TaxTMI 
TaxTMI 
2018 (6) TMI 1511
X X X X Extracts X X X X
X X X X Extracts X X X X
....lected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts it revealed to the AO that the assessee has paid a sum of Rs. 1,97,20,629/- towards consultancy and legal service charges. The ld.AO observed that the assessee has not deducted TDS on the above payment. Therefore, a show cause notice vide order sheet entry dated 8.12.2011 was issued to the assessee inviting its explanation as to why this sum should not be disallowed as per section 40(a)(i) of the Act. The ld.AO ultimately observed that payment made by the assessee is to be construed as if for technical services under section 9(1)(vii) of the Act and the assessee ought to have deducted TDS. Since it failed to deduct TDS, the amount is to be disallowed under section 40(a)(i) of the Act. 4. Dissatisfied with disallowance, the assessee carried the matter in appeal before the ld.CIT(A). It was contended that the assessee is in the business of development and operation of power plants. In the year under consideration the power plants were in the process of being set up, and therefore, they were in pre-commencement stage. The assessee had capitalized entire ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch payment, a disallowance under section 40(a) would be made, consequently, depreciation on such an asset under section 32 would not be admissible. The Tribunal did not approve this line of reasoning adopted by the AO and held that depreciation cannot be disallowed to the assessee with the help of section 40(a) because section 40(a) is applicable if the assessee has claimed deduction of expenditure mentioned in the section. Other decisions referred by the ld.counsel for the assessee are also to this effect. Therefore, respectfully following the orders of the ITAT, we are of the view that the ld.CIT(A) has rightly deleted the disallowance, and no interference is called for in the order of the ld.CIT(A). 8. Grounds no.3 and 4 of the Revenue's appeal are inter-connected with grounds no.1 and 2 of the assessee's grounds of appeal, as well as ground nos.2 taken in the CO. In brief, the controversy involved in all these grounds relates to quantification of interest income resulted to the assessee, and whether such interest income was capital receipt which is to be set off against pre-operative expenses or not. Thus, we take all these grounds of appeal together. 9. Brief facts of the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ments in bonds and not from implementation of projects or purchases of plant & machinery. Thus, according to the ld.CIT(A) deposits as security for power purchase agreement in the form of bonds would not mean that such investment was linked to the implementation of projects and it is a different stream of revenue generation. Therefore, the ld.CIT(A) did not treat this revenue receipt as capital which is to be set off against pre-operative expenditure of project. The ld.CIT(A) has confirmed this addition. This confirmation of addition is being challenged by the assessee in its grounds of appeal bearing nos.1.1 to 1.2. The ld.CIT(A) thereafter segregated other interest income amounting to Rs. 39,52,073/- on FDRs. and Rs. 17,63,014/-. With regard to interest earned against LIC on bank guarantee amounting to Rs. 3,65,88,790/-. The ld.CIT(A) has treated this as a capital receipt which is to be set off against the project implementation cost, though he directed the AO to verify this claim, and thereafter grant benefit to the assessee in accordance with assessment year 2008-09. 12. The issue before us is whether the alleged interest income of Rs. 8.17 crores can be dissected in different....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te reported in [1964] 53 ITR 225 (SC) to the effect that " The Appellate Assistant Commissioner, therefore, has plenary powers in disposing of appeal. The scope of his power is coterminus with that of the Income Tax Officer. He can do what the Income Tax Officer can do and also direct him to do what he has failed to do." It was observed that there was no reason why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. The Act does not place any restriction or limitation on the exercise of appellate power. It was observed that:- " The above observations are squarely applicable to the interpretation of s. 25 1(1) (a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer, if that he so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here shall be no order as to costs." 34. In the case of Commissioner of Income-tax vs. Jai Parabolic Springs Ltd. reported in [2008] 306 ITR 42 (Delhi), the Delhi High Court held that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for just decision of the case. 35. In case of Commissioner of Income-tax vs. Pruthvi Brokers and Shareholders P.Ltd. reported in [2012] 349 ITR 336(Bom) the Bombay High Court considered the issue at considerable length and held that Commissioner (Appeals) as well as the Tribunal have the jurisdiction to consider the additional claim and not merely additional legal submissions. The appellate authorities have discretion to permit such additional claims. Such claims need not be those which became available on account of change of circumstances of law but which were even available when the return was filed. 36. The Delhi High Court once again in recent judgment in the case of Commissioner of Income-tax vs. Sam Global Securities Ltd. reported in [2014] 360 ITR 682 (Delhi) observed that the Courts have taken a pragmatic view and not a technical one as to what ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellate authority without resorting to revising the return before the assessing officer." 15. Thus, as far as this objection is concerned at the end of the Revenue in its appeal, it is not tenable and therefore this ground of appeal is rejected. 16. Next question relates to quantification of interest income available with the assessee for set off against pre-operative expenditure in power project implementation. We find that the ld.CIT(A) has not independently examined any issue in this order, rather followed order of his predecessor in the assessment year 2008-09. The ITAT did not approve the order of the ld.CIT(A) in the assessment year 2008-09 and respectfully following the order of the ITAT in the assessment year 2008-09, we are of the view that interest income of Rs. 8,17,60,319/- is available with the assessee for set off against pre-operative expenditure which is titled as "project development expenditure". Discussion made by the Tribunal in the assessment year 2008-09 on this issue reads as under: "18. We find that both the parties have relied upon the decisions of the Hon'ble Apex Court and in addition, the assessee has relied upon the decision of Hon'ble Delhi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncidental to the work of construction of its plant undertaken by the assessee. The advances which the assessee made to the contractors to facilitate the construction activity of putting together a very large project was as much to ensure that the work of the contractors proceeded without any financial hitch as to help the contractors. The arrangements which were made between the assessee-company and the contractors pertaining to these three receipts were arrangements which were intrinsically connected with the construction of its steel plant. The receipts had been adjusted against the charges payable to the contractors and had gone to reduce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee from any independent source." 20. In the case of Karnal Co-operative Sugar Mills Ltd. (supra), their Lordships of Hon'ble Apex Court, after applying the decision of Bokaro Steel Ltd. (supra), held as under:- "Held, that, in the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the suppli....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ratio of the Supreme Court judgment in Bokaro Steel Ltd. [1999] 236 ITR 315 to our mind is that if income is earned, whether by way of interest or in any 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. 5.1 The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in s. 3 of the Act which states that for newly set up business the previous year shall be the period beginning with the date of setting up of the ITA No. 2755/Ahd/2011 Adani Power Ltd vs. ACIT AYs 2008- 09 business. Therefore, as per the provision of s. 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. The income of a newly set up business, post the date of its setting up can be taxed if it is of a revenue nature under any of the h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned on surplus funds would have to be treated as 'income from other sources'. On the other hand in Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) where the assessee had earned interest on advance paid to contractors during pre- commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses. (underlined ours to supply emphasis) 24. From the above, it is evident that the Hon'ble Delhi High Court has considered and interpreted the decisions of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) as well as Bokaro Steel Ltd. (supra). The conclusion of the Delhi High Court is in fact the law which emerges as per the decision of Hon'ble Apex Court. Therefore, in our opinion, the CIT(A) was not justified in ignoring the decision of Hon'ble Delhi High Court by simply mentioning that the issue is covered by the decision of Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). After considering these two decisions of the Hon'ble Apex Court....