TaxTMI 
TaxTMI 
2015 (7) TMI 949
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....icer on account of interest income which, on account of its peculiar nature of being a capital receipt, had not been offered to be taxed by the appellant. The learned CIT(A) ought to have appreciated, inter alia, that the appellant's case in respect of this particular item of interest was based on the ratio of the decision of the Supreme Court in CIT v. Karnal Cooperative Sugar Mills Ltd. (243 ITR 2) and being such, it was not open to him to uphold the impugned addition on the ground that the same was taxable in terms of the decision of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case (227 ITR 172). 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the learned Assessing Officer's rejection of the appellant's claim made in writing during the course of the assessment proceedings that of the interest income of Rs. 7,91,51,306 which the appellant had offered for tax (total interest income of Rs. 9,31,33,148 minus interest income not offered for tax Rs. 1,39,81,841), interest income of Rs. 2,03,36,936 was such in nature as to be covered by the ratio of the decision of t....
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.... had been attached as an Annexure to the Statement of Facts), the remaining amount of interest income of Rs. 7,91,51,306 (Rs.9,31,33,147 minus Rs. 1,39,81,841) (and not merely Rs. 2,03,36,936) forming part thereof for which the appellant had made a claim during the course of the assessment proceedings, deserved to be regarded to be of capital nature required to be set off against the capital cost of the appellant's project and, therefore, as not taxable. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing ground No.5 of the appellant's appeal before him challenging initiation of penalty proceedings u/s. 271(1)(c) by treating it as pre-mature. He ought to have appreciated, inter alia, that in the peculiar facts and circumstances of the appellant's case, there being absolutely no warrant/justification for initiating the penalty proceedings, he ought to have ordered for their being dropped, thereby saving both the appellant and the Department from long drawn unnecessary litigation. 6. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hear....
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.... 72,000,000 8.50% 2,186,349 HPGCL - BID BOND 13,500,000 8.50% 409,940 MSEDCL - BG 30,000,000 8.25% 284,016 MSEDCL - BG 30,000,000 8.25% 284,016 MSEDCL - BG 30,000,000 8.25% 284,016 GUVNL-BID BOND 17,500,000 9.15% 1,681,897 Chhattisgarh - BID BIND 60,000,000 7% 1,004,839 Margin Money - LC Dalian Insular 30,000,000 3.50% 3,94,683 Margin Money - Coal Mining 90,000,000 8.75% 1,006,250 Total 13,981,841 7. During the course of assessment proceedings, the assessee vide letter dated 24.08.2010 claimed that out of interest income of Rs. 7,91,51,306/- which is offered as interest income in the return of income, a sum of Rs. 2,03,36,936/- from FDs and Govt. Securities to be exempt. The Assessing Officer accepted the assessee's claim only with regard to the interest income of Rs. 3,94,683/- which was the interest earned from the ....
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....even interest on deposit with electricity board as taxable income, there is no basis for not offering the same as taxable in other sources head. None of the decision referred by the appellant has overruled the landmark decision of Supreme Court in the case of Tuticorin Alkalies chemicals and fertilisers Ltd. In view of this, unless the income is inextricably linked to the implementation of the project, the same cannot be reduced from the cost of the project and accordingly the income will be faxed. The decision of honourable Supreme Court in the case of Bokaro steel Ltd and Karnal corporate sugar Mills Ltd do not support the appellant's claim since in both the cases, interest income was directly coming from the implementation of the project. In the appellant's case, the same is from investment in bond required as security for PPA and not for setting up the project. PPA is not for implementation of the project but the same is for safe of electricity after commencement of business. Therefore appellant does not get benefit from these decisions. The other decisions relied upon by the appellant are on the interpretation of apex court decisions referred earlier. Since facts of th....
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....ect development expenditure. He referred to paragraph 6 of the schedule to the audit report. He stated that the Assessing Officer as well as CIT(A) has solely relied upon the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT, (1997) 227 ITR 172 (SC), ignoring the number of subsequent decisions of Hon'ble Apex Court. He referred to following decisions of Hon'ble Apex Court:- i. CIT vs. Bokaro Steel Ltd, (1999) 236 ITR 0315 ii. CIT vs. Karnal Co-operative Sugar Mills Ltd., (2000) 243 ITR 0002 iii. CIT vs. Karnataka Power Corporation, (2001) 247 ITR 0268 iv. Bongaigaon Refinery & Petrochemicals Ltd. vs. CIT (2001) 251 ITR 0329 12. He further referred to the decision of Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. vs. ITO, (2009) 315 ITR 0255 and pointed out that in this case the Hon'ble Delhi High Court has made a comparative analysis of the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and subsequent decision of Bokaro Steel Ltd. (supra) and then pointed out that what is the position of law after considering both these decisions. That the Ho....
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....view of catena of above decisions of the Hon'ble Apex Court, which is subsequent to the decision of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), as interpreted by the Hon'ble Delhi High Court, the interest eared prior to commencement of the business on the funds brought in for specific purpose is capital receipt which is liable to be set off against pre-operative expenses. He reiterated that the entire receipt of interest has been set off against the project development expenditure and the auditors have not pointed out any mistake in the above accounting by the assessee. He, therefore, submitted that the addition made by the Assessing Officer and sustained by the CIT(A) should be allowed. 14. The ld. Departmental Representative, on the other hand, relied upon the order of the Assessing Officer as well as CIT(A). He submitted that the decision of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) is very clear and it says that the interest earned prior to commencement of business is assessable under the head "income from other sources". That, the assessee itself has treated the sum of Rs. 7,91,51,306/- as taxable and offered the sa....
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....tative has disputed the adjudication of the Ground No.4 on merit by way of pointing out that this amount was offered as income in the return of income. However, we find that the assessee has raised this ground before the CIT(A) who has admitted this ground and adjudicated on merit. Since on merit he decided against the assessee, the assessee is in appeal. Revenue is neither in appeal nor in cross-objection challenging the consideration of this ground by the CIT(A). Therefore, at this stage, the ld. Departmental Representative cannot dispute that the assessee is not permitted to raise this ground before the ITAT. Moreover, we find that this issue is settled by the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. (supra). In the said case, the assessee had offered the interest income in the return of income and did not dispute the taxability of interest income before the CIT(A) and even before the Tribunal in the grounds of appeal. However, during the course of hearing before the ITAT, additional ground was raised challenging the taxability of interest income. The ITAT refused to entertain the said ground. On appeal, the Hon'ble Apex Court held that "Tribunal had jur....
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.... the expenditure incurred by the assessee for the purpose of setting up its business could not be allowed as deduction, nor could it be adjusted against any other income under any other head. Similarly any income from a non-business source could not be set off against the liability to pay interest on funds borrowed for the purpose of purchase of plant and machinery even before commencement of the business of the assessee." 19. In the case of Bokaro Steel Ltd. (supra), the Hon'ble Apex Court, after considering the decision of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), held as under:- "..., dismissing the appeal, that the first three heads of income were (i) the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee, (ii) hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and (iii) interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assesse....
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....ter considering the decision of Bokaro Steel Ltd. (supra), held as under:- " reversing the decision of the High Court in relation to these items of income, that these items of receipts were not taxable income but were to be adjusted against the project cost for the business of oil refinery and petrochemicals." 23. That the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. (supra), after considering the decisions in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) and Bokaro Steel Ltd. (supra) at length, held at pages 258, 259 and 260 of report, i.e., 315 ITR 255, as under:- 5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 and that of Bokaro Steel Ltd. [1999] 236 ITR 315. The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals [1997] 227 ITR 172 is that if funds have 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 deposits the income earned in the form of interest will be taxable under the head....
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....assessee can be taxed under the head "Income from other sources" only if it does not fall under any other head of income as provided in s. 14 of the Act. The head "Income from other sources" is a residuary head of income. See S.G. Mercantile Corporation (P) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC). 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals [1997] 227 ITR 172 it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds woul....