M/s HP Power Corporation Ltd., Shimla V. Addl. CIT, Shimla

ITA 75/CHANDI/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95452 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 19-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI SARANGA L
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 75/CHD/2015 ASSESSMENT YEAR: 2011-12 M/S H.P. POWER CORPORATION LTD., VS THE ADDL.CIT, HIMFED BHAWAN, SHIMLA RANGE, BELOW OLD MLA QUARTERS, SHIMLA. SHIMLA (HP). PAN: AABCH8615Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SING H RESPONDENT BY : SHRI RAVI SARANGAL DATE OF HEARING : 04.08.2015 DATE OF PRONOUNCEMENT : 06.08.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS) SHIMLA DATED 05.11.2014 FOR ASSESSMENT YEAR 2011-12 CHALLENGING THE ORDER OF LD . CIT(APPEALS) IN UPHOLDING THE ADDITION OF RS. 20,43,90,650/- MADE TREATING THE INTEREST ACCRUED O N SHORT TERM FDRS UNDER HEAD INCOME FROM OTHER SOUR CES. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A GOVERNMENT COMPANY NAMELY H.P. POWER CORPORATION LT D., WAS INCORPORATED IN DECEMBER, 2006 TO PLAN, PROMOTE AND ORGANIZE THE DEVELOPMENT OF ALL THE ASPECTS OF HYDROELECTRIC POWER IN THE STATE OF HIMACHAL PRADES H ON 2 BEHALF OF GOVERNMENT OF HIMACHAL PRADESH. NONE OF THE POWER PROJECTS UNDERTAKEN BY THE ASSESSEE COMPANY H AD COMMENCED PRODUCTION UPTO ASSESSMENT YEAR UNDER CONSIDERATION. AS COMPANY IS STILL IN THE PRE-OPER ATIVE STAGE AND YET TO COMMENCE THE COMMERCIAL PRODUCTION , STATEMENT OF INCIDENTAL EXPENDITURE DURING CONSTRUC TION HAS BEEN PREPARED AND INTEREST EARNED ON TEMPORARY BANK DEPOSITS MADE OUT OF FUNDS RECEIVED FROM HIMACHAL PRADESH GOVERNMENT POWER FINANCE CORPORATION/ADB FUNDS HAS BEEN SET OFF AGAINST THE CAPITAL EXPENDIT URE BEING INCURRED ON THE PROJECT AS EARNING OF THE INT EREST IS STILL INCIDENTAL/INEXTRICABLY LINKED TO THE MAIN AC TIVITY OF THE COMPANY. THE ASSESSEE COMPANY HAS EARNED INTER EST OF RS. 20,43,90,646/- ON SURPLUS FUNDS DURING THE Y EAR UNDER CONSIDERATION. THE ASSESSING OFFICER ADDED B ACK THE ABOVE INTEREST INCOME UNDER THE HE4AD INCOME F ROM OTHER SOURCES. THE ASSESSEE CHALLENGED THE ADDITI ON BEFORE LD. CIT(APPEALS) AND HAVE ALSO CONFIRMED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR 2010-11, ITAT CHANDIG ARH BENCH IN THE CASE OF THE SAME ASSESSEE FOR ASSESSME NT YEAR 2010-11 IN ITA 842/CHD/2014 VIDE ORDER DATED 06.05.2015 RESTORED THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH DIRECTION TO RE-DECIDE THIS ISSUE. 3 THE FINDINGS IN THIS ORDER IN PARA 8 TO 9 ARE REPRO DUCED AS UNDER : 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE FIND THAT DURING THIS YEAR ASSESSEE HAS BORROWED CERTAIN FUND S AS MENTIONED IN THE SUBMISSIONS BEFORE AO FROM PFC AND ADB. THE ASSESSEE HAD EARLIER TAKEN THE MONEY FROM DELHI JAL BOARD ON WHI CH NO INTEREST WAS REQUIRED TO BE PAID. IT WAS HELD IN THE EARLIER YEAR IN ASSESSEES OWN CASE THAT INTEREST ON SUCH INVESTMENT OF THESE FUNDS WOULD BE TAXABLE. IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172. HOWEVER, THE INTEREST EARNED ON TEMPORARY INVESTMEN T MADE OUT OF THE BORROWED FUNDS CAN NOT BE TAXED BECAUSE THESE F UNDS HAVE BEEN SPECIFICALLY BORROWED FOR THE PURPOSE OF PROJE CT BUT PROJECT WAS DELAYED AND THEREFORE FUNDS WERE PARKED IN TEMP ORARY INVESTMENT IN THE FORM OF FDR. SAME VIEW WAS TAKEN IN THE CASE OF M/S BEAS VALLEY POWER, CORPORATION LTD. VS. THE ACI T IN ITA NO. 857/CHD/2012 IT WAS OBSERVED AT PAGE 12 & 13 AS UND ER: 12. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 12(I) ON CONSIDERATION OF THE ABOVE FACTS AND MATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATIO N TO SUSTAIN THE FINDINGS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT ASSESSEE CORPORATION IS A GOVERNMENT COMPANY PROMOTED BY H.P. STATE ELECTRICITY BOARD LT D. THE ASSESSEE HAS ADMITTEDLY NOT STARTED COMMERCIAL OPER ATION IN THE YEAR UNDER CONSIDERATION AND WAS STILL IN TH E PRE- OPERATIVE STAGE. THE ASSESSEE CLAIMED THAT IT HAS NO SURPLUS FUNDS BUT THE FINDING OF THE AUTHORITIES BE LOW WAS THAT ASSESSEE EARNED INTEREST ON SURPLUS FUNDS. TH E ACCOUNTS OF THE ASSESSEE PLACED ON RECORD CLEARLY S UPPORT THE SUBMISSION OF THE ASSESSEE THAT THERE WERE NO S URPLUS FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE AL SO CLAIMED THAT ITS FUNDS WERE TEMPORARILY EMPLOYED FO R SHORT TERM DEPOSITS FOR EFFICIENTLY AND EFFECTIVELY USE O F ITS FUNDS SO AS TO REDUCE THE TOTAL COST OF THE PROJECT. THE LD. CIT(APPEALS) ALSO PARTLY AGREED WITH THE SUBMISSION OF THE ASSESSEE THAT PART FUNDS WERE INVESTED FOR SETTING UP OF THE PLANT & MACHINERY. THE ASSESSEE'S COUNSEL HAS REFERRED TO THE ACCOUNTS OF THE ASSESSEE AT PAGE 15 OF THE PAPER BOOK TO SHOW THAT ASSESSEE RECEIVED LESSER IN TEREST OF RS. 625.97 LACS AND PAID INTEREST ON LOAN AT RS. 3652.44 LACS IN THE YEAR UNDER CONSIDERATION WOULD SHOW THA T ASSESSEE HAS TO PAY MORE INTEREST AS AGAINST THE SM ALL INTEREST RECEIVED BY ASSESSEE. THEREFORE, IF ANY ADJUSTMENT IS MADE AGAINST INTEREST PAID, STILL THE RE IS A LIABILITY OF THE ASSESSEE TO PAY INTEREST ON THE LO ANS. THE 4 ASSESSEE ALSO EXPLAINED THAT FOR EFFECTIVE FUNDS MANAGEMENT, THE TEMPORARY SURPLUS FUNDS WERE KEPT I N SHORT TERM BANK DEPOSITS AND THEREAFTER, INTEREST W AS EARNED AND SO WAS ALSO USED FOR CONSTRUCTION OF TH E PROJECT AND FOR PAYING INTEREST TO THE POWER FINANC E COMPANY WHICH HAVE NOT BEEN ADVERSELY COMMENTED UPON BY THE AUTHORITIES BELOW. THEREFORE, THE RELI ANCE OF THE ASSESSING OFFICER ON THE DECISION IN THE CASE O F TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (SUPRA) WAS TOTALLY MISPLACED. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS BOKARO STEEL LTD. HELD AS UND ER : HELD, DISMISSING THE APPEAL, THAT THE FIRST THREE H EADS OF INCOME WERE (I) THE RENT CHARGED BY THE ASSESSEE TO ITS CO NTRACTORS FOR HOUSING WORKERS AND STAFF EMPLOYED BY THE CONTRACTO R FOR THE CONSTRUCTION WORK OF THE ASSESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE, (II) HIRE CHA RGES FOR PLANT AND MACHINERY WHICH WAS GIVEN TO THE CONTRACTORS BY THE ASSESSEE FOR USE IN THE CONSTRUCTION WORK OF THE ASSESSEE, AND ( II) INTEREST FROM ADVANCES MADE TO THE CONTRACTORS BY THE ASSESSEE FO R THE PURPOSE OF FACILITATING THE WORK OF CONSTRUCTION. THE ACTIV ITIES OF THE ASSESSEE IN CONNECTION WITH ALL THESE THREE RECEIPTS WERE DIREC TLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF I TS PLANT UNDERTAKEN BY THE ASSESSEE. THE ADVANCES WHICH THE ASSESSEE MA DE TO THE CONTRACTORS TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOGETHER A VERY LARGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINANCIAL HITCH A S TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWE EN THE ASSESSEE-COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WITH THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS H AD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAD, THEREFOR E, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSESSEE ANY INDEPENDENT SOURCE. 12(II) THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V ITO 315 ITR 255 (DELHI) HELD AS UNDER : THE ASSESSEE-COMPANY WAS INCORPORATED IN PURSUANCE OF A JOINT VENTURE ENTERED INTO BETWEEN INDIAN OIL CORPORATION AND M OF JAPAN TO SET UP A POWER PROJECT. IN ORDER TO EFFECT UATE THE PURPOSE FOR WHICH THE JOINT VENTURE WAS CONCEIVED, SHARE CA PITAL WAS CONTRIBUTED BY THESE TWO CORPORATIONS WHICH INCLUDE D RS. 20 CRORES BY WAY OF ADDITIONAL SHARE CAPITAL. THE ASSESSING OFFI CER TREATED THE INTEREST EARNED ON MONIES RECEIVED AS SHARE CAPITAL BY THE ASSESSEE TEMPORARILY PLACED IN A FIXED DEPOSIT AWAITING ACQU ISITION OF LAND WHICH HAD RUN INTO LEGAL ENTANGLEMENTS ON ACCOUNT O F TITLE AS 'INCOME FROM OTHER SOURCES'. THE COMMISSIONER (APPE ALS) ACCEPTED THE STAND OF THE ASSES- SEE THAT THE INTEREST WAS I N THE NATURE OF A CAPITAL RECEIPT WHICH WAS LIABLE TO BE SET OFF AGAI NST PRE-OPERATIVE EXPENSES. THE TRIBUNAL REVERSED THIS ORDER. ON APPE AL : HELD, ALLOWING THE APPEALS, THAT THE FUNDS IN THE F ORM OF SHARE CAPITAL WERE INFUSED FOR THE SPECIFIC PURPOSE OF ACQUIRING LAND AND THE DEVELOPMENT OF INFRASTRUCTURE. THEREFORE THE INTERE ST EARNED ON FUNDS PRIMARILY BROUGHT FOR IN THE BUSINESS COULD NOT BE CLASSIFIED AS 'INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NATURE OF A CAPITAL RECEIPT AND WAS REQUIRED TO BE SET OFF AG AINST PRE- OPERATIVE EXPENSES. 5 13. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, IT IS CLEAR THAT THE FUNDS WITH TH E ASSESSEE, EVEN IF TEMPORARILY USED FOR SAVINGS/SHORT TERM DEP OSITS, BUT THE EARNING OF THE INTEREST WERE DIRECTLY CONNECTED WITH WORK OF CONSTRUCTION OF THE PROJECT EMPLOYED BY THE ASSESSEE. THEREFORE, THE EARNING OF INTEREST COULD NOT BE TREATED AS INCOME FROM OTHER SOURCES, SINCE THE INC OME WAS EARNED IN THE PERIOD PRIOR TO COMMENCEMENT OF T HE BUSINESS AND IT WAS THE NATURE OF CAPITAL RECEIPT A ND WAS REQUIRED TO BE SET OFF AGAINST PRE-OPERATIVE EXPENS ES. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELO W AND DELETE THE ADDITION OF RS. 83,06,897/-. HOWEVER THE DETAILS OF THESE FUNDS ARE NOT AVAILABL E ON RECORD THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO EXAMINE BIFURCATION OF FUNDS BORROWED BY THE ASSESSEE AND FUNDS OWNED BY T HE ASSESSEE. INTEREST EARNED ON ACCOUNT OF FUNDS BORROWED SHOULD NOT BE SUBJECTED TO TAX AND ONLY INTEREST ON BALANCE SURPL US FUNDS SHOULD BE SUBJECTED TO TAX. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4. HE HAS, THEREFORE, SUBMITTED THAT ISSUE IS COVER ED AND MAY BE REMANDED TO THE ASSESSING OFFICER AS WAS DIRECTED EARLIER. THE LD. DR, HOWEVER, RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 5. ON CONSIDERATION OF THE FACTS OF THE CASE IN THE LIGHT OF THE ORDER OF THE TRIBUNAL DATED 06.05.2015 FOR PRECEDING ASSESSMENT YEAR 2010-11 IN THE CASE OF TH E SAME ASSESSEE, WE FIND THAT ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY ORDER OF THE TRIBUNAL DATED 06.05.2 015 (SUPRA). WE, THEREFORE, FOLLOWING THE SAME ORDER, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO RE-DECIDE THIS ISSUE AS WAS DIRECTED IN ASSESSMENT YEAR 2010-11. 6 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH AUGUST,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 6 TH AUGUST,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH