TMI Blog2020 (1) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... rade against provision of such liability and there is a system of assessment of such liability year after year. Finally has written back the said liability it was brought to our notice that in the accounts for the financial year 2017-18, huge liability has been written back in accounts. The related adjustments documents were not produced before the authorities below during the adjudication and need to be considered while adjudicating the issue. Therefore, we remand the matter back to the file of the AO to adjudicate the remaining claim after going through the documents produced by the assessee. This ground of appeal of assessee is allowed for statistical purposes. Interest earned on application of grants received from Govt. of India for upgradation of Jute Technology - HELD THAT:- AO is directed to examine whether the assessee s case falls in the ratio laid down by the Tribunal in the case of West Bengal State Electricity Distribution Co. Ltd. [ 2020 (1) TMI 84 - ITAT KOLKATA] and if assessee s claim falls in the ratio decidendi, then it should be allowed or it should be added in the hands of the assessee as interest income. Therefore we set aside the impugned order of the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Kolkata High Court in the case of M/s. Exide Industries Ltd. reported in 292 ITR 470. However, the Assessing Officer did not accept the assessee s claim observing that Department has preferred a Special Leave Petition before the Hon ble Supreme Court and stay of the order of the Hon ble Kolkata High Court was granted by the Hon ble Apex Court. Ld. senior counsel submitted that under identical circumstances, Tribunal has restored the matter to the file of Assessing Officer to decide the issue in accordance with the decision of the Hon ble Apex Court in the case of DCIT, Circle-8, Kolkata vs.- M/s. Ernst Young Pvt. Ltd. in ITA No. 1787/Kol./2008. He, therefore, submitted that the matter may be restored back to the file of Assessing Officer. 4. Learned Departmental Representative did not raise any objection. 5. We have considered the submissions of both the parties and have perused the records of the case. We find that Tribunal on identical issue in ITA No. 1787/Kol./2008 in the case of M/s. Ernst Young Pvt. Ltd. has observed at para 12 in page 6 as under :- 12. Ground No. 5 of the revenue s appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and short weight of deliveries of jute. The assessee through a written submission stated that corporation makes provision on expected claims from mill parties on account of Raw Jute supplied to them during the year due to weight loss and quality loss on supplies. The provision of ₹ 5,70,410/- was made during the year on account of such loss by following uniform practice followed over the years. Details of claim bills pending for settlement from such provisions amount as follows ... . The AO noted in his order that A/R has submitted before him that claim bills on hand, which are pending aggregated to ₹ 2,22,074/-. After considering the submissions of the assessee according to AO, it is undisputed that not all deliveries are subjected to deterioration, and even where such deterioration does occur, the same is not uniform. It is also undisputed that the bills in respect of which provision was made had not actually been received by the assessee company on the date of closing of accounts. That is, the actual liability remained un-quantified as on the date of statement of accounts. Further, since the actual of adjustments of claims vis-a-vis sales have not been produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusal of the aforesaid submission of the assessee, the Ld. CIT(A) has given partial relief to the assessee by noting as under: I have considered the material before me. The A.O. had disallowed the appellant's claim for provision for loss for sale of jute to customers on account of quality and short weight of delivery of jute amounting to ₹ 5,70,410/-. The A.O. observed that as per the mercantile basis of accounting only undischarged accrued liabilities are allowable whereas the appellant's claim was on estimate basis and thus being an unascertained liability the amount of ₹ 5,70,410/- was disallowed by the A.O. The appellant's A.R. has contended through the written submission during in raw jute entails certain losses due to weight and quantity loss between the period of packing and delivery to mills which are incidental to the business was an allowable expenditure. It was also argued that copy of bills for claim of ₹ 2,22,076/- was also produced before the A.O. I have considered the material before me. The A.O. is found to have disallowed the impugned of ₹ 5,70,410/- on account of provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertained liability as per the expert report etc. the Ld. AR submitted that the assessee has paid the amount of liability in respect of the claims by buyer for weight loss as well as for deterioration of quality following the prescribed formalities in vogue in the jute trade against provision of such liability and there is a system of assessment of such liability year after year. Finally has written back the said liability it was brought to our notice that in the accounts for the financial year 2017-18, huge liability has been written back in accounts. The following copies of related adjustments documents were produced: a) copy of ledger accounts of claims for the year 2017-18 showing written back b) Copy of notes to account (audited) for the year 2017-18, showing liabilities written back of ₹ 13702523.00 (including claims of rs.7412820.00) c) copy of ledger (claims payable) for the year 2013-14, to exhibit payment of earlier liability. We note that these documents were not produced before the authorities below during the adjudication and need to be considered while adjudicating the issue. Therefore, we remand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o been claimed by the assessee in its return of income. Hence, reason cited by the assessee for non-inclusion of income component does not hold much water. Accordingly, I am of the opinion that the receipt of interest is revenue in nature and has to be included in the total income of the assessee. Hence, total interest earned to the tune of ₹ 66,67,569/- is added back to the total income of the assessee. 13. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same after taking note of the assessee s submission as under: The corporation is a Nodal Agency of Government of India (GOI) to implement different schemes under Jute Technology Mission (Mini Mission-III). The Ministry provided funded for successful implementation of different schemes under the project with responsibility to execute the project within scheduled time frame to achieve its desired objective of socio economic benefits to the jute growing community of India. Corporation in course of execution of such schemes incurs expenses out of that funds and also engaged idle fund in temporary short term deposits of banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds were maintained in short deposit of banks and the amount was short term interest earned from such funds. It was further argued that the appellant had shown such funds on the liability side of the balance sheet and the interest of income of ₹ 66,67,569/- was credited to the fund account and that it did not hold any proprietary ownership over the said funds. After careful consideration and on perusal of the material on record, it is found that the appellant has not disputed the fact that the impugned amount of interest income of ₹ 66,67,569/- was derived from short term deposits of funds received from Ministries/Sanctioning Authorities. The appellant's A.R. has argued that the interest was received as grant-in-aid from the Ministry of Textiles and that as per the terms for release of refunds and that the amounts were in the nature of capital receipt. On careful consideration of the rival submissions, it is observed that the issue in dispute concerns the determination of the nature of interest income of ₹ 66,67,569/- derived from short term bank deposits by the appellant company. The A.R. has argued that the said grants and interest was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Textiles letter no. 6/12/2009 dated 15.03.2010 subject reads Release of funds to Jute Corporation of India (JCI), Kolkata, for the implementation of the schemes of Mini Mission-III of Jute Technology Mission (JTM) for the year 2009-10 for General States and contended that the amount given for the grant-in-aid given from the Govt. can only be utilized for that purpose and not for any other purposes. And the Ld. AR drew our attention to clause vi) which reads as under: vi) the JCI is not permitted to divert the grant-in-aid received from Govt. or to entrust the execution of the scheme for which the grant is made to another institution as such diversion of grant-in-aid, though for utilization on the same or similar object amount to mis-utilisation of the grant. In case where after having received the grant-in-aid from the Govt. the grantee institution itself is not in a position to execute or to complete the assignments, it would be required to refund forthwith to the Govt. the entire amount of grant-in-aid received by it together with penal interest, as applicable. 16. However, we note that assessee has received &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as such diversion of grant-in-aid, though for utilization on the same or similar object amount to mis-utilisation of the grant. In case where after having received the grant-in-aid from the Govt. the grantee institution itself is not in a position to execute or to complete the assignments, it would be required to refund forthwith to the Govt., the entire amount of grant-in-aid received by it together with penal interest, as applicable. However, we note from the papers submitted before us that the assessee though had shown the grant received as well as interest earned together, but the total disbursement is less compared to the grant which is evident from a perusal of financials submitted before us which is reproduced as under: A. Grant received from GOI for up-gradation of the Jute Technology: (Upto 31st March, 2011) (Rs.) GRANT NAME Amount Received Interest Earned Disbursement Balance Outstanding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate bank account of JCI to beneficiary s bank account or in case of non-utilisation, the surplus amount including the interest yielded from the grant-in-aid/fund would be refunded back to the Government of India as contended by the assessee. These facts/details, need to be verified, as to whether the assessee had, in fact, kept the said grant-in-aid/fund in separate bank account and the amount of interest earned from fixed deposit of the same is also ploughed back into the separate bank account and thereafter, disbursed to the beneficiaries or refunded to Govt. as a matter of fact. If assessee is able to prove that the grant in aid received from Govt. was in fact deposited in separate bank account and the interest yielded from the same was also deposited back in to the separate bank account and disbursed to the beneficiary then the interest income cannot be termed as income of the assessee, since there would be diversion of income by overriding title/charge. In similar case, in ITA Nos. 150 386/K/2018 A.Y 2012-13 in the case of W.B State Electricity Distribution Co. Ltd.:- the Tribunal has upheld the assessee s contention that interest yielded from grain-in-aid was not the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS was required to offer the corresponding income for taxation and since the assessee had failed to do so, he brought to tax the interest amounting to ₹ 21,48,33,731/- in the hands of the assessee in the assessment completed under section 143(3) vide an order dated 30.03.2015. 9. The addition made by the Assessing Officer amounting to ₹ 21,48,33,731/- on account of interest was challenged by the assessee in the appeal filed before the Id. CIT(Appeals). During the course of appellate proceedings before the Id. CIT(Appeals), the following submission was made by the assessee in writing in support of its case on this issue:- 60. For construction of capital asset required for electrification in the rural areas, Government of India sanctioned a project called Rajiv Gandhi GraminVidyutikaranYojana (RGGVY). This is plan scheme of the Government of India. 61. The said scheme was initiated Wholly and exclusively for development of Rural Electricity Infrastructure and Household Electrification. The main emphasis under the scheme was given to effect electricity connection to all rural household belonging to Below Poverty Lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee company, since it is diverted at the very inception by overriding title in favour of the Government of India. Accordingly, no portion of the said sum of interest of ₹ 21,48,33,731/- can be lawfully included in the total income of the appellant assessee company. Reliance in this connection is placed on the decision of the Hon'ble Calcutta jurisdictional High Court in CIT - vs.- A. Tosh Sons Pvt. Limited (1987) 166 ITR 867(Cal ), which decision has already been accepted by the CBDT; and no appeal there against was ever preferred before the Hon'ble Supreme Court of India . 10. The Id. CIT(Appeals) did not find merit in the submissions made on behalf of the assessee and proceeded to confirm the addition made by the Assessing Officer on account of interest for the following reasons given in his impugned order:- I have considered the material before me. It is observed that there is no dispute on the fact the appellant company was maintaining its accounts on mercantile basis, and the impugned interest income of ₹ 21,48,33,731/- had arisen and accrued to the appellant for the relevant financial year ending 31.03.2012. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not partake the characteristic of grant-in- aid as this amount has not 'been sanctioned by the Central Government as grant-in-aid nor there is any decision or order of the Government to consider the amount in question as grant- in-aid given to the assessee company. It is pertinent to that in a case of diversion of income by overriding title the person in whose favour the income is to be diverted should be aware about the exact amount of such income which it has earned. In the present case there is no material brought on record to establish that the Central Government was at any point of time aware about the interest income received / accrued by the assessee company over which it can lay any claim. These Government Orders appear to have been issued just to take out the interest income earned by the assessee from the taxation under the Income Tax Act. On the issue of diversion of income, the factors to be considered were enunciated by the Hon 'ble Apex Court in the case of MotiLalChhadamiLal v. Commissioner of Income-tax in [1991] 56 TAXMAN 4A (Se), wherein it was held that, Obligations, no doubt, there are in every case, but it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of interest income in question does not partake the characteristic of grant-in-aid as this amount has not been sanctioned by the Central Government as grant-in-aid nor there is any decision or order of the Government to consider the amount in question as grant-inaid given to the assessee company. It is pertinent to that in a case of diversion of income by overriding title, the person in whose favour the income is to be diverted should be aware about the exact amount of such income which it has earned. In the present case, the obligation to divert the income has admittedly arisen after the interest income has reached the assessee and not before and would thus comprise application of the said interest income after it was received by the appellant company. The said Government Orders appear to have been issued just to take out the interest income earned by the assessee from the taxation under the Income Tax Act. The A/R has relied upon the ratio of decision of the Calcutta High Court in CIT v. A. Tosh Sons Pvt. Ltd. (1987) 166 ITR 867 (Cal), which is found to be distinguishable as the facts of the said case are found to be distinct from the facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but: in the reality of the situation no income had resulted because the income did not really accrue. (3) Where a debt has become bad, deduction in compliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not been resulted or accrued to the assessee. After debiting the debtors account and not reversing that entry but taking the interest merely in suspense account cannot be such evidence to show that no real Income has accrued to the assessee or been treated as such by the assessee. (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in favour of the sanctioning authority either by an agreement, or by a Court's decree, or by operation of law or by a settlement. Hence, the ratio of the case laws cited by the appellant's A.R on this issue are found to be not applicable to the facts of the instant case. In view of the above discussion, and applying the principles laid down by the Apex/High Courts in the aforesaid cases to the facts of the present case, it is found that no material has been placed on record by the appellant to indicate that there was any stipulation that the interest earned on such grant / aid if kept in fixed deposit in commercial bank would not accrue to the appellant but to the Central Government. Moreover, there is also no material on record to indicate that the interest income was transferred or passed on to a third person by the appellant company during the financial year, under an existing obligation. In fact, the orders Issued by the Central Government were for treating the amount of interest after its receipt in the hands of the appellant company. In view thereof, I am of the opinion that the appellant's alternative claim of the theory of real income is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount, a letter dated 02.05.2014 (copy at page no. 71 of the paper book) was received by the assessee from the Government of India, Ministry of Power informing that the non-remittance of interest was viewed seriously by the Ministry and asking for the remittance of the interest amount within two weeks time. He submitted that the assessee finally paid the entire interest amount received upto 31st March, 2014 amounting to ₹ 7 3 .54 crores to the Government Account and informed REC about the same vide its letter dated 13.06.2014 (copy at page no. 73 of the paper book). The Id. Counsel for the assessee contended that this entire correspondence is sufficient to establish that the assessee never had any right or title in the interest and the interest amount in question was received by it on behalf of the Government of India, which was earlier liable to be adjusted against the last payment of capital subsidy and latter was liable to be remitted back to the Government Account, which was duly done by the assessee. He contended that the said interest thus was not in the nature of income earned by the assessee and as per the specific terms of the Government of India, it was diverted even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Ahmedabad Bench of this Tribunal in the case of National Dairy Development Board -vs.- Additional CIT [114 TTJ 145] to contend that interest income has to accrue to somebody and since the same had accrued to the assessee-company in the present case, the addition made by the Assessing Officer on account of such interest was rightly confirmed by the Id CIT(Appeals). 13. In the rejoinder, the Id. Counsel for the assessee submitted that there is no difference between the Executing Agency and Implementing Agency as sought to be pointed out by the Id. D.R. He submitted that REC was the Nodal Agency and there were various Implementing Agencies including the assessee-company. To support and substantiate this stand, he invited our attention to the letter dated 20.11.2013 issued by the REC (copy at page no. 70 of the paper book) and the letter dated 02.05.2014 issued by the Government of India, Ministry of Power (copy at page no. 71 of the paper book) and pointed out that the said letters were specifically addressed to the assessee giving the reference of the earlier correspondence, which is sufficient to show that the assessee-company was involved in the Projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for the cost of Project by way of adjustment in the last instalment of capital subsidy and the same thus was in the nature of capital receipt being capital subsidy received from the Government of India, Ministry of Power. 15. In the case of MotitalChhadamilal Jain -vs.- CIT [56 Taxman 4A(SC)(supra) relied upon by the Id. CIT(Appeals) in his impugned order, it was held by the Hon'ble Supreme Court while deciding the issue of diversion of income, the nature of the obligation is the decisive fact and where by the obligation, income is diverted before it reaches the hands of the assessee, the same is not chargeable to tax. As per the conditions stipulated by the Government of India, Ministry of Power, the interest amount in question received by the assessee was liable to be adjusted against the capital subsidy receivable under the programme and since the assessee-company was under an obligation to adjust the interest amount against the capital subsidy, there was an overriding charge, which was enforceable in law. This position gets further fortified by the fact that the Government of India, Ministry of Power subsequently decided to recover the amount of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the funds received from the second project, there was no specific condition stipulated in the relevant letter about the accrual of interest and the Tribunal, therefore, found it fit to restore the matter to the file of the Assessing Officer to verify as to what would happened to the interest earned and whether it was actually refunded to the authority of the Government. As regards the funds received for the third Project, there as a letter issued by the concerned Government Department, wherein it as stipulated that the funds released by Government of India shall be kept in a separate account for the desired purpose and the amount of interest earned by the assessee was to be refunded to the Government of India. As per the said stipulation, interest was actually refunded by the assessee in the next year and keeping in view the same, it was held by the Tribunal that the interest might not have accrued to the assessee or otherwise it should not have refunded in the subsequent year. It was held that the interest belonged to Government of India and was diverted at source. In our opinion, this decision of the Ahmedabad Bench of this Tribunal in the case of National Dairy Development Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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