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2026 (4) TMI 778
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....ome were filed on 29.12.1993 and 29.11.1994, respectively. In computing the income, interest earned during the respective previous years was adjusted against project expenses. 3. On 25.05.1992, the appellant entered into an agreement with CDB Holding Pte. Ltd, Singapore for acquiring technical know-how. In terms of the agreement, the appellant was to pay USD 2, 50,000/- out of which, USD 50,000/- (Rs. 20,27,000/-) was paid during AY 1993-94. The balance USD 2,00,000 /- was to be paid in five equal yearly installments. The appellant in AY 1993-94 raised a loan of Rs. 72,69,500/- from its Directors. The payment of technical fee and other expenses aggregating to Rs. 23,17,618/- and Rs. 20,27,157/- (inclusive of payment for land) were paid out of the said loan from the directors. The funds not immediately required were deposited in the bank, on which the appellant earned interest of Rs. 1,23,151/- and Rs. 2,37,770/- for the AYs 1993-94 & 1994-95. 4. The Assessing Officer (AO) re-opened the assessment under Section 148A of the Income Tax Act, 1961, ('the Act') by referring to the Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT, (1997) 227 ITR 172 (SC), and treated the amount ....
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....red into technical know-how agreement, the appellant incurred following expenses towards the project :- Accounting Year ending 31.3.93 Accounting Year ending 31.3.94 Purchase of industrial land - 15,36,614/- Technical know-how fee (including withholding tax) 20,72,028/- - Raw material - import 39,590/- - Tools & dies - 15,543/- Advances for purchases of machinery Ashok Hydraulic 2,51,000/- 2,00,000/- Hi-Tech Precision Engg. - 75,000/- Pyramids Precision Engg. - 50,000/- Pioneer Enggo. Co. - 50,000/- Fad-de-con Engg. - 1,00,000/- 23,17,618/- 20,27,157/- 9. It is the case of the appellant that the expenditure of Rs. 43,44,775/- (Rs. 23,17,618 + Rs. 20,27,157) was incurred out of the funds arranged from the Directors, partly by way of share capital of Rs.25,00,000/- and partly as interest free loans of Rs. 50,59,113/-. In order to facilitate the timely payment of committed obligations such as purchase of plant & machinery, construction of factory building etc., the appellant company deposited the remaining funds of approx. Rs. 32,00,000/- in the ba....
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....izers Ltd. (supra). The facts of the case in Bokaro Steels Ltd are different. Subsequent judgment in the case of Bokaro Steels does not purport to over-rule the earlier judgment of Apex Court in the case of M/s Tuticorin Alkali Chemicals & Fertilizers" 13. Mr. Satyen Sethi, the learned counsel appearing for the appellant, submitted that the ITAT cannot go beyond the subject matter of appeal, which is governed by the grounds raised before it and the Revenue did not raise any such ground against the order of CIT(A) holding that jurisdiction under Section 148 of the Act was not validly assumed. He also submitted that the ITAT was not correct in going into the issue of reopening of assessment, which had attained finality. In support of this submission, he has relied on the judgment of this Court in CIT v. Divine Infracon (P) Ltd, (2015) 64 taxmann.com 472. 14. He submitted that the judgment in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) was rendered in its own facts and has no applicability to the case of the appellant, He contended that Tuticorin Alkali Chemicals & Fertilizers Ltd was incorporated on 03.12.1971 and had taken term loans from various banks an....
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....on for the appellant to deposit funds in the bank, the ratio of Karnal Co-operative Sugar Mills (supra) is not attracted is not correct, as the compulsion of deposit of funds is not the guiding factor. He has also relied on the judgments of this Court in Indian Oil Panipat Power Consortium Ltd. v. IΤΟ, (2009) 315 ITR 255 and Pr. CIT v. International Coal Ventures (P) Ltd, (2025) 472 ITR 307. 19. Mr. Sethi submitted that the preliminary objection of the Revenue is that the CIT (A) has admitted additional evidence which is in violation of Rule 46A of the Income Tax Rules, 1962 ("Rules"). For the assessment order for AY 1999-00, deduction under Section 35D of the Act was allowed. The assessment orders for the subsequent years do not constitute 'additional evidence', since they are part of record of the Revenue and that clarificatory material is not additional evidence. He has placed reliance on the judgment in the case of Sri Shankar Khandasari Sugar Mills v. CIT, (1992) 193 ITR 669 (Kar), to contend that in the said case, the assessee produced sales tax assessment order for the first time before the CIT(A), which refused to look into the same on the pretext of addition....
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....e. Concededly, the issue whether the additions made by the AO were beyond the scope of Section 153A had been decided by the CIT (A) in favour of the Assessee and the decision on the said issue had attained finality as the revenue had not preferred any appeal with regard to the CIT(A)'s order. 8. It is also relevant to note that by virtue of Section 253(2) of the Act, the Principal Commissioner or Commissioner may, if he objects to an order passed by the CIT (A) under Section 250 of the Act, direct the AO to prefer an appeal to the Tribunal. It is not disputed that no such directions to file an appeal against the CIT (A)'s order dated 21st January, 2014 were issued by the concerned Income Tax Authority. 9. In the circumstances, there could be no dispute that the CIT (A)'s order in so far as it relates to the issue regarding the assessment being beyond the scope of Section 153A of the Act had attained finality, and thus, could not have been disturbed by the Tribunal." He also submitted that, in Mahalakshmi Textile Mills Ltd. (supra), the Supreme Court has noted that there was no change in the subject matter of appeal. 24. Mr. Sethi submitted that t....
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....dia (P) Ltd. (supra). Mr. Sethi has relied upon the decision of this Court in the case of Pr Commissioner of Income Tax-1, Delhi v. Brahma Center Development Pvt Limited, 2025:DHC:8487-DB to contend that the funds were received for the real estate project and while awaiting their deployment, they were invested in a fixed deposit which generated interest. This fits in with the dicta of the Supreme Court in Bokaro Steels Ltd. (supra) case and of this Court in Indian Oil Panipat Power (supra) and other similar judgments. 28. According to him, applying the ratio of judgments, the conclusion of the CIT (A) that the appellant company was in 'post project setting up stage' was correct because the appellant had already paid USD 50,000 to CDB Holding Pte. Ltd, to acquire technical know-how and had imported chemicals as raw materials and had made advance payments to the manufacturer for supply of machinery as also the land for construction of building. He also submitted that the ITAT in reversing the order of CIT(A) has merely observed that; "the facts of the case of the assessee are more or less identical to those in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). The ....
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....d and relied upon fresh material without adhering to the mandatory procedure prescribed under Rule 46A of the Rules. No reasons have been recorded to demonstrate that the case of the appellant fell within any of the exceptions enumerated under Rule 46A (1) of the Rules. He also submitted that, Rule 46A of the Rules prevents taxpayers from intentionally withholding evidence during assessment and then introducing it at the stage of appeal to get a fresh review. 35. He submitted that the AO was not afforded any meaningful or effective opportunity to examine, verify, or rebut such additional evidence, as required under Rule 46A(3). Thus, the statutory safeguard intended to protect the interests of the Revenue has been completely bypassed. 36. Mr. Maratha submitted that it is a settled position of law that though the powers of the CIT (A) are wide, such powers cannot be exercised in contravention of statutory provisions. Any order passed in violation of Rule 46A is vitiated and liable to be set aside. 37. He submitted that the counsel for the appellant contended that the ITAT had granted certain reliefs which were allegedly not prayed for by the Revenue, is misconceived and unt....
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....ion. 42. In this regard, we may note that the transaction with regard to the interest on the bank deposit was duly disclosed by the assessee in the profit and loss account accompanied with the return of income filed under Section 139(1) of the Act and the assessment thereof was completed under Section 143(1)(a) of the Act. It was only thereafter in the year 2001 that reassessment proceedings were initiated by issuing a notice under Section 148 of the Act, in view of the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). The AO primarily held that the aforesaid judgment of the Supreme Court covers the case in favour of the Revenue and against the assessee. The jurisdictional issue as to whether the reassessment could have been carried out was raised by the assessee before the CIT (A). The conclusion drawn by the CIT (A) is that the assessment could not have been opened on mere change of opinion that too of a completed assessment. 43. The CIT (A) was also of the view that any post dated judgment cannot be applied retrospectively especially when assessments were not pending, but stood completed on the basis of laws enforced at the....
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....that the ITAT possesses ample power to decide any issue that goes to the root of the subject matter before it, as it thinks fit. This position has been clarified by the Karnataka High Court in Fidelity Business Services India P Limited v. ACIT & Another, 2018 SCC OnLine Kar 756 on which much reliance has been placed by Mr. Maratha. Relevant part of the judgment reads as under:- "62. The powers under section 254 of the Act with the Tribunal to pass such orders "as it thinks fit" cannot be lesser than the powers conferred upon the lower and first appellate authority, viz., the Commissioner of Income-tax (Appeals) who under section 251(1)(a) of the Act has power to dispose of an appeal against the order of assessment and he may confirm or reduce or enhance or annul the assessment. The higher and final appellate authority under the Act cannot be intended by Parliament to have lesser power than the first appellate authority as is well settled that the powers of the appellate authorities are always co-extensive with that of the assessing authority and therefore what the assessing authority or the first appellate authority could do in the matter of assessment, the Tribunal cannot....
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....issue is whether in the facts and circumstances of the case the Tribunal had any material before it to justify the reversal of the finding recorded by the CIT (A). As stated above, the present appeals are relatable to AYs 1993-94 and 1994-95 and the reassessment is sought to be done vide notice dated 28.03.2001. The appellant company was incorporated on 24.03.1992 and the agreement with the Singapore based company was entered on 25.05.1992 for acquiring technical knowhow. The consideration of USD 50,000 along with TDS of Rs. 5,25,562/- was paid by the appellant as per terms thereof. The unsecured loan raised by the appellant company of Rs. 72,69,500/- from its Directors have been utilized and partially invested into fixed deposits from which interest of Rs. 1,33,151/- and Rs. 2,37,770/- have accrued during AYs 1993- 94 and 1994-95. We may also state for clarification that after meeting the requisite payment for technical knowhow and purchase of land and also for advances for purchase of machinery and raw material, the remaining amount was deposited in the bank yielding interest as the funds were not immediately required. 49. In view of the fact that the business of the company h....
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....he appellant had paid for the purchase of industrial land, technical knowhow, raw material import and tools. But at the same time, for certain purchases of machinery etc., advances were paid to different parties. The case of the appellant/assessee is that the balance of the amount payable for purchase of machinery has to be met through the deposits made in the bank on which interest has accrued, which is sought to be taxed by the Revenue. It is also contended the timely payment of the committed liability towards the know-how fee of USD 40,000 (out of total of UDS 2,00,000) annually was also to be made out of the said amounts. 52. If that be so, surely the said funds, on which interest of Rs. 1,33,151/- and Rs. 2,37,770/- respectively had accrued, could not have been treated as income from other sources and the benefit under Section 35D would enure to the benefit of the appellant as the same was inextricably linked with the setting up of the business. The reasoning given by the CIT (A) for holding that the Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) is not applicable to the facts of this case is the following:- "8. ... ... ... The assessments have been....
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....s of income were filed by the assessee. Reliance placed by the assessee in this respect on the judgment of the Hon'ble Gujarat High Court in the case of Gujarat Power Corpn. Ltd., 254 ITR 217(Guj.) is misplaced. In that case there was levy of additional tax u/s 143(1A) on the ground that the original return of income had not been correctly filed. There is no such additional tax levied in the case of the assessee. We, therefore, do not see any assistance to the case of the assessee from the judgment in the case of Gujarat power Corpn. Ltd. (supra). As to the reopening of the asstt. u/s 147 it is important to bear in mind that the original asst. was completed u/s 143(1). Under the new provisions of Sec. 147 w.e.f. 1.4.1989 if the earlier asstt. was not made u/s 143(3) all the talk about fresh material facts coming in to existence or omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment is irrelevant. The only requirement is escapement of income chargeable to tax which is fully satisfied in the instant case. We also do not see much force in the contention of the assessee that deduction u/s 35-D has not allow....
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.... Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.'s case (supra) 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 'income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) 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. xxx xxx xxx 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. Si....
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....e date on which such asset was first put to use" would not qualify as deduction. However, in all these cases, when the interest was received by the assessee towards interest paid for fixed deposits when the borrowed funds could not be immediately put to use for the purpose for which they were taken, this Court, and indeed the Supreme Court held that if the receipt is "inextricably linked" to the setting up of the project, it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. By the same logic, in this case too, the funds invested by the assessee company and the interest earned were inextricably linked with the setting up of the power plant. It may be added that the Tribunal has not found that the deposits made as margin monies were not limited to the construction activity connected to the expansion of the business by way of setting up of a new power generation plant." xxx xxx xxx 13. Having regard to the aforesaid, we are of the opinion that, since the Tribunal has returned a finding of fact that there was indeed an enquiry carried out by the AO as to the nexus between the funds invested in fixed deposits (on which....