M/s. Kalinga Coal Mining Pvt Ltd. v. ACIT, Circle -1(1), Bhubaneswar
[Citation -2016-LL-1017-70]

Citation 2016-LL-1017-70
Appellant Name M/s. Kalinga Coal Mining Pvt Ltd.
Respondent Name ACIT, Circle -1(1), Bhubaneswar
Court ITAT-Cuttak
Relevant Act Income-tax
Date of Order 17/10/2016
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags capital receipt not liable to tax • extension of existing business • acquisition of an asset • construction activity • performance guarantee • condition precedent • capital borrowed • power generation • interest earned • interest income • money borrowed • bank guarantee • interest paid
Bot Summary: The undisputed fact of the case are that the assessee earned interest income of Rs.6,70,416/- from fixed deposit with Axis Bank on which TDS of Rs.1,38,106/- was 2 I T A No. 5 5 7 / C T K / 2 0 1 3 A s s es s m e n t Y e a r : 2 0 0 8 - 0 9 made. The AO rejected the explanation of the assessee and following the decision of Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilisers Ltd vs CIT, 227 ITR 172 held that interest on fixed deposits is income from other sources and brought the same to tax. On appeal, ld CIT(A) confirmed the action of the Assessing Officer observing that the assessee received Rs.6,70,416/- as interest income on the fixed deposits kept with the Axis Bank ltd, which was made from money borrowed from the said bank and the decision of Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilisers relied upon by the AO is clearly applicable to the assessee s case. Ld A.R. of the assessee relied on the decision of Hon ble Delhi High Court in the case of CIT vs. Jaypee DSC Ventures Ltd., 17 taxmann.com 257, wherein, it was held that the assessee furnished performance guarantee in favour of NHAI to get contract awarded in its favour and to procure said guarantee, it had kept certain amount as fixed deposit in bank. The assessee treated interest income from fixed deposit as business income and set off same against project expenses. Ld A.R. of the assessee submitted before me that the assessee borrowed Rs.25,00,00,000/- from UTI Bank on 8.10.2006 which is evidenced from the letter dated 26.10.2006 of UTI Bank placed at page 102 of paper book. The assessee had to keep fixed deposit with the bank on which it earned interest Rs.6,70,416/-.


IN INCOME TAX APPELLATE TRIBUNAL CUTTACK SMC BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER IT No. 557/CT K/2013 Assess ment Year :2008-09 M/s. Kalinga Coal Mining Pvt Vs. ACIT, Circle -1(1), Aayakar Ltd., C-30, Palaspalli, Bhavan, Rajaswa Vihar, Aerodrome Area, Bhubaneswar. Bhubaneswar. PAN/GI R No. AACCK 3729 P (Appellant) .. ( Respondent) Assessee by : Shri Raman Chawla, AR Revenue by : Shri D.K.Pradhan, DR Date of Hearing : 17 /10/ 2016 Date of Pronouncement : 17 /10/ 2016 ORDER This is appeal filed by assessee against order of CIT(A), Berhampur dated 23.9.2013, for assessment year 2008-2009. 2. sole issue involved in this appeal is that ld CIT(A) erred in upholding addition of Rs.6,70,416/- by treating interest received on fixed deposit as income from other sources. 3. I have heard rival submissions and perused materials available on record. undisputed fact of case are that assessee earned interest income of Rs.6,70,416/- from fixed deposit with Axis Bank on which TDS of Rs.1,38,106/- was 2 I T No . 5 5 7 / C T K / 2 0 1 3 s s es s m e n t Y e r : 2 0 0 8 - 0 9 made. essessee explained that interest income was deducted against incidental expenses during development pending allocation. It was submitted that interest income was inextricably linked to project under development as same had accrued out of fixed deposits maintained as precondition for debt service. AO rejected explanation of assessee and following decision of Hon ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilisers Ltd vs CIT, 227 ITR 172 (SC) held that interest on fixed deposits is income from other sources and brought same to tax. 4. On appeal, ld CIT(A) confirmed action of Assessing Officer observing that assessee received Rs.6,70,416/- as interest income on fixed deposits kept with Axis Bank ltd, which was made from money borrowed from said bank and, therefore, decision of Hon ble Supreme Court in case of Tuticorin Alkali Chemicals & Fertilisers (supra) relied upon by AO is clearly applicable to assessee s case. 5. Before me, ld A.R. of assessee relied on decision of Hon ble Delhi High Court in case of CIT vs. Jaypee DSC Ventures Ltd., (2012) 17 taxmann.com 257 (Delhi), wherein, it was held that assessee furnished performance guarantee in favour of NHAI to get contract awarded in its favour and to procure said guarantee, it had kept certain amount as fixed deposit in bank. assessee treated interest income from fixed deposit as business income and set off same against project expenses. AO held that interest received by company on bank deposit was taxable as income under head income from other sources and thus, project expenses could not be 3 I T No . 5 5 7 / C T K / 2 0 1 3 s s es s m e n t Y e r : 2 0 0 8 - 0 9 allowed to be set off against interest income. Tribunal allowed assessee s claim. Hon ble High Court held that it was apparent from records that bank guarantee was furnished as condition precedent to entering into contract and further it was to be kept alive to fulfil certain obligations. Further, release of fixed deposit was dependent on satisfaction of certain conditions. Therefore, assessee furnished bank guarantee, which has inextricable nexus for securing contract. Therefore, Tribunal was justified in allowing assessee s claim. Ld A.R. also relied on decision of Hon ble Delhi High Court in case of NTPC Sail Power Company Pvt Ltd vs. CIT (ITA No.1238/2011) order dated 17.7.2012, wherein, it was held that this Court, in Indian Oil Panipat Power Consortium Ltd Vs. ITO (2009) 315 ITR 255 (Del.) held that where interest on money received as share capital is temporarily placed in fixed deposit awaiting acquisition of land, claim that such interest is capital receipt entitled to be set off against pre-operative expenses, is admissible; as funds received by assessee company by joint venture partners are "inextricably linked" with setting up of plant and such interest earned cannot be treated as income from other sources. reasoning in Indian Oil is in line with Bokaro Steel Ltd. Similarly, Hon ble Supreme Court in CIT vs. Karnataka Power Corporation, 247 I.T.R. 268 (SC) and Bongaigaon v Refinery and Petro Chemical Co. Ltd. vs. Commissioner Income Tax, 251 I.T.R. 329(SC) held that such receipts are not income. It further held that it is no doubt correct that proviso to section 36(l)(iii) of Income Tax Act enacts that any amount of interest paid towards capital borrowed for acquisition of asset or for extension of existing business regardless of its capitalization in books or otherwise, 'for any period beginning from date on which capital was borrowed for 4 I T No . 5 5 7 / C T K / 2 0 1 3 s s es s m e n t Y e r : 2 0 0 8 - 0 9 acquisition of asset till date on which such asset was first put to use" would not qualify as deduction. However, in all these cases, when interest was received by assessee towards interest paid for fixed deposits when borrowed funds could not be immediately put to use for purpose for which they were taken, this Court, and indeed Hon ble Supreme Court held that if receipt is inextricably linked to setting up of project, it would be capital receipt not liable to tax but ultimately be used to reduce cost of project. By same logic, in this case too, funds invested by assessee company and interest earned were inextricably linked with setting up of power plant. Further, Tribunal has not found that deposits made as margin monies were not limited to construction activity connected to expansion of business by way of setting up of new power generation plant. Therefore, it was held that Tribunal and lower authorities fell into error in holding that interest earned on fixed deposit of amounts borrowed, which is subject matter of present appeal, would have to be treated as revenue receipt. 6. Ld A.R. of assessee submitted before me that assessee borrowed Rs.25,00,00,000/- from UTI Bank on 8.10.2006 which is evidenced from letter dated 26.10.2006 of UTI Bank placed at page 102 of paper book. He further submitted that as per terms and condition of sanction of Rs.25,00,00,000/-, assessee was required to maintain Debt Service Coverage equivalent to one month interest and one quarter principal repayment with lien marked in favour of bank. Therefore, assessee had to keep fixed deposit with bank on which it earned interest Rs.6,70,416/-. Hence, interest of Rs.6,70,416/- earned by assessee was capital receipt not 5 I T No . 5 5 7 / C T K / 2 0 1 3 s s es s m e n t Y e r : 2 0 0 8 - 0 9 liable to tax and same was to be adjusted against incidental expenses during development pending allocation. Further, there is no finding either by AO or CIT(A) that fixed deposits were not limited to project under development. 7. Ld D.R. could not controvert submissions made by ld A.R. of assessee. 8. In given facts and circumstances of case, I am of considered view that decisions of Hon ble Delhi High Court in case of Jaypee DSC Ventures :Ltd (supra) and NTPC Sail Power Company Pvt Ltd (supra) squarely apply to assessee s case. Therefore, I hold that interest of Rs.6,70,416/- earned by assessee on fixed deposit with Axis Bank is not liable to tax and was rightly adjusted by assessee against incidental expenses during development pending allocation. Hence, I delete addition of Rs.6,70,416/- made by AO and confirmed by ld CIT(A). 9. In result, appeal filed by assessee is allowed. Order pronounced in open court on 17 /10/2016 in presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 17 /10 /2016 6 I T No . 5 5 7 / C T K / 2 0 1 3 s s es s m e n t Y e r : 2 0 0 8 - 0 9 B.K.Parida, SPS Copy of Order forwarded to : 1. Appellant : M/s. Kalinga Coal Mining Pvt Ltd., C-30, Palaspalli, Aerodrome Area, Bhubaneswar 2. respondent : ACIT, Circle -1(1), Aayakar Bhavan, Rajaswa Vihar, Bhubaneswar. 3. CIT(A), Berhampur 4. CIT , Bhubaneswar 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// ASST.REGISTRAR, ITAT, Cuttack M/s. Kalinga Coal Mining Pvt Ltd. v. ACIT, Circle -1(1), Bhubaneswar
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