Income Tax Appellate Tribunal - Chandigarh
H.P. Power Corporation Ltd., Shimla vs Assessee on 24 August, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.923/Chd/2015
(Assessment Year :2009-10 )
M/s H.P. Power Corporation Ltd. Vs. The D.C.I.T.,
HIMFED Bhawan, Below Old MLA Circle Shimla.
Quarters, Bye Pass Road Tuti Kandi, Shimla.
Shimla.
PAN: AABCH8615G
(Appellant) (Respondent)
Appellant by : Shri Vishal Mohan
Respondent by : Shri Sushil Kumar, CIT DR
Date of hearing : 25.05.2016
Date of Pronouncement : 24.08.2016
O R D E R
PER ANNAPURNA GUPTA, A.M. :
The appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals), Shimla dated 29.10.2015, relating to assessment year 2009-10, upholding the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act').
2. The assessee has raised the following grounds :
"1 T h a t i n t h e f a c t s a n d c i r c u ms t a n c e s o f t h e c a s e L d C o m m i s s i o n e r o f I n c o me T a x ( A p p e a l s ) i s 2 not justif ied in upholding the levy of penal ty of Rs.9,43,28,025/- under section 271(1)(c) of the I n c o me T a x A c t , 1 9 6 1 . T he penal ty so imposed and upheld is absolutely illegal and not s u s t a i n a b l e i n t h e e y e s o f l a w.
2. T hat no penalty could have been imposed as no i n c o me wh a t s o e v e r had accured to the a p p e l l a n t a s t h e s a m e wa s i n t h e c o n s t r u c t i o n p h a s e a n d a s s u c h mu c h l e s s i s t h e q u e s t i o n o f a n y c o n c e a l me n t o f i n c o me o r f i l i n g o f i n a c c u r a t e particulars in respect of the same.
3. T hat the order of the Ld Commiss ioner of I n c o me T a x ( A p p e a l s ) i s b a d i n l a w a n d f a c t s . "
3. The brief facts of the case are that the assessee is a Government Company incorporated in December, 2006 under the Companies Act, 1956, to plan, promote and organize the development of all aspects of hydroelectric power in the State of Himachal Pradesh on behalf of the Government of Himachal Pradesh and Himachal Pradesh State Electricity Board. During the impugned assessment year, the company was still in the pre-operative stage and had not commenced commercial production. The company had received funds from HP Government Finance Corporation/ADB funds, which were parked in short term deposits with banks and on which interest amounting to Rs.27,75,16,994/- was earned during the year. The assessee set off this interest against capital expenditure incurred by it, in its Statement on Incidental Expenditure During Construction, and did not return the same as 3 income, for the purposes of Income Tax. Assessment under section 143(3) of the Act was framed on the assessee, treating the impugned interest as income of the assessee, assessable under the head "Income from Other Sources", relying upon the ratio laid down by the Hon'ble Supreme Court in the case of Tuticorn Alkali Chemicals & Fertilizers Ltd. Vs. CIT, 227 ITR 172 (SC). Further, penalty proceedings under section 271(1)(c) of the Act were initiated.
4. The matter was carried in appeal before the learned CIT (Appeals), who upheld the addition made by the Assessing Officer vide order dated 5.11.2012.
5. During the penalty proceedings before the Assessing Officer, the assessee pleaded that its appeal was pending before the I.T.A.T., Chandigarh and further it had no malafide intention. The Assessing Officer held that the assessee had not offered a satisfactory explanation, nor substantiated its contentions and, therefore, levied penalty on the addition made.
6. The matter was carried in appeal before the learned CIT (Appeals), where the assessee made detailed submissions reproduced at para 4 of the CIT (Appeals) order. The gist of the submissions was that the assessee had deposited its specific purpose funds in short term deposits to meet its urgent work requirements, and therefore interest earned thereon had been set off against 4 pre-operative expenses being inextricably linked with the setting up of its projects. Also the assessee had prepared its financials in compliance with the Accounting Standards issued by the Institute of Chartered Accountants of India and as per the Guidance Note on expenditure incurred during pre-construction period. Further, the assessee contended that the issue of taxability of operative period interest was debatable in view of different judicial pronouncements and that it had no malafide intention of concealing or furnishing any inaccurate particulars of income.
7. The learned CIT (Appeals) rejected all he contentions of the assessee, by holding that:
(i) the interest earned could not be said to be inextricably linked with setting up of plant, since the process of setting up had not commenced during the year.
(ii) The interest earned could not be said to be incidental to the business of the assessee, since the deposits had not been made in the course of carrying on business.
(iii) The Accounting Standards as per which the assessee claimed to have prepared its financials, were also of no help to the assessee.5
(iv) The CIT (Appeals) also dismissed the assessee's contention regarding absence of malafide and held that the assessee had in veil of government company, furnished inaccurate particulars to avoid paying taxes.
8. Further, the learned CIT (Appeals) relied upon the judgment of the Delhi High Court in the case of CIT Vs. Zoom Communication Private Limited (2010) 327 ITR 570 (Del) and held that the assessee was aware of the law applicable but preferred making a claim which tantamounted to furnishing inaccurate particulars of income. Thus, the learned CIT (Appeals) at para 5.3.5 of his order, upheld the levy of penalty by holding as follows:
"5.3.5 Thus, considering the above f acts coupled wi t h the f ac t that the accounts are audited, the appellant has the help of p r o f e s s i o n a l s , t h e i n c o me e a r n e d i s o n s u r p l u s f u n d s wh i c h i s a n d wa s s q u a r e l y c o v e r e d wi t h t h e j u d g me n t o f t h e H o n ' b l e S u p r e me C o u r t i n t h e case of M/s Tuticorin Alkali Chemicals available to the assessee on the date of f iling of return chose not the offer the same f or tax is clearly an act of f urnishing inaccurate particulars. This is more so in view of the order of my learned predecessor referred supra wh i c h brought out that the appellant ha made special deliberations t o f i n d wa y s t o a d o p t wi n d o w d r e s s i n g a n d a v o i d payment of due taxes. The appellant paid the a d v a n c e t a x e s o n t h e i n t e r e s t i n c o me b u t c h o o s e n o t t o i n c l u d e i t i n t h e r e t u r n e d i n c o me . A l l t h e s e f acts lead to be incontrovertible conclusion that 6 the appellant co mp any f urnished inaccurate particulars and f urnished no satisf actory explanation bef ore the AO."
9. Aggrieved by the same, the assessee preferred the present appeal before us.
10. Before us the Ld AR reiterated the contentions made before the Ld. CIT(A) and stated that it was not guilty of furnishing any inaccurate particulars of income since all particulars of interest earned were duly disclosed and the addition was made merely by rejecting the claim of the assessee in treating the interest earned as capital receipt. Ld.AR stated that its case was squarely covered by the decision of the Apex Court in CIT Vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC).Further Ld. AR stated that the issue was debatable in view of the decision of the Delhi High Court in the case of Indian Oil Panipat Consortium Ltd. Vs. ITO (2009) 315 ITR 255 (Del) and therefore also no penalty was leviable.
11. Ld. DR on the other hand, stated that the Hon'ble Tribunal, while upholding the addition made, had categorically stated that the assessees case was squarely covered by the decision of the apex court in Tuticorn Alkali Chemicals & Fertilizers Ltd. Vs. CI T, 227 I TR 172 (SC) and therefore the claim of the assessee was wholly untenable in law. The assessee therefore was liable to penalty as per the decision of the Delhi High Court in Zoom Communication Private Limited (2010) 327 ITR 570 7 (Del). Ld.DR further relied upon the order of the Ld.CIT(A).
12. We have heard the rival contentions and perused the orders of the authorities below.
13. In the present case, we find that penalty under section 271(1)(c) of the Act has been levied for the addition made on account of interest income earned on deposits made from funds available during preoperative period of the assessee.
14. Undisputedly development of Hydro electric power projects, in the State of Himachal Pradesh, was the business of the assessee and the impugned funds, on which it had earned interest, had been received from the Delhi Jal Board for implementing the Renuka Dam Project and from the State Government of Himachal Pradesh as share capital for construction of several power generation projects. Further, on account of delay in commencement of construction of the projects, the funds were parked in short term deposits and interest was earned thereon, during the year. Also , the assessee had set off the same against capital expenses in its Books of Accounts,while the contention of the Revenue was that it was revenue receipt of the assessee and should have been included in its return of income.
15. What clearly emerges from the above facts is that admittedly all information relating to interest income 8 was disclosed and the same was not found to be incorrect or inaccurate. The assessee cannot, therefore, be said to be guilty of furnishing inaccurate particulars. The only grievance of the Revenue is that the assessee had made an incorrect claim. This cannot tantamount to furnishing inaccurate particulars as has been held by the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC). Moreover we find that the claim of the assessee is not totally unfounded or untenable in law ,since the Delhi High Court in the case of Indian Oil Panipat Consortium Ltd. Vs. ITO (2009) 315 ITR 255 (Del), has held that where funds have been infused for the specific purpose of setting up the project ,the same were inextricably linked to the setting up of the business of the assessee and the interest earned thereon before commencement of business was to be treated as capital receipt and not income from other sources. Undisputedly, the funds in the present case were given for setting up projects and on account of delay in starting the projects, the funds were invested in short term deposits. The assessee was of the belief that the funds were inextricably linked to the setting up of business of the assessee and therefore the interest earned thereon was a capital receipt. The claim of the assessee was denied for the reason that since no business had commenced the income could not be said to be linked to the business of the assessee and further that there was no restriction on the usage of interest earned for the purpose 9 of setting up of projects only, therefore, the interest earned could not be said to be capital in nature. It was held that the assessees case was squarely covered by the decision of the apex court in Tuticorin Alkali and Chemicals Ltd.(supra). We find that the Delhi High Court in the case of Indian Oil Panipat (supra),while holding preoperative period interest earned to be capital in nature, had distinguished the apex court decision in Tuticorin Alkali (supra) stating that that the nature of the funds whether surplus or specific purpose, was the determinative factor of the nature of interest earned thereon and went on to distinguish the apex court decision by stating that the funds in that case were surplus funds and therefore interest earned thereon was held to be revenue in nature. The issue therefore is a debatable issue and in such circumstances the claim of the assessee cannot be said to be wholly untenable .The assessee cannot therefore be held guilty of furnishing inaccurate particulars of income even as per the decision of the Delhi High Court in the case of Zoom Communication Private Limited (2010) 327 ITR 570 (Del), as argued by the Ld.DR, since in that case the assessee was held liable to penalty, as its claim was found to be wholly untenable in law.
16. In view of the above, we hold that the assessee has not furnished any inaccurate particulars of income and therefore no penalty, under section 271(1)(c) of the 10 Act, is leviable. The order of the CIT (Appeals) is, therefore, set aside.
17. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court.
Sd/- Sd/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 24 t h August, 2016 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh