TMI Blog2015 (7) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration. - Decided in favour of assessee. - ITA No. 2755/Ahd/2011 - - - Dated:- 27-7-2015 - Shri G.D. Agrawal and Shri Kul Bharat, JJ. For the Petitioner : Shri S.N. Soparkar with Vartik Chokshi P.M. Mehta For the Respondent : Shri Narendra Singh, Sr. DR ORDER PER G.D. AGRAWAL, VICE PRESIDENT: This appeal by the assessee is directed against the order of the Ld. Commissioner of Income-tax (Appeals)-6, Ahmedabad dated 07.09.2011 for Assessment Year 2008-09. 2. In this appeal by the assessee, following grounds were raised:- 1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 1 of the appellant's appeal challenging the validity of the assessment order impugned before him, on the ground that it was general in nature not requiring any adjudication by him. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding addition of ₹ 1,35,87,158 to the appellant's returned income made by the learned Assessing Officer on account of interest income which, on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fertilizers Ltd.'s case (227 ITR 172) cannot be ignored just because Delhi High Court had distinguished the case before it from the case before the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case (227 TR 172); (b) that when the appellant had so elaborately explained as to how its case was covered by the decision of the Delhi High Court which had itself been arrived at after consideration of the decision of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case (227 ITR 172), it cannot be open to him to summarily dismiss the appellant's case by merely making general observations at para 4.3 of the impugned Appellate Order. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing the appellant's claim (made vide Ground No. 4 of its appeal before him) that for the elaborate reasons explained in the Statement of Facts accompanying the appellant's appeal (including those in the Article Supreme Court Decision in Tuticorin Alkali Chemicals' Case (227 ITR 172) - Craves For An Urgent Review [151 CTR -Articles 240] a copy whereof had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . After setting off there from ₹ 16.11 crores, the assessee carried forward a sum of ₹ 162.45 crores in its balance-sheet as project development expenditure. The income of ₹ 16.11 crores included interest income of ₹ 11,66,14,614/-. The interest income up to 31.03.2007 was ₹ 2,34,81,466/-. Thus, the interest income pertaining to the accounting year relevant to assessment year under consideration was ₹ 9,31,33,148/- (Rs.11,66,14,614 - ₹ 2,34,81,466). In the return of income, the assessee offered the income of ₹ 7,91,51,306/- and the details of which is as under:- Interest income offered for Tax Particulars Amount Rs. Interest on ICD 58,814,370 Interest on general purpose investment 1,765,955 Interest on general purpose investment 6,829,678 Interest from Securities 11,739,986 Interest receivable on N.S.C. 1,317 Total 79,151,306 6. However, the assessee claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for tax at ₹ 7,91,51,306/-, the Assessing Officer did not accept the assessee s contention that the sum of ₹ 2,03,36,936/- is capital receipt; accordingly, he assessed the entire sum of ₹ 7,91,51,306/- as offered by the assessee in the return of income. 8. The assessee, aggrieved with the order of the Assessing Officer, filed appeal before the CIT(A). Before the CIT(A), the assessee claimed the entire interest income to be capital receipt. Vide Ground No.2, the assessee claimed interest income of ₹ 1,35,87,158/- to be non-taxable and vide Ground No.4 the assessee claimed the entire remaining interest income of ₹ 7,91,51,306/- to be non-taxable. The CIT(A) rejected Ground No.2 of the assessee s appeal which was with regard to assessee s claim for nontaxability of ₹ 1,35,87,158/- with the following finding in his order:- 3.3 I have considered the facts of the case; assessment order and appellant s submission. It is not in dispute that appellant s business From the above it is clear that apart from investment of temporary surplus funds, the deposit with electricity board or loan to employee's also provided interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of sum of ₹ 7,91,51,306/-, was also rejected by the CIT(A) with the following finding:- 5.2 I have considered the facts of the case and appellant s submission. Appellant earned interest on inter-corporate deposits deployed out of surplus fund available. The said interest was duly offered for tax in other sources head. The said income was never claimed as exempt during assessment proceedings. Only in appeal claim was made that this interest income is not taxable in view of Delhi High Court decision in the case of Indian oil Corporation Ltd and another decision in the case of Jaypee DSC Ventures Ltd. I have gone through both the decisions and none of the decision applies to the facts of the appellant. Appellant used the surplus fund in intercorporate deposits and earned interest income on the same. The earning of interest income is not inextricably linked to the construction of project. In the identical facts, honourable Supreme Court held that interest income earned from temporary deployment of surplus fund is taxable in other sources head. In view of the decision of honourable Supreme Court, this ground which is taken for the first time in appeal is not sustainabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital receipt which is liable to be set off against pre-operative expenses. That the facts of the assessee s case squarely fall within the ambit of the law laid down by the Hon ble Delhi High Court. He stated that the CIT(A) denied to apply the decision of Hon ble Delhi High Court on the ground that when the issue is squarely covered by the decision of Hon ble Apex Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), the decision of Hon ble High Court cannot be considered and applied. He stated that the Hon ble Delhi High Court has interpreted the decision of Hon ble Apex Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra) and also the subsequent decision of Hon ble Apex Court in the case of Bokaro Steel Ltd. (supra) and has pointed out what is the correct law as laid down by the Hon ble Apex Court. He, therefore, submitted that the interpretation of the Hon ble Delhi High Court with regard to decision of Hon ble Apex Court is to be preferred in comparison to the interpretation of the ld. CIT(A). He further pointed out that in the subsequent following decisions the Hon ble Delhi High Court reiterated the same view:- a. NTPC Sail Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Apex Court, the same is binding upon all the lower authorities, including the Assessing Officer, CIT(A) and ITAT. He stated that the CIT(A) rightly sustained the addition following the decision of Hon ble Apex Court and therefore, his order should be sustained. 15. In the rejoinder, it is stated by the ld. Counsel that whether any receipt is taxable or not is purely a legal question and therefore, the assessee was fully entitled to claim before the CIT(A) that the interest income was capital receipt not liable to be taxed. In support of his contention, he relied upon the decision of Hon ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT, (1998) 229 ITR 383. He further submitted that the CIT(A) has also not disputed that the assessee is not entitled to raise this question before him but he rejected the assessee s claim on merit. The Revenue is neither in appeal nor in cross-objection against the order of the CIT(A) and therefore, at this stage, the Revenue cannot claim that the assessee could not have raised this issue before the CIT(A). He, therefore, submitted that the issue of taxability of the interest may be decided on merit. 16. We have car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aise the ground for the first time before the Tribunal even if the interest was offered as income in the return of income provided relevant facts for adjudication of the said ground are available on record. Admittedly, in this case all the relevant facts are available on record and were considered by the Assessing Officer. Moreover, as we have already pointed out, this ground was raised before the CIT(A) and who has adjudicated on merit. In view of above factual and legal position, we are of the opinion that the Ground No.4 as raised by the assessee needs to be adjudicated on merit. In the ground No.4, the assessee has disputed the taxability of interest income of ₹ 7,91,51,306/- which included the interest income of ₹ 2,03,36,936/-; therefore, in our opinion, Ground No.3 does not require any separate adjudication. 17. In our opinion, Ground No.2 as well as Ground No.4, which require adjudication, are similar. Therefore, we proceed to adjudicate both these grounds together. 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 High Court. Therefore, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 supplier. It was on the money so deposited that some interest had been earned. This was, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 heads provided under s. 14 in Chapter IV of the Act. For an income to be classified as income under the head Profits and gains of business or profession it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 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 and also some other decisions of the Hon ble Apex Court, their Lordships of the Delhi High Court arrived at the conclusion it is clear upon a perusal of the facts as found by the authorities b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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