Income Tax Appellate Tribunal - Chandigarh
Dcit, Shimla vs Beas Valley Power Corporation Limited, ... on 8 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 1274 to 1277/CHD/2016
A.Ys.: 2007-08,2008-09, 2012-13 & 2013-14
The DCIT, Vs. M/s Beas Valley Corporation Ltd.,
Circle Shimla. Joginder Nagar, Distt.Mandi.
PAN-AABH4161P
(Appellant) (Respondent)
Appellant By : Shri Manjit Singh,DR
Respondent By : Shri Vishal Mohan
Date of hearing : 27.03.2017
Date of Pronouncement : 08.06.2017
ORDER
PER MS. DIVA SINGH,JM By these four appeals, the Revenue assails the correctness of the consolidated order dated 30.09.2016 of ld. CIT(A) Shimla pertaining to 2007-08, 2008-09, 2012-13 and 2013-14 assessment years. It was the common stand of the parties before the Bench that since identical issues are agitated in each of these appeals on identical set of facts and circumstances, the arguments advanced in ITA No. 1274/CHD/2016 would address all these appeals. Accordingly, grounds from the aforesaid appeal in 2007-0-8 assessment year are being reproduced hereunder :
1. On the facts and in the circumstances, the Ld. CIT(A) has erred in holding that interest income earned by the assessee could not be treated as " income form other sources" and is not liable to be taxed, ignoring the fact that the company is yet in pre-operative stage and has not commenced business operations.
2. On the facts and in the circumstances, the Ld. CIT(A) is not justified in holding that income earned in the period prior to commencement of the business is a capital receipt and was required to be set off against pre- operative expenses.
2. The ld. AR submitted that though these are departmental appeals, however, the point at issue is fully covered in assessee's favour by virtue of order dated 31.12.2014 in ITA No. 85/CHD/2012 in the case of the assessee pertaining to 2009-10 assessment year. Copy of the aforesaid order available on record was relied upon. The ld. Sr.DR though relied upon the assessment order, however, the factual position as claimed by the ld. AR was not disputed.
23. We have heard the rival submissions and perused the material available on record. It is seen that the AO in 2007-08 and 2008-09 assessment years has passed his separate orders dated 30.06.2014 u/s 143(3)/147. In 2012-13 and 2013-14 assessment years, the respective orders of the AO are dated 30.09.2014 and 23.12.2015 passed u/s 143(3) of the Act. Reliance before the ITAT has been placed on the order passed by the Coordinate Bench dated 31.12.2014 in ITA 857/2012 pertaining to 2009-10 assessment year. Accordingly, as far as 2007-08 and 2008-09 assessment years are concerned, we find that the issues and facts are the same and the AO in the order passed u/s 147 having been passed prior to the order of the ITAT, admittedly did not have the benefit of the said order, which order, it is seen has been noticed by the First Appellate Authority in both the years.
4. The similarity of facts in the two appeals pertaining to 2012-13 and 2013-14, it is noted has been noticed by the AO himself in para 12 of his order dated 23.12.2015 and necessary relief was denied to the assessee on the grounds that the issue is being kept alive as the matter was subjudice before the Hon'ble High Court of Himachal Pradesh. For ready reference, said para is extracted hereunder :
"12. I have also considered the submissions of the assessee and perused the copy of ITAT's order passed in their case for the assessment year 2009-10 in ITA No.857/Chd/2012 dt. 31/12/2014. It is worthwhile to mention here that the said order of the Hon'ble ITAT, Chandigarh has not been accepted by the department and an appeal u/s 260A has been preferred before the Hon'ble High Court of Himachal Pradesh. Thus, the issue is still sub- judice. In view of the these facts, I am of the considered opinion that the interest income earned by the assessee by investment of borrowed and surplus funds amounting to Rs. 38,40,1927- is assessable in its hands in the Assessment Year 2013-14 under the head income from other sources."
5. Thus we find that the submissions of the parties that on facts and law, the issue as considered by the Co-ordinate Bench in its order dated 31.12.2014 is the same, is found to be correct. For the sake of completeness, the facts in the year under consideration are that the assessee i.e. Beas Valley Power is a Government Company promoted by HPSEBL to execute the 100 MW UHL Stage -III in Joginder Nagar Distt. Mandi. The Company was incorporated on 25/03/2003. However the activities of the company could commence only from January, 2004 when the Managing Director and Company Secretary were appointed. Since the company had not started 3 commercial operations, profit and loss account were not prepared and instead a statement showing incidental expenditure during construction (pending allocation) was being prepared. Company was accordingly under construction till 31.03.2013 relevant to all the assessment years under consideration. Hence no commercial production/activity had been undertaken in any of the assessment years. During the assessment proceedings, the Assessing officer concluded after hearing the assessee that interest earned on bank deposits is a taxable income and should have be shown under the head " Income from other sources". The arguments on behalf of the assessee that it was at construction stage and there was no source of income in view of which the amount was kept in short term deposits in the bank was not accepted. Similarly the argument that the interest so received on short term deposit during the year on the loan received was set off against the interest payable on PFC loan so as to reduce the cost of project; and the amounts were so deposited so as to be readily available to meet out the urgent requirements of funds for works; used solely and exclusively for the business needs of the assessee incorporated to set up the UHL, Stage-Ill Power Project; and the argument that earning of interest on short term deposits was set off against the interest paid on PFC loan and they had a direct Nexus and is inextricably linked with commissioning of the project were all rejected by the AO relying upon the decision of the Apex Court in Tuticorin Alkali Chemicals & Fertilizers holding that interest earned on bank deposits during the pre- construction period was assessee's "income from other sources".
5.1 The distinction sought to be made by the assessee with the decision of the Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers V CIT, 227 ITR 172 (S.C) relied upon by the AO was not accepted by him. Reliance placed on the case of CIT Vs Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) and CIT Vs Karnal Cooperative Sugar Mills Ltd. (2000) 243 ITR 2 (SC) though considered, however, it was concluded that the view taken by the Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers V CIT (supra) was again reiterated therein. Similarly, CIT Vs Karnataka Power Corporation (2001) 247 ITR 268 (SC) and Bongaingaon Refinery and Petrochemicals Ltd. Vs CIT (2001) 251 ITR 329 (SC) and the decision of the Hon'ble Delhi High Court in the case of Indian Oil Panipat Consortium Ltd. Vs ITO (2009) 315 ITR 255 (Del) was held by the AO to be distinguishable on facts. Accordingly, it was concluded by the AO that each case turns on 4 its own peculiar facts and nature. The conclusion according to the AO was further fortified by the decision of Hon'ble Delhi High Court in the case of International Marketing Ltd. Vs ITO (2007) 292 ITR 504 (Del). Thus, it was considered that the judicial opinion is that interest earned on pre operative stage of the business is taxable in the hands of the assessee.
6. Before the First Appellate authority, it is noted that reliance has been placed upon two decisions of the Coordinate Benches namely ITA 857/CHD/2012 A.Y. 2009-10 dated 31.12.2014 and ITA 1132/CHD/2014 A.Y. 2011-12 dated 23.09.2015. The Co-ordinate Bench in its order dated 23.09.2015 has considered the issue in the following manner :
"5. We have heard ld. Representatives of both the parties. The ld. counsel for the assessee submitted that the issue is covered in favour of the assessee by order of ITAT Chandigarh Bench in the case of the same assessee for preceding assessment year 2009- 10 in ITA 857/2012 in which the Tribunal on identical issue, decided the same in favour of the assessee vide order dated 31.12.2014. The findings of the Tribunal in para 11 to 14 are reproduced as under :
"11. We have heard ld. Representatives of both the parties and perused the findings of authorities below. The ld. counsel for the assessee reiterated the submissions made before authorities below and submitted that there were no surplus funds available with the assessee so the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT (supra) relied upon by Assessing Officer is not applicable to the facts of the case. He has submitted that funds were kept in short term deposit for the purpose of completion of the project and not to earn any interest. He has submitted that even the interest so received was utilized for construction of the project and for paying interest on loans taken from power finance company. He has referred to annual report of the assessee (PB-15) t6o show that there were no surplus funds available with the assessee and the interest paid on the loan ending 31.03.2009 was Rs. 3652.44 lacs and the interest received from the bank was Rs. 625.95 lacs. He has, therefore, submitted that the assessee received lesser interest as against more interest paid to the financial institution. Therefore, there was no intention on the part of the assessee to earn any interest on short term deposits.
12.On the other hand, ld. DR relied upon orders of the authorities below.
12(i) On consideration of the above facts and material on record, we do not find any justification to sustain the findings of the authorities below. It is not in dispute that assessee corporation is a government company promoted by H.P. State Electricity Board Ltd. The assessee has admittedly not started commercial operation in the year under consideration and was still in the pre-operative stage. The assessee claimed that it has no surplus funds but the finding of the authorities below was that assessee earned interest on surplus funds. The accounts of the assessee placed on record clearly support the submission of the assessee that there were no surplus funds available with the assessee. The assessee also claimed that its funds were temporarily employed for short term deposits for efficiently and effectively use of its funds so as to reduce the total cost of the project. The ld. CIT(Appeals) also partly agreed with the submission of the assessee that part funds were invested for setting up of the plant & machinery. The assessee's counsel has referred to the accounts of the assessee at page 15 of the Paper Book to show that assessee received lesser interest of Rs. 625.97 lacs and paid interest on loan at Rs. 3652.44 lacs in the year under consideration would show that assessee has to pay more interest as against the small interest received by assessee. Therefore, if any adjustment is made 5 against interest paid, still there is a liability of the assessee to pay interest on the loans. The assessee also explained that for effective funds management, the temporary surplus funds were kept in short term bank deposits and thereafter, interest was earned and so was also used for construction of the project and for paying interest to the power finance company which have not been adversely commented upon by the authorities below. Therefore, the reliance of the Assessing Officer on the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT (supra) was totally misplaced. The Hon'ble Supreme Court in the case of CIT Vs Bokaro Steel Ltd. held as under :
Held, dismissing the appeal, that the first three heads of income were (i) the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee, (ii) hire charges for plant and machinery which was given to the contractors by the assessee for use in the construction work of the assessee, and (ii) interest from advances made to the contractors by the assessee for the purpose of facilitating the work of construction. The activities of the assessee in connection with all these three receipts were directly connected with or incidental to the work of construction of its plant undertaken by the assessee. The advances 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 any independent source.
12(ii) The Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. V ITO 315 ITR 255 (Delhi) held as under :
The assessee-company was incorporated in pursuance of a joint venture entered into between Indian Oil Corporation and M of Japan to set up a power project. In order to effectuate the purpose for which the joint venture was conceived, share capital was contributed by these two corporations which included Rs. 20 crores by way of additional share capital. The Assessing Officer treated the interest earned on monies received as share capital by the assessee temporarily placed in a fixed deposit awaiting acquisition of land which had run into legal entanglements on account of title as "Income from other sources". The Commissioner (Appeals) accepted the stand of the asses- see that the interest was in the nature of a capital receipt which was liable to be set off against pre-operative expenses. The Tribunal reversed this order. On appeal :
Held, allowing the appeals, 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 in the business could not be classified as "Income from other sources". Since the income was earned in a period prior to commencement of business it was in the nature of a capital receipt and was required to be set off against pre-operative expenses.
13. Considering the facts of the case in the light of the above decisions, it is clear that the funds with the assessee, even if temporarily used for savings/short term deposits, but the earning of the interest were directly connected with work of construction of the project employed by the assessee. Therefore, the earning of interest could not be treated as income from other sources, since the income 6 was earned in the period prior to commencement of the business and it was the nature of capital receipt and was required to be set off against pre-operative expenses. We, therefore, set aside the orders of authorities below and delete the addition of Rs. 83,06,897/-.
14. In the result, appeal of the assessee is allowed."
6. The ld. DR, on going through the same order of the Tribunal in the case of the assessee also stated that identical issue has already been decided in favour of the assessee.
7. Considering the above facts, we find that issue is same as have been decided earlier in the case of the assessee in assessment year 2009-10 (supra). Further, the assessee has filed certificate that in assessment year 2010-11, the return has been processed under section 143(1) of the Act because the case was not selected for scrutiny assessment. The issue is, therefore, covered in favour of the assessee by earlier order of the Tribunal dated 31.12.2014 in the case of the same assessee. By following the same reasons for decision, we set aside the orders of authorities below and delete the addition of Rs. 40,58,998/-.
7. Accordingly, in the aforementioned peculiar facts and circumstances, there being no debate that facts and circumstances and position of law remain the same, the view that the appeals of the Department on a parity of facts, circumstances and position of law have to be dismissed. Respectfully following the precedent relied upon, the appeals are dismissed. Said order was pronounced on the date of hearing itself.
8. In the result, the appeals of the Department are dismissed.
Order pronounced in the Open Court on 8th June,2017.
Sd/- Sd/-
(ANNAPURNA GUPTA) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CI T(A)
5. The DR
Asstt. Registrar
ITAT,Chandigarh.