Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income Tax, ... vs H P Power Transmission Corporation ... on 20 April, 2026
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, 'A' CHANDIGARH
BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND
SHRI KRINWANT SAHAY, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No. 415/CHD/2025
नधारण वष / Assessment Year: 2016-17
H.P. Power Transmission Corp.Ltd., The DCIT/ACIT,
HIMFED Bhawan, Vs Circle, Shimla.
Near Old MLA Quarters, Shimla.
थायी लेखा सं./PAN NO: AACCH1548M
अपीलाथ /Appellant यथ /Respondent
&
आयकर अपील सं./ ITA No. 436/CHD/2025
नधारण वष / Assessment Year: 2016-17
The ACIT, H.P. Power Transmission Corp.Ltd.,
Circle, Shimla. Vs HIMFED Bhawan,
Near Old MLA Quarters,
Summerhill, Sangti,Shimla.
थायी लेखा सं./PAN NO: AACCH1548M
अपीलाथ /Appellant यथ /Respondent
Assessee by : Shri Vishal Mohan, Sr. Advocate with
Shri Abhinav Bijwaria, Advocate
Revenue by : Shri Manav Bansal, CIT DR
Date of Hearing : 26.02.2026
Date of Pronouncement : 20.04.2026
HYBRID HEARING
ORDER
PER RAJ PAL YADAV, VP The assessee and the Revenue are in cross appeals against the order of ld. Comm issioner of Income Tax (Appeals) ITA No.415 &436/CHD/2025 A.Y.2016-17 2 [in shor t 'the CIT (A)'] dated 28.01.2025 passed for assessment year 2016-17.
2. The assessee has taken four grounds of appeal whereas Revenue has taken five grounds of appeal. A perusal of the grounds of appeal taken by the Revenue would reveal that its grievance revolves around a single issue, namely, whether interest income earned on the borrowed funds from "Asian Development Bank" is taxable or not ? This ground is inter-
alia connected with Ground No.1 of the assessee's appeal wherein assessee has challenged that CIT (Appeals) has erred in confirming the addition of Rs. 5,91,37,909/- which was earned by the assessee as an interest from bank deposits.
3. The br ief facts of the case are that assessee is an Undertaking of Government of Himachal Pradesh. It was established on 27.08.2008 with a view to strengthen the transmission network in Himac hal Pradesh and to facilitate evacuation of power from upcoming Generating Plants. The jobs entrusted to Corporation by H.P. Government inter-alia included execution of all new works, both transmission lines and Sub-Stations. It has filed its return of income for ITA No.415 &436/CHD/2025 A.Y.2016-17 3 assessment year 2016-17 electronically on 16.10.2016 declaring total income at Rs.17,77,850/-. The case of the assessee was selected for scrutiny assessment and a notice u/s 143(2) was issued and served upon the assessee. The assessee has earned interest income on bank deposits of Rs.9,41,09,250/-. The ld. AO, after putting re liance upon the judgement of Hon'ble Supreme Court in the case of Tuticorin Alkali Chem icals & Fertilizers Ltd., Madras vs Commissioner of Income Tax, Madras 227 ITR 172 has made the addition of such interest income.
4. The assessee carried the m atter in appeal before the ld. CIT (Appeals). It was contended by the assessee that the total interest of Rs.9,41,09,215/- has two components ;
a) Inter est on bank deposit Rs.591.38
lacs
b) Inter est on ADB Loan Imprest Rs. 349.71
lacs
4.1 As far as the second component is concer ned, it was contended that this issue is covered in favour of the assessee by the decis ion of the ITAT passed in assessment year 2014- 15 and 2015-16. The ld.CIT (Appeals) while following the ITA No.415 &436/CHD/2025 A.Y.2016-17 4 order of the ITAT has allowed the appeal of the assessee partly and held that interest ear ned on ADB Loans amounting to Rs.349.70 lacs is not taxable as it is not revenue in nature whereas interest incom e earned on sur plus f unds deposited with the Bank amounting to Rs.591.38 lacs has been taxed.
In other words, assessment order to this extent has been upheld.
5. The Revenue in its appeal is challenging exclusion of Rs.349.70 lacs from the total addition whereas assessee in its appeal is im pugning addition of Rs.591.38 lacs.
6. With the assistance of ld. Representative, we have gone through the record carefully. We find that identical issue was considered by the ITAT in assessm ent year 2014-15 and 2015-16. Copy of this order is available on record. We deem it appropriate to take note of elaborate discussion made by the Tribunal in those years :
ITA No .789/Chd/2019 (A .Y .2014 -15 ):
9. The eff ective ground raised by the assessee reads as und er:
"1. That in the facts and circumstances of the case the Ld.Commissioner of Income Tax (App eals) is not justified in upholdin g the addition of Rs .11,64,79,756 mad e by taxing th e interest as t he inco me of the appella nt un der the head income from other sources and ITA No.415 &436/CHD/2025 A.Y.2016-17 5 that too without all owing the set off of th e interest paid on borrow ed funds from the same. Fact of the matter is that the interest accrued w as to be set off again st the capital work in pr ogress and did not tantamo unt to be the income of the appellant."
10. Drawing our attention to the facts of the case from the assessment order, th e Ld.Counsel for the assessee pointed o ut that the assess ee company namely, HP. Power Transmission Corporation Limit ed (HPPTCL), an undert aking of Government of Himach al Pradesh wa s esta blished on 27th August, 20 08 with a view to strengthen th e Trans mission Network in Hi machal Pradesh an d to facilitate evacuation of Power from up coming Generating Plants. The jobs entrusted to Corporation by HP. Government inter-alia in clud ed executi on of all N ew Works - both Transmission Lines and Substations of 66kv and above Voltage R atings, Formu lation, Updation , Execution of Transmission Master Plan of HP for Strengthening of T ransmission N etwork and Eva cua tion of Power. Besides, coordinating the transmission related issues with CTU, CEA/OP (GOI), HP Government and HPSE BL.
HPPTCL was also r esponsible for planning a nd co-ordin ation of transmission related issues with IPPs, CPSUs, State PS Us, HPPCL and other Stat e/Central Government Agencies. The assessee company was yet to start commercial op eration . The statement showing incidental expenditure during construction (p ending allotment) had been prepar ed. However, profit & lo ss account for earning of other income had been prepared . As per the detail s of "Other income", t he assessee co mpan y had earned interest on bank deposit of Rs.11,64,79,756/- d urin g the peri od relevant to the assessment year. The int erest was earn ed on sur plus funds available with the assessee compa ny, however, the same w as not off ered for taxation. T he said fact was confronted to the assessee during assess ment pro ceedings who fil ed d etail ed reply. The AO rejected the sa me pointing out that identical arg uments and s ubmissions had been r ejected by the ITAT in the cas e of the assessee itself in th e appeal for assessment year 2010-11 and t hat th e issue was squ ar ely covered by t he decis ion of the Hon'ble Supreme Court i n the case of Tut icorin Al kali Chemica ls & Fertilizers L td. Vs. CIT (1997) 227 ITR 172 (SC). Accordingly, the int erest o f Rs.11,6 4,7 9,7 56/- w as assessed to tax in the hands of the assessee as 'in come from other so ur ces".
11. The matter was carried in appeal before the Ld.CIT(A) who upheld th e order of the A O stati ng that no distinguishing facts h ad been pointed out by the ass essee from the precedi ng years wherein the i ssue had been decided against the assess ee ITA No.415 &436/CHD/2025 A.Y.2016-17 6 by the ITAT. The rel evant findings of the Ld.CIT (A) at para 5.2 to 5.2.2 of th e order are as un der:
5.2 The i ssue is regarding the taxability of int erest income received o n the funds parked with various ban ks or otherwise as mentioned above. Th e issu e und er co nsideration is not a n ew issu e. T his is a decid ed issue agai nst the asses ses b y CIT(A) in its own cas es for the A.Y.2010-11 & 2011-12 in appeal No .
IT/74/20 13- 14/Sml dated 27/06/201 4 and App eal No.lT/375/13-14/Sml dated 05. 11.2014. The order of the C IT(A) dated 0 5.11 .2014 for A.Y. 2011-12 ha s been confirmed by the jurisdicti onal ITAT in ITA No. 68/Chd/20 15 vide order dat ed 04.08.2 015. The app eal has been decided against the a ssessee by the ITAT by relying on its own order in ITA No. 488/Chd/2012 and 169/Chd/2 013 for the A.Y. 2008-09 & 20 09-10.
5.2.1 However, during the year the appell ant has tried to distinguish on facts by arguing tha t the funds fro m ADB were specifically advanced for speci fic purposes and th e interest accrued on the FDRs ma de from the said accounts and funds and the int erest paid on th e same are clearly inter linked and need to be set off. The appellant h as relied on the judg ment of the jurisdict ional ITAT in the cas e of H.P. Pow er Corporation ITA No.842/Chd/2014 dated 06.05.2015 . The appellant in the year under consideration ha s however relied on the order of this office in th e ca se of M/s. H.P. Power Corpo ration ltd. which h as b een decid ed by following the order of the j urisdi ctional ITAT i n ITA No. 842/Chd/2014 dated 06.05.2015 . However, the appell ant has failed to exp lain as to how the facts of the case under consideration are differ ent from th e f acts of the cas e for A.Y. 2013-14 wherein th e app eal of tine assess ee has been dismissed vide ord er dated !T/395/15-16/Shimla dated 28.1 0.2 016. T he said order has been upheld by the Juris dictional ITAT in ITA No. 1443/Chd/2016 dat ed 18.04.2 017 wherei n the app ellant argued on simil ar lines as reproduced supra which wer e dismissed. It is also not out of place to mentioned that th e long term loans from ADB as s een from Sch edule 4 of the balance sheet in A.Y. 2013-14 is shown at Rs.6136.06 lacs a nd at Rs.110 56.06 i n A.Y. 2014-15. Thus, what is seen is that the loa ns from ADB wer e rais ed by the appellant in the preceding year also. Moreo ver, the app ellant vide order sh eet dated 22.0 3.2 019 also expressed t he inability to bifur cate ITA No.415 &436/CHD/2025 A.Y.2016-17 7 the use of funds and interest paid w.r.t . equity and REC loans. Accordi ngly, it is held that th e facts i n th e year under consideration ar e identical to the fact s for A.Y. 2 013-14. The assessee has broug ht nothing on record to sh ow how the facts or the legal position during the year under considerati on is anywa y different fro m the precedi ng years. The is sue is squarel y covered by the decisions of this offi ce d uly confirmed by ITAT i n the pr eceding years as detailed supr a.
5.2.2 Th erefore, it is held that there is no infirmity in the order of the A.O. and the order of the A.O. in making the addition of Rs.11,64,79,756/- on account of 'income from other sources' needs no interference and the same is confirmed. In the result, order of th e A.O. upheld and the appeal of the assessee is dismi ssed."
12. Before us the Ld.Counsel for the a ssessee though fairly admitted that the findings of the authorities below w as correct that th is issue had been adjudicated in the preceding years also against th e assessee by the ITAT, but at the same ti me he pointed out that certain facts distingui shed t he case of th e assess ee from the preceding years and in view of those ITA Nos.7 89 & 790/Chd/2019 A.Ys. 2014 -1 5 &2015-16 Pag e 9 of 21 facts t he issue stood squarely covered by the order of the ITAT in th e case of M/s H.P. Power Corporation Ltd. in ITA No. 842/Chd/2014 for assessment year 2010-11 which had adjudicated in favo ur of t he assessee. He first drew our attention t o the order of t he ITAT in the case of M/s H.P. Pow er Corporation Ltd.(supra) placed before us at paper book page no.42-47 and drew our attention to t he specific findings of the ITAT at para 8 of the order as und er:
8. After considering the rival submissions carefully we find that duri ng this year as sessee has bo rrowed certain funds as mentioned in the submissions before AO from P FC and ADB. Th e Assessee had earlier taken th e money from Delhi Jal Board on which no interest was required to be paid. It was held in the earl ier year in assessee's own case that interest on such investment of thes e funds would be taxable. In view of the decision of Hon'ble S upreme C ourt in case of Tuti corin Alkali Chemicals And Fertilizers Ltd. Vs. CIT 227 ITR 172. How ever , the interest earned on temporary investment mad e out of the borrowed funds can not be taxed beca use these funds ITA No.415 &436/CHD/2025 A.Y.2016-17 8 have been specifically borrow ed for the purpose of project but project was delayed and ther efore funds were par ked in temporary investment in the form of FDR. Same view was taken in the case of M/s Beas Valley Power, Corporation Ltd. Vs. The ACIT in ITA No. 857/Chd/2012 it was observed at page 1 2 & 13 as u nder:
12. On the ot her hand, ld. DR relied upon ord ers of the author ities below. 12(i ) On consid erat ion of th e above facts and mat erial on record , we do not find any justification to sust ain the findings of the authoriti es below. It is not in dispute that assessee corporation is a government compa ny promoted by H.P. State Electricity B oard Ltd. Th e assessee has admittedly not started commercial o peration in the year under consideration and w as still in th e preoperative stage. The assessee claimed that it has no surplus f unds but the finding of the authorities below was that assessee earned inter est on surplus funds. The accounts of the assessee pla ced on record clearl y support t he submi ssion of the assessee that there were no surplus funds available with the assessee. The ass essee 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 proj ect.
The ld. CIT(Appeals ) also partl y agreed with the submission of the assessee that part funds were invested for s etti ng up of the plan t & machin ery. The assessee's counsel has ref erred to th e acco unts of th e assess ee at page 1 5 of the Pap er Bo o k to sh ow that assessee r eceived lesser inter est of Rs. 6 25 .97 lacs and pai d interest on loan at Rs. 3652.44 lacs in the year under consideration would show that assessee has to pay more inter est as against th e small int erest recei ved by asses see. Ther efore, if any adjust ment is made against int erest paid, still there is a liability of the assessee to pay interes t on the loans. Th e assessee also explained that for eff ective funds management, the tempora ry surplus funds were kept in short term bank deposits and thereafter, inter est w as earned and so was also used for construction of the project and for pa ying interest to the p ower finance company which have not b een adversely commented upon by the authoriti es below. Ther efo re, t he reliance of th e Assessing Officer on th e decision in the ca se of ITA No.415 &436/CHD/2025 A.Y.2016-17 9 Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT (supra) was totally misplaced. Th e Hon'ble Supreme Court in the cas e of CIT Vs Bokar o St eel Ltd. held as under :
Held, dismissing the appeal, that the f irst three heads of in come were (i ) the r ent char ged by the assessee to its contractors for housing workers and staff employed by t he contra ctor for the construction w ork of the assessee in cludi ng certain amenities grant ed to the st aff by th e assess ee, (ii) hire charges for plant and machinery which was given to the contract ors by the assessee f or u se in the construction work of the assessee, and (ii) interest from advances made to th e contract ors by the assess ee for the purpose of fa cilitating the wo rk of constru ction. The activities of the assessee in connection with all these three receipts w ere directly connected with or incidental to the w ork of construction of its plant undertaken by the ass essee. The advances which the as sessee made to th e contractors to facilitate the construction activity of puttin g together a very large proj ect was as much to ensure that the work of the contractors proceeded without any fi nancial hitch as to help the contractors. The arrang ements which were mad e between the ass essee-company and t he co ntra ctor s pert aining to these three receipts were arra ngement s which wer e intrinsically connected with the construction of its st eel plant. The receipts had been adjusted against the charges p aya ble to the contractors and had gone t o red uce the cost of construction. They had, therefore, been rightly held as capital receipts and not income of the assessee any in dependent source.
12(i i) T he Hon'ble Delhi High Court i n t he case of Indi an Oil Panipat Power Consortiu m Ltd. V IT O 315 ITR 25 5 (Delhi) held as under : The assess ee-
co mpany was incorporated in p urs uance of a joint ventur e enter ed into b etween Indian Oil Corporation and M of Japan to set up a pow er project. In order to effectua te the purpose for which the joint venture was conceived, share capital was contributed by th ese two corporations which included Rs. 20 crores by way of ad ditional share capital. The Assessing Officer treated the in terest earned on monies received as share capital b y the ITA No.415 &436/CHD/2025 A.Y.2016-17 10 assessee temporarily placed in a fi xed d eposit awaiting acq uisit ion of land which had run into legal en tanglements on account of title as "Inco me from other sources". The C ommiss ioner (Appeals) accepted the stand of the assess ee that th e in terest was in the nature of a capital receipt which was liabl e to be set off against pr eoperati ve exp ens es. The Tribunal r eversed this order. On app eal : Held, allowing t he appeals, that the funds in the for m of share capit al were infused for the sp ecific purpose of acquiring land and the development of infrastru cture. Therefore the interest earned on funds primaril y brought for in th e business could not be cl assified as "In come from other sour ces". Since the income was earned in a p eriod prior to co mmencement of business it was in th e nature of a capital receipt and was required to be set off against pr eoperative expenses. 13. Co nsidering the facts of the case in the l ight of t he abo ve decisions, it is clear that the f unds with the assess ee, even if temporarily used f or savings/short term deposits, but the earni ng of the interest were directly connected with work of construction of the proj ect employed by t he assessee. Therefo re, the ear ning of interest could not be treated as income from other sources, since the income was earned i n the p eriod prior to commencement of the b usin ess and it was the nature of capital receipt and was required to be set off against preoperative expenses. We, therefore, set aside the orders of a uthorities below and delete the addition of Rs. 83,06,897/-.
How ever th e d etails of these funds are not available on record ther efore, we set aside the order of Ld. CIT(A) and remit th e mat ter back to the file of AO with a direction to examine bif urcation of funds borrowed b y the assessee and funds owned by the assessee. Int erest earned on account of funds borrowed should not be s ubjected t o tax and only interest on balance s urplus fund s should be subjected to tax."
13. Ref erring to th e same he pointed out that in the facts of th e said case the assess ee had borrow ed f unds from ADB (Asian Development Bank) specifically for the purpose of the project but sin ce the project was delayed the f unds were parked in tempor ary investment in the form of FDR. In this factual backg round th e ITAT, foll owing its decisi on in the case of M/s ITA No.415 &436/CHD/2025 A.Y.2016-17 11 Bea s Valley Power Corporation Ltd. Vs. ACIT in ITA No.85 7/Chd/2012, had held that the int erest of such specifically borrowed funds be not s ubjected to tax. The Ld.C ounsel for th e assess ee thereafter stated that in the impugned cas e also th e assess ee had borrowed project specific fu nds fr om ADB and on accou nt of certain delays i n execution of the project the funds could not be utilized and w ere, therefore, par ked in FDRs earning interest thereon. The aforesaid facts were pointed ou t to us from the An nual Report of the asses see, pla ced b efore us as Ann exure-A to the Paper Book. Our attenti on was drawn to page 17 of the Annual Report and it was point ed o ut therefro m that the ass essee had taken loan from ADB amounting to Rs.1 1,056 lacs in the impugned year which s too d reflected in the schedule of Lo ng term borrowings (Schedule No .4 of th e Annu al R epor t). Further dr ew our attention to the copy of loan agreement entered into by th e assessee with A DB pla ced before us at P B p ag e No.2-2 9. Ld.Counsel specifically drew our attention to clause 5 of Schedule 3 of the agreement dealing with Allocation and Withdraw al of Loa n proceeds ,which read as u nd er :
Imprest Accounts and Statement of Expenditures
5. Except as A DB may otherwise agree, th e Borrow er may establish, and caus e to be established, immediately after the Effective Date, (i) a first g eneration imprest accou nt at th e Reserve Bank of India, and (ii) a second generation impr es t account for HPPTCL at a commer cial ban k acceptabl e to A DB (collectively, imprest accounts). The i mpr est accounts shall be established, managed, repl enished a nd liq uidated in accordance with ADB's Loan Disbursement Handbo ok, and detailed arrangemen ts agreed upon between the Borrower and ADB. The i mprest accounts shall only be used for the purposes of the Project. The currency of the firs t generation impr est sccount shall be the Dollar, and the cur rency of th e second generatio n imprest accounts deposit ed into the impres t accounts s hall be the Rupee. The aggr ega te amo unt to be expenditure to be deposit ed into the imprest a ccounts sh all no t exceed the lower of (i) the estimated expenditure to be financed from the i mprest a ccounts for the first 6 months of P roject impl ementation, or (ii) the equivalent of 1 0% of the Loan amount."
1 4. Ref erring to the same he pointed out that the loan disburs ed could not have been used by the assessee for any purp ose oth er than that for which it was gra nted being fundi ng of four Tran smi ssio n pr ojects as mentioned in the agreement as under :(P.B 3) ITA No.415 &436/CHD/2025 A.Y.2016-17 12 Whereas the Go vernment of India is t aking a loan of 35 0 millio n U S Dollar from Asian Development Ba nk in va riou s branches un der Himachal Pr adesh Clean En ergy Transmission Investment Programme for execution of vari ous Transmission proj ects cover ed in Pow er, Syst em Master Pla n for Himachal Pradesh. Out of the above loan of 350 Millio n U S Dollar, Tranche-1 loan of 113 Milli on U S Dollar shall fund following four number Transmission Proj ects :
i) 22/66/220 kV, '(22/66 kV, 2x10 MVA +66/220 kV, 31. 5 MVA) GIS sub stati on at B hoktoo i n Dist t. Kinnaur with LILO of one circuit of 220 kV Kashang-Bh aba D/C line.
ii) ii) 220 kV (Twin MOOSE) D/C line fro m Hatkoti to planned 22 0/400 kV sub station at Prag ati Nagar in Distt. Shimia. ;
iii) iii) 22 0/400 kV, 315 MVA GIS Sub station at Pragati Nagar in Distt. Shimla wit h LIL O of b oth circuits of 400 kV Jhakri- Abdullapur D/C line of PGCIL.
iv) iv) 66/220/400 kV GIS sub station ( 6 5/220 kV, 2x80/100 MVA+22 0/400 kV, 2x315 MVA) at Wangto o in Distt. Kinnaur wi th LILO of both circuits 1 of 22 0 kV Kashang- Bhaba and 400 kV Wan gtoo - Abdullapur D/C Lines.
AND WHEREAS future Tranch es shall fun d Transmission Projects in Dist t. Kullu, Distt Kangra & Distt. Mandi (Reas Basin), Distt. C ha mba (Ravi Basin), Distt Kinnaur (Satluj Basin) and Distt. Shimla (Yamuna Basin).
AND WHEREAS the Government of India will further transfer this loan granted by Asian Development Bank to the Go vernment of Himachal Pra desh, which interalia shall transfer the same to H.P. Power Transmission Corporation Limit ed (Secon d Party) which is des ignated; implementing agency fo r these Transmission Projects.
15. Thereaft er he took us to page No.21 of th e Annual Report , Sched ul e-11 being the schedule of Income and pointed out that on account of the investments made out of th e said fund s interest of Rs.246.96 lacs had been earned b y the a ssessee. He also p ointed out that in t he preceding year the amount of interest earned was a meager amount of Rs.3 .34 lacs and wa s, therefore, immateri al for t he decisi on rendered in the case of the assess ee agai nst it by the ITAT i n the preceding year. He ITA No.415 &436/CHD/2025 A.Y.2016-17 13 contended that in view of the identity of facts of th e assessee in th e impug ned year with that i n the case of M/s H.P. Pow er Corpo ration Ltd.(supra) and the f acts being dis tinguishabl e with th at in the case of the ass essee for th e precedin g year, the decision in the case of M/s H.P. Power Corporati on Ltd.(supra) was squarel y applicabl e and the inter est earned, therefore, was not liabl e t o be taxed in the hands of the assess ee.
16. The Ld. DR, on the other hand, vehemently contested the claim of the Ld.Counsel for the as sessee pointing o ut that as per the admission of th e Ld.Counsel for the assessee itself t he ADB loan was ver y much ther e with the assessee i n the preceding year also amo unting to Rs.6,136 lacs as reflect ed in the sch edule o f Long term borrowings of t he S chedule-4 of the Annual Report and even though meager,the fact remained that interest was ear ned by the assess ee in the preceding year also. She, theref ore, stated t hat there were no dist inguishing facts from the pr eceding year and the iss ue had been rightly held to be covered by the ord er of the ITAT i n the case of t he assessee for the preceding year.
17. We ha ve heard the con tentions of both th e parties and h ave also g on e through the orders of t he authorities bel ow and documents referred to before us. T he issue to be adjudicated is regardi ng the treat ment of i nterest received o n FDRs/ Deposits mad e out of funds during the period pertaining to the pre- commencement of bu siness of the assessee, which has been h eld to be taxable as being revenue in nature by the Revenue Authorities, while the ass essee claims the same to be capital in nature.
18. The contention of the Ld. Counsel for the assessee is t hat though admittedly identical issue stan ds d ecided ag ainst the assess ee in the preceding years but the f acts ar e distinguisha ble and the f acts ar e ,on the contrary, identi cal t o that in t he ca se of M/s H.P. Pow er C orporation Ltd.(su pra) wh ere the iss ue was decid ed in favou r of the assessee.
19. We have gone through the aforementioned orders of the ITAT.In the order passed by t he ITAT in the case of the a ssessee (in ITA No.1443/Chd/2016 d ated 18.04 .20 17) w e find th at th e fact noted in the same at para 4 of the or der is that th e interest was earned by the assessee on surplus fun ds ava ilable with it. On the basis of these fact s, which w ere found to be identical with tha t in the preceding year w her ein the ITAT had hel d th e said inco me to be t axable followi ng the decision of t he Hon'ble Apex Court i n the case of Tuticori n Alkali Chemicals & Fertilizers Ltd. (supr a), the issue w as deci ded against t he assessee. The ITAT noted that no ITA No.415 &436/CHD/2025 A.Y.2016-17 14 distinguishing facts were found in t he preceding year a nd, therefore, treated the issue as covered by the ord er of the ITAT in the preceding year in the case of the assessee.
20. In the order passed by the ITAT in the case of HP Power Corpo ration in ITA No.842/Chd/20 14 dated 06 .05.2016,we find that it was n oted in the order at para 6 that th e assessee had b een found to ha ve borrowed certain amo unt from Asian Develop ment Bank (ADB) fo r specifi c project and on account of dela y in the project they had been parked in temporary investments in FDRs. The interest earn ed thereon was held b y the ITAT to b e not taxabl e following the view taken by the ITAT in the cas e of M/s Beas Valley Power Corporation Ltd. (supra) wh erein the decision of the Hon 'ble Apex Cou rt in the cas e of Tuticorin Al kali Chemicals & Fertilizers Ltd. (s upra) was found not app licable and the decision of the CIT Vs. Bokaro Steel Ltd. on i dentical issu e was fo llow ed. We find that in the said case also the assessee ha d submitt ed that in the earlier years the issue had been decided by th e ITAT against the assessee but it was noted in the order that the fa cts during the year w ere partly di fferent with funds ha ving been borrowed for specific purp os e and parked in FDRs as temporary in vestments on accou nt of delay in the project. The rel evant fin din gs to this effect by the ITAT are at paras 6 to 8 of i ts order which sta nds reproduced abo ve in earl ier p art of our order. Thus th e disti nction in fa cts in the afor estated two orders is that while in the case of the assessee in earli er years the interest was fou nd to be ea rned on surplus funds and hence held taxable, in the case of HP P ower corporation (supr a) the interest wa s earned on specific purpose funds deposi ted in FDR's on account o f delay in execution of projects and th erefor e held not taxable .
21. In the present case the Ld.C ounsel for the ass essee h as drawn our attention to the facts pointing out that the lo ans had b een taken f rom ADB by t he assessee also amounting to Rs.1 1,056 lacs on which interest income of Rs.246.96 lacs had b een earned and that th ese loans w ere to be utilized for specific proj ects an d on accou nt of delay in the project in the project t he sa me had been parked in t emporary funds. The aforesaid f act s,clearly, are identical to that in the cas e of M/s H.P. Power Corporat ion Ltd.(supra).
22. Moreover ,the facts in the present cas e have b een demonstrated b efore us to be disti nguis hable fro m that in the precedi ng year in t he cas e of the assessee wh ere only surplus funds were found to be available with the assess ee. No doubt in the preceding year also interest was earned on ADB funds(sp ecific purpose funds) deposited in FDR's , but the sa me w as a meager amo unt of Rs.3.34 lacs as against interest earn ed on other fu nds ITA No.415 &436/CHD/2025 A.Y.2016-17 15 of Rs. 1206.78 lacs ,which facts are r ecorded in the an nual accou nts of the as sessee . While in i mpugned year t he amo unt of interest earned on ADB funds is Rs .246.9 6 lacs while that earned on oth er deposits i s Rs.918.30 lacs. The f acts relating to the issue before us ,bein g interest earned on deposits, are th erefor e clearly distinguishable fr om the preceding year wherein ther e was hardly any in come earn ed from specific purpose loan fun ds deposited in FDR's(ADB loans) and prima rily int erest income was earned from other surplus funds, While in the impugned year a s ubst antial portion of int erest income is found to have been earned from deposits mad e from specific purp ose loan funds (ADB loans).
23. The argument of the Ld.DR that ADB Loan was being ava iled by the assessee in both th e years establishes identity of facts ,we find, is not correct. Since the issu e before u s relates to int erest income earned , the rel evant fact is the nature an d co mpositio n of interest income earned ,i.e on surplus funds and specifi c purpose funds, which has been clearly distinguished fro m t he preceding year, and not the factum of loan. 24. We t herefore agree with the Ld.Couns el for the as sessee that the issue stands squarely co vered by the decision of the ITAT in the ca se of HP Power Corpor at ion (supra ), where identicall y the facts were found to be different from the preceding year on account of identical A DB loan ta ken for sp ecific project parked temporary in F DRs on account of delay in the project an d the ITAT holdin g the case to be d istinguis habl e from th e preced ing year had ruled in favou r of the assessee following the d ecision of the ITAT in the case of M/ s Beas Valley Power Corporation Ltd. (supra).
25. In view of the same, we hold that the interest r eceived to the extent of ADB loan parked in investments in FDRs is not revenue in natur e and not liable to be ta xed under the h ead "in come from other s ources".
26. In the result, the appeals of the assess ee are allowed i n ab ove terms.
Order pronounced on 24th June, 2021.
Sd/- Sd/-
(R.L.N EGI) (ANNAPURNA GUPTA)
Judici al Member Accountant Member
ITA No.415 &436/CHD/2025
A.Y.2016-17
16
7. There is no disparity on facts. Identical issue has been considered by the Tribunal in these two years. The ld. counsel for the assessee while buttr essing his case took us through copy of the Balance Sheet available on page No. 2 to 18, the Audit Report available on page Nos. 19 to 30. He has demonstrated as to how interes t income has been earned by the assessee on ADB loans as well as on surplus funds. We are satisfied that issue is squarely covered by the earlier years' judgement of the ITAT and these issues must have been pending before the Hon'ble High Court. Accordingly, we do not find any mer it in the grounds of appeal raised by both the appellants in their respective appeals. Accordingly, the solitar y issue raised by the Revenue is rejected and the appeal of the Revenue is dismissed.
8. As far as assessee's appeal is concerned, Ground No. 1 is rejected.
9. In Ground No.2, assessee has challenged the addition of Rs.1,89,09,099/-.
9.1 The brief facts of the case are that assessee has claimed Prior Period Expenses which include;
ITA No.415 &436/CHD/2025
A.Y.2016-17
17
a) Expenses paid to HPSEB Rs.3062 lacs
b) Depr eciation for A. Y. 2014-15 Rs.158.47 lacs
10. The ld. counsel for the as sessee took us through page No. 37 and 39 of the Paper Book wherein letter written by Senior Accounts Officer, HPSEBL, Hamirpur dated 27.10.2016 has been placed on the record. The finding of the AO on this issue reads as under :
6. A perusal of the P&L, Balance Sheet and Computation of income shows that the assessee has reduced 'prior period expenses' amounting to Rs.
1,89,09,099/- from its net profit while calculating the total taxable income. The assessee was specifically requested vide notice issued u/s 142(1) of the IT Act.1961 dated 26.07.2018 & 09.10.2018 to explain why the prior period expenses of Rs. 1,89,09,099/- should not be added back to the total income.
In response, the assessee vide reply dated 15.10.2018 has submitted that "Regarding not adding back the Prior Period Expenses of Rs. 189.09 lakh, it is submitted that after providing for depreciation amounting to Rs. 7,58,33,779/- as per income tax act and adding back the prior period expenses. Assessee has taxable income of Rs. 1,96,814 only whereas income tax amounting to Rs. 64,10,688/- has been paid on book profit of Rs. 3,14,42,127/- under MAT provisions. As such there is no tax effect of not adding back prior period expenses of Rs. 189.09 lakh"
The assessee's reply has been considered. However, the same is found to be untenable. The profit for the year under consideration has to be determined by taking into account incomes & expenses of the year under consideration. The prior period income and expenses are required to be ignored to compute the profit for the year under consideration. Further, just because the tax has been paid under provision of MAT doesn't mean that the correct profits for the year under consideration are not quired to be computed.
In view of the above, the prior period expense claimed by the assessee counting to Rs. 1,89,09,099/- are hereby disallowed and added to the total income computed by the assessee.
ITA No.415 &436/CHD/2025 A.Y.2016-17 18 10.1 A perusal of the above finding would reveal that this correspondence was not brought to the notice of the AO.
Though this letter is stated to be of 16.10.2016, it was available with the assessee before the assessment order.
Sim ilarly, ld.CIT (Appeals) took cognizance of t his fact and did not agree with the submissions of the assessee on the ground that it ought to have been brought to the notice of the AO.
11. Before us, ld. counsel for the assessee relied upon the judgement of Hon'ble Himachal Pradesh reported in 303 ITR 133 rendered in the case of Jai Kumar Muni Chand Vs CIT.
The Hon'ble High Court has observed that when liability to pay crystalized, then expenses could be claimed by the assessee.
On due consideration of the above f acts and circumstances, we are of the view that com plete facts were not before the Revenue Authorities. A perusal of page 38 wher ein details of expenses has been compiled with, would not indicate when actually these amounts have been crystalized, what was the dispute between the parties prior to this letter dated 27.10.2016. Therefore, we deem it appropriate to rem it this issue back to the file of AO for re-examination and re-adjudication.
ITA No.415 &436/CHD/2025 A.Y.2016-17 19 GROUND NO. 3
12. In this ground, assessee has challenged addition of Rs.4,35,642/-. This addition represents unpaid gratuity. The assessee did not press this ground of appeal before the CIT (Appeals). Hence, it has not been arisen from the impugned order of the CIT (Appeals). Accordingly, this ground is rejected.
13. In the result, appeal of the Revenue is dismissed whereas appeal of the assessee is partly allowed.
O r d er p r o n o un ced o n 2 0 . 0 4 . 20 2 6 .
Sd/- Sd/-
(KRINWANT SAHAY) (RAJPAL YADAV)
ACCOUNTANT MEMBER VICE PRESIDENT
"Poonam"
आदेश क ितिलिप अ ेिषत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु / CIT
4. िवभागीय ितिनिध, आयकर अपीलीय आिधकरण, च डीगढ़/ DR, ITAT, CHANDIGARH
5. गाड फाईल/ Guard File सहायक पंजीकार/ Assistant Registrar