M/s H.P. Power Corporation Ltd., Shimla V. DCIT, Shimla

ITA 923/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9130 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 04-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 28-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VISHAL MOHAN SHRI SUSHIL KUMAR
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.923/CHD/2015 (ASSESSMENT YEAR :2009-10 ) M/S H.P. POWER CORPORATION LTD. VS. THE D.C.I.T., HIMFED BHAWAN, BELOW OLD MLA CIRCLE SHIMLA. QUARTERS, BYE PASS ROAD TUTI KANDI, SHIMLA. SHIMLA. PAN: AABCH8615G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VISHAL MOHAN RESPONDENT BY : SHRI SUSHIL KUMAR, CIT DR DATE OF HEARING : 25.05.2016 DATE OF PRONOUNCEMENT : 24.08.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA DATED 29.10.2015, RELATING TO ASSESSMENT YEAR 2009-10, UPHOLDING THE LEVY OF PENA LTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE LD COMMISSIONER OF INCOME TAX (APPEALS) IS 2 NOT JUSTIFIED IN UPHOLDING THE LEVY OF PENALTY OF RS.9,43,28,025/- UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. THE PENALTY SO IMPOSED AND UPHELD IS ABSOLUTELY ILLEGAL AND NOT SUSTAINABLE IN THE EYES OF LAW. 2. THAT NO PENALTY COULD HAVE BEEN IMPOSED AS NO INCOME WHATSOEVER HAD ACCURED TO THE APPELLANT AS THE SAME WAS IN THE CONSTRUCTION PHASE AND AS SUCH MUCH LESS IS THE QUESTION OF ANY CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS IN RESPECT OF THE SAME. 3. THAT THE ORDER OF THE LD COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND FACTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A GOVERNMENT COMPANY INCORPORATED IN DECEMBER, 2 006 UNDER THE COMPANIES ACT, 1956, TO PLAN, PROMOTE AND ORGANIZE THE DEVELOPMENT OF ALL ASPECTS OF HYDROELE CTRIC POWER IN THE STATE OF HIMACHAL PRADESH ON BEHALF OF THE GOVERNMENT OF HIMACHAL PRADESH AND HIMACHAL PRADESH STATE ELECTRICITY BOARD. DURING THE IMPUGNED ASSES SMENT YEAR, THE COMPANY WAS STILL IN THE PRE-OPERATIVE ST AGE AND HAD NOT COMMENCED COMMERCIAL PRODUCTION. THE COMPA NY HAD RECEIVED FUNDS FROM HP GOVERNMENT FINANCE CORPORATION/ADB FUNDS, WHICH WERE PARKED IN SHORT T ERM DEPOSITS WITH BANKS AND ON WHICH INTEREST AMOUNTING TO RS.27,75,16,994/- WAS EARNED DURING THE YEAR. THE ASSESSEE SET OFF THIS INTEREST AGAINST CAPITAL EXPE NDITURE INCURRED BY IT, IN ITS STATEMENT ON INCIDENTAL EXPE NDITURE DURING CONSTRUCTION, AND DID NOT RETURN THE SAME AS 3 INCOME, FOR THE PURPOSES OF INCOME TAX. ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS FRAMED ON THE ASSESSEE, TREATING THE IMPUGNED INTEREST AS INCOME OF THE ASSESSEE, ASSESSABLE UNDER THE HEAD INCOME FROM OT HER SOURCES, RELYING UPON THE RATIO LAID DOWN BY THE H ON'BLE SUPREME COURT IN THE CASE OF TUTICORN ALKALI CHEMI CALS & FERTILIZERS LTD. VS. CIT, 227 ITR 172 (SC). FURTHE R, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WERE INITIATED. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LEARNED CIT (APPEALS), WHO UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER VIDE ORDER DATED 5.11.2012. 5. DURING THE PENALTY PROCEEDINGS BEFORE THE ASSESSING OFFICER, THE ASSESSEE PLEADED THAT ITS AP PEAL WAS PENDING BEFORE THE I.T.A.T., CHANDIGARH AND FUR THER IT HAD NO MALAFIDE INTENTION. THE ASSESSING OFFICER H ELD THAT THE ASSESSEE HAD NOT OFFERED A SATISFACTORY EXPLANATION, NOR SUBSTANTIATED ITS CONTENTIONS AND, THEREFORE, LEVIED PENALTY ON THE ADDITION MADE. 6. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LEARNED CIT (APPEALS), WHERE THE ASSESSEE MADE DETA ILED SUBMISSIONS REPRODUCED AT PARA 4 OF THE CIT (APPEAL S) ORDER. THE GIST OF THE SUBMISSIONS WAS THAT THE AS SESSEE HAD DEPOSITED ITS SPECIFIC PURPOSE FUNDS IN SHORT T ERM DEPOSITS TO MEET ITS URGENT WORK REQUIREMENTS, AND THEREFORE INTEREST EARNED THEREON HAD BEEN SET OFF AGAINST 4 PRE-OPERATIVE EXPENSES BEING INEXTRICABLY LINKED WI TH THE SETTING UP OF ITS PROJECTS. ALSO THE ASSESSEE HAD PREPARED ITS FINANCIALS IN COMPLIANCE WITH THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND AS PER THE GUIDANCE NOTE O N EXPENDITURE INCURRED DURING PRE-CONSTRUCTION PERIOD . FURTHER, THE ASSESSEE CONTENDED THAT THE ISSUE OF TAXABILITY OF OPERATIVE PERIOD INTEREST WAS DEBATAB LE IN VIEW OF DIFFERENT JUDICIAL PRONOUNCEMENTS AND THAT IT HAD NO MALAFIDE INTENTION OF CONCEALING OR FURNISHING A NY INACCURATE PARTICULARS OF INCOME. 7. THE LEARNED CIT (APPEALS) REJECTED ALL HE CONTENTIONS OF THE ASSESSEE, BY HOLDING THAT: (I) THE INTEREST EARNED COULD NOT BE SAID TO BE INEXTRICABLY LINKED WITH SETTING UP OF PLANT, SINCE THE PROCESS OF SETTING UP HAD NOT COMMENCED DURING THE YEAR. (II) THE INTEREST EARNED COULD NOT BE SAID TO BE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE, SINCE THE DEPOSITS HAD NOT BEEN MADE IN THE COURSE OF CARRYING ON BUSINESS. (III) THE ACCOUNTING STANDARDS AS PER WHICH THE ASSESSEE CLAIMED TO HAVE PREPARED ITS FINANCIALS, WERE ALSO OF NO HELP TO THE ASSESSEE. 5 (IV) THE CIT (APPEALS) ALSO DISMISSED THE ASSESSEE S CONTENTION REGARDING ABSENCE OF MALAFIDE AND HELD THAT THE ASSESSEE HAD IN VEIL OF GOVERNMENT COMPANY, FURNISHED INACCURATE PARTICULARS TO AVOID PAYING TAXES. 8. FURTHER, THE LEARNED CIT (APPEALS) RELIED UPON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION PRIVATE LIMITED (2010) 327 I TR 570 (DEL) AND HELD THAT THE ASSESSEE WAS AWARE OF T HE LAW APPLICABLE BUT PREFERRED MAKING A CLAIM WHICH TANTAMOUNTED TO FURNISHING INACCURATE PARTICULARS O F INCOME. THUS, THE LEARNED CIT (APPEALS) AT PARA 5. 3.5 OF HIS ORDER, UPHELD THE LEVY OF PENALTY BY HOLDING AS FOLLOWS: 5.3.5 THUS, CONSIDERING THE ABOVE FACTS COUPLED WITH THE FACT THAT THE ACCOUNTS ARE AUDITED, THE APPELLANT HAS THE HELP OF PROFESSIONALS, THE INCOME EARNED IS ON SURPLUS FUNDS WHICH IS AND WAS SQUARELY COVERED WITH THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S TUTICORIN ALKALI CHEMICALS AVAILABLE TO THE ASSESSEE ON THE DATE OF FILING OF RETURN CHOSE NOT THE OFFER THE SAME FOR TAX IS CLEARLY AN ACT OF FURNISHING INACCURATE PARTICULARS. THIS IS MORE SO IN VIEW OF THE ORDER OF MY LEARNED PREDECESSOR REFERRED SUPRA WHICH BROUGHT OUT THAT THE APPELLANT HA MADE SPECIAL DELIBERATIONS TO FIND WAYS TO ADOPT WINDOW DRESSING AND AVOID PAYMENT OF DUE TAXES. THE APPELLANT PAID THE ADVANCE TAXES ON THE INTEREST INCOME BUT CHOOSE NOT TO INCLUDE IT IN THE RETURNED INCOME. ALL THESE FACTS LEAD TO BE INCONTROVERTIBLE CONCLUSION THAT 6 THE APPELLANT COMPANY FURNISHED INACCURATE PARTICULARS AND FURNISHED NO SATISFACTORY EXPLANATION BEFORE THE AO. 9. AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED THE PRESENT APPEAL BEFORE US. 10. BEFORE US THE LD AR REITERATED THE CONTENTIONS MADE BEFORE THE LD. CIT(A) AND STATED THAT IT WAS N OT GUILTY OF FURNISHING ANY INACCURATE PARTICULARS OF INCOME SINCE ALL PARTICULARS OF INTEREST EARNED WERE DULY DISCLOSED AND THE ADDITION WAS MADE MERELY BY REJECTING THE C LAIM OF THE ASSESSEE IN TREATING THE INTEREST EARNED AS CAPITAL RECEIPT. LD.AR STATED THAT ITS CASE WAS SQUARELY CO VERED BY THE DECISION OF THE APEX COURT IN CIT VS. RELIAN CE PETROPRODUCTS (P) LTD. (2010) 322 ITR 158 (SC).FURT HER LD. AR STATED THAT THE ISSUE WAS DEBATABLE IN VIEW OF T HE DECISION OF THE DELHI HIGH COURT IN THE CASE OF IN DIAN OIL PANIPAT CONSORTIUM LTD. VS. ITO (2009) 315 ITR 255 (DEL) AND THEREFORE ALSO NO PENALTY WAS LEVIABLE. 11. LD. DR ON THE OTHER HAND, STATED THAT THE HONBLE TRIBUNAL, WHILE UPHOLDING THE ADDITION MADE , HAD CATEGORICALLY STATED THAT THE ASSESSEES CASE WAS SQ UARELY COVERED BY THE DECISION OF THE APEX COURT IN TUTICO RN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT, 227 IT R 172 (SC) AND THEREFORE THE CLAIM OF THE ASSESSEE WAS WH OLLY UNTENABLE IN LAW. THE ASSESSEE THEREFORE WAS LIABL E TO PENALTY AS PER THE DECISION OF THE DELHI HIGH COURT IN ZOOM COMMUNICATION PRIVATE LIMITED (2010) 327 ITR 5 70 7 (DEL). LD.DR FURTHER RELIED UPON THE ORDER OF THE LD.CIT(A). 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. 13. IN THE PRESENT CASE, WE FIND THAT PENALTY UNDE R SECTION 271(1)(C) OF THE ACT HAS BEEN LEVIED FOR TH E ADDITION MADE ON ACCOUNT OF INTEREST INCOME EARNED ON DEPOSITS MADE FROM FUNDS AVAILABLE DURING PREOPERA TIVE PERIOD OF THE ASSESSEE. 14. UNDISPUTEDLY DEVELOPMENT OF HYDRO ELECTRIC POWER PROJECTS, IN THE STATE OF HIMACHAL PRADESH, W AS THE BUSINESS OF THE ASSESSEE AND THE IMPUGNED FUNDS, ON WHICH IT HAD EARNED INTEREST, HAD BEEN RECEIVED FRO M THE DELHI JAL BOARD FOR IMPLEMENTING THE RENUKA DAM PRO JECT AND FROM THE STATE GOVERNMENT OF HIMACHAL PRADESH A S SHARE CAPITAL FOR CONSTRUCTION OF SEVERAL POWER GEN ERATION PROJECTS. FURTHER, ON ACCOUNT OF DELAY IN COMMENCE MENT OF CONSTRUCTION OF THE PROJECTS, THE FUNDS WERE PA RKED IN SHORT TERM DEPOSITS AND INTEREST WAS EARNED THEREON , DURING THE YEAR. ALSO , THE ASSESSEE HAD SET OFF T HE SAME AGAINST CAPITAL EXPENSES IN ITS BOOKS OF ACCOUNTS,W HILE THE CONTENTION OF THE REVENUE WAS THAT IT WAS REVEN UE RECEIPT OF THE ASSESSEE AND SHOULD HAVE BEEN INCLUD ED IN ITS RETURN OF INCOME. 15. WHAT CLEARLY EMERGES FROM THE ABOVE FACTS IS THAT ADMITTEDLY ALL INFORMATION RELATING TO INTERES T INCOME 8 WAS DISCLOSED AND THE SAME WAS NOT FOUND TO BE INCO RRECT OR INACCURATE. THE ASSESSEE CANNOT, THEREFORE, BE SAID TO BE GUILTY OF FURNISHING INACCURATE PARTICULARS. TH E ONLY GRIEVANCE OF THE REVENUE IS THAT THE ASSESSEE HAD M ADE AN INCORRECT CLAIM. THIS CANNOT TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS AS HAS BEEN HELD BY THE HON' BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD. (2010) 322 ITR 158 (SC). MOR EOVER WE FIND THAT THE CLAIM OF THE ASSESSEE IS NOT TOTA LLY UNFOUNDED OR UNTENABLE IN LAW ,SINCE THE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT CONSORTIUM LTD. VS. ITO (2009) 315 ITR 255 (DEL), HAS HELD THAT WHERE FUNDS HAVE BEEN INFUSED FOR THE SPECIFIC PURPOSE OF SETTING UP THE PROJECT ,THE SAME WERE INEXTRICABLY LINKED TO THE S ETTING UP OF THE BUSINESS OF THE ASSESSEE AND THE INTERES T EARNED THEREON BEFORE COMMENCEMENT OF BUSINESS WAS TO BE TREATED AS CAPITAL RECEIPT AND NOT INCOME FROM O THER SOURCES. UNDISPUTEDLY, THE FUNDS IN THE PRESENT CA SE WERE GIVEN FOR SETTING UP PROJECTS AND ON ACCOUNT O F DELAY IN STARTING THE PROJECTS, THE FUNDS WERE INVESTED I N SHORT TERM DEPOSITS. THE ASSESSEE WAS OF THE BELIEF THAT THE FUNDS WERE INEXTRICABLY LINKED TO THE SETTING UP OF BUSINESS OF THE ASSESSEE AND THEREFORE THE INTEREST EARNED THEREON WAS A CAPITAL RECEIPT. THE CLAIM OF THE ASS ESSEE WAS DENIED FOR THE REASON THAT SINCE NO BUSINESS HA D COMMENCED THE INCOME COULD NOT BE SAID TO BE LINKED TO THE BUSINESS OF THE ASSESSEE AND FURTHER THAT THERE WAS NO RESTRICTION ON THE USAGE OF INTEREST EARNED FOR THE PURPOSE 9 OF SETTING UP OF PROJECTS ONLY, THEREFORE, THE INTE REST EARNED COULD NOT BE SAID TO BE CAPITAL IN NATURE. IT WAS HELD THAT THE ASSESSEES CASE WAS SQUARELY COVERED B Y THE DECISION OF THE APEX COURT IN TUTICORIN ALKALI AND CHEMICALS LTD.(SUPRA). WE FIND THAT THE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT (SUPRA),WHILE HOL DING PREOPERATIVE PERIOD INTEREST EARNED TO BE CAPITAL I N NATURE, HAD DISTINGUISHED THE APEX COURT DECISION I N TUTICORIN ALKALI (SUPRA) STATING THAT THAT THE NATU RE OF THE FUNDS WHETHER SURPLUS OR SPECIFIC PURPOSE, WAS THE DETERMINATIVE FACTOR OF THE NATURE OF INTEREST EARN ED THEREON AND WENT ON TO DISTINGUISH THE APEX COURT DECISION BY STATING THAT THE FUNDS IN THAT CASE WER E SURPLUS FUNDS AND THEREFORE INTEREST EARNED THEREON WAS HELD TO BE REVENUE IN NATURE. THE ISSUE THEREFORE I S A DEBATABLE ISSUE AND IN SUCH CIRCUMSTANCES THE CLAIM OF THE ASSESSEE CANNOT BE SAID TO BE WHOLLY UNTENABLE .THE ASSESSEE CANNOT THEREFORE BE HELD GUILTY OF FURNISH ING INACCURATE PARTICULARS OF INCOME EVEN AS PER THE DE CISION OF THE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION PRIVATE LIMITED (2010) 327 ITR 570 (D EL), AS ARGUED BY THE LD.DR, SINCE IN THAT CASE THE ASSE SSEE WAS HELD LIABLE TO PENALTY, AS ITS CLAIM WAS FOUND TO BE WHOLLY UNTENABLE IN LAW. 16. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSE E HAS NOT FURNISHED ANY INACCURATE PARTICULARS OF INC OME AND THEREFORE NO PENALTY, UNDER SECTION 271(1)(C) O F THE 10 ACT, IS LEVIABLE. THE ORDER OF THE CIT (APPEALS) I S, THEREFORE, SET ASIDE. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24 TH AUGUST, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH