Joint Commissioner of Income Tax (OSD) Circle-4(1)(1), Bangalore V. M/s Karnataka Road Developemnt Corporation Limited , Bangalore

ITA 935/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2413 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-11-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 26-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B J SHETTY
• Keywords: Business income; Depreciation; Proportionate interest; Additional evidence; Question of law; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 43B; 251; 43; 48; 13; 22; 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL ME MBER ITA NO. AND ASSESSMENT YEAR APPELLANT RESPONDENT 935/BANG/2018 2013-14 THE JOINT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BENGALURU. M/S. KARNATAKA ROAD DEVELOPMENT CORPORATION LTD., 1ST FLOOR, 16/J, MILLER TANK BED AREA, TIMMAIAH ROAD CROSS, BENGALURU 560 052. PAN: AABCK 2261 R 322/BANG/2017 2009-10 M/S. KARNATAKA ROAD DEVELOPMENT CORPORATION LTD., BENGALURU 560 052. PAN: AABCK 2261 R ACIT, CIRCLE 11(5), BENGALURU. 703 TO 706/BANG/2017 2008-09, 2010- 11 TO 2012-13 - DO - - DO - ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 2 OF 32 426/BANG/2017 2009-10 ACIT, CIRCLE 4(1)(1), BENGALURU. M/S. KARNATAKA ROAD DEVELOPMENT CORPORATION LTD., BENGALURU 560 052. PAN: AABCK 2261 R 805 TO 808/BANG/2017 2008-09, 2010- 11 TO 2012-13 DCIT, CIRCLE 4(1)(1), BENGALURU. - DO - CO NO. AND ASSESSMENT YEAR APPELLANT RESPONDENT 80/BANG/2018 (IN ITA NO. 935/BANG/2018) 2013-14 M/S. KARNATAKA ROAD DEVELOPMENT CORPORATION LTD., BENGALURU 560 052. PAN: AABCK 2261 R THE JOINT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BENGALURU. 48/BANG/2018 (IN ITA NO.426/BANG/20 17) - DO - ACIT, CIRCLE 4(1)(1), BENGALURU. 44/BANG/2018 (IN ITA NO.805/BANG/20 17) - DO - DCIT, CIRCLE 4(1)(1), BENGALURU. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 3 OF 32 45/BANG/2018 (IN ITA NO.806/BANG/20 17) - DO - - DO - 46/BANG/2018 (IN ITA NO.807/BANG/20 17) - DO - DCIT, CIRCLE 4(1)(1), BENGALURU. 47/BANG/2018 (IN ITA NO.808/BANG/20 17) - DO - DCIT, CIRCLE 4(1)(1), BENGALURU. APPELLANT BY : SHRI. B. J. SHETTY, CA RESPONDENT BY : SHRI. PRADEEP KUMAR, CIT(DR) DATE OF HEARING : 20.11.2020 DATE OF PRONOUNCEMENT : 2 7 .11.2020 O R D E R PER BENCH: PRESENT APPEALS BY ASSESSEE AS WELL AS REVE NUE AND CROSS OBJECTION BY ASSESSEE IN REVENUES APPEAL HAS BEEN FILED FOR ASSESSMENT YEARS 2008-09 TO 2013-14, AGAINST ORDER DATED 30/12/2016 PASSED BY LD.CIT (A)-4, BANGALORE. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 4 OF 32 2. LD.AR SUBMITTED THAT, ASSESSEE IS A GOVERNMENT OF K ARNATAKA UNDERTAKING ENGAGED IN INFRASTRUCTURE DEVELOPMENT P ROJECTS INVOLVING CONSTRUCTION OF BRIDGES, MAINTENANCE OF S TATE HIGHWAYS, MAINTENANCE OF MAJOR DISTRICT ROADS, CONSTRUCTION O F ROADS AND OTHER INFRASTRUCTURE PROJECTS. LD.AR AT THE OUTSET SUBMITTED THAT THE ENTIRE GROUP OF APPEALS COULD BE SEGREGATED ISS UE WISE SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS. HE HAS FILED A CHART CONSICISING THE ISSUES INVOLVED IN THE APPEALS UNDE R CONSIDERATION. FOR SAKE OF CONVENIENCE, WE TABULATE THE ISSUES CON TESTED AND ARGUED BY ASSESSEE AS WELL AS DEPARTMENT AGAINST RE LEVANT APPEAL NUMBERS AND CROSS OBJECTION NUMBERS VIS-A VIS ASSES SMENT YEARS AS UNDER: PARTICULARS ASSESSMENT YEARS ITA NO./CO NO. ISSUE I: INTEREST EARNED ON TEMPORARY DEPLOYMENT OF HUDCO LOAN FUNDS 703,704, 705, 706, 322/BANG/2018 FILED BY ASSESSEE FOR ASSESSMENT YEARS 2008-09 TO 2012-13 ISSUE II: INTEREST ON GRANTS RECEIVED FROM GOVERNMENT OF KARNATAKA SET OF AGAINST ADVANCES RECOVERABLE FROM CONTRACTORS 805, 808/B/2017 CO NO.44 & 47/B/2018 AND 935/B/2018, CO NO. 80/B/2018 CROSS APPEALS FILED BY REVENUE AND ASSESSEE FOR ASSESSMENT YEARS 2008-09, 2012-13 2013-14 ISSUE III: INTEREST ITA NO. 806, 807, CROSS APPEALS FILED BY ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 5 OF 32 EARNED FROM MOBILISATION ADVANCE GIVEN TO CONTRACTORS ISSUE NO. IV: ROYALTY AND LABOUR WELFARE ASSESS DISALLOWED UNDER SECTION 43B 426/B/2017 CO NO. 45, 46, 48/B/2018 REVENUE AND ASSESSEE FOR ASSESSMENT YEAR 2009-10 TO 2011-12. 3. LD.AR FURTHER SUBMITTED THAT, ALL ABOVE REFERRED IS SUES ARE COVERED BY DECISIONS OF COORDINATE BENCH OF THIS TR IBUNAL IN ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEARS AND DECISIONS OF HONBLE KARNATAKA HIGH COURT. HE THUS PRAYED FOR THE APPEALS BEING DISPOSED OFF TOGETHER, AS EXCEPT FOR THE QUAN TUM INVOLVED IN THESE ISSUES, FACTUAL BACKGROUND ARE IDENTICAL IN A LL ASSESSMENT YEARS UNDER CONSIDERATION. LD.CIT.DR DID NOT OBJECT FOR THESE APPEALS TO BE DI SPOSED OFF BY WAY OF COMMON ORDER. ACCORDINGLY, WE DISPOSE OF ALL THESE APPEALS ISSUE WISE, AS TABULATED HEREINABOVE. 4. ISSUE NO.I THESE ISSUES HAVE BEEN RAISED BY ASSESSEE IN ITS AP PEALS FOR RELEVANT ASSESSMENT YEARS MORE SPECIFICALLY MENTION ED IN THE TABLE HEREINABOVE. LD.AR SUBMITTED THAT, ASSESSEE RAISED IDENTICAL AND COMMON GROUNDS IN ITA NOS.703, 704, 705, 706, 322/B ANG/2018. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 6 OF 32 FOR SAKE OF CONVENIENCE, WE REPRODUCE HEREWITH GROU NDS RAISED BY ASSESSEE IN ITA NO.703/BANG/2018 AS UNDER: ITA NO.703/BANG/2017 1. THE COMMISSIONER OF INCOME TAX (APPEALS) - 4, BANGA LORE, HAS ERRED IN SUSTAINING THE ADDITIONS AND DISALLOWANCES TO THE A DMITTED INCOME MADE BY THE ASSESSING AUTHORITY BY NOT DELETING SUC H ADDITIONS AND DISALLOWANCES IN TOTAL. 2. THE ASSG. AUTHORITY, HAS ERRED IN DISALLOWING DEPRE CIATION OF RS. 11,14,95,562 CLAIMED BY THE APPELLANT ON THE BRIDGE S, ALLEGING THAT THE APPELLANT IS NOT THE OWNER OF THE BRIDGES AND I S NOT USING FOR THE PURPOSE OF ITS BUSINESS. THE ASSG. AUTHORITY OUGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLANT'S CLAIM FOR DEPRECIATION IS LEGITIMATE AND IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32, SINCE THE ASSETS SUFFERS FROM NORMAL WEAR AND TEAR DUE TO THE USAGE OF SUCH ASSET BY THE GENERAL PUBLIC FOR WHOSE BENEF IT SUCH INFRASTRUCTURE BRIDGES ARE CONSTRUCTED. THOUGH THE APPELLANT IS NOT EARNING ANY REVENUE FROM THE BRIDGES SO OPERATED, T HE APPELLANT IS INCURRING THE OPERATIONAL COSTS FOR MAINTENANCE OF THE SAME WHICH WILL PROVE THAT THE APPELLANT IS THE OWNER OF SUCH BRIDGES BY VIRTUE OF OBLIGATION TO MAINTAIN AND REMAINING IN THE BOOKS O F ACCOUNT. 3. THE ASSG. AUTHORITY OUGHT TO HAVE APPRECIATED THE O BJECTS FOR WHICH THE COMPANY HAS BEEN ESTABLISHED BY THE STATE GOVT. THE BRIDGES ARE CONSTRUCTED OUT OF APPELLANT'S INVESTMENT ON WORK I N ADDITION TO THE GRANTS RECEIVED FROM GOVT. TO COVER UP THE SHORTFAL L OF THE GRANT AMOUNT AND THE SAME IS CAPITALIZED AND SHOWN UNDER FIXED A SSETS IN THE BOOKS OF ACCOUNT. 4. THE LEARNED ASSG. AUTHORITY HAS ALSO ERRED IN NOT C ONSIDERING THE FACT THAT THE OWNERSHIP OF BRIDGES SO CONSTRUCTED ARE NO T TRANSFERRED TO THE STATE GOVT. AND REMAIN IN THE BOOKS AND RECORDS OF THE APPELLANT, WHICH ESTABLISHES THAT ALL SUCH BRIDGES FORM THE AS SETS OF THE APPELLANT COMPANY, WHICH SHOULD HAVE BEEN CONSIDERED BY THE A SSG. AUTHORITY. 5. THE ASSG. AUTHORITY IS INCORRECT IN HOLDING THAT TH E APPELLANT IS NOT USING THE BRIDGES FOR ITS BUSINESS WITHOUT CONSIDER ING THE OBJECTS FOR WHICH THE COMPANY HAS BEEN ESTABLISHED BY THE STATE GOVT., THE ACTIVITY OF WHICH FORMS THE BUSINESS ACTIVITY ASSES SED AS PER THE PROVISIONS OF SECTION 28, ENTITLING TO CLAIM ALL DE DUCTIONS INCLUDING DEPRECIATION U/S 32. 6. THE LEARNED ASSG. AUTHORITY, OUGHT TO HAVE FOLLOWED THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. MYSOR E MINERALS VS. CIT, WHEREIN IT HAS BEEN HELD THAT HAVING THE RIGHT TO USE AND OCCUPY THE PROPERTY OR TO ENJOY ITS USE IN HIS OWN RIGHT W OULD BE THE OWNER OF THE BUILDING THROUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 7 OF 32 AND REGISTERED AS CONTEMPLATED BY THE TRANSFER OF P ROPERTY ACT, 1882 AND THE REGISTRATION ACT. 7. THE ASSG. AUTHORITY HAS ERRED IN MAKING AN ADDITION OF RS. 60,28,565 TO THE ADMITTED INCOME IN RESPECT OF THE INTEREST E ARNED ON THE FIXED DEPOSITS MADE OUT OF BORROWED FUNDS FROM HUDCO, TO TAX UNDER INCOME FROM OTHER SOURCES. 8. THE ASSG. AUTHORITY HAS ERRED IN NOT CONSIDERING TH E ACCOUNTING TREATMENT FOLLOWED BY THE APPELLANT COMPANY IN CAPI TALIZING THE INTEREST PAID ON BORROWINGS AND REDUCING THE INTERE ST EARNED ON DEPOSITS MADE OUT OF BORROWINGS FROM THE CAPITAL WO RK IN PROGRESS, RESULTING IN NET CAPITALIZATION OF INTEREST. THE AS SG. AUTHORITY HAVING TREATED THE INTEREST INCOME AS INCOME FROM OTHER SO URCES OUGHT TO HAVE ALLOWED DEDUCTION U/S 57(III) OF THE INCOME TAX ACT , 1961 ON ACCOUNT OF INTEREST PAID TO HUDCO ON BORROWINGS. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT ADDITIONS AND DIS ALLOWANCES MADE BY THE ASSG. AUTHORITY AND SUSTAINED BY THE COMMISS IONER OF INCOME TAX (APPEALS)-4, BE DELETED AND THE APPEAL BE ALLOW ED. LD.AR SUBMITTED THAT, EXCEPT FOR GROUNDS 6-8, OTHER GROUNDS STANDS NOT PRESSED BY ASSESSEE AND THEREFORE NO ARG UMENTS ARE ADVANCED BY LD.AR BEFORE US. ACCORDINGLY THE OTHER GROUNDS BEING GROUND NO.2-5 A RE DISMISSED AS NOT PRESSED. GROUND NO.1, 9 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 4.1. HE SUBMITTED THAT GROUNDS 6-8 PERTAINS TO ISSUE NO. 1 IN THE TABLE ABOVE. 4.2. BRIEF FACTS OF ISSUE NO.I ARE AS UNDER: LD.AR SUBMITTED THAT, ASSESSEE AVAILED LOANS FROM H UDCO FOR THE PURPOSE OF CONSTRUCTION OF BRIDGES. AMOUNT OF LOAN DISBURSED BY HUDCO, TILL ITS UTILISATION FOR PURPOSE OF CONSTRUC TION OF BRIDGES, WERE TEMPORARILY INVESTED IN FIXED DEPOSITS. LD.AR STATED THAT, ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 8 OF 32 ASSESSEE EARNED INTEREST ON SHORT-TERM DEPLOYMENT O F LOAN FUNDS IN BANK FIXED DEPOSITS. IT WAS SUBMITTED THAT INTEREST PAID ON LOANS AVAILED FROM HUDCO WAS CAPITALISED AS COST OF THE A SSET AND THE INTEREST INCOME EARNED ON TEMPORARY PARKING OF FUND S WAS REDUCED FROM THE COST OF ASSETS. 4.3. LD.AO DISALLOWED THE CLAIM, BY INCLUDING INTEREST I NCOME AS TAXABLE, BEING IN THE NATURE OF INTEREST EARNED ON TEMPORARY DEPLOYMENT OF HUDCO LOAN FUNDS. LD.CIT(A) CONFIRMED THE ORDER OF LD.AO. AGGRIEVED BY ORDER OF LD.CIT(A) ASSESSEE IS IN APPE AL BEFORE US NOW. RELEVANT GROUNDS RAISED BY ASSESSEE IN ITS APPEALS ON ISSUE I RELATE TO GROUND NOS.6-8. BASED ON SUBMISSIONS MADE BY LD.AR IN THE SYNOPSIS FILED, WE RESTRICT ADJUDICATION OF ASSESSEES APPEALS ONLY TO GROUNDS 6-8, WHICH ARE IDENTICALLY NUMBERED IN ALL APPEALS FOR R ELEVANT ASSESSMENT YEARS PERTAINING REFERRED TO IN THE TABL E HEREINABOVE. GROUNDS 6-8: 4.4. AT THE OUTSET, LD.AR SUBMITTED THAT, IDENTICAL ISSU E ON SIMILAR FACTS WAS CONSIDERED BY COORDINATE BENCH OF THIS TRIBUNAL IN PRECEDING ASSESSMENT YEARS. HE HAS FILED BEFORE US ORDER DATED 04/01/2019 PASSED IN ASSESSEES OWN CASE FOR ASSESS MENT YEAR 2005-06 IN ITA NO.284/BE/2011, WHEREIN THIS ISSUE H AVE BEEN CONSIDERED AND DECIDED. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 9 OF 32 4.5. ON THE CONTRARY, LD.CIT.DR PLACED RELIANCE ON WRITT EN SUBMISSION COMMONLY FILED BY HIM FOR ALL ISSUES UND ER CONSIDERATION REPRODUCED HEREIN UNDER: WRITTEN SUBMISSION IN THE CASE OF M/S KARNATAKA ROAD DEVELOPMENT CORPORATION LTD., ITA NO:703 TO 706/BANG/2019 A.Y: 2008-09 TO 2012-13/BANG/18 DATE OF HEARING: 05-08-2019 MAY IT PLEASE YOUR HONOURS IN THE PRESENT CASE FILED BY THE ASSESSEE, THE GROU NDS OF APPEAL AS RAISED BY THE ASSESSEE HAS BEEN BROADL Y CATEGORISED INTO THE FOLLOWING HEADINGS AND APPEALS FROM A.Y:20 08-09 TO 2012- 13 ARE TAKEN TOGETHER AS GROUNDS OF APPEAL ARE ALMO ST SIMILAR AND D.R.SUBMISSIONS THEREON. (2) THE LD.AO HAS ERRED IN MAKING AN ADDITION TO THE AD MITTED INCOME IN RESPECT OF THE INTEREST EARNED ON THE FIX ED DEPOSITS MADE OUT OF THE BORROWED FUNDS FROM HUDCO, TO TAX U NDER INCOME FROM OTHER SOURCES. THE ASSESSING AUTHORITY HAVING TREATED THE INTEREST INCOME AS INCOME FROM OTHER SO URCES OUGHT TO HAVE ALLOWED DEDUCTION U/S 57(III) OF THE INCOME -TAX ACT, 1961 ON ACCOUNT OF INTEREST PAID TO HUDCO ON BORROW INGS. SUBMISSION: THE INTEREST INCOME EARNED BY THE APPELLANT ON DEPLOYMENT OF FUNDS RECEIVED FROM HUDCO WAS NOT AN INCOME EARNED IN THE COURSE OF CARRYING OUT ITS BUSINESS. SUCH INCOME WAS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCE '. HENCE, OUT OF THE TOTAL ADDITION OF INTEREST INCOME MADE TO RE TURNED INCOME, ADDITION OF INTEREST BEING EARNED ON TEMPORARY DEPL OYMENT OF HUDCO LOAN FUNDS IS SUSTAINED. I AGREE WITH THE DEC ISION OF THE LD.CIT(A) AND THE SAME MAY BE UPHELD. .. CONCLUSION : IN VIEW OF THE SUBMISSIONS MADE ABOVE, EXAMINATION OF SUBMISSIONS MADE BY THE ASSESSEE, THE ORDER OF THE LD.CIT(A), B ANGALORE IS NOT ERRONEOUS AND BAD IN LAW. THE LD.CIT(A) ORDER MAY B E UPHELD. PRAYER : IN THE WAKE OF THE ABOVE SUBMISSIONS, IT IS HUMBLY PRAYED TO UPHOLD THE LD.CIT(A) ORDER IN RESPECT OF THE ABOVE ISSUES AND ANY OTHER ORDER AS MAY PLEASE YOUR HONOURS. RESPECTFULLY SUBMITTED. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 10 OF 32 4.6. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE ALSO PERUSED ORDER DATED 04/01/2019 PASSED BY COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO.284/BANG/2011, WH EREIN, THIS ISSUE IS CONSIDERED AS BY OBSERVING AS UNDER: 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. BEFORE TH E CIT(APPEALS), THE APPELLANT TOOK THE PLEA THAT THE INTEREST EARNED OU GHT NOT TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THAT I T SHOULD ACTUALLY BE SET OFF AGAINST INTEREST PAID ON LOANS FROM HUDCO A S THESE DEPOSITS HAD A COST TO IT AND WERE NOT MADE OUT OF INTEREST FREE FUNDS. THE ASSESSEE, WITHOUT PREJUDICE TO THIS CONTENTION, ALSO TOOK AN ALTERNATE PLEA THAT THE ENTIRE INTEREST PAID ON LOANS AVAILED FROM HUDCO SH OULD ACTUALLY BE PERMITTED TO BE WRITTEN OFF AS REVENUE EXPENDITURE. THE CIT(A) IN HIS COMMON ORDER PASSED FOR THE AYS 2002-03, 2003-04 & 2004-05 REJECTED THE PLEA OF SET OFF AGAINST INTEREST PAYMENTS AND U PHELD THE ORDER OF THE AO ON THIS COUNT. HE HOWEVER ALLOWED THE ALTERNATE PLEA OF THE APPELLANT THAT THE ENTIRE INTEREST PAYMENT MADE TO HUDCO ON THE LOANS AVAILED FROM THEM OUGHT TO BE ALLOWED AS REVENUE EX PENSES. 13. IT MAY BE NOTED THAT THE REVENUE HAS ACCEPTED T HE ORDER OF THE CIT(A) AND IS NOT AGITATING THE SAME. IT IS THE ASS ESSEES SUBMISSION THAT THE ITAT DECIDE THIS ISSUE BASED ON THE GIVEN SET OF FACTS FOR THE AYS 2002-03, 2003-04 & 2004-05. IN RESPECT OF AY 20 05-06, HOWEVER, THE CIT(A) HAS DISMISSED THE PLEA THAT THE INTEREST OUGHT NOT TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SO URCES BY FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE AYS 2002-03 TO 2004- 05. THE CIT(A) HAS FOLLOWED THE ORDER OF HIS PREDEC ESSOR IN THIS REGARD. THE CIT(A) HOWEVER IS SILENT ON THE PLEA TH AT INTEREST PAID ON ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 11 OF 32 LOANS FROM HUDCO NEEDS TO BE ALLOWED AS REVENUE EXP ENDITURE. SINCE HE STATES THAT HE AGREES WITH THE REASONING O F HIS PREDECESSOR WHILE DISMISSING THE GROUND THE ORDER OF THE PREDEC ESSOR ON TREATING THE ENTIRE INTEREST PAID ON LOANS FROM HUDCO AS REV ENUE EXPENSES IS TO BE ALLOWED. 14. THE ASSESSEE HAS ALSO PLEADED BEFORE US THAT TH E TRIBUNAL IN - THE EVENT IT DOES AFFIRM THE TREATMENT OF INTEREST EARNED AS INCOME FROM OTHER SOURCES, SHOULD ALLOW THE ALTERNA TE PLEA THAT THE INTEREST PAID ON LOANS FROM HUDCO SHOULD BE ALL OWED AS REVENUE EXPENDITURE AS DONE SO BY THE CIT(APPEALS) IN THE ORDER FOR THE AYS 2002-03 TO 2004-05 AND WHICH HAS BEEN A CCEPTED BY THE REVENUE. 15. WE ARE OF THE VIEW THE PRAYER MADE IN THE ALTER NATIVE BY THE ASSESSEE DESERVES TO BE ALLOWED AS WAS DONE IN AYS 2002-03 TO 2004- 05 BY THE CIT(A) IN THE ORDERS FOR THOSE AYS. WE DI RECT THE CLAIM OF THE ASSESSEE, TO THIS EXTENT, SHOULD BE ALLOWED. GR.NO. 4 IS THUS TREATED AS PARTLY ACCEPTED. 4.6.1. ADMITTEDLY, THERE IS NO DIFFERENCE IN FACTUAL BACKG ROUND IN RESPECT OF THIS ISSUE FOR YEARS UNDER CONSIDERATION AS WELL AS THE PRECEDING ASSESSMENT YEARS THE ORDERS OF WHICH HAS BEEN PLACED BEFORE US. THERE ARE NO CONTRARY EVIDENCES PLACED B EFORE US BY LD.CIT.DR IN ORDER TO DEVIATE FROM CONSISTENT VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL ON THIS ISSUE IN PRECEDING YEARS. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW ALTERNATE CLAIM RAISED BY LD.AR. WE THUS DIRECT ENTIRE INTEREST PAID ON LOANS FROM HUDCO AS REVENUE EXPENDITURE. ACCORDINGLY THESE GROUNDS STANDS PARTLY ALLOWED AS INDICATED HEREINABOVE. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 12 OF 32 IN THE RESULT ASSESSEES APPEAL IN ITA NO. 703,704, 705, 706, 322/BANG/2018 FOR ASSESSMENT YEARS 2008-09 TO 2012- 13 STANDS PARTLY ALLOWED. 5. ISSUE II: THERE IS ONLY ONE ISSUES RAISED BY REVENUE IN ITS A PPEALS FOR RELEVANT ASSESSMENT YEARS, MORE SPECIFICALLY MENTIONED IN TH E TABLE HEREINABOVE. LD.AR SUBMITTED THAT, REVENUE RAISED I DENTICAL AND COMMON GROUNDS IN 805, 808/B/2017 CO NO. 44 & 47/B/ 2018 AND 935/B/2018, CO NO. 80/B/2018. 5.1. FOR SAKE OF CONVENIENCE, WE REPRODUCE HEREWITH GROU NDS RAISED BY REVENUE IN ITA NO.805/BANG/2017 AS UNDER: ITA NO.805/BANG/2017 1. THE ORDER OF THE LD. CIT (A), IN SO FAR AS IT IS PR EJUDICIAL TO THE INTEREST OF THE REVENUE, IS OPPOSED TO LAW AND THE FACT AND CIRCUMSTANCES OF THE CASE. 2. ON FACTS OF THE CASE, THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAS REDUCED THE CAPITAL EXPENDITURE INCURR ED IN THE FORM OF INTEREST ON LOAN WITH THE INTEREST INCOME OFFERE D UNDER THE HEAD INCOME FROM OTHER SOURCE. 3. ON THE FACTS OF THE CASE, THE LD CIT(A) OUGHT TO HA VE APPRECIATED THAT THE ASSESSEE HAS TAKEN LOAN FOR THE PURPOSE OF CONSTRUCTION OF BRIDGES WHICH ARE UNDER CONSTRUCTION AND ANY EXPEND ITURE IN THE FORM OF INTEREST ON LOAN FOR THIS PURPOSE HAS TO BE CAPITALIZED AND NOT ELIGIBLE FOR SET OFF AGAINST THE INTEREST INCOM E. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (A) IN SO FA R AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSES SING OFFICER MAY BE RESTORED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 13 OF 32 LD.AR SUBMITTED THAT CROSS OBJECTION RAISED BY ASSE SSEE IS IN SUPPORT OF VIEW TAKEN BY LD.CIT(A). HE SUBMITTED TH AT, ISSUE IN THESE REVENUE APPEALS ARE SUMMARIZED AS ISSUE NO.II IN THE TABLE HEREIN ABOVE. 5.2. ISSUE NO.II: INTEREST ON GRANTS RECEIVED FROM GOVERNMENT OF KARN ATAKA SET OF AGAINST ADVANCES RECOVERABLE FROM CONTRACTORS. AT THE OUTSET LD.AR SUBMITTED THAT, ONLY ISSUE RAISED BY REVENUE IN RES PECTIVE APPEALS ARE FOR RELEVANT ASSESSMENT YEAR STAB RELATED HEREI NABOVE IS REGARDING THE SET OF BEING ALLOWED BY LD.CIT (A) AG AINST THE INTEREST INCOME. IT HAS BEEN SUBMITTED THAT IN THE CROSS OBJECTION F ILED BY ASSESSEE IS IN SUPPORT OF THE VIEW TAKEN BY LD.CIT(A) ON THIS I SSUE. 5.3. BRIEF FACTS FOR ISSUE II ARE AS UNDER: IT HAS BEEN RECORDED BY AUTHORITIES BELOW THAT ASSE SSEE HAS RECEIVED FUNDS FOR PROJECTS OTHER THAN PACKAGE BRID GE PROJECTS RECEIVED FROM STREET GOVERNMENT. AS THE NODAL AGENC Y, ASSESSEE IS CARRYING OUT CERTAIN WORKS OTHER THAN THE PACKAGE B RIDGE PROJECTS FOR AND ON BEHALF OF STATE GOVERNMENT. ASSESSEE IS ACTING AS AN AGENT TO CARRY OUT WORKS FOR WHICH THE STATE GOVERN MENT IS RELEASING SPECIFIC GRANTS FOR SUCH WORK. IT HAS BEEN OBSERVED BY LD.CIT(A) THAT BY WAY OF ANNUAL BUDGET ALLOCATION, GRANTS ARE RELEASED BY STATE GOVERNMENT TO ASSESSEE BY WAY OF GRANT-IN-AI D BILLS, AND INTEREST IS EARNED BY ASSESSEE OUT OF DEPLOYMENT OF SUCH GRANT FUND IN FD WHEN SUCH GRANT FUNDS ARE NOT IN USE. INTERES T ON SUCH FUND ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 14 OF 32 ALSO BELONGS TO THE GOVERNMENT OF KARNATAKA AND NOT TO THE ASSESSEE. LD.AO DISALLOWED THE CLAIM OF ASSESSEE BY FOLLOWING DECISION OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI AND FERTILISERS LTD. VS. CIT REPORTED IN (1997) 2 TO 7 ITR 172. 5.3.1. LD.CIT(A) OBSERVED THAT, ASSESSEE FILED WORKING OF SUCH INTEREST INCOME RELATING TO PROJECTS OTHER THAN PAC KAGE BRIDGE PROJECTS AND THAT THE INTEREST EARNED ON DEPLOYMENT OF GRANT FUNDS IN FDS AND ARE CREATION TO SUCH GRANT AND NOT INCO ME IN THE HANDS OF ASSESSEE. 5.4. AGAINST THIS VIEW, OF LD.CIT(A), REVENUE IS IN APPE AL BEFORE US NOW. LD.CIT.DR RELIED ON WRITTEN SUBMISSION FILED BY HIM WHICH HAS BEEN REPRODUCED HEREINABOVE. 5.5. AT THE OUTSET, LD.AR SUBMITTED THAT THIS ISSUE STAN DS SQUARELY COVERED BY DECISIONS OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT AND F INANCE CORPORATION REPORTED IN (2006) 284 ITR 582 AND (2009) 351 ITR 301 AND CIT VS KARNATAKA STATE AGRICULTURAL PRODUCE PROCESS ING AND EXPORT CORPORATION LTD., REPORTED IN (2015) 377 ITR 496 AND KARNATAKA MUNICIPAL DATA SOCIETY REPORTED IN (2016) 389 ITR 441. 5.5.1. HE SUBMITTED THAT, CONTENTION OF REVENUE THAT, INTE REST ON LOANS BORROWED TO BE CAPITALISED ARE NOT ELIGIBLE F OR SET OFF, IS CONTRARY TO THE FACTS OF THE CASE. LD.AR SUBMITTED THAT, INTEREST RECEIVED ON TEMPORARY DEPOSITS MADE OUT SPECIFIC GR ANTS AS A NODAL AGENCY/CUSTODIAN IN ACCORDANCE WITH ACCOUNTING STAN DARDS ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 15 OF 32 CONSISTENTLY FOLLOWED. HE ALSO SUBMITTED THAT, METH OD FOLLOWED BY ASSESSEE DOES NOT MAKE ANY DIFFERENCE INSOFAR AS TR EATING THE INTEREST INCOME AS CAPITAL RECEIPT SINCE THE SAME I S REDUCED FROM THE CAPITAL WORKS WHICH OTHERWISE AMOUNTS TO TREATI NG THE SAME AS A CREATION TO FUND ACCOUNT. LD.AR EMPHASISED THAT, ACCOUNTING TREATMENT FOLLOWED BY ASSESSEE HAS ALSO BEEN REFERR ED TO BY HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT AND FINANCE CORPORATION AND CIT VS. KARNATAKA STATE AGRICULTURAL PRODUCE PROCESSING AND EXPORT CORPORATION LTD (SUPRA) . 5.6. ON THE CONTRARY, LD.CIT.DR FILED WRITES SUBMISSION AS UNDER: WRITTEN SUBMISSION IN THE CASE OF M/S KARNATAKA ROAD DEVELOPMENT CORPORATION LTD., ITA NO:935/BANG/20198 A.Y: 2013-14 & C0.80/BANG/18 DATE OF HEARING: 05-12-2019 MAY IT PLEASE YOUR HONOURS IN THE PRESENT CASE FILED BY THE DEPARTMENT, THE GROUNDS OF APPEAL AS RAISED BY THE REVENUE HAS BEEN BROADLY CATEGORISED INTO THE FOLLOWING HEADINGS AND C.O.BY THE ASSESSEE AND ITS GOUNDS D.R.SUBMISSIONS THEREON. (1) ON THE FACTS OF THE CASE, THE LD.CIT(A) HAS FAI LED TO APPRECIATE THAT THE ASSESSEE HAS EARNED INCOME ON THE GRANTS RECEIV ED FROM THE GOVT. OF KARNATAKA WHICH HAS BEEN NETTED OUT OF ADVANCE R ECOVERABLE AFTER BEING CHARGED TO TAX AND THAT NETTING OUT OF INTERE ST IN THE ADVANCES RECOVERABLE IS AN APPLICATION OF INTEREST HENCE CHA RGEABLE TO TAX. SUBMISSION: THE LD.CIT(A) PERUSED THE REASONS ASSIG NED BY THE LD.AO FOR BRINGING INTEREST INCOME OF RS.5.96 CRORE S AS INCOME OF THE CORPORATION, APPELLANTS' CONTENTION AND COURT DECIS ION RELIED UPON BY THE APPELLANT. THE ASSESSEE CORPORATION HAS BEEN CA RRYING OUT CERTAIN WORKS LIKE, ROAD WORKS AND BRIDGES OTHER THAN PACKA GE BRIDGES. FUNDS FOR THESE WORKS OTHER THAN PACKAGE BRIDGES AR E RECEIVED FROM STATE GOVERNMENT BY WAY OF ANNUAL BUDGET ALLOCATION AND BY WAY OF ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 16 OF 32 GRANT IN AID BILLS. THESE ARE SPECIFIC GRANTS TO TH E CORPORATION WHICH IS ACTING ONLY AS NODAL AGENCY. AN INTEREST ON DEPLOYM ENT OF SUCH SPECIFIC GRANTS FUNDS NOT IN USE WOULD FORM PART OF ACCRETION TO SUCH GRANTS AND CANNOT BE CONSTRUED AS DIRECT INCOME OF THE CORPORATION. SUCH SPECIFIC GRANT FUNDS ARE LIABILITIES OF THE CO RPORATION TO THE EXTENT NOT UTILISED AND IN CASE OF EXPENDITURE IN EXCESS O F SUCH GRANT FUNDS SAME ARE IN THE NATURE OF RECEIVABLE FROM GOVERNMEN T OF KARNATAKA. THIS IS THE STATED PRACTICE FOLLOWED BY THE CORPORA TION AS PER AUDITED FINANCIALS FROM YEAR TO YEAR. THE CIT(A) FURTHER RE LIED ON THE LD.CIT(A) ORDER OF THE APPELLANT FOR A.Y:2012-13, WHICH IS FA VOURABLE TO THE APPELLANT, AND HELD THAT THE ADDITION MADE BY THE L D.AO ON ABOVE, WAS DELETED, THE LD.AO DISCUSSED THE ISSUE IN DETAI L IN HIS ASSESSMENT ORDER AND CONCLUDED THAT THE ASSESSEE HA S GENERATED INCOME FROM INTEREST BY MAKING DEPOSITS OUT OF THE GOVERNMENT GRANTS FOR WORKS. THE NETTING OUT OF THE INTEREST IN THE A DVANCE RECOVERABLE IS AN APPLICATION OF INTEREST AND HENCE CHARGEABLE TO TAX. I AGREE WITH THE DECISION OF THE LD.AO ON THE ISSUE AND THE SAME MAY BE UPHELD AND THE ORDER OF THE LD.CIT(A) ON THE ISSUE MAY BE DISM ISSED. CROSS OBJECTION OF THE ASSESSEE. 2. THE LD.AO HAS IGNORED TO FOLLOW THE DECISION OF HON 'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS KARNATAK A URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPORATION (K UIDFC) AND ANOTHER CASE LAW KARNATAKA STATE AGRICULTURAL PRODU CE PROCESSING & EXPORT CORPORATION VS ACIT (2013) IN ITA NO.1078/BA NG/2012 ( HON'BLE ITAT 'B' BENCH ) WHICH IS SQUARELY APPLICAB LE TO THE APPELLANT CASE BASED ON THE FACTS, ACCOUNTING POLICY FOLLOWED BY THE APPELLANT AND THE ACCOUNTING STANDARD-12 PRESCRIBED BY INSTIT UTE OF CHARTERED ACCOUNTANTS OF INDIA. CONCLUSION : IN VIEW OF THE SUBMISSIONS MADE ABOVE, EXAMINATION OF SUBMISSIONS MADE BY THE REVENUE, THE ORDER OF THE L D.CIT(A), BANGALORE IS ERRONEOUS AND BAD IN LAW. THE LD.CIT(A) ORDER MA Y BE DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE MAY BE REJE CTED. PRAYER : IN THE WAKE OF THE ABOVE SUBMISSIONS, IT IS HUMBLY PRAYED TO DISMISS THE CIT(A) ORDER IN RESPECT OF THE ABOVE ISSUE AND ANY OTHER ORDER AS MAY PLEASE YOUR HONOURS. RESPECTFULLY SUBMITTED. 5.7. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 17 OF 32 WE HAVE ALSO REFERRED TO THE DECISIONS BY HONBLE KARNATAKA HIGH COURT REFERRED BY LD.AR HEREINABOVE. HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS KARNATAKA STATE AGRICULTURAL PRODUCE PROCESS ING AND EXPORT CORPORATION LTD., REPORTED IN (2015) 377 ITR 496 HAS CONSIDERED ALL THE PRECEDING ORDERS BY HONBLE COURT IN RESPECT OF IDENTICAL ISSUE AS UNDER: 2. THE ONLY QUESTION INVOLVED IN THIS APPEAL IS, 'WHE THER THE INTEREST EARNED ON GRANTS MADE BY THE STATE GOVERNMENT KEPT IN FIXED DEPOSITS PENDING UTILIZATION SHOULD BE TREATED AS ADDITIONAL GRANT OF THE SCHEME OR A REVENUE RECEIPT EXIGIBLE TO TAX UNDER THE HEAD 'I NCOME FROM OTHER SOURCES'? 5. WE HAVE HEARD THE LEARNED COUNSEL SRI K V ARAVIND, APPEARING FOR THE REVENUE AS WELL AS MS. JINITA CHATTERJEE APPEARING FOR THE RESPONDENT- ASSESSEE. 6. THOUGH THE MATTER IS LISTED FOR ADMISSION, WITH TH E CONSENT OF THE PARTIES THE MATTER IS TAKEN FOR FINAL DISPOSAL. 7. THE LEARNED COUNSEL SRI K V ARAVIND PLACED RELIANC E ON THE JUDGMENT OF THE APEX COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. V. CIT[1997] 227 ITR 172/93 TAXMAN 502 AND ARGUED THAT THE PROCEEDINGS OF GOVERNMENT OF KARNATAKA BY WHICH A SUM OF RS. 10.00 CRORES WAS GRANTED TO THE ASSESSEE DID NOT CONTAIN ANY CONDITION WITH RESPECT TO THE UTILIZATION OF INTEREST. THE ASSESSE E BEING A COMPANY ENGAGED IN TRADING OF AGRICULTURALPRODUCE IS NOT EN TITLED TO THE BENEFIT OF INTEREST EARNED FROM THE FIXED DEPOSITS TO GET IT C APITALIZED AND MADE AN ATTEMPT TO DISTINGUISH THE JUDGMENT OF CIT V. KARNA TAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPN. [2006] 284 ITR 582/155 TAXMAN 228 (KAR). 8. LEARNED COUNSEL APPEARING FOR THE ASSESSEE MS. JIN ITA CHATTERJEE CONTENDED THAT THE GOVERNMENT OF KARNATAKA, WHILE G RANTING RS. 10.00 CRORES FOR IMPROVEMENT OF INFRASTRUCTURE TO PROMOTE AGRICULTURALEXPORTS, HAS CATEGORICALLY SPECIFIED THAT THE SAID GRANT SHALL B E USED FOR CREATION OF INFRASTRUCTURE FACILITIES IN VARIOUS PARTS OF THE S TATE FOR INCREASING THE EXPORT OF HORTICULTURAL PRODUCE AND THE ASSESSE E SHALL PREPARE VIABLE AND IMPLEMENTABLE SCHEMES AND OBTAIN APPROVAL FROM KAPPEC BOARD AND THE SAID APPROVED SCHEMES WILL BE SUBMITTED TO THE DEPARTMENT OF HORTICULTURE. FURTHER, SHE RELIED ON THE LETTER DAT ED 12.11.2013 IN SUPPORT OF HER CONTENTION THAT THE GOVERNMENT HAS CONSIDERE D THE INTEREST EARNED ON THE GRANT RELEASED BY THE GOVERNMENT SHOULD BE T REATED AS ADDITIONAL ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 18 OF 32 GRANTS OF THE SCHEME FOR WHICH THE GRANT IS ORIGINA LLY RELEASED. THE LEARNED COUNSEL PLACED RELIANCE ON THE JUDGMENT OF THIS COU RT IN KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT FINANCE CORPN'S CASE (SU PRA), INDIAN OIL PANIPAT POWER CONSORTIUM LTD. V. ITO [2009] 315 ITR 255/181 TAXMAN 249 (DELHI), CIT V. KARNATAKA POWER CORPN. [2001] 2 47 ITR 268/[2000] 112 TAXMAN 629 (SC), CIT V. BOKARO STEEL LTD. [1999 ] 236 ITR 315/102 TAXMAN 94 (SC) TO CONTEND THAT THE GRANT AMOUNT REC EIVED FROM THE GOVERNMENT OF KARNATAKA, TEMPORARILY KEPT IN FIXED DEPOSITS TILL THE UTILIZATION PERIOD HAS TO BE TREATED AS THE AMOUNT CAPITALIZED AND IS NOT AN INCOME TO BRING IN WITHIN THE TAX NET UNDER THE ACT . 9. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSING T HE MATERIAL ON RECORD, WE HAVE NOTICED THAT THE ASSESSEE-COMPANY IS A GOVE RNMENT OWNED COMPANY. IN ORDER TO FACILITATE INFRASTRUCTURE FACI LITIES IN VARIOUS PARTS OF THE STATE OF KARNATAKA, FOR INCREASING THE EXPORT O F HORTICULTURAL PRODUCE, A SUM OF RS. 10.00 CRORES WAS GRANTED TO THE ASSESSEE . BEFORE THE UTILISATION OF THIS GRANT AMOUNT, IT WAS TEMPORARILY KEPT IN FI XED DEPOSITS AND THE INTEREST WAS EARNED ON THE SAID AMOUNT. THE ASSESSE E HAS PLACED CERTAIN ADDITIONAL EVIDENCE BEFORE THE TRIBUNAL TO ESTABLIS H THAT THE GOVERNMENT OF KARNATAKA HAD SPECIFICALLY DIRECTED THAT INTERES T EARNED ON FIXED DEPOSITS OF GRANTS PENDING UTILISATION SHOULD BE TR EATED AS ADDITIONAL GRANT OF THE SCHEME AND NOT TO BE TREATED AS 'INCOME OF T HE COMPANY'. NO LIBERTY WAS PROVIDED TO THE COMPANY TO MAKE USE OF THAT THE INTEREST EARNED ON THE SAID AMOUNT KEPT IN FIXED DEPOSITS. THOUGH THE ASSESSEE-COMPANY IS ENGAGED IN TRADING IN AGRICULTURALPRODUCE, IT HAS N O POWER TO MAKE USE OF THE SAID GRANT MADE BY THE GOVERNMENT OF KARNATAKA OTHER THAN FOR A PARTICULAR SCHEME I.E., THE SAID AMOUNT CANNOT BE D IVERTED FOR ANY OTHER PURPOSE OTHER THAN FOR WHICH IT WAS SANCTIONED AS P ER THE GOVERNMENT ORDER DATED 23.1.2007. THUS, THE EMPHASIS MADE BY T HE REVENUE THAT THE ASSESSEE-COMPANY BEING ENGAGED IN TRADING ACTIVITIE S CANNOT BE CONSIDERED AS A NODAL AGENCY OF THE STATE GOVERNMEN T AND THE INTEREST EARNED ON THE GRANTS BY THE ASSESSEE-COMPANY HAS TO BE TREATED AS INCOME IS NOT ACCEPTABLE IN VIEW OF THE SPECIFIC DI RECTIONS ISSUED BY THE STATE GOVERNMENT REGARDING THE UTILIZATION OF T HE AMOUNT GRANTED AND ON THE INTEREST ACCRUED THEREON. 10. THE TRIBUNAL RELIED ON THE JUDGMENT OF THIS COURT IN THE CASE OF KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN.'S CASE (KUIDC) (SUPRA) WHEREIN IT IS HELD THAT: 'THE MATERIAL ON RECORD SHOWS THAT THE VERY PURPOSE OF CONSTITUTION OF THE ASSESSEE WAS TO ACT AS A NODAL AGENCY FOR IMPLEMENT ATION OF MEGA-CITY SCHEME WORKED OUT BY THE PLANNING COMMISSION. BOTH THE CENTRAL AND THE STATE GOVERNMENTS ARE EXPECTED TO PROVIDE REQUI SITE FINANCES FOR IMPLEMENTATION OF THE SAID PROJECT. THE FUNDS FROM THE CENTRAL AND STATE GOVERNMENTS WILL FLOW DIRECTLY TO THE SPE CIALISED INSTITUTIONS/NODAL AGENCIES AS GRANT AND THE NODAL AGENCY WILL CONSTITUTE A ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 19 OF 32 REVOLVING FUND WITH THE HELP OF CENTRAL AND STATE S HARES OUT OF WHICH FINANCE COULD BE PROVIDED TO VARIOUS AGENCIES SUCH AS WATER, SEWERAGE BOARDS, MUNICIPAL CORPORATIONS, ETC. THE OBJECTIVE IS TO CREATE AND MAINTAIN A FUND FOR THE DEVELOPMENT OF INFRASTRUCTURAL ASSET S ON A CONTINUING BASIS AND, THEREFORE, THE ASSESSEE IS A NODAL AGENCY FORM ED/CREATED BY THE GOVERNMENT OF KARNATAKA AS PER THE GUIDELINES; THER E IS NO PROFIT MOTIVE AS THE ENTIRE FUND ENTRUSTED AND THE INTEREST ACCRU ED THEREFROM ON DEPOSITS IN BANK THOUGH IN THE NAME OF THE ASSESSEE HAS TO BE APPLIED ONLY FOR THE PURPOSE OF WELFARE OF THE NATION/STATE S AS PROVIDED IN THE GUIDELINES; THE WHOLE OF THE FUND BELONGS TO THE ST ATE EXCHEQUER AND THE ASSESSEE HAS TO CHANNELISE THEM TO THE OBJECTS OF C ENTRALLY SPONSORED SCHEME OF INFRASTRUCTURE DEVELOPMENT FOR MEGA-CITY OF BANGALORE. FUNDS OF ONE WING OF THE GOVERNMENT IS DISTRIBUTED TO THE OT HER WING OF THE GOVERNMENT FOR PUBLIC PURPOSE AS PER THE GUIDELINES ISSUED. THE MONIES SO RECEIVED, TILL IT IS UTILISED, IS PARKED IN A BANK. THE FINDING RECORDED BY THE TRIBUNAL CLEARLY SHOWS THAT THE ENTIRE MONEY IN QUE STION IS RECEIVED FOR IMPLEMENTATION OF THE SCHEME WHICH IS FOR A PUBLIC PURPOSE AND THE SAID SCHEME IS IMPLEMENTED AS PER THE GUIDELINES OF THE CENTRAL GOVERNMENT AND, THEREFORE, THE ASSESSEE IS ONLY ACTING AS A NO DAL AGENCY OF CENTRAL GOVERNMENT FOR IMPLEMENTATION OF THESE PROJECTS. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS CARRYING ON ANY BUSIN ESS OR ACTIVITIES OF ITS OWN WHILE IMPLEMENTING THE SCHEME IN QUESTION. THE UNUTILISED MONEY, DURING WHICH THE PROJECT COULD NOT BE FULLY IMPLEME NTED, IS DEPOSITED IN A BANK TO EARN INTEREST. THAT INTEREST EARNED IS ALSO AGAIN UTILISED FOR THE IMPLEMENTATION OF THE MEGA-CITY SCHEME WHICH IS ALS O PERMITTED UNDER THE SCHEME. THEREFORE, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR ANY PREVIOUS YEAR THE INTEREST ACCRUED ON BANK DEPOSITS CANNOT BE TREATED AS AN INCOME OF THE ASSESSEE AS THE INTEREST IS EARNED OUT OF THE MONEY GIVEN BY THE GOVERNMENT OF INDIA FOR THE PURPOSE OF IMPLE MENTATION OF MEGA-CITY SCHEME. THEREFORE, WE DO NOT FIND ANY ERROR IN THE CONCLUSION REACHED BY THE TRIBUNAL THAT THERE WAS NO INCOME EARNED BY WAY OF INTEREST BY THE ASSESSEE AND SETTING ASIDE THE ORDER OF AO WHICH IS AFFIRMED BY THE FIRST APPELLATE AUTHORITY. THE FINDING GIVEN BY THE TRIBU NAL IS PURELY A QUESTION OF FACT. WE DO NOT FIND ANY SUBSTANTIAL QUESTION OF LAW INVOLVED IN THIS APPEAL AND THEREFORE, THIS APPEAL IS LIABLE TO BE D ISMISSED AT THE STAGE OF ADMISSION ITSELF.' 11. IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE (SUPRA), THE APEX COURT HAS HELD THAT: 'THERE IS ANOTHER ASPECT OF THIS MATTER. THE COMPAN Y, IN THIS CASE, IS AT LIBERTY TO USE THE INTEREST INCOME AS IT LIKES. IT IS UNDER NO OBLIGATION TO UTILISE THIS INTEREST INCOME TO REDUCE ITS LIABILIT Y TO PAY INTEREST TO ITS CREDITORS. IT CAN RE-INVEST THE INTEREST INCOME IN LAND OR SHARE, IT CAN PURCHASE SECURITIES, IT CAN BUY HOUSE PROPERTY, IT CAN ALSO SET UP ANOTHER ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 20 OF 32 LINE OF BUSINESS, IT MAY EVEN PAY DIVIDENDS OUT OF THIS INCOME TO ITS SHAREHOLDERS'. 12. IN THE CASE OF KARNATAKA POWER CORPN. (SUPRA), THE APEX COURT FOLLOWING THE JUDGMENT OF BOKARO STEEL LTD'S CASE ( SUPRA) HAS HELD THAT 'INTEREST RECEIPTS AND HIRE CHARGES FROM CONTRACTOR S ARE IN THE NATURE OF CAPITAL RECEIPTS'. 13. IN THE CASE OF BONGAIGAON REFINARY & PETROCHEMICAL S LTD., V. CIT[2001] 251 ITR 329/119 TAXMAN 488 THE APEX COURT CONSIDERI NG THE DECISION IN TUTICORIN ALKALI CHEMICALS LTD.'S CASE (SUPRA) A ND BOKARO STEEL LTD.'S CASE (SUPRA) HAS HELD THAT IN TUTICORI N ALKALI CHEMICALS & FERTILIZERS LTD.'S CASE, THE QUESTION RELATED WAS W ITH THE INTEREST EARNED BY THE COMPANY DURING ITS FORMATIVE PERIOD BY INVESTME NTS WHILE IN BOKARO STEEL LTD.'S CASE (SUPRA), IT IS SO CONFINED AND DI D NOT APPLY WHERE THE RECEIPTS WERE DIRECTLY CONNECTED WITH OR WERE INCID ENTAL TO THE WORK OF CONSTRUCTION OF THE ASSESSEE'S PLANT. ACCORDINGLY, APPLYING THE LAW ENUNCIATED IN BOKARO STEEL LIMITED CASE ALLOWED THE APPEAL. 14. IN THE LIGHT OF THE JUDGMENTS REFERRED TO ABOVE, W E HAVE EXAMINED THE CASE ON HAND. IT IS CLEAR THAT THE ASSESSEE HAS REC EIVED THE GRANT OF RS 10.00 CRORES FROM THE GOVERNMENT OF KARNATAKA FOR A PARTICULAR PROJECT I.E., FOR IMPROVEMENT OF INFRASTRUCTURE AND TO PROMOTE EX PORT OF HORTICULTURAL PRODUCE. BEFORE THE SAID GRANT WAS UT ILIZED FOR THE SPECIFIC PURPOSE IT WAS PARKED IN FIXED DEPOSITS AND THE INT EREST WAS EARNED AND BY THE SUBSEQUENT ADDITIONAL EVIDENCE PRODUCED BY T HE ASSESSEE BEFORE THE TRIBUNAL, IT IS FURTHER MADE CLEAR THAT THE STA TE GOVERNMENT HAS CATEGORICALLY SPECIFIED THAT ANY INTEREST EARNED ON THOSE GRANTS ORIGINALLY GRANTED HAS TO BE CONSIDERED AS AN ADDITIONAL GRANT AND NOT AN INCOME OF THE ASSESSEE-COMPANY. 15. AS EXPLAINED BY THE APEX COURT, IN BONGAIGAON REFI NARY & PETROCHEMICALS LTD.'S CASE, (SUPRA), IN TUTICORIN'S CASE, THE INVESTMENT IN DEPOSITS WAS MADE BY THE COMPANY DURING ITS FORMATI VE PERIOD BY INVESTMENTS AND IN BOKARO STEELS LTD.'S CASE (SUPRA ) THE INEXTRICABLE LINK BETWEEN THE INTEREST EARNED AND THE SET UP OF THE P LANT WAS ESTABLISHED. THUS, IN THE PRESENT CASE WE ARE OF THE VIEW THAT T HIS IS NOT AN INVESTMENT MADE SUBSEQUENT TO THE SETTING UP OF THE PROJECT BU T THIS IS THE UNUTILIZED INCOME PARKED IN FIXED DEPOSITS FOR A TEMPORARY PER IOD AND INEXTRICABLE LINK FOR THE INTEREST EARNED ON THE GRANTS AND THE ORIGINAL GRANT MADE BY THE STATE GOVERNMENT TO SET UP A PROJECT IS ESTABLI SHED AS IN BOKARO STEEL CASE. 16. THUS WE ARE OF THE VIEW THAT THE FACTS AND, CIRCUM STANCES OF THE PRESENT CASE IS SQUARELY COVERED BY BOKARO STEEL LT D., (SUPRA) AND IT IS NOT THE CASE OF THE REVENUE THAT THE SAID INTEREST EARN ED ON THESE FIXED DEPOSITS WAS UTILIZED BY THE COMPANY FOR ANY OTHER PURPOSE OTHER THAN THE PURPOSE FOR WHICH THE GRANTS WERE MADE BY THE STATE GOVERNMENT. EVEN IF WE PERUSE THE PREAMBLE TO THE GOVERNMENT ORDER DATE D 23.01.2007 BY ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 21 OF 32 WHICH THE GRANT OF RS.10.00 CRORES IS MADE BY THE G OVERNMENT OF KARNATAKA IT IS CLEAR THAT 'IN VIEW OF THE NATIO NAL HORTICULTURAL MACHINE PROGRAM IMPLEMENTED IN KARNATAKA AND MAJOR THRUST G IVEN BY THE STATE GOVERNMENT FOR THE DEVELOPMENT OF HORTICU LTURAL SECTOR, THERE IS UNLIMITED POTENTIALITY FOR EXPORT OF HORTICULTURAL PRODUCE, BUT THE MAIN CONSTRAINT IS LACK OF POST HARVEST INFRASTRUCTURES VIZ., PROCUREMENT CENTRES, GRADING, WASHING, WAXING, PACKING UNITS, REFRIGERAT ED TRANSPORT, PRE- COOLING AND COLD STORAGES, INTERMEDIATE COLD STORAG ES, PROCESSING UNITS AND EXPORT HOUSE. IN ORDER TO HARNESS THE POTENTIAL ITY AND TO INCREASE EXPORTS. FURTHER KAPPEC HAS PROPOSED TO CR EATE THESE INFRASTRUCTURE FACILITIES IN VARIOUS PARTS OF STATE IN A PHASED MANNER AND EFFORTS WILL ALSO BE MADE TO ROPE IN FUNDS FROM GOV ERNMENT OF INDIA UNDER THE RELEVANT SCHEME FROM DIFFERENT AGENCIES'. THE O BJECT OF THE SCHEME IS TO FACILITATE THE FARMERS AND TO PROMOTE EXPORT OF HOR TICULTURAL PRODUCE. 17. HENCE, THE VERY PURPOSE OF GRANTING RS. 10.00 CROR ES TO THE ASSESSEE WAS TO ACT AS A NODAL AGENCY FOR IMPLEMENTATION OF THE SCHEME. THERE IS NO PROFIT MOTIVE AS THE ENTIRE FUND ENTRUSTED AND T HE INTEREST ACCRUED THEREFROM FROM DEPOSITS HAS TO BE UTILISED ONLY FOR THE PURPOSE OF THE SCHEME ORIGINALLY GRANTED. THE WHOLE OF THE FUND BE LONGS TO THE STATE EXCHEQUER AND THE ASSESSEE HAS TO CHANNEL IZE THEM TO ACHIEVE THE OBJECTS OF CENTRALLY SPONSORED SCHEME OF INFRAS TRUCTURAL DEVELOPMENT AS SPECIFIED IN THE GOVERNMENT ORDER. HENCE, INTERE ST ON ALL THESE FIXED DEPOSITS ARE CONSIDERED TO BE CAPITALIZED AND NOT R EVENUE RECEIPTS TO TREAT IT AS AN INCOME. THE TRIBUNAL CONSIDERING THESE ASP ECTS AND MORE PARTICULARLY, FOLLOWING THE JUDGMENT OF THIS COURT IN KUIDC CASE HAS HELD THAT THE INTEREST EARNED ON THESE GRANTS IS NOT AN INCOME, WHICH WE DO NOT FIND FAULT WITH. 5.7.1. IT IS AN ADMITTED FACT THAT ASSESSEE RECEIVED GRANT FOR GOVERNMENT OF KARNATAKA FOR CARRYING OUT CONSTRUCTI ON ACTIVITIES. IT IS ALSO NOT DISPUTED THAT ASSESSEE WAS A NODAL AGEN T FOR GOVENRMENT OF KARNATAKA. AND THAT ASSESSEE HAD PARK ED THE GRANTS SO RECEIVED IN FD TILL SUCH MONIES WERE UTIL IZED, AGAINST WHICH INTEREST WAS EARNED. HONBLE KARNATAKA HIGH C OURT ON IDENTICATL FACTS HAS HELD THAT SUCH INTEREST INCOME EARNED WAS INEXTRICABLY LINKED WITH THE BUSINESS ACTIVITY OF A SSESSEE. REVENUE HAS NOT BROUGHT BEFORE US ANY EVIDENCE TO ESTABLISH THAT THESE ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 22 OF 32 GRANTS WERE USED FOR ANY OTHER PURPOSE OTHER THAN F OR CONSTRUCTION ACTIVITIES ON BEHALF OF GOVERNMENT OF KARNATAKA. 5.7.2. ADMITTEDLY, THERE IS NO DIFFERENCE IN FACTUAL BACKG ROUND IN RESPECT OF THIS ISSUE FOR YEARS UNDER CONSIDERATION AS WELL AS FACTS CONSIDERED BY HONBLE HIGH COURT IN CASE OF CIT VS KARNATAKA STATE AGRICULTURAL PRODUCE PROCESSING AND EXPORT CORPORAT ION LTD.(SUPRA) . THERE ARE NO FACTUAL DIFFERENCES BROUGHT OUT BY LD. CIT.DR IN THE PRESENT CASE. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY HONBLE HIGH COURT IN CASE OF CIT VS KARNATAKA STATE AGRICULTURAL PRODUCE PROCESSING AND EXPORT CORPORATION LTD.(SUPR A) , WE DO NOT FIND ANY REASON TO INTERFEAR WITH THE VIEW TAKEN BY LD.CIT(A). ACCORDINGLY GROUNDS RAISED BY REVENUE STANDS DISMIS SED. IN THE RESULT REVENUES APPEAL IN ITA NO.805, 808, 935/BANG/2017 FOR ASSESSMENT YEARS 2008-09, 2012-13 2013- 14 STANDS DISMISSED. 5.7.2. AS WE HAVE DISMISSED THE REVENUES APPEAL, CORRESPO NDING CROSS OBJECTIONS FILED BY ASSESSEE BECOMES INFRUCTU OUS. IN THE RESULT ASSESSEES CO NO.44, 47, 80/BANG/2018 STANDS DISMISSED AS INFRUCTUOUS. 6. ISSUES III & IV: LD.AR SUBMITTED THAT ISSUES III & IV ARE COMMON IN ITA NO.426, 806, 807/BANG/2017 FILED BY REVENUE, PERTAINING TO ASSESSMENT YEARS 2009-10 TO 2011-12. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 23 OF 32 6.1. AT THE OUTSET, LD.CIT.DR HAS SUBMITTED THAT, APPEAL NO.426/B/2017 HAS BEEN FILED WITH DELAY OF 48 DAYS. IT HAS BEEN SUBMITTED THAT THE DELAY IN FILING THE PRESENT APPE AL WAS UNINTENTIONAL AND CAUSED DUE TO TECHNICAL DIFFICULT IES OF OBTAINING THE SCRUTINY REPORT ORDER. HE THUS PRAYED FOR CONDO NATION OF DELAY. LD.AR DID NOT RAISE ANY SERIOUS OBJECTION AGAINST C ONDONING THE DELAY SO COST. 6.1.1. WE ARE THEREFORE CONSIDERING THE PRESENT CIRCUMSTAN CES AND SUBMISSIONS MADE BY BOTH SIDES CONDONED THE DELAY O F 48 DAYS IN FILING THE PRESENT APPEAL BY REVENUE. 6.2. LD.AR SUBMITTED THAT, REVENUE RAISED IDENTICAL AND COMMON GROUNDS IN ALL THESE APPEALS FOR RELEVANT ASSESSMEN T YEARS MORE SPECIFICALLY MENTIONED IN THE TABLE HEREINABOVE. FO R SAKE OF CONVENIENCE, WE REPRODUCE HEREWITH GROUNDS RAISED B Y REVENUE IN ITA NO.426/BANG/2017 AS UNDER: ITA NO.426/BANG/2017 THE ORDER OF THE LD. CIT (A), IN SO FAR AS IT IS PR EJUDICIAL TO THE INTEREST OF THE REVENUE, IS OPPOSED TO LAW AND THE FACT AND CIRCUMSTANCES OF THE CASE. 1. ON FACTS OF THE CASE, THE LD.CIT (A) IS NOT CORRECT IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE FINAL PAYMEN T TO BE RECEIVED BY THE ASSESSEE INCLUDES THE INTEREST ELEMENT WHICH IS LIKELY TO BE EARNED BY THE ASSESSEE ON THE MOBILIZATION ADVANCE KEPT IN SHORT TERM DEPOSIT. 3. ON THE FACTS OF THE CASE, THE LD.CIT(A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAS EARNED INCOME ON SHORT TERM DEPOSITS M ADE OUT OF MOBILIZATION ADVANCE WHICH IS NOTHING BUT INCOME FR OM OTHER SOURCES. 4. ON THE FACTS OF THE CASE, THE LD.CIT(A) OUGHT TO HA VE APPRECIATED THAT THE INTEREST PAID TO THE HUDCO OR OTHER AGENCY IS P ART OF CAPITAL WORK IN PROGRESS AND NEED NO TO BE DEBITED IN THE ACCOUN T TILL THE COMPLETION OF THE PROJECT. 5. ON THE FACTS OF THE CASE, THE LD.CIT(A) IS NOT CORR ECT IN HOLDING THAT THE ROYALTY PAYMENT AND THE LABOUR WELFARE CESS PAID BY THE ASSESSEE TO THE GOVT. OF KARNATAKA IS CAPITAL IN NATURE. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 24 OF 32 6. ON THE FACTS OF THE CASE, THE LD.CIT(A) HAS FAILED TO APPRECIATE THAT THE ROYALTY PAYMENT AND LABOUR WELFARE CESS IS REVE NUE IN NATURE AND ALLOWABLE TO THE ASSESSEE ON THE BASIS OF ACTUA L PAYMENT S PER THE PROVISIONS OF SECTION 43B OF THE ACT. 7. ON THE FACTS OF THE CASE, THE LD.CIT(A) OUGHT TO HA VE APPRECIATED THAT THE ROYALTY PAYMENT TO THE GOVT. OF KARNATAKA IS NO THING BUT THE FEE / CESS CHARGE BY THE GOVT. FOR THE USE OF FIXED ASSET OF THE STATE EG., LAND FOR THE CONSTRUCTION OF ROADS AND BRIDGES. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (A) IN SO FA R AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSES SING OFFICER MAY BE RESTORED. 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED. ISSUE III: 6.3. BRIEF FACTS OF CONSIDERING ISSUE III ARE AS UN DER: ASSESSEE DEDUCTED PROPORTIONATE INTEREST EARNED ON TEMPORARY DEPLOYMENT OF HUDCO LOAN FUNDS AND INTEREST EARNED ON MOBILISATION ADVANCES OUT OF CAPITAL WORK IN PROGRE SS OF BRIDGES DURING THE YEARS UNDER CONSIDERATION. 6.3.1. LD.AO ADDED THE SAID AMOUNT BY HOLDING THAT ASSESSE E HAS DEPOSITED SPARE FUNDS ARISING FROM MOBILISATION ADV ANCE RECEIVED IN FIXED DEPOSITS LD.AO NOTED THAT ASSESSEE HAS PROPOR TIONATELY NETTED THE INTEREST AND SET OFF WHILE ACCOUNTING THE CAPIT ALISED COST OF BRIDGES AS CAPITAL WORK IN PROGRESS. LD.AO WAS OF T HE OPINION THAT ASSESSEE CANNOT SET OF THE INTEREST INCOME EARNED A GAINST THE INTEREST PAYABLE ON LOANS BORROWED FOR CONSTRUCTION OF THE BRIDGES. HE WAS OF THE OPINION THAT THE ENTIRE INTEREST WHIC H IS BEING PAID ON THE LOANS IS TO BE CAPITALISED. REFERENCE WAS DRAWN TO THE DECISION ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 25 OF 32 OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI AND CHEMICALS LTD., (SUPRA) . 6.3.2. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE PREFERRED APP EAL BEFORE LD.CIT(A). 6.3.3. BASED ON SUBMISSIONS MADE BY ASSESSEE, LD.CIT(A) OB SERVED THAT, INTEREST INCOME EARNED FROM MOBILISATION ADVA NCES GIVEN TO MOBILISE MEN AND MATERIAL FOR THE CONTRACT,, AND TH AT SUCH ADVANCE COMES WITH THE CONDITIONALITY OF INTEREST. LD.CIT(A ) NOTED THAT IN THE FINAL PAYOUT OR THE PRINCIPAL ALONG WITH THE INTERE ST IS ADJUSTED FROM THE SUM PAYABLE TO THE CONTRACTOR. LD.CIT(A) NOTED THAT SUCH MOBILISATION ADVANCES ARE PART OF NORMAL CONTRACT W ILL AGREEMENT IN INFRASTRUCTURE PROJECTS AND THERE IS NO INVOLVEMENT OF A THIRD-PARTY. LD.CIT(A) OBSERVED THAT THE ADVANCE REPRESENTS A PA RT OF CONTRACT SUM GIVEN TO THE CONTRACTOR AT AN INTEREST AND UNDE R THESE AGREEMENTS INTEREST EARNED BY ASSESSEE RETAINS THE INTRINSIC CHARACTER OF BUSINESS RECEIPTS EARNED IN THE COURSE OF ITS BUSINESS ACTIVITIES. LD.CIT(A) NOTED THAT ASSESSEE ENGAGED C ONTRACTOR FOR CONSTRUCTING BRIDGES AND THEREFORE ANY INTEREST EAR NED FROM MOBILISATION ADVANCE WOULD GO TO REDUCE THE CAPITAL WORK IN PROGRESS OF THE BRIDGES. 6.3.4. LD.CIT(A), OBSERVED THAT, ASSESSEE COULD NOT HAVE R ECEIVED MOBILISATION ADVANCE BEING THE PERSON EXECUTING PRO JECTS THROUGH CONTRACTOR. ON THE CONTRARY, LD.CIT(A) RECORDED THA T, ASSESSEE ADVANCED MOBILISATION ADVANCES TO CONTRACTORS AND EARNED INTEREST THEREON. HE HAS THUS NEGATED THE OBSERVATION OF LD. AO THAT ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 26 OF 32 ASSESSEE HAD DEPOSITED SPARE FUNDS ARISING OUT OF L OAN RECEIVED FROM HUDCO. LD.CIT(A) THUS ALLOWED THE INTEREST EAR NED FROM MOBILISATION ADVANCES AS NOT TAXABLE IN THE HANDS O F ASSESSEE. 6.4. AGGRIEVED BY VIEW TAKEN BY LD.CIT(A) REVENUE IS IN APPEAL BEFORE US NOW. 6.5. LD.CIT.DR PLACED RELIANCE ON THE WRITTEN SUBMISSION FILED BY HIM IT IS BEEN REPRODUCED HEREINABOVE. 6.6. ON THE CONTRARY, LD.AR SUBMITTED THAT, GIVING MOBIL ISATION ADVANCE IS AN INDUSTRIAL PRACTICE AT THE TIME OF CO MMENCEMENT OF THE WORK. HE SUBMITTED THAT MOBILISATION ADVANCES G IVEN TO MOBILISE MEN AND MATERIAL FOR THE CONTRACT AND AS P ER THE TERMS OF THE CONTRACT MOBILISATION ADVANCES REQUIRED TO BE D EDUCTED DURING THE VARIOUS STAGES OF PROJECT COMPLETION. INTEREST ON MOBILISATION ADVANCES CHARGED AS PER THE AGREED CONTRACT WILL TE RMS AND INTEREST RECEIVED ON MOBILISATION ADVANCE ARE NOT OUT OF FIX ED DEPOSITS WITH BANK BUT ONLY AN ADJUSTMENT CARRIED OUT AT THE TIME OF SETTLING THE RUNNING BILLS SUBMITTED BY THE CONTRACTORS. HE SUB MITTED THAT THE INTEREST ON MOBILISATION ADVANCES SHOWN AS ABETMENT IN THE CAPITAL COST OF WORK IN PROGRESS EVEN AT THE TIME OF CAPITA LISING THOSE CAPITAL WORK IN PROGRESS INTO FIXED ASSETS WHAT WAS CAPITALISED WAS ONLY THE NET AMOUNT AND NOT THE GROSS AMOUNT. IN SU PPORT OF HIS CONTENTION HE PLACED RELIANCE ON THE OBSERVATION OF HONABLE SUPREME COURT IN CASE OF CIT VS BOKARO STEEL LTD REPORTED IN (1999) 236 ITR 315. ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 27 OF 32 6.7. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE REFERRED TO THE DECISION RELIED BY LD.AR BY HONBLE SUPREME COURT . WE NOTE THAT, HONBLE COURT ON IDENTICAL ISSUE HAS OBSERVED AS UNDER: FOR THE ASSESSMENT YEAR 1972-73, A CONSOLIDATED REF ERENCE WAS MADE AT THE INSTANCE OF THE REVENUE AS WELL AS THE ASSESSEE AND THE FOLLOWING QUESTIONS WERE REFERRED : '(1) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE RECEIPTS ARISING FROM THE LETTING OUT OF THE QUARTERS TO THE OUTSIDERS, SUCH AS EMPLOYEES OF THE CONTRACTORS ENGAGED IN THE CONSTRU CTION OF THE PLANT CAN BE TREATED AS THE INCOME OF THE ASSESSEE AND/OR, IN ANY EVENT, SHOULD BE ADJUSTED AGAINST THE COST OF CONSTRUCTION SO AS TO REDUCE SUCH COST ? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE RECEIPTS FROM THE LETTING OUT OF THE PROPERTIES TO THE OUTSI DERS, SUCH AS EMPLOYEES OF THE CONTRACTORS ENGAGED IN THE CONSTRUCTION OF THE PLANT ARE TO BE ASSESSED AS INCOME FROM PROPERTY UNDER SECTION 22 OF THE INC OME-TAX ACT, 1961, OR THE SAID INCOME SHOULD BE ASSESSED UNDER SECTION 28 OF THE INCOME-TAX ACT, 1961, AS BUSINESS INCOME OR IN ANY EVENT, UNDE R SECTION 56 OF THE INCOME-TAX ACT, 1961, AS INCOME FROM OTHER SOURCES ? (3) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE RECEIPTS ARISING FROM THE LETTING OUT OF THE QUARTERS TO THE OUTSIDERS, SUCH AS EMPLOYEES OF THE CONTRACTORS ENGAGED IN THE CONSTRU CTION OF THE PLANT, CAN BE TREATED AS THE INCOME OF THE ASSESSEE AND/OR, IN ANY EVENT, SHOULD BE ADJUSTED AGAINST THE COST OF CONSTRUCTION SO AS TO REDUCE SUCH COST ? (4) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INTEREST RECEIVED FROM THE BANK ON SHORT-TERM DEPOSITS IS LI ABLE TO BE ASSESSED AS THE INCOME OF THE ASSESSEE OR SUCH INTEREST SHOULD REDUCE THE COST OF CONSTRUCTION OF THE ASSESSEE AND, THEREFORE, WOULD NOT CONSTITUTE THE INCOME OF THE ASSESSEE ?' . 5. WE WILL TAKE THE FIRST THREE HEADS UNDER WHICH THE ASSESSEE HAS RECEIVED CERTAIN AMOUNTS. THESE ARE THE RENT CHARGE D BY THE ASSESSEE TO ITS CONTRACTORS FOR HOUSING WORKERS AND STAFF EMPLO YED BY THE CONTRACTOR FOR THE CONSTRUCTION WORK OF THE ASSESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE. SECONDLY, HIR E CHARGES FOR PLANT AND MACHINERY WHICH WAS GIVEN TO THE CONTRACTORS BY THE ASSESSEE FOR USE IN THE CONSTRUCTION WORK OF THE ASSESSEE, AND THIRDLY, INTEREST FROM ADVANCES ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 28 OF 32 MADE TO THE CONTRACTORS BY THE ASSESSEE FOR THE PUR POSE OF FACILITATING THE WORK OF CONSTRUCTION. THE ACTIVITIES OF THE ASSESSE E IN CONNECTION WITH ALL THESE THREE RECEIPTS ARE DIRECTLY CONNECTED WITH OR ARE INCIDENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSEE. BROADLY SPEAKING, THESE PERTAIN TO THE ARRANGEMENTS MADE BY THE ASSESSEE WITH ITS CONTRACTORS PERTAINING TO THE WORK OF CONSTRUCT ION. TO FACILITATE THE WORK OF THE CONTRACTOR, THE ASSESSEE PERMITTED THE CONTR ACTOR TO USE THE PREMISES OF THE ASSESSEE FOR HOUSING ITS STAFF AND WORKERS E NGAGED IN THE CONSTRUCTION ACTIVITY OF THE ASSESSEE'S PLANT. THIS WAS CLEARLY TO FACILITATE THE WORK OF CONSTRUCTION. HAD THIS FACILITY NOT BEE N PROVIDED BY THE ASSESSEE, THE CONTRACTORS WOULD HAVE HAD TO MAKE TH EIR OWN ARRANGE- MENTS AND THIS WOULD HAVE BEEN REFLECTED IN THE CHA RGES OF THE CONTRACTORS FOR THE CONSTRUCTION WORK. INSTEAD, THE ASSESSEE HA S PROVIDED THESE FACILITIES. THE SAME IS TRUE OF THE HIRE CHARGES FO R PLANT AND MACHINERY WHICH WAS GIVEN BY THE ASSESSEE TO THE CONTRACTORS FOR THE ASSESSEE'S CONSTRUCTION WORK. THE RECEIPTS IN THIS CONNECTION ALSO GO TO COMPENSATE THE ASSESSEE FOR THE WEAR AND TEAR OF THE MACHINERY . THE ADVANCES WHICH THE ASSESSEE MADE TO THE CONTRACTORS TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOGETHER A VERY LARGE PROJECT WAS AS MUC H TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINAN CIAL HITCHES AS TO HELP THE CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE B ETWEEN THE ASSESSEE-COMPANY AND THE CONTRACTORS PERTAINING TO THESE THREE RECEIPTS ARE ARRANGEMENTS WHICH ARE INTRINSICALLY CONNECTED WITH THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS HAVE BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAVE GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAVE, THEREFORE, BEEN RIGHTLY HE LD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSESSEE FROM ANY INDEPENDENT SOURCE. 6.7.1. THERE IS NO DISPUTE THAT INTEREST ON ADVANCES MADE TO CONTRACTORS BY ASSESSEE IS NOT IN CONNECTION WITH C ONSTRUCTION ACTIVITIES. ADMITTEDLY, THESE ADVANCES HAVE BEEN MA DE BY ASSESSEE TO CONTRACTORS FOR FACILITATING THE WORK OF CONSTRU CTION. WE NOTE THAT THE FACTS BEFORE HONBLE SUPREME COURT IN ONE OF THE ISSUE ARE ON IDENTICAL NATURE OF ADVANCE MADE BY ASSESSEE THERE. ASSESSEE IN THE PRESENT CASE HAS ADVANCED MONEY TO THE CONTRACTORS THEREBY AVOIDING A THIRD-PARTY INVOLVEMENT. AGAINST SUCH AD VANCES, ASSESSEE HAS EARNED INTEREST. SUCH INTEREST ALONG W ITH ADVANCE WAS ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 29 OF 32 REDUCED IN CAPITAL WORK IN PROGRESS AND FINAL BILL OF PAYMENT MADE TO CONTRACTORS. 6.7.2. HONBLE SUPREME COURT HAS OBSERVED THAT SUCH KIND OF ARRANGEMENT FACILITATES THE CONTRACTORS TOWARDS TH E WORK OF CONSTRUCTION ON BEHALF OF ASSESSEE AND THEREFORE AN Y INTEREST EARNED FROM SUCH ADVANCES CANNOT BE HELD AS REVENUE RECEIPTS IN THE HANDS OF ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE VIEW BY HONBLE SUPREME COURT WE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY LD.C IT(A) AND THE SAME IS UPHELD. ACCORDINGLY GROUNDS 1, 4 IDENTICALLY RAISED BY REVE NUE IN THESE APPEALS STANDS DISMISSED. 7. ISSUE NO. IV: ROYALTY AND LABOUR WELFARE ASSESS DISALLOWED UNDER SECTION 43B. GROUND 5-7 DEALS WITH THIS ISSUE IN THE APPEAL FILED BY REVENUE CONSIDERED HEREIN. 7.1. BRIEF FACTS FOR ISSUE NO.IV ARE AS UNDER: IN THE WRITTEN SUBMISSION FILED BY ASSESSEE, IT HAS BEEN SUBMITTED THAT, ROYALTIES ARE IN CONNECTION WITH DEDUCTION MA DE ON CONTRACTORS BILLS, WHO CARRIED OUT THE CONSTRUCTIO N OF BRIDGES AND OTHER INFRASTRUCTURE AND ASSESSEE WAS REQUIRED TO R EMIT THE SAME TO THE GOVERNMENT OF KARNATAKA. HE SUBMITTED THAT THES E ARE RELATED TO CAPITAL FIXED ASSETS. IN RESPECT OF LABOUR WELFA RE CESS, LD.AR SUBMITTED THAT THEY ARE ALSO RELATED TO CAPITAL WOR KS FIXED ASSETS AND NOT IN RESPECT OF EMPLOYEE BENEFITS. IT HAS BEE N SUBMITTED THAT ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 30 OF 32 SUCH ROYALTY AND LABOUR WELFARE CESS WAS NOT DEBITE D TO PROFIT AND LOSS ACCOUNT. LD.AR THUS SUBMITTED THAT, SECTION 43 B DOES NOT APPLY TO SUCH ROYALTY PAYMENTS, WHICH ARE NOT PASSE D THROUGH PROFIT AND LOSS ACCOUNT. LD.AO DISALLOWED THE SAME AS SUCH PAYMENT HAS NOT B EEN MADE BY ASSESSEE TO THE GOVERNMENT OF KARNATAKA. 7.2. LD.CIT (A) HOWEVER DELETED THE ADDITION BY HOLDING THAT THESE WERE NOT CONSIDERED BY ASSESSEE IN THE PROFIT AND L OSS ACCOUNT AND THEREFORE DID NOT FORM PART OF ANY DEDUCTION CLAIME D AS EXPENSES. AGGRIEVED BY VIEW TAKEN BY LD.CIT(A), REVENUE IS IN APPEAL BEFORE US NOW. 7.3. LD.CIT.DR SUBMITTED THAT SUCH PAYMENTS UNLESS ACTUA LLY PAID CANNOT BE ALLOWED UNDER SECTION 43B OF THE ACT HE R ELIED ON THE VIEW TAKEN BY LD.AO. 7.4. LD.AR ALTERNATIVELY SUBMITTED THAT, IN THE EVENT PA YMENTS ARE ADDED BACK, IT MUST BE ALLOWED IN THE ASSESSMENT YE AR WHEN THE AMOUNT HAS BEEN DEPOSITED WITH THE GOVERNMENT. LD.A R SUBMITTED THAT PAYMENTS HAVE BEEN SUBSEQUENTLY MADE AND THE A SSESSMENT YEARS ARE ALSO BEFORE THIS BENCH FOR CONSIDERATION. HE THUS TRADE FOR THE ISSUE TO BE REMANDED BACK TO LD.AO FOR VERIFICA TION. 7.5. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. SECTION 43B CONTEMPLATES THAT, THE PAYMENT MUST BE REAL, SUBSTANTIAL AND EFFECTIVE AND SO LONG AS THIS CONDI TION IS SATISFIED, THERE CAN BE NO OBJECTION TO ALLOWING THE SAME, WIT HOUT INSISTING ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 31 OF 32 THAT THE AMOUNT HAS TO BE PAID IN CASH OR CHEQUE OR ANY OTHER MODE, I.E., IN A PHYSICAL SENSE. IN OUR OPINION, PH RASE, ACTUALLY PAID, HAS BEEN USED IN THIS SECTION, ONLY TO EMPHA SIZE THAT, THE PAYMENT SHOULD BE REAL AND A PAYMENT IN POINT OF FA CT AND NOT SOMETHING WHICH IS A PRETENCE OR A FICTION. IN THE PRESENT FACTS OF THE CASE ASSESSEE HAS COLLECTED CERTAIN PAYMENTS BY IN THE FORM OF ROYALTIES FROM THE CONTRACTORS HOWEVER DID NOT DEP OSIT IT. IN CASE OF LABOUR WELFARE CESS THE SAME HAS BEEN DEPOSITED BEY OND THE DUE DATE IN CERTAIN YEARS. 7.5.1. WE FIND FORCE IN THE ALTERNATIVE ARGUMENT ADVANCED BY LD.AR. WE ARE THEREFORE REMANDING THE ISSUE BACK TO LD.AO. LD.AO SHALL CALL FOR ALL NECESSARY DETAILS AND INFORMATIO N IS IN ORDER TO VERIFY THE CONTENTIONS/SUBMISSIONS OF ASSESSEE. ASS ESSEE SHALL FILE ALL REQUISITE INFORMATION IN SUPPORT OF ITS CLAIM O F HAVING PAID THE STATUTORY DUES TO THE GOVERNMENT OF KARNATAKA. LD.A O SHALL THEN CONSIDER THE CLAIM OF ASSESSEE TO THE EXTENT OF ACT UAL PAYMENT MADE IN THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY THESE GROUNDS ARE ALLOWED FOR STATISTIC AL PURPOSES. 7.6. GROUND NO. 8-9 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. IN THE RESULT APPEAL FILED BY REVENUE IN ITA NO.426 , 807/BANG/2017 STANDS PARTLY ALLOWED. 7.7. THE ONLY ISSUE RAISED BY ASSESSEE IN CROSS OBJECTIO N IS SUPPORTING THE VIEW TAKEN BY LD.CIT(A) ON ISSUE NO. III WHICH HAS BEEN DEALT WITH HEREIN ABOVE IN PARA 6.7 TO 6.7.2. AS WE HAVE ITA NO.703-706,805-808,935,426,322 CO NO. 80, 44-48 ASST.YR: 2009-10 TO 2013-14 PAGE 32 OF 32 ALREADY DISMISSED GROUNDS RAISED BY REVENUE ON THIS ISSUE, CROSS OBJECTION RAISED BY ASSESSEE BECOMES INFRUCTUOUS. ACCORDINGLY THE CROSS OBJECTIONS RAISED BY ASSESSEE BEING CO NO.45, 46, 48/BANG/2018 STANDS DISMISSED AS INFRUCT UOUS. IN THE RESULT APPEALS FILED BY ASSESSEE AND REVENUE AND CROSS OBJECTIONS FILED BY ASSESSEE STANDS DISPOSED OFF AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 27 TH NOV, 2020. SD/- SD/- (CANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, 27 TH NOV, 2020. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.