TaxTMI 
TaxTMI 
2021 (7) TMI 347
X X X X Extracts X X X X
X X X X Extracts X X X X
.....09.2017 passed by the assessing officer [in short "AO"] concerning the respondent/assessee [hereafter referred to as "assessee"] pertaining to AYs 2012-2013 and 2013-2014 respectively. The assessment orders were passed under Section 143(3) read with Section 144C of the Act, although, in the opening sheet of the assessment order concerning AY 2013-2014, there is only a reference to Section 143(3) of the Act. The record also shows that, after the PCIT had passed the order dated 28.03.2019, insofar as AY 2013-2014 is concerned, the AO as directed, passed a fresh order dated 12.11.2019 under Section 143(3) of the Act by conducting "proper enquiries". 2. The reason why the PCIT had interfered with the original assessment orders was on account of a view held by him that interest earned by the assessee against fixed deposits was adjusted, i.e., deducted from the value of the inventory and not credited to the Profit and Loss Account [in short "P&L account"]. The PCIT noted that the tax auditor, in the report filed in Form 3CD, had observed that interest earned on fixed deposits pertained to "other income" and had not been credited to the P&L account. The interest earned on fixed deposits....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AY 2012-13 and 2013-14. In other words, the argument was that Clause (a) and (b) of Explanation 2 appended to Section 263 of the Act, would apply to the aforementioned AYs, although the provision came into effect from 01.06.2015. [See: Judgement dated 01.02.2016, passed by the Income Tax Appellate Tribunal, Mumbai in I.T.A. No. 1994/Mum/2013 titled Crompton Greaves Limited vs. CIT-6, Mumbai] iii. The Tribunal failed to appreciate the judgements [referred to hereafter] in which Courts have held that, interest earned from fixed deposits, inter alia, kept as margin money or security for a bank guarantee to avail credit facility for export business, had to be treated as income from other sources and not business income since it did not have any nexus with business. a) Conventional Fasteners vs. CIT, [2017] 88 taxmann.com 163 (Uttarakhand) ; the SLP(C.) Nos. 16338/2018 and 12610/2018, filed vis-à-vis this judgement, were dismissed by the Supreme Court, via orders dated 13.07.2018 and 16.05.2018; b) CIT vs. Jyoti Apparels, (2008) 166 Taxman 343 (Delhi); and c) CIT vs. Mereena Creations, (2010) 189 Taxman 71 (Delhi). Submissions advanced on behalf of the respondent/assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Infrastructure Development Corporation [in short "HSIIDC"]. 7. To satisfy ourselves, we perused the record and inter alia discovered the following. 7.1. On 11.08.2016, chartered accountants of the assessee, i.e., BSR and Co. LLP filed their response to certain queries raised by the AO at a hearing held before him on 09.08.2016 concerning AY 2013-2014. One of the queries raised concerned the exclusion of interest received on fixed deposits from the category/head "income from other sources". The relevant extract from the said communication is set forth hereafter. "We refer to the captioned subject. In this regard, further to our earlier submission filed and discussion with your office on 09th August 2016, the Company submits the following information/details: - xxx xxx xxx 3. Why interest on FDR is not included in Income from other sources; During the subject year, the Company was engaged in the business of promotion, construction and development of commercial project on the project land allotted by the Haryana State Industrial and Infrastructure Development Limited (HSIIDC). Consequent to the arrangement with HSIIDC, the Company was required to make payment in instalments t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f tax effect of Rs. 4,85,48,507/- including interest. xxx xxx xxx 2. In view of the above, a rectification order is required to be passed to rectify the above mentioned mistake. Hence in this respect if you wish to be heard, you are requested to appear in person or through an authorised representative in my office on 25.09.2017 at 11:30 PM alternatively you may send a written reply so as to reach me on or before the date mentioned above. Failing, it will be presumed that you have nothing to say and action will be taken as per IT Act. Yours faithfully Sd/- (Girish Parihar) Astt. Commissioner of Income Tax Circle 5(1), New Delhi" 7.4. The relevant part of the response dated 12.10.2017 is extracted hereafter. "This is in connection with the subject matter. Further to the submission already placed on record by the Company, we submit the following. 1. Audit Scrutiny revealed that during the year the assessee has earned the interest of Rs. 9,47,04,585/- on FDRs'; however instead of crediting the same to the Profit & Loss Account, this interest has been deducted by the assessee from the value of inventories (Schedule 15) as shown in the balance sheet. Audit scrutiny further re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o reconcile the information given in its Annual Income Return [in short "AIR"]. The response to this notice was given on 25.11.2014. The relevant parts of the notice and the response are extracted hereafter. Extract from notice dated 15.11.2014: "In continuation of the pending assessment proceedings in your case, you are hereby accorded Last and Final Opportunity to file the following information/detail which are given as under. Sl. No. Details required Remarks xxx xxx xxx xxx xxx xxx 3. Reconciliation of information AIR Enclosed herewith* xxx xxx xxx *Bifurcation of inventory Particulars March 31, 2011 March 31, 2012 Opening Inventory - 6,221,079,207 Cost of project Land for development 5,875,559,600 - Artichet & Consultancy Fees 3,936,356 - Other site expenses 321,245 - Manpower Cost 5,987,419 4,693,226 Selling, Administration & Other Expenses - 6,251,200 - Interest & Finance Charges 328,910,553 683,565,792 Depreciation 112,834 - Project Management Expenses - 432,963 Less: Interest Income on fixed deposit - -94,704,585 Total 6,221,079,207 6,815,066,603" Extract from notice dated 25.11.2014: "Sub: Assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est and finance charges to the tune of Rs. 68,35,65,792/-, whereas the assessee received interest income on fixed deposits to the tune of Rs. 9,47,04,585/-. It is submitted that both these items are taken to the inventory. 11. Further, it could be seen from the record that vide letter dated 14.09.2017, the ld. Ld. Assessing Officer issued notice to the assessee proposing rectification in respect of certain items including the one relating to interest of Rs. 9,47,04,585/- to which the assessee has issued reply dated 12.10.2017 where under it was explained that the company was engaged in the business of promotion, construction and development of commercial projects on the project land allotted by Haryana State Industrial and Infrastructure Development Limited (HSIIDC). Consequent to the arrangement with HSIIDC, the assessee was required to make payment in instalments to HSIIDC towards acquisition of land. In this regard the company raised funds from nonresident shareholders outside India through Compulsory Convertible Debentures (CCDs) to fulfil its payment obligations towards HSIIDC and in that connection they temporarily parked the funds in FDRs, which earned interest. The assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at, there was a nexus between the receipt of funds from investors located abroad and the real estate project, which upon being invested generated interest. Thus, it cannot be said that the conclusion arrived by the AO, that such adjustment was permissible in law, was erroneous. 12.1. The reliance placed on behalf of the revenue on the judgement of Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Limited v. CIT, (1997) 227 ITR 172 (SC) was not apposite, given the finding of fact returned by the Tribunal that there was a nexus between the investment of funds received from investors located abroad and the real estate project. The Tribunal, in paragraph 15 of the impugned order, has distinguished (and, in our view, correctly) the judgement of the Supreme Court in Tuticorin Alkali Chemicals Case and applied the later judgement of the same Court in CIT v. Bokaro Steels Limited, (1999) 236 ITR 315 (SC). 12.2. Furthermore, these judgements were also considered by a Division Bench of this Court in Indian Oil Panipat Power Consortium Ltd. vs. Income-tax Officer, [2009] 181 Taxman 249 (Delhi)/[2009] 315 ITR 255 (Delhi) wherein after appreciating the ratio of the aforementioned judg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TPC Sail Power Company (P.) Ltd. vs. Commissioner of Income-tax, [2012] 25 taxmann.com 401 (Delhi); the relevant observations are extracted hereafter. "9. This Court, in Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255/181 Taxman 249 (Delhi) held that where interest on money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land, a claim that such interest is a capital receipt entitled to be set off against pre-operative expenses, is admissible, as the funds received by the assessee company by the joint venture partners are "inextricably linked" with the setting up of the plant and such interest earned cannot be treated as income from other sources. The reasoning in Indian Oil is in line with Bokaro Steel Ltd. Similarly, the Supreme Court in CIT v. Karnataka Power Corpn. [2001] 247 ITR 268/[2000] 112 Taxman 629 (SC) and Bongaigaon v Refinery & Petrochemicals Co. Ltd. v. CIT [2001] 251 ITR 329/119 Taxman 488 (SC) held that such receipts are not income. 10. It is no doubt correct that the proviso to section 36(1)(iii) of the Income Tax Act enacts that any amount of the interest paid towards ("in respect of") capital borrowe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted the kind of income which was amenable to deduction under Section 80HHC of the Act. 14.2. In the Jyoti Apparels case, the Court repelled the assessee's claim for deduction under Section 80HHC of the Act, as the assessee itself had treated interest on fixed deposit as "income from other sources" under Section 56 of the Act and then, it also sought deduction qua the same under Section 80HHC of the Act. The Court, therefore, held that the interest earned on fixed deposit maintained with the bank for availing credit facility could not be treated as business income, and hence, not entitled to deduction. 14.3. The Conventional Fasteners case was no different except that the provision involved was Section 80IC of the Act. This provision also contained the expression "derived from", and therefore, vis-a-vis interest received, the same approach was adopted. 14.4. A careful perusal of these judgements would show that the conclusion reached had a context; first, the subsistence of the expression "derived from" in Sections 80HHC and 80IC of the Act, and second, there was no finding of fact concerning nexus between the business and the funds received on which interest was earned by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the 57[Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing....