WARD 2(1), INCOME TAX OFFICER, ITO, NEW DELHI V. MS ANGLIAN INFRASTRUCTURE DEVELOPMENT PRIVATE LIMITED, NEW DELHI

ITA 4491/DEL/2024

AI Insights

The case revolves around an appeal by the Revenue against the CIT(A)'s decision which had favored Ms Anglian Infrastructure Development Private Ltd. The primary issues in the appeal included the treatment of interest income and the addition of share premium received by the company. The Assessing Officer had initially added these amounts to the company's income, treating the interest as income from other sources and questioning the legitimacy of the share premium due to lack of KYC documentation. However, the CIT(A) reversed these additions, leading to the Revenue's appeal. The Tribunal's decision affirmed the CIT(A)'s findings, emphasizing the link between the interest earned and the company's capital activities, and the established creditworthiness of the investor in the share premium case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474533 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: Tuticorin Alkalies Chemical & Fertilizers Pvt. Ltd. Vs CIT, Bongaigaon Refinery & Petrochemicals Ltd vs CIT, Indian Oil Power Consortium Limited vs ITO, Bokaro Steel Limited vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH TRIPATHI
• Assessee Lawyers: M.P. RASTOGI
• Keywords: Revenue expenditure; Capital receipt; TDS
• Section: 143(3); 251; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.4491/Del/2024 Assessment Year: 2017-18 ITO, Ward 2(1), New Delhi. Vs Ms Anglian Infrastructure Development Private Ltd., 6E, M-6 Uppal Plaza, District Centre, Jasola, New Delhi – 110 025. PAN: AALCA7510P (Appellant) (Respondent) Assessee by : Shri M.P. Rastogi, Advocate; Shi P.N. Shastri, Advocate & Shri Shivam Malik, Advocate Revenue by : Shri Ashish Tripathi, Sr. DR Date of Hearing : 13.02.2025 Date of Pronouncement : 19.03.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Revenue against the order dated 01.08.2024 of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeal No.CIT(A), Delhi- 1/10572/2019-20 arising out of the appeal before it against the order dated 22.12.2019 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred ITA No.4491/Del/2024 2 as ‘the Act’) by the ITO, Ward 2(1), Delhi (hereinafter referred to as the Ld. AO). 2. Heard and perused the record. The facts in brief are, the appellant company filed its Return of Income for the A.Y. 2017-18 on 25.10.2017 declaring NIL income. Subsequently, appellant company revised its Return of income on the same date i.e. 25.10.2017, thereby, showing an increase credit of TDS at an income of Rs. NIL. Thereafter, the instant case was selected for limited scrutiny through CASS on the following grounds: a) Share premium b) Investment in immovable property 2.1 Mandatory notices were issued and the Assessing Officer has passed assessment order u/s 143(3) of the Act on 22.12.2019 by making following additions: a) Addition of Rs.52,00,000/- on account of share premium received: On perusal of Balance Sheet submitted by the appellant during the course of assessment proceeding for F.Y. 2016-17, it was noted that the appellant has issued 26,00,000 equity shares @ Rs.12/- each (including premium of Rs.2/-). Besides, the appellant company has issued share capital to M/s. Bluwat AG Switzerland. Since, the appellant has not provided the KYC documents / details and Bank statement of investor for verification, the AO has held the identification, genuineness & credit worthiness of the said investor ITA No.4491/Del/2024 3 was not proved. Hence, the AO has considered only the value of Rs.10/- per share and stated that the share premium receipt was not justified by the appellant and therefore, balance of Rs. 2/- per share was added as income of the appellant from undisclosed sources u/s 68 of the I.T. Act, 1961. b) Claim of Preliminary Expenses of Rs.72,59,610/-: During the course of assessment proceedings, it was noticed by the Assessing Officer that, the appellant has debited preliminary expenses of Rs.72,59,610/- in its Profit and Loss account for the A.Y. 2017-18, although appellant company was incorporated on 06.06.2013 (as per ITR Form) i.e. around 3 yeas back. Therefore, the appellant was asked to provide calculation and justification of the said claim in terms of Section 35D of the Act. In response, the appellant had not replied to the show cause notice of the AO that, how the said expense is deductible u/s 35D of the Act. Hence, the Assessing Officer has treated the said expenses as capital in nature and did not allow the same, as revenue expenditure, as per Section 35D of the Act. Hence, the claim of preliminary expenses by the appellant company amounting to Rs.72,59,610/- was disallowed. c) Claim of expenses against interest income of Rs.94,78,739/-: During the course of assessment proceedings, appellant was asked to furnish the explanation with regard to the interest income which was not ITA No.4491/Del/2024 4 declared under the head ‘Income from other Sources’. In response to the above, appellant company filed its reply and on perusal of the same, it was observed by the AO as per ITR form, the nature of business of the company was contract work, therefore, company was not involved in any type of financing activity during the year under consideration. Hence, interest income earned by the appellant company is taxable under the head ‘Income from other sources’ and not as income from ‘business and profession’. Therefore, interest earned amounting to Rs.94,78,739/- is taxable under the head ‘Income from Other Sources’ and added to the returned income of the appellant company. 3. The ld. CIT(A) has given relief to the assessee for which the revenue is in appeal raising following grounds:- “1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.94,78,739/- by not relying on the decision of Hon’ble Supreme Court in the case of Tuticorin Alkalies Chemical & Fertilizers Pvt. Ltd. Vs CIT 227 1TR 172 which is correctly applicable in the instant case. 2. On the facts and circumstances of the case, the Ld. CIT(A) has also erred in applying the ratio of Hon’ble Supreme Court decision of Bongaigaon Refinery & Petrochemicals Ltd (vs) CIT, 251 ITR 329, wherein the fact of the present case is different from the facts referred in the case of M/s Bongaigaon Refinery & Petrochemicals Ltd. 3. Ld.CIT(A) has erred in deleting the addition of Rs. 52,00,000/- on account of share premium received as no KYC documents/details and bank statement of investor was provided for verification. In the absence of these details, genuineness & credit worthiness of the said investor was not proved. ITA No.4491/Del/2024 5 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.” 4. Ground no. 1 and 2: This issue is arising out of disallowance of interest earned during the set-off of business. We find that the Assessing Officer has made addition of Rs.94,78,739/- as interest earned during the process of setting up of new business under the head ‘Income from other sources’ by relying on the decision of Hon’ble Supreme Court in the case of Tuticorin Alkalies Chemicals & Fertilizers Ltd. (vs) CIT, 221 ITR 172, wherein, it has been held that, interest earned prior to the commencement of the business is taxable as ‘Income from other sources’. However, before ld. CIT(A), the assessee has submitted that, Hon’ble Supreme Court has held in the subsequent decision in the case of Bongaigaon Refinery & Petrochemicals Ltd. (vs) CIT, 251 ITR 329, that earning of interest during the process of setting up a factory and before the start of commercial production are in capital in nature. The appellant has further relied on the decision of CIT(A), NFAC for the A.Y. 2018- 19 in the appellant’s own case, wherein, the interest earned through the construction of activity was allowed to set-off with the interest expenditure vide order of CIT(A) dated 04.01.2024. The relevant part of the said order of the Ld. CIT(A) in A.Y. 2018-19, as relied in impugned AY, is reproduced as under for better clarity: “4.3 During the course of assessment proceedings, the appellant has submitted that the above receipt of interest is inextricable linked with the ITA No.4491/Del/2024 6 setting up of the plant. Accordingly, the appellant submitted that, the same cannot be treated as ‘Income from other sources’ as per the decisions of Hon. Supreme Court in the case of Bokaro Steel Limited (vs) CIT 236 ITR 315, Bongaigaon Refinery & Petrochemicals Limited (vs) CIT 251 ITR 329 and the decision of Hon. Delhi High Court in the case of Indian Oil Power Consortium Limited (vs) ITO 315 ITR 255. 4.4 During the course of appellate proceedings, the appellant has reiterated the fact that the appellant has raised capital by way of share capital and convertible debenture. The said receipt was made as deposits in banks pending their utilization for its business activity. The interest earned out of such deposits was set-off against the capital work in progress during the year. Since, the above fund inextricable linked with the setting up of the plant, the decision of Hon. Supreme Court in the case of CIT (vs) Bokaro Steels Limited (cited supra) is clearly applicable in applicant’s case. 4.5 The submission of the appellant and the facts stated by the Assessing Officer in assessment order have been considered. It is found that the Assessing Officer has relied on the decision of Hon. Supreme Court in the case of Tuticorin Alkalies Chemicals and Fertilizer Limited (vs) CIT 221 ITR 172, whereas, the Assessing Officer has not given any findings on the non-applicability of the decision of Hon. Supreme Court in the case Bokaro Steel Limited (vs) CIT 236 ITR 315 and Bongaigaon Refinery & Petrochemicals Limited (vs) CIT 251 ITR 329. It is observed that the appellant has raised capital by way of issue of 75.42 lakhs equity shares of Rs. 10 each and during the year the company has transferred all expenditures debited in the P & L account amounting to Rs.392.02 Lakhs as capitai-work-in-progress after setting-off of interest earned of Rs.12,02,649/- from the deposits made in the bank account. 4.6 Accordingly, I am of the considered opinion that the interest earned out of deposits made by the appellant is actually out of the fund raised by the appellant by way of share capital, which is inextricable linked with the setting up of the plant. Accordingly, the decision of Hon. Supreme Court in the case of CIT (vs) Bongaigaon Refinery & Petrochemicals Limited is applicable in the instant case. 4.7 Further, the decision of Hon. Delhi High Court in the case of Indian Oil Power Consortium Limited (vs) ITO 315 ITR 255 is also applicable in instant case due to the fact that the interest earned out of such deposit is in the nature of capital receipt which is liable to set-off against the true operative expenditure due to the fact that the fund raised by the appellant is inextricable linked with the setting up of the plant. Accordingly, the said interest earned cannot be treated as ‘Income from other sources’. Hence, the Assessing Officer is directed to delete the addition made to the tune of ITA No.4491/Del/2024 7 Rs. 12,02,649/- and, accordingly, the appeal filed by the appellant on this grounds is allowed. 5. In the end result, the appeal of the appellant is hereby allowed.’’ 5. Now in terms of the ground as raised before us, we find that there is no case of department as to how disputed interest is not inextricable linked with the setting up of the plant. The nature of deposits have been duly examined in AY2018-19 and found to be inextricable linked with the setting up of the plant. Since, the above fund inextricable linked with the setting up of the plant, the decision of Hon. Supreme Court in the case of CIT (vs) Bokaro Steels Limited (cited supra) is clearly applicable in applicant’s case and ld. CIT(A) has not erred in relying the same. The grounds have no substance. 6. Grounds no. 3: The issue arises out of disallowance of premium received on the shares issued. The Assessing Officer has made an addition of Rs.52,00,000/- book share premium of Rs.26,00,000/- shares @Rs.2/- as excessive share premium per share due to the reason that, identity, genuineness and creditworthiness of the investor was not proved. As before the Ld.CIT(A), it was factually established that the said shareholder M/s Bluwat AG Switzerland was an existing shareholder as on 31.03.2016 i.e. during the immediate preceding year. Hence, the conclusion of ld. CIT(A) that the allotment of shares to an existing shareholder cannot be construed to be an investor whose identity and creditworthiness were not proved, needs no interference. ITA No.4491/Del/2024 8 7. Then we find that ld. CIT(A) has also held that during the immediate preceding year, the same share premium of Rs.2/- per share has been received from the said shareholder. It is also observed from the submission of the appellant that, the said value of Rs.12 per share has been arrived by way of DCF method as prescribed by the Reserve Bank of India which is a prescribed method of valuation in the instant case and the Assessing Officer also has not found fault with the said method of DCF valuation. Thus we are of considered view that, the disallowance made by the Assessing Officer u/s 56(2)(viib) of the Act on the said receipt of the share premium amounting to Rs.52,00,000/- was not sustainable and direction of deletion by ld.CIT(A) needs no interference.. 8. Consequently we find no substance in the grounds and the appeal of revenue is dismissed. Order pronounced in the open court on 19.03.2025. Sd/- Sd/- (NAVEEN CHANDRA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19th March, 2025. dk ITA No.4491/Del/2024 9 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "