ROAD INFRASTRUCTURE DEVELOPMENT CO., Jaipur V. DCIT, Jaipur

ITA 963/JPR/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4817 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 31-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI CIT DHK
• Assessee Lawyers: P P PAREEK
• Keywords: Depreciation; Capital receipt

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 963/JP/12 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08 M/S ROAD INFRASTRUCTURE DEVELOPMENT CO. OF RAJASTHAN LTD. 1 ST FLOOR, LIC NEW INVESTMENT BUILDING, BHAWANI SINGH ROAD, JAIPUR CUKE VS. THE DCIT, CIRCLE-6, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCR 9953 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 282/JP/15 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 M/S ROAD INFRASTRUCTURE DEVELOPMENT CO. OF RAJASTHAN LTD. 1 ST FLOOR, LIC NEW INVESTMENT BUILDING, BHAWANI SINGH ROAD, JAIPUR CUKE VS. THE DCIT, CIRCLE-6, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCR 9953 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.P. PAREEK (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI D.S. KOTHARI ( CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 15.12.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 19/12/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A)-II DATED 30.10.2012 FOR AY 2007-08 AND DATED 30.01.2015 FOR AY 2008- ITA NO. 963/JP/2012 & ITA NO.282/JP/2015 ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHA N, LTD. JAIPUR 2 09 RESPECTIVELY. GIVEN THE IDENTICAL FACT PATTERN, THE SAME WERE TAKEN UP FOR HEARING TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. IN ITA NO. 963/JP/2012, THE ASSESSEE HAS TAKEN FOLL OWING GROUNDS OF APPEAL: (I) THAT THE ORDER PASSED BY THE DCIT, CIRCLE-6, JA IPUR OR INITIATING PROCEEDINGS U/S 147/148 IS BAD IN LAW AND CIT(A-II, HAS FURTHER ERRED IN CONFIRMING THE INITIATING PROCEEDINGS U/S 147/148 O F THE IT ACT, 1961. (II) THAT THE LD. AO HAS ERRED AND LD. CIT(A)-II HA S ALSO ERRED IN CONFIRMING INITIATED PASSING AN ORDER U/S 147/143(3) BY CHANGI NG OF MIND, BY THE LD. DCIT AGAINST PROVISIONS OF ACT AND WELL ESTABLISH ED PRINCIPLE OF LAW AS PRONOUNCED BY THE VARIOUS COURTS INCLUDING SUPREME COURT. (III) THE LD. AO HAS ERRED AND LD. CIT(A) II HAS A LSO ERRED IN LAW AS WELL AS IN FACTS IN CONSIDERING SETTING OFF INTEREST EARNED A GAINST THE INTEREST PAID INSPITE OF CLEAR CUT DISTINCTION POINTED OUT BY TH E ASSESSEE VIS-A-VIS THE CASE OF TUTICORN ALKALIS CHEMICALS AND FERTILIZERS LTD. VS. CIT (1997) 222 ITR 172 (SC) REFERRED BY THE LD. DCIT. (IV) THAT THE LD. AO ERRED AND THE LD. CIT(A)-II HA S ALSO ERRED IN CONFIRMING RAISING DEMAND AS INTEREST ON ILLEGAL ADDITION IGNO RING THE FACT THAT ASSESSEE IS ENTITLED FOR REFUND IN SPITE OF ADJUSTI NG ILLEGAL DEMAND WHICH IS SUBJECT MATTER OF THIS APPEAL. IN ITA NO. 282/JP/2015, THE ASSESSEE HAS TAKEN FOLL OWING EFFECTIVE GROUNDS OF APPEAL: (1) THAT THE ORDER PASSED BY LD. AO AND THE LD. CIT (A), BIKANER (CAMP AT JAIPUR) HAS ALSO ERRED IN CONSIDERING RS. 3,37,76 ,623/- AS INCOME FROM OTHER SOURCES RATHER THAN REDUCING IT FROM THE CAPI TAL COST FOR THE CONSTRUCTION, AS THIS AMOUNT PERTAINS TO PRIOR TO C OMMERCIAL OPERATIONS OF THE ROAD FOR WHICH THIS AMOUNT WAS BORROWED. (2) WITHOUT PREJUDICE TO GROUND 2 ABOVE IT IS SUBMI TTED THAT THE LD. AO HAS ERRED AND LD. CIT(A) BIKANER (CAMP AT JAIPUR) HAS ALSO ERRED IN WRONGLY CALCULATING THE AMORTISATION AMOUNT BY NOT INCREASI NG THE PROJECT COAST BY THE AMOUNT OF INTEREST INCOME RS. 3,37,76,623/- EARNED FROM FIXED DEPOSIT AND TAXED UNDER INCOME FROM OTHER SOURCES. ITA NO. 963/JP/2012 & ITA NO.282/JP/2015 ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHA N, LTD. JAIPUR 3 2. AT THE OUTSET, THE LD. AR SUBMITTED THAT GROUND NO. 3 & 4 OF ASSESSEES APPEAL IN ITA NO. 963/JP/12 FOR A.Y. 2007-08 ARE CO VERED BY THE JUDGEMENT OF THIS HONBLE BENCH IN ASSESSEES OWN CASE IN ITA NO . 628/JP/2014 FOR A.Y. 2009-10 DATED 11.08.2016. LIKEWISE, THE LD AR SUBM ITTED THAT IN THE CASE OF ITA NO. 282/JP/15 FOR A.Y.2008-09, ALL THE GROUNDS ARE AGAIN COVERED BY THE SAID JUDGEMENT REFERRED ABOVE. 3. THE LD CIT DR IS HEARD WHO HAS FAIRLY ACCEPTED T HAT THE ISSUE UNDER CONSIDERATION IS COVERED BY THE DECISION OF THE COO RDINATE BENCH REFERRED SUPRA. HOWEVER, HE RELIES UPON THE ORDER OF THE LO WER AUTHORITIES. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION FOR THE B OTH THE YEARS RELATE TO TREATMENT OF THE INTEREST RECEIVED PRIOR TO COMMENC EMENT OF COMMERCIAL OPERATIONS OF THE SPECIFIED MEGA ROAD PROJECTS. AS PER THE REVENUE, THE SAME IS TO BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. AS PER THE ASSESSEE, IT IS IN THE NATURE OF CAPITAL RECEIPT AN D WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPITALIZED U NDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE SAID ISSUE HAS BEE N EXAMINED AT GREAT LENGTH BY THE COORDINATE BENCH IN ITS DECISION REFE RRED SUPRA AND THEREIN THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TU TICORIN ALKALI CHEMICALS AND FERTILIZERS (227 ITR 172) AS WELL AS DECISION IN CA SE OF BOKARO STEEL LTD (236 ITR 316) HAS BEEN DULY CONSIDERED. THE RELEVANT FINDIN GS OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 628/JP/2014 FOR A .Y. 2009-10 DATED 11.08.2016 ARE REPRODUCED AS UNDER: ITA NO. 963/JP/2012 & ITA NO.282/JP/2015 ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHA N, LTD. JAIPUR 4 2.18 FROM THE ABOVE, IT IS EVIDENT THAT THERE ARE TWO SETS OF JUDGEMENTS OF HONBLE SUPREME COURT, PROCEEDINGS ON DIFFERENT LIN ES OF REASONINGS. THE HONBLE DELHI HIGH COURT IN CASE OF INDIAN OIL PANI PAT CONSORTIUM LTD. (SUPRA) HAS CONSIDERED AND INTERPRETED THE DECISI ONS OF HONBLE SUPREME COURT IN CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AS WELL AS BOKARO STEEL LD. (SUPRA). AFTER ANALYZI NG BOTH THE DECISIONS OF HONBLE SUPREME COURT, IT HELD THAT THE TEST WHI CH PREMEATES THROUGH THE JUDGEMENT OF THE SUPREME COURT IN TUTICORIN ALK ALI CHEMICALS & FERTILIZERS LTDS CASE (SUPRA) IS THAT IF FUNDS H AVE BEEN BORROWED FOR SETTING UP OF A PLANT AND IF THE FUNDS ARE SURPLUS AND THEN BY VIRTUE OF THAT CIRCUMSTANCE THEY ARE INVESTED IN FIXED DEPOSI TS THE INCOME EARNED IN THE FORM OF INTEREST WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ON THE OTHER HAND THE RATIO OF THE SUPREME COURT JUDGEMENT IN BOKARO STEEL LTD.S CASE (SUPRA) TO O UR MIND IS THAT IF INCOME EARNED, WHETHER BY WAY OF INTEREST OR IN AN Y OTHER MANNER ON FUNDS WHICH ARE OTHERWISE INEXTRICABLY LINKED TO THE SETTING UP OF THE PLANT SUCH INCOME IS REQUIRED TO BE CAPITALIZED TO BE SET OFF AGAINST PRE- OPERATIVE EXPENSES . 2.19 THE FACTS IN THE INSTANT CASE ARE PARI MATERI A WITH THE FACTS OF THE INDIAN OIL PANIPAT (SUPRA) AND THE RATIO DECIDENDI OF HON BLE DELHI HIGH COURT IN THAT CASE WILL SQUARELY APPLY TO THE FACTS OF THE A SSESSEE. IN THE INSTANT CASE, UNDISPUTEDLY, THE FUNDS HAVE BEEN BORROWED FO R THE SPECIFIC PURPOSE OF EXECUTION OF THE MEGA ROAD PROJECTS AND AS PER THE LOAN AGREEMENT EXECUTED BETWEEN THE CONSORTIUM OF BANKER S AND THE ASSESSEE DATED 23.11.2005, ALL THE DISBURSEMENTS SH ALL BE DEPOSITED IN THE TRUST AND RETENTION ACCOUNT WHICH SHALL BE SUBJ ECT TO STRICT CONTROL AND VERIFICATION BY THE SENIOR LENDERS AND ALL DISB URSEMENTS SHALL BE UTILISED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE PROJECT AND NO OTHER PURPOSE. THE FUNDS ARE THUS INEXTRICABLY LINK ED TO THE SETTING UP OF THE MEGA ROAD PROJECTS AND INTEREST EARNED ON SUCH BORROWED FUNDS INFUSED IN THE BUSINESS COULD NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES. WE ALSO NOTE A DISTINGUISHING FEATURE IN THE INSTANT CASE THAT THE ASSESSEE IS NOT AT LIBERTY TO USE THE INTEREST SO EARNED AS PER ITS WILL AND DISCRETION UNLIKE THE CASE IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS (SUPRA) AND THE INTEREST HAS TO BE USED SOLELY FOR THE PURPOSES OF IMPLEMENTATION OF THE SPECIFIED PROJECTS ONLY. THE IMPUNGED INTEREST RECEIPT OF RS. 35,39,479/- ON SUCH BORROWED FUNDS R ELATES TO THE MEGA ROAD PROJECTS/STRETCHES WHICH WERE UNDER CONSTRUCTI ON AND THE COMPLETED ROAD PROJECTS/STRETCHES UPTO THE DATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS. THEREFORE, THE INTEREST REC EIVED PRIOR TO ITA NO. 963/JP/2012 & ITA NO.282/JP/2015 ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHA N, LTD. JAIPUR 5 COMMENCEMENT OF COMMERCIAL OPERATIONS OF THE SPECIF IED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT A ND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EXPENDITURE CAPIT ALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CANNOT BE B ROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HENCE, GROUN D NO. 1 OF THE ASSESSEE IS ALLOWED. 5. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. NO CONTRARY AUTHORITY HAS BEEN BROUGHT TO OU R NOTICE SUBSEQUENT TO ABOVE DECISION OF THE COORDINATE BENCH OR THE FACT THAT SAID DECISION OF THE COORDINATE BENCH HAS BEEN STAYED BY THE HONBLE HIG H COURT. IN VIEW OF THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE AND RES PECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA), WE HOLD THAT THE INTEREST RECEIVED PRIOR TO COMMENCEMENT OF COMMERCI AL OPERATIONS OF THE SPECIFIED MEGA ROAD PROJECTS WILL BE IN THE NATURE OF CAPITAL RECEIPT AND WILL BE REQUIRED TO BE SET OFF AGAINST THE PRE-OPERATIVE EX PENDITURE CAPITALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS AND THE SAME CA NNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. THEREFORE, IN ITA NO. 963/JP/2012, THE GROUND NO . 3 TAKEN BY THE ASSESSEE IS ALLOWED, GROUND NO. 4 IS CONSEQUENTIAL IN NATURE AND DOESNT REQUIRE SEPARATE ADJUDICATION. GIVEN THAT THE ISSU E HAS BEEN DECIDED ON MERIT IN FAVOUR OF THE ASSESSEE, WE DONOT THINK ITS NECES SARY TO EXAMINE AND ADJUDICATE UPON GROUND NO. 1 AND 2, HENCE THE SAME ARE DISMISSED. 7. IN ITA NO. 282/JP/2015, THE GROUND NO. 2 TAKEN B Y THE ASSESSEE IS THUS ALLOWED AND GROUND NO. 3 BECOMES INFRUCTUOUS, HENCE THE SAME IS DISMISSED. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE ARE PARTLY ALLOWED. ITA NO. 963/JP/2012 & ITA NO.282/JP/2015 ROAD INFRASTRUCTURE DEVELOPMENT COMPANY OF RAJASTHA N, LTD. JAIPUR 6 ORDER PRONOUNCED IN THE OPEN COURT ON 19/12 /2016. SD/- SD/- (KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 19/12/2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ROAD INFRASTRUCTURE DEVELOPMENT CO. LTD. JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE DCIT, CIRCLE-6, JAIPUR 3. VK;DJ VK;QDR@ CIT II, JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-II, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.963/JP/2012 & ITA NO. 282/JP/201 5) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.