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2015 (3) TMI 1345
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....or scrutiny and accordingly notice u/s. 143(2) of the Act was issued. Further notices u/s.142(1) was also issued to the assessee along with the questionnaire. During the course of assessment proceedings, the Assessing Officer (AO) direct ed the assessee to furnish details of share application money received during the year, rehabilitati-on and resettlement expenses, partiwise details of sundry creditors and unsecured loans. Vide its letter, dated 13.03.2013, the assessee submitted that it had prepared P&L A/c for the year under consideration, that it was process of implementation of project of Maheshwar Hydel Power Project (MHPP). During the course of assessment proceedings, the assessee filed a revised return of income. Referring to the provisions of section 139(5) of the Act, the AO held that assessee could have filed its revised return by 31.03.2012, that any return filed after that day could not be termed as filing of revised return, that the alleged revised return was filed as per the acknowledgement of return dated 18.01.2013. The AO rejected the revised return and did not consider it for purpose of assessment. Relying upon the cases of Deepnarain Nagu & Co.(157 ITR 37-MP)....
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....of change of method of offering as taxable income in the Act, that the Act required tax on real income independent of the manner in which assessee offered it to taxation, that only two method of accounting for determination of correct income were Cash and mercantile with prohibitions in change of method opted, that there had been no change of accounting, that the assessee was consistently following mercantile method,that correction of incorrect treatment of receipt was not synonymous to change in method of accounting,that it has followed correct method of accounting by adjusting the capital receipt against the CWP and reducing the project cost and charge depreciation on the correct lower CWIP, that the assessee had full right to rectify the mistake by resorting to the avenues provided for it by the Act,that filing revised computation of income was one such avenue, that there was no principle of estoppels against wrong application of law particularly when there were mitigating circumstances for it,that three decisions relied upon by the AO were also not relevant, that they all dealt with revised return of income, that the AO had expressly rejected the revised return and had categori....
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....the assessment order and the submissions of the assessee,the FAA held that the assessee was in process of setting up of power project since 1993 for sale and supply of energy to MPEEB as per the terms and condition contained in the Power Purchase Agreement (PPA) dated 11.11.1994,that till 2004 the assessee was not in position to set the project due to shortage of funds, that it entered in to an agreement dtd.23.02.2004 by which government of MP agreed to execute the guarantee deed in favour of Power Finance Corporation(PFC)as a default Counter guarantee in consideration of PFC agreeing to execute a guarantee in favour of the investors who subscribed to the convertible bonds for an agreement of Rs. 400 Crores to be issued by the assessee, that it was agreed that the amount, required to service the interest on bonds till commercial operation started, would be held by Nationalised Banks in trust and would be utilised solely for payment of such interest on the bonds to the investors, that later on the agreement of 2004 was cancelled, that as per the new agreement of 2005 the assessee was to issue 15 years bond with an option to convert the bonds into equity shares,that the assessee rai....
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....ued. The FAA held that so far the assessee had earned only interest on Fixed Deposits and which had been consistently offered as income from other sources against TDS made by the bank. In view of this assessee was asked the status of the project when copies of all the agreements entered by the it were provided. He gathered from these documents that the project had not yet come in the offing and further there was issue of viability of the project for the reason that the tariff on anticipated commencement was still in distant future, had already become costlier than the tariff of MP State Electricity Board. Referring to the audit report, he observed that that in the year 2007 company had raised optionally fully convertible debentures amount RS.2170050 lakhs @9.75% p.a. and Rs. 18250 lakhs @ 10.75% p.a. ,that the debentures were redeemable at par in 22 equally half yearly installment commencing from 4 years and 6 months from deem date of allotment, that the debentures were secured by an unconditional and irrevocable Guarantee of PFC, that pending finalisation of the date of the commissioning of the project (December 2010) interest due to debenture holders for 4 years from date of issu....
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....onsidering those facts the Hon'ble Supreme Court had held that income earned was incidental to acquisition of asset for the setting up of all the plant and machinery and hence the ratio laid down by this court in Tuticorin Alkali Chemicals & Fertilizers Ltd. (227ITR172) would not be attracted. About the matter of Bongaigaon Refinery & Petrochemicals Ltd. (251 ITR 351), he held that items of income derived by the assessee during the formation period for the main business were not taxable but were to be adjusted against the project cost for the assessee i.e. oil refinery and petro chemicals, main business for which company was set up. Similarly, the FAA referred to the facts of other three cases relied upon by assessee namely Koshika Telecom Ltd. (287ITR479), International Marketing Ltd.(292ITR504), Indian Oil Panipat Power Consortium Ltd. (315 ITR 255) and held that facts of those cases were distinguishable. In short, the FAA held that the ratio of all the above referred cases was that that interest or any receipt from a source inextricably connected with the capital project was to be deducted from the cost of the project and not to be taxed as income from other sources and thus....
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....e cost of electricity expected to be generated in the remote future had made the rate per unit of electricity much higher than the present rate of electricity per unit being produced by MPSEB, that the project could not be said as being in pre-commencement period, that OFCD were issued for restructuring the capital and same was not linked with the project, that decisions cited by assessee were of no help for the simple reason that in those cases there was actual project under construction and the issue was whether during the period of construction of project and thus prior to commencement of the project the interest so earned, that too on the fund inextricably linked with the business, should be taxed as income from other sources or business income in order to reduce the cost of project. He held that in the case under appeal for substantiate long period of 20 years from the date of agreement entered into the assessee was not able to set up the project, that work in progress figures were totally unsupported, that there were no note or details in auditor's report given in the account in that regard, that simply because assessee had relied upon the decisions when the facts were en....
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.... the amount required to service the interest on bond till commercial operation date-which was 4 years from effective date of GoMP-guarantee shall be held by Nationalised Bank in trust and utilized solely for payment of such interest on the bonds to the investors. Then again another 'Amendatory and restated' agreement dated 16/09/2005 was entered by the assessee with S Kumars Ltd (SKL), MPSEB, Go MP and PFCL for obtaining default payment guarantee issued by PFC in favour of trustee as security for Rs. 400 crores bond issue of the assessee. The assessee had offered the interest income under the head income from other sources, but later on requested that same should be treated as business income. 6.1. Here, we would like to refer to some judgments that according to us, are relevant to decide the issue. In the case of Manglam Cement Ltd.(217 ITR 369)the Hon'ble Rajathan Court has held that interest on short-term deposits of surplus money before the commencement of business is an income from other sources and not from business. Facts of the case are as under: The assessee was a limited company incorporated in October, 1976. Loans were obtained by it for purchase of capital....
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.... of water and electricity supply, received during the period of formation of the assessee company's main business of oil refinery and petrochemicals which was being set up, was taxable income but same was to be adjusted against the project cost for the business of oil refinery and petro-chemicals. With regard to the interest income the Hon'ble Court upheld the order of the Hon'ble Gauhati High Court as under: "The High Court has already held that the interest income derived by the assessee during its formative period was taxable income." The Hon'ble Gauhati High Court had discussed the issue as under: "The question as set forth above has now been referred for this court's opinion. Dr. A. K. Saraf, learned standing counsel appearing for the Revenue, contended whether a particular receipt is of the nature of income is not a question raised before this court. It was further contended that Challapalli Sugars Ltd.'s case [1975] 98 ITR 167 (SC) has been explained and distinguished by the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172. The Supreme Court in this case held that taxability or non-taxability of income is to be d....
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....not be, as it was decided on July 8, 1997, and can only have prospective effect and operation. This necessarily takes me to the question of the jurisprudence of precedents. When the court decides and particularly the apex court, decides that the interpretation of a particular provision of law as given earlier was not legal, it in effect clears that the law as it stood from the beginning was as per its decision and that it was never the law otherwise. This being the case, since the Supreme Court has taken a view that the interpretation placed on the provisions of law of the High Court was erroneous, it will have to be held that the action based on the erroneous view of law was also equally erroneous. In view of the legal position as explained by the apex court, there is no force in the submissions made by learned counsel appearing for the assessee. Our answer to the question as referred is in the negative, that is to say, in favour of the Revenue and against the assessee." Hon'ble Kerala High Court in GTN Textiles Limited. (326 ITR 352) has held that where an assessee was not engaged in financial business, the interest on short deposits was to be held as inc....
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....and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. The company may keep the surplus funds in short-term deposits in order to earn interest. Such interests will be chargeable under section 56(emphasis supplied). In other words, if the capital of a company is fruitfully utilised, instead of being kept idle, the income thus generated will be of a revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be a capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising borrowed capital. It is true that the company will have to pay interest on the money borrowed by it. But that cannot be a ground for exemption of interest ....