Elgen (India) Ltd., Hyd, Hyderabad V. ITO, Ward-2(1), Hyderabad, Hyderabad

ITA 850/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2309 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 06-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B SMC : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO. 850/HYD/2016 ASSESSMENT YEAR 2011 - 2012 M/S. ELGEN (INDIA) PRIVATE LIMITED, (FORMERLY ELGEN (INDIA) LIMITED), PLOT NO. 213, ROAD NO.1, FILM NAGAR, JUBILEE HILLS, HYDERABAD 500096. PAN: AAACE8520C VS. INCOME TAX OFFICER, WARD - 2(1), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI V. SIVA KUMAR FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 24.07 .2017 DATE OF PRONOUNCEMENT : 24.07 .2017 ORDER PER D. MANMOHAN, VP. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 5, HYDERABAD. THE ONLY CONTENTION OF THE ASSESSEE IS WITH REGARD TO NON - ACCEPTANCE OF THE CLAIM OF SET OFF OF INTEREST PAID ON PRE - OPERATIVE PERIOD AGAINST THE INTERE ST EARNED ON DEPOSITS WITH BANKS. 2. THE ASSESSE E COMPANY HAS SET UP A GAS BASE D COMBINED CYCLE POWER PLANT. BECAUSE OF CERTAIN REASONS, THE POWER PLANT COULD NOT BECOME OPERATIONAL. DURING THE PREVIOUS YEAR RELEVANT TO THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED INTEREST ON DEPOSITS WITH THE BANK. SINCE, THE INTER EST EARNED FROM BANK IS TAXABLE AS INCOME FROM OTHER SOURCES DURING THE PRE - OPERATIVE PERIOD, THE A.O. APPLIED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMI CALS AND FERTILIZERS LTD (227 ITR 172) AND ACCORDINGLY BROUGHT TO TAX. HOWEVER, THE ASSESSEES CLAIM OF SET OFF OF INTEREST EXPENDITURE OF RS. 1,10,589/ - AGAINST THE INTEREST INCOME WAS NOT ACCEPTED BY THE A.O. THE CASE OF THE ASSESSE E WAS THAT IT OB TAINED OVER DRAFT OF RS. 2.30 CRS FROM BANK FOR SETTING UP OF POWER PLANT. ON RECEIPT OF THE EQUITY 2 CAPITAL FROM INVESTORS, THE OVERDRAFT AMOUNT WAS PAID ALONG WITH INTEREST OF RS. 1,10,589/ - AND BALANCE AMOUNT WAS KEPT IN FIXED DEPOSITS, SINCE, THE MINIST RY DIRECTED THE ASSESSEE TO HOLD THE CONSTRUCTION PROJECT TILL 2016. THE ASSESSEE EARNED INTEREST OF RS. 17,93,801/ - WHEREAS, THE INTEREST PAID ON OVERDRAFT IS RS. 1,10,589/ - . THE CLAIM OF THE ASSESSEE IS THAT THE INTEREST PAID HAS TO BE SET OFF AGAINST THE INTEREST EARNED. 3. A.O. AS WELL AS THE LD. CIT(A) ARE OF THE OPINION THAT THE INTEREST PAID BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES WHEREAS, THE INTEREST EXPENDITURE DURING THE PRE - OPERATIVE PERIOD CANNOT BE SET OFF. 4. THE ASSESSEES CONTENTION WAS THAT INTEREST EARNED AND AMOUNT PAID ON OVERDRAFT ARE CONNECTED TO BUSINESS ; IT HAD ALREADY COMMENCED BUSINESS BY WAY OF INCORPORATING A COMPANY, THOUGH IT COULD NOT GO AHEAD WITH CON STRUCTION. 5. THE A.O. AS WELL AS THE LD . CIT(A) ARE OF THE OPINION THAT THE INTEREST ON OVERDRAFT ACCOUNT PERTAINS TO PRE - COMMENCEMENT PERIOD AND HENCE, IT HAS TO BE CONSIDERED AS A CAPITAL EXPENDITURE. AT ANY RATE, IN ORDER TO CLAIM A DEDUCTION / SET OFF U/S 37(1) OF THE ACT, THE MONEY LAID O UT SHOULD BE SHOWN TO HAVE BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUS INESS, AFTER IT HAS BEEN SET UP. S INCE, THE INTEREST GENERATED OUT THE FIXED DEPOSITS IS TAXABLE UNDER THE H EAD INCOME FROM OTHER SOURCES, T HE CLAIM OF DEDUCTION IS PERMISSIBLE ONLY WHEN IT HAS CONNECTION WITH THE INTEREST PAYMENT WHEREAS IN THE INSTANT CASE, THERE IS NO CONNECTION WITH THE INTEREST PAYMENT . THUS THE TAX A UTHORITIES REFUSED TO SET OFF THE INTEREST PAID BY THE ASSESSEE AGAINST THE INTEREST INCOME EARNED. 6. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THOUGH THE LD COUNSEL FOR THE ASSESSEE MADE SUBMISSIONS ON EQUITY LINES ON THE GROUND THAT IT WAS BEYOND THE CONTROL OF THE ASSESSEE THOUGH IT INTENDED TO CARRY ON THE BUSINESS AND IN SUCH AN EVENT, THE EXPENDITURE IS ALLOWABLE AS DEDUCTION BUT THIS ARGUMENT COULD NOT BE SUPPORTED EITHER UNDER THE PROVISIONS OF THE ACT OR BY P LACING RELIANCE ON ANY CASE LAW . 7. HAVING REGARD TO THE CIRCUMSTANCES, I HAVE NO ALTERNA TIVE EXCEPT TO UPHOLD THE ORDER PASSED BY THE LD. CIT(A) BY HOLDING THAT THE EXPENDITURE CANNOT BE SET OFF AGAINST THE INCOME EARNED BY THE ASSESSEE SINCE, THE INCOME RECEIVED ON FIXED 3 DEPOSITS WAS TAXED UNDER THE HEAD OTHER SOURCES AND THE EXPENDITURE C ANNOT BE SAID TO HAVE ANY DIRECT CONNECTION WITH THE INCOME. 8. IN THE RESULT, AS DECLARED IN THE OPEN COURT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. S D / - (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 24 TH JULY , 2017 OKK, SR.PS COPY TO 1. M/S. ELGEN (INDIA) PRIVATE LIMITED,(FORMERLY ELGEN (INDIA) LIMITED), PLOT NO. 213, ROAD NO.1, FILM NAGAR, JUBILEE HILLS, HYDERABAD 500096. 2. INCOME TAX OFFICER, WARD - 2(1), HYDERABAD. 3. CIT(A) - 5 , HYDERABAD. 4. PR. CIT - 5 , HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD. 6. GUARD FILE