ITAT allows netting off interest on margin money with term loan interest citing precedents

The ITAT upheld the CIT(A)'s decision to allow netting off interest earned on margin money with interest payable on term loans, referencing the cases of CIT Vs. Sasan Power Ltd. and CIT Vs. Shree Ram Honda Power Equipment. The Revenue's appeal was dismissed, emphasizing the binding nature of the High Court decisions until modified or reversed. The decision was pronounced on 26th July 2013.

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Issues:
1. Disallowance of interest earned on deposit of margin money with interest payable on term loans.
2. Applicability of the decisions in the cases of CIT Vs. Sasan Power Ltd. and CIT Vs. Shree Ram Honda Power Equipment.

Issue 1: Disallowance of interest earned on deposit of margin money with interest payable on term loans

The Revenue appealed against the order of learned CIT(A)-VI, New Delhi for the AY 2009-10, challenging the deletion of an addition of Rs. 1,99,42,000 made on account of disallowance of netting off interest earned on deposit of margin money with the interest payable on term loans. The CIT(A) allowed the relief based on the decision in the case of CIT Vs. Sasan Power Ltd. where it was held that interest earned on funds linked with setting up a project is a capital receipt not liable to tax. Additionally, the Jurisdictional High Court of Delhi in the case of CIT Vs. Shree Ram Honda Power Equipment upheld the principle of netting off interest before determining business profit. The Revenue disputed the matter due to a pending SLP against the decision of the Jurisdictional High Court in the case of Sasan Power Ltd.

Issue 2: Applicability of the decisions in the cases of CIT Vs. Sasan Power Ltd. and CIT Vs. Shree Ram Honda Power Equipment

The ITAT upheld the decision of the CIT(A) based on the binding nature of the decisions of the Hon'ble Jurisdictional High Court in the cases of CIT Vs. Sasan Power Ltd. and CIT Vs. Shree Ram Honda Power Equipment. The Revenue's challenge through an SLP did not affect the applicability of these decisions to the case at hand. The ITAT emphasized that until the decisions are modified or reversed by the High Court, they remain binding on all authorities within its jurisdiction. Therefore, the ITAT dismissed the Revenue's appeal, affirming the decision of the CIT(A) to allow netting off of interest before determining business profit.

In conclusion, the ITAT upheld the decision of the CIT(A) regarding the disallowance of interest earned on margin money with interest payable on term loans, citing relevant case law and emphasizing the binding nature of the decisions of the Jurisdictional High Court. The Revenue's appeal was dismissed, and the decision was pronounced on 26th July 2013.

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