Haridaspur Paradip Railway Company Ltd., Bhubaneswar V. ACIT, Circle-2(1), Bhubaneswar

ITA 83/CTK/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5369 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: P VENUGOPAL RAO
• Keywords: Capital receipt; Capital expenditure
• Section: 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAV AN KUMAR GADALE, JM ./ ITA NO. 83 / CTK /20 1 6 ( / ASSESSMENT YEAR : 20 1 0 - 2011 ) HARIDASPUR PARADIP RAI LWAY COMPANY LTD., J/7, PAL HEIGHTS, JAYADEV VIHAR, BHUBANESWAR - 751013 VS. ACIT, CIRCLE - 2(1), BHUBANESWAR ./ ./ PAN/GIR NO. : AABCH 9319 R ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : SHR I P.VENUGOPAL RAO , AR /REVENUE BY : SHRI D.K.PRADHAN , DR / DATE OF HEARING : 03 / 10 /201 7 / DATE OF PRONOUNCEMENT 09 / 10 /201 7 / O R D E R PER SHRI PAV AN KUMAR GADALE, JM : TH E ASSESSEE HAS F ILED AN APPEAL AGAINST THE ORDER OF CIT(A) - 2 , BHUBANESWAR , IN APPEAL REFERENCE NO. 0268 /201 5 - 1 6 , DATED 28.12.2015 , PASSED U/S.143(3)/250 OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 201 0 - 201 1 , 2. THE ONLY SUBSTANTIVE GROUND RAISED BY THE ASSESSEE TH AT THE CIT(A) ERRED IN DISMISSING THE APPEAL OF THE ASSESSEE WITHOUT CONSIDERING THE FACT THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION DENYING THE INTEREST ON MOBILISATION ADVANCE RECEIVED FROM THE CONTRACTORS DURING THE CONSTRUCTION/PROJECT PERIO D IS A CAPITAL RECEIPT AND IS ADJUSTABLE AGAINST PRE - OPERATIVE EXPENSES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT, ESTABLISHMENT, FINANCING, CONSTRUCTION, MAINTENANCE AND MANAGEMENT OF HARIDASPUR - PARADEEP R AILWAY LINKAGE ITA NO. 83 /CTK/201 6 2 PROJECT AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 2011 ON 18.02.2013 WITH TOTAL INCOME OF RS. 8,32,11,386 / - AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICE U/S.143(2) & 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED. IN COMPLIANCE, THE LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED BOOKS OF ACCOUNTS AS WELL AS DETAILS & EXPLANATIONS AS REQUIRED BY THE AO . THE AO ON PERUSAL OF THE FINANCI AL STATEMENTS FOUND THAT THE ASSESSEE HAS DISCLOSED INTEREST ON MOBILIZATION ADVANCE OF RS. 2,55,60,082/ - AND CLAIMED SET OFF AGAINST CAPITAL WORK - IN - PROGRESS AND ISSUED SHOW CAUSE NOTICE TO TREAT THE INTEREST INCOME AS TAXABLE UNDER THE HEAD INCOME FROM OT HER SOURCES. THE ASSESSEE COMPANY FILED EXPLANATIONS WH ICH THE AO REFERRED AT PAGE 2 TO 5 OF THE ORDER AND ALSO RELIED ON THE HONBLE APEX COURT DECISION . FURTHER, THE AO RELIED ON THE JUDICIAL DECISIONS AND TREATED THAT THE INTEREST ON MOBILIZATION ADVANC ES IS REVENUE RECEIPT AND MADE ADDITION TO THE RETURNED INCOME AND ASSESSED INCOME OF RS. 8,32,11,390/ - AND PASSED THE ORDER U/S.143(3) OF THE ACT DATED 18.02.2013 . 4. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED AN APPEAL WITH THE CIT(A) , WHEREAS THE C IT(A) CONSIDERED THE FACTS AND FINDINGS OF AO AND DEALT EXHAUSTIVELY ON THE ISSUES AND RELIED ON THE JUDICIAL DECISIONS AND ALSO REL IED ON THE REMAND REPORT AND FINALLY DISMISSED THE APPEAL OF THE ASSESSEE 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. ITA NO. 83 /CTK/201 6 3 6. BEFORE US, LD. AR SUBMITTED THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ENGAGED IN THE CONSTRUCTION AND MANAGEMENT OF RAILWAY LINKAGE BETWEEN HARIDSAPUR - PARADEEP AND OUT OF SHARE APPLICATION MONEY RECEIVED FROM VARIOUS PROMOTERS THE COMPANY HAS PAID MONEY AS MOBILISATION ADVANCE TO THE CONTRACTORS AND RECEIVED INTEREST OF RS.2,55,60,082/ - AND FURTHER THIS AMOUNT HAS BEEN SET OFF AND ADJUSTED AGAINST PRE - OPERATIVE EXPENSES AS WORK - IN - PROGRESS AND ALSO RELIED ON THE DECISION OF TRIBUNAL. CONTRA, LD. DR VEHEMENTLY OPPOSED TO THE SUBMISSIONS AND SUBMITTED THAT THE AO HAS RIGHTLY TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND THE CIT(A) HAS DISCUSSED AT LENGTH ON THE DISPUTED ISSUE AND SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLE CRUX OF THE DISPUTED ISSUE BEING THAT THE ASSESSEE WHO IS ENGAGED IN THE CIVIL CONSTRUCTION WORKS AND MANAGEMENT OF RAILWAY LINKAGE AND HAS MADE PAYMENTS OF MOBILISATION ADVANCE TO THE CONTRACTORS AND HAS RECEIVED INTEREST ON SUCH MOBILISATION ADVANCES AND CLAIMED SET OF ADJUSTED AGAINST PRE - OPERATIVE EXPENSES. LD. A R RELIED ON THE JUDICIAL DECISIONS AND SUPPORTED WITH DECISION OF COORDINATE BENCH OF THE T RIBUNAL. WE FOUND THE ISSUE HAS BEEN CONSIDERED BY THE HON BLE APEX COURT IN THE CASE OF BOKARO STEEL LTD., 236 ITR 315 (SC), WHICH HAS BEEN RELIED BY THE TRIBUNAL IN CASE OF ANGUL SUKINDA RAILWAY LTD., IN ITA NO. 197/CTK/2016, ORDER DATED 7.4.2017, WHERE S IMILAR ISSUE WAS DEALT AT PAGE 8 PARA 16 WHICH READS AS UNDER : - ITA NO. 83 /CTK/201 6 4 16. I FIND THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS STATED THAT IT IS FOUND THAT THE ASSESSEE COMPANY IS SHOWN TO HAVE EARNED INTEREST ON MOBILIZATION ADVANCE GIVEN TO CONTRACT ORS FOR EXECUTION OF PROJECT AMOUNTING TO RS.26,39,428/ - . THE ASSESSING OFFICER HAS ALSO OBSERVED IN HIS ORDER THAT NEITHER THERE WAS ANY DOUBT ON ITS NECESSITY NOR WAS THE VERACITY OF THE SAME QUESTIONED. BUT THE ISSUE UNDER CONSIDERATION WAS THE TRE ATMENT OF INTEREST ON MOBILIZATION ADVANCE SO MADE. THEREFORE, HE BROUGHT THE INTEREST INCOME OF RS.26,39,428/ - TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILISERS LTD VS CIT (SUPRA). FROM THE FOREGOING OBSERVATIONS OF THE ASSESSING OFFICER, IT IS ABSOLUTELY CLEAR THAT THE AMOUNT WAS ADVANCED TO THE CONTRACTOR AS MOBILIZATION ADVANCE FOR EXECUTION OF THE CONTRACT AND ON THIS ADVANCE, INTEREST INCOME OF RS .26,39,428/ - WAS EARNED BY THE ASSESSEE, WHICH WAS LATER ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTOR AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THUS, I FIND THAT THE INTEREST INCOME EARNED HAS A NEXUS WITH THE CONTRACT BEING EXECUTED BY T HE ASSESSEE. ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD., (SUPRA) HAS HELD THAT THE RECEIPT OF RENT, HIRE CHARGES AND INTEREST FROM CONTRACTORS WERE DIRECTLY CONNECTED WITH OR INC IDENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSEE. THE ADVANCE WHICH THE ASSESSEE MADE 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 AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESSEE COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTED WITH T HE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS HAD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAD, THEREFORE, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSESSEE F ORM ANY INDEPENDENT SOURCES. I FIND THAT THE FACTS OF THE INSTANT CASE ARE SIMILAR TO THE FACTS OF THE CASE WHICH WERE BEFORE THE HONBLE SUPREME COURT IN THE ABOVE CASE OF BOKARO STEEL LTD (SUPRA). IN THE INSTANT CASE ALSO, THE MOBILIZATION ADVANCE GIVE N TO THE CONTRACTOR WERE FOR THE PURPOSE OF CONTRACT WORK OF LAYING DOWN THE RAILWAY LINE AND INTRINSICALLY CONNECTED WITH THE CAPITAL EXPENDITURE OF THE APPELLANT PRIOR TO THE COMMENCEMENT OF ITS BUSINESS. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF BOKARO STEEL (SUPRA), I HOLD THAT THE INTEREST INCOME OF RS.26,39,428/ - EARNED BY THE ASSESSEE FROM MOBILIZATION ADVANCE TO CONTRACTOR RAILWAY VIKASH NIGAM LTD., IS RIGHTLY TREATED BY THE ASSESSEE AS CAPITAL RECEIPT WHICH GOE S ON TO REDUCE THE COST OF CAPITAL WORK IN PROGRESS. I, THEREFORE, DELETE THE ADDITION OF RS.26,39,428/ - AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. ITA NO. 83 /CTK/201 6 5 WE FIND IN THE PRESENT CASE THE INTEREST ON MOBILISATION ADVANCE IS SIMILAR TO THE DECISION OF THE T RIBUNAL IN CASE OF ANGUL SUKINDA RAILWAY LTD.(SUPRA) AND THE MOBILISATION ADVANCE GIVEN TO THE CONTRACT WERE FOR THE PURPOSE OF CONTRACT WORK OF LAYING THE RAILWAY LINE AND INTRINSICALLY CONNECTED WITH THE CAPITAL EXPENDITURE OF THE ASSESSEE PRIOR TO THE C OMMENCEMENT OF ITS BUSINESS. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 2,55,60,082/ - MADE BY THE AO AND ALLOW THE GROUNDS OF APPEAL OF ASSESSEE. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 09/10 / 201 7 . . SD/ - ( N. S. SAINI ) S D/ - ( PA V AN KUMAR GADALE ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 09/10 /201 7 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - HARIDASPUR PARADIP RAILWAY COMPANY LTD., J/7, PAL HEIGHTS, JAYADEV VIHAR, BHUBANESWAR - 751013 2. / THE RESPONDENT - ACIT, CIRCLE - 2(1), BHUBANESWAR 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//