTER NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE AO FOR DE-NOVO DETERMI NATION OF THE ISSUE IN LIGHT OF OUR ABOVE DISCUSSIONS AND REASONING GIVEN ABOVE AND THE ASSESSEE COMPANY IS DIRECTED TO PRODUCE COGENT MATERIAL AND EVIDENCE S BEFORE THE AO TO PROVE THAT THERE IS A DIRECT NEXUS OF THE UTILIZATION OF THE INTEREST BEARING BORROWED FUNDS FOR THE PURPOSES GETTING THE ICD/FDRS. NEEDL ESS TO SAY THAT THE AO WILL GRANT THE ASSESSEE COMPANY SUFFICIENT OPPORTU NITY OF BEING HEARD TO COMPLY WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORD ANCE WITH LAW. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA N0. 6861/MUM/2013 FOR THE ASSESSMENT YEAR 2010-11 IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2016. # $% &' 29-01-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 29-01-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI