TMI Blog2022 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest income earned is capital or revenue. The assessee only claimed the same as capital in nature and not disclosed as revenue income on which taxes to be paid. The assessee has made complete disclosure of facts and only issue is whether the interest received on idle funds lying with banks in the shape of fixed deposits is a capital receipt or revenue receipt. This, being a highly debatable issue, the assessee is exigible to penalty u/s.271(1)(c) of the Act, for furnishing of inaccurate particulars of income. This being a highly debatable issue and once there is a debate as assessee s present case, Hon ble Madras High Court has admitted the substantial question of law against the order of Tribunal in quantum, we are of the view that assessee is not liable for penalty u/s.271(1)(c) - Hence, we delete the penalty levied by AO completely in both the assessment years and allow both the appeals of assessee. - ITA Nos. 2604 & 2605/CHNY/2017 ITA Nos. 2703 & 2704/CHNY/2017 - - - Dated:- 21-11-2022 - SHRI MAHAVIR SINGH , VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL , ACCOUNTANT MEMBER Assessee by : None Revenue by : Shri R. Mohan Reddy, CIT ORDER PER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year. During the previous year, assessee earned interest income of Rs.25.92 crores as a result of investment made including investment in FDR s in banks. The assessee has claimed exemption of this interest income to the tune of Rs.21.79 crores out of the total interest earned at Rs.23.86 crores. The assessee before AO pleaded that in view of the decisions of Hon ble Supreme Court in the case of Karnal Cooperative Sugar Mills Ltd., 243 ITR 2 and Bokaro Steels Ltd., 236 ITR 315, the interest income has been capitalized as the deposit of the money was directly linked with the purchase of plant machinery. Hence, the income earned on such fixed deposits was instrumental to the acquisition of assets for setting up of plant machinery and as such, the interest income could not be treated as revenue receipt. However, the AO relying on the decisions of Hon ble Supreme Court in the case of CIT vs. Autokast Ltd., 248 ITR 110 and Tuticorin Alkali Chemicals and Fertilizers Ltd., 227 ITR 172 held that the interest income earned on margin money kept in deposits against the letter of credit for supply of equipments, scrap sale, etc., as revenue receipt by observing as under:- 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax (Appeals) has elaborately discussed the relevant case laws in his order and after duly considering the submissions of the assessee-company only, the Ld. CIT(A) has dismissed the appeals of the assessee-company. The assessee-company being a large entity dealing in petro products is assisted by a battery of auditors, Chartered Accountants and Company Secretaries etc., who are eminent professionals. As such, the assesseecompany is expected to be aware of the provisions of the Act before claiming such a huge amount of Rs.21,79,69,805/- as non-taxable capital receipt particularly in view of the decision of the larger Bench of the Hon'ble Supreme Court in the case of M/s. Bongaigaon Refinery and Petrochemicals, which has held that the interest income earned on the deposits made during the formation period of the business cannot be adjusted against project cost . By claiming that the interest received on the deposits made during the pre-commencement period are not chargeable to tax the assessee has tried wilfully to avoid its tax liability on this receipt. This claim of the assessee that the interest on the deposits is not chargeable to tax is tantamount to 'furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011- 12 and Rs.5.50 crores for assessment year 2012-13 by observing in paras 9 to 12 as under:- 9. As per the submissions made, the assessee has claimed that it followed the decision f the Hon'ble ITAT for Assessment Year 2005-06 with the bonafide belief but the interest income was not chargeable to tax. However, it is noted that the interest income received during Assessment Year 2005- 06 was only the interest received of Rs.11,13,628/- from certain deposits kept as margin money deposits for opening the letters of credit. However, the interest incomes received for Assessment Year 2011-12 2012-13 were on account of deployment of surplus funds available with the assessee concern and invested for the purpose of interest on fixed deposits. This crucial difference between Assessment Year 2005-06 2011-12 2012-13 will deny the benefit of any claim of bonafide belief on account of the second appellate order for Assessment Year 2005-06. The assessee has further quoted the decision of the Hon'ble Supreme Court in M/s. Reliance Petro Products Pvt. Ltd. (322 ITR 158) in support of its claim that penalty is not leviable when full particulars of a case are declared in the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als, which has held that the interest income earned on the deposits made during the formation period of the business cannot be adjusted against project cost . By claiming that the interest received on the deposits made during the pre-commencement period are not chargeable to tax, the assessee has tried wilfilly to avoid its tax liability on this receipt. This claim of the assessee that the interest on the deposits is not chargeable to tax is tanatamount to furnishing of inaccurate particulars of income' with an intention to reduce its tax liability. As such, I am satisfied that the assessee has furnished inaccurate particulars relating to the interest on short term deposits which are chargeable to tax under the head Other Sources. Further, the explanation offered by the assessee is not convincing and acceptable since the issues raised by the assessee in the reply to the notice /s 271(1)(c) are similar to those raised during the assessment as well as appellate proceedings which have been discussed elaborately by the Assessing Officer in the Assessment Order and the :Ld. CIT(A), Chennai in the Appellate Order, while confirming the addition made by the Assessing Office. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be evaded. The assessee gets relief of Rs.4.5 Crores for Assessment Year 2011-12 and Rs. 7.75 Crores for Assessment Year 2012-13. Aggrieved, both assessee as well as Revenue came in appeal before the Tribunal. 8. We have heard ld. CIT-DR and gone through facts and circumstances of the case. We noted that the AO in his assessment order for assessment year 2011-12 considered the fact that the business activity were yet to start and company was under construction and related project works being carried out during the previous year relevant to this assessment year. The AO in his penalty order also admitted that during the year, fresh allotment of shares to the extent of Rs.76.5 crores was made in September, 2010 and the said amount was not utilized immediately. The same was invested in fixed deposit on 24.09.2010 and earned interest on short term deposit of Rs.2,06,57,532/- and offered the same as income from other sources . The balance deposit was converted into short term deposits as and when the bankers released the loan funds and kept in separate earmarked account. Thus, bank deposits were out of borrowed funds and were always under lien for the loan and letter of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income can be levied. It is an admitted fact that the assessee has filed complete particulars of income before the AO and nothing was concealed. As in the present case, the assessee has disclosed all the facts relating to the transaction of loans obtained from banks and the details of bank account and the details of interest earned but treated the same as capital in nature, in view of the decisions of Hon ble Supreme Court in the cases of Bokaro Steels Ltd., and Karnal Cooperative Sugar Mills Ltd., supra. It means that there is a debate available whether idle funds kept temporarily during the intermittent period between the set-up of business and actual start of the business, the interest income earned is capital or revenue. The assessee only claimed the same as capital in nature and not disclosed as revenue income on which taxes to be paid. This issue has been deliberated by the Hon ble Madhya Pradesh High Court in the case of CIT vs. Kishan Chand Tara Chand, (1995) 15 Taxation 72, wherein it is held that where the assessee has disclosed all the facts relating to a transaction but has not included the resultant income in its return on the bonafide belief that such income was el ..... X X X X Extracts X X X X X X X X Extracts X X X X
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