TMI Blog2018 (6) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income Tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer. Quantification of interest income available with the assessee for set off against pre-operative expenditure in power project implementation - Held that:- 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore, they were in pre-commencement stage. The assessee had capitalized entire expenditure and did not debit any amount in the profit loss account because the profit loss account was not prepared. Thus, disallowance under section 40(a)(i) could not be made. The ld.CIT(A) has accepted the contentions of the assessee and deleted the disallowance. 5. Before us, the ld.DR relied upon the order of the AO, whereas the ld.counsel for the assessee relied upon orders of the ITAT in the cases of Sonic Biochem Extractions P.Ltd. Vs. ITO, 35 taxmann.com 463, SMS Demag P.Ltd. Vs. DCIT, 38 SOT 496 (Delhi) and Sumilon Industries Ltd. Vs. ITO, ITA No.3296 and 3297/Ahd/2008 order dated 12.11.2010. 6. We have duly considered rival contentions and gone through the record carefully. Section 40(a)(i) of the Act contemplates that - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head profits and gains of business or profession (a) in the case of any assessee (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst pre-operative expenses or not. Thus, we take all these grounds of appeal together. 9. Brief facts of the case are that the assessee, as observed earlier, is in the business of development and operation of power plant. In the year under consideration the power plant were in the process of being set up, and therefore, they are in pre-commencement stage. The assessee had interest income at ₹ 8,17,60,319/-. It has given break up of this as under: Interest on FDs kept for issuance of Amount (in Rs.) Bid Bonds for the purpose of PPA 1,46,60,271 Bank guarantee (against LC) 3,65,88,790 Other FDs 39,52,073 Total 5,52,01,134 6. The source as well as break up of interest income of ₹ 2,41,55,630/- is given as follows: Source Interest (in Rs.) From Equity/own funds 48,68,282 From borrowed funds 192,87,348 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income amounting to ₹ 39,52,073/- on FDRs. and ₹ 17,63,014/-. With regard to interest earned against LIC on bank guarantee amounting to ₹ 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 ₹ 8.17 crores can be dissected in different parts and partly it is to be held that certain interest income was not earned by the assessee from the investment which is inextricably linked with project implementation and it has independent source of such revenue from FDRs. etc. Other aspect which is to be looked into is, whether without filing revised return, the assessee can raise new plea before the ld.CIT(A) in order to exonerate itself from tax liability. 13. The ld.counsel for the assessee at the very outset submitted that so far as objection of the AO that revised return was not filed is concerned, this aspect has been dealt by the Tribunal in the assessment year 2008-09 as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction 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 is required to be determined in taxable income. In that sense assessment proceedings are not adversarial in nature. With these observations Court confirmed the view of the Tribunal reversing the decision of the assessing officer rejecting the claim of the assessee on the ground that no revised return was filed. 37. In case of Commissioner of Income-tax, Gujarat-I vs. Cellulose Products of India Ltd. reported in [1985]151 ITR 499, full Bench of this Court held that merely because a ground has not been raised though it could have been raised in support of the relief sought in the appeal, it cannot be said that su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 High Court. Therefore, it would be appropriate to first refer to those decisions. In the case of Tuticorin Alkali Chemicals Fertilizers Ltd. (supra), the Hon'ble Apex Court held as under:- ...that the company had surplus funds in its hands. In order to earn income out of the surplus funds, it had invested the amount for the purpose of earning interest. The interest thus earned was clearly of revenue nature and would have to be taxed accordingly. The accountants might have taken some other view but accountancy practice was not necessarily good law. This was not a case of diversion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges 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, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. The interest was a capital receipt, which would go to reduce the cost of asset. 21. In the case of Karnataka Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 would have to be an activity which is in some manner or form connected with business. The word business is of wide import which would also include all such activities which coalesce into setting up of the business. See Mazagaon Dock Ltd. vs. CIT/CEPT (1958) 34 ITR 368 (SC) and Narain Swadeshi Weaving Mills vs. CEPT (1954) 26 ITR 765 (SC). Once it is held that the assessee's income is an income con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 below that the funds in the form of share capital were infused for the 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. Since the income was earned in a period prior to commencement of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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