9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (2) TMI 69 - AT - Income TaxChargeability to income-tax of interest income which was earned by assessee from deposits placed with the Banks - eligibility to relief to the assessee by following decision of tribunal in assessee s own case for earlier years - principles of resjudicata - assessee had claimed that it was setting up power project during the year under consideration and commercial production has not started till the end of ay, and hence the said interest income earned by assessee is to be set off against the interest paid by the assessee on term loan availed by it for setting up of power generation plant, which will go on to reduce cost of project - AO disallowed the said setting off of the interest income by referring to provisions of Section 5 - HELD THAT - As observed that every assessment year is a separate assessment year and principles of resjudicata are not strictly applicable, but we are also fully aware that consistency has to be followed. The reference is made to the decision of Radhasoami Satsang v. CIT 1991 (11) TMI 2 - SUPREME COURT . As observed in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. 1991 (11) TMI 2 - SUPREME COURT has observed that even during the period when commercial production has not started but the funds were invested in the bank FDR etc. the interest income has to be brought to income-tax under provisions of Section 56 under the head Income from other sources , and setoff cannot be allowed against interest on term loans secured by tax-payer from Financial Institutions which would be capitalized after the commencement of commercial production. The facts for the earlier years viz. ay s 2009-10 and 2010-11 were clearly peculiar as it was at the behest of bank the deposits were created, which were automatically reversed by the bank, when the assessee required the funds towards implementation of the project. Thus, finding was given by tribunal that there was no surplus funds held by assessee and interest income was inextricably linked with the construction and acquisition activities in the regular course of the assessee activities. In the impugned assessment year 2013-14 which is in consideration before us, it is observed that there was a further infusion of capital in equal proportion by both the promoters and the assessee has earned interest income on deposits made with the bank which was sought to be set off by assessee against interest paid to bank on term loans availed for setting up of the project. But here during the impugned assessment year s, there are no such further findings as were there in ays 2009-10 and 2010-11 as to whether the surplus funds were deployed by assessee with deposit with banks on which interest income was received or short term deposits were created at the behest of the bank which were automatically credited by bank when the assessee required the funds for the project execution, and the ld. CIT(A) has merely followed the appellate order passed by the tribunal for earlier ay s 2009-10 and 2010-11 . The power of ld. CIT(A) are co-terminus with the power of the Assessing Officer, and the ld. CIT(A) is duty bound to make enquiries to give finding that facts as are prevalent in the current year are similar/para materia to the facts of the earlier year and hence the appellate order passed by tribunal for earlier year is to be followed. Since there is no clear finding given by the ld. CIT(A) in the fitness of thing it will be appropriate that this issue is restore to the file of ld. CIT(A) for deciding the above issue afresh after considering the facts for impugned assessment year vis- vis facts prevalent in ay 2009-10 and 2010-11, and also after considering the decision of Tuticorin Alkali Chemicals Fertilizers Ltd. 1997 (7) TMI 4 - SUPREME COURT and Sangam Power Generation Company Limited 2017 (9) TMI 737 - ALLAHABAD HIGH COURT and Pryagraj Power Generation Company Ltd. 2017 (9) TMI 824 - ALLAHABAD HIGH COURT . In the interest of justice and fairness to both the rival parties, we restore the matter back to the file of the ld. CIT(A) for fresh consideration and denovo determination of the issues on merits in accordance with law. The ld. CIT(A) is directed to provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law and evidences/explanations filed by assessee in support of its contentions shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We clarify that we have not commented on the merits of the issue in appeal. Characterization of income - forfeiture of earnest money from the contractors, forfeited and appropriated by the assessee - constituted business income or income from other sources or capital receipt and as such was not liable to be taxed - commercial production has not yet started of the project - HELD THAT - The finding by ld. Assessing Officer/ld. CIT(A) that earnest money(EMD) given by contractors was forfeited by assessee on account of non completion of work and other miscellaneous recoveries were made from contractors. It is undisputed that power plant project of the assessee was under implementation during the impugned ay 2013-14 and commercial production has not yet started during the impugned assessment year. In this case, it is undisputed contractors has given earnest money (EMD) to the assessee and since they could not complete the work in time the assessee has forfeited the amount, and also there were miscellaneous recoveries from contractors. The commercial operations of the power plant has not yet commenced during the impugned ay and the project was under implementation. Thus, the receipts are inextricably linked to the project and the ratio of case of Bokaro Steel Ltd. 1998 (12) TMI 4 - SUPREME COURT wherein held that if the receipt are inextricably linked to the project under implementation then the same are be treated as capital receipt which will go on to reduce cost of project, shall be applicable and hence we are of the view that these are capital receipt and they cannot be brought to tax and shall go on to reduce the cost of the project - Decided in favour of assessee.
Issues Involved:
1. Taxability of interest income earned from bank deposits. 2. Taxability of forfeiture of earnest money and other miscellaneous recoveries from contractors. Issue-wise Detailed Analysis: 1. Taxability of Interest Income Earned from Bank Deposits: The primary issue in the Revenue’s appeals for the assessment years 2013-14 and 2014-15 is the chargeability to income-tax of interest income amounting to ?1,67,02,568/- earned by the assessee from deposits placed with banks. The assessee claimed that this interest income should be set off against the interest paid on term loans for setting up a power generation plant, thereby reducing the cost of the project. The Assessing Officer (AO) disallowed this setting off and brought the interest income to tax under Section 5 of the Income-tax Act, 1961, referencing the Supreme Court decision in Tuticorin Alkali Chemicals & Fertilizers Limited v. CIT (1997) 227 ITR 172 (SC). The Commissioner of Income-tax (Appeals) [CIT(A)] allowed the assessee’s claim, following the tribunal’s decision in the assessee’s own case for the assessment years 2009-10 and 2010-11. The CIT(A) held that the interest income should be set off against preoperative expenses, thus reducing the project cost. Upon appeal by the Revenue, the tribunal restored the matter back to the CIT(A) for fresh consideration. The tribunal directed the CIT(A) to re-examine the issue, considering the peculiar facts of the earlier years, the Supreme Court decision in Tuticorin Alkali Chemicals, and the Allahabad High Court decisions in the cases of Sangam Power Generation Company Ltd. and Prayagraj Power Generation Company Ltd. The CIT(A) was instructed to provide proper and adequate opportunity to the assessee and to adjudicate the matter on merits. 2. Taxability of Forfeiture of Earnest Money and Other Miscellaneous Recoveries from Contractors: The assessee appealed against the addition of ?1,91,40,000/- on account of receipts from forfeiture of earnest money and other miscellaneous recoveries from contractors, which were held to be taxable under the head ‘income from other sources’ under Section 56 of the Act. The CIT(A) upheld the AO’s decision, stating that the forfeited amounts constituted income in the hands of the assessee. The tribunal, however, reversed the CIT(A)’s decision. It held that the receipts from forfeiture of earnest money and other miscellaneous recoveries were inextricably linked to the project under implementation and should be treated as capital receipts, reducing the cost of the project. This decision was based on the Supreme Court ruling in the case of Bokaro Steel Ltd., which held that receipts linked to the construction and acquisition activities of a project should be treated as capital receipts. Conclusion: - The appeals by the Revenue for the assessment years 2013-14 and 2014-15 were allowed for statistical purposes, with the matter being remanded back to the CIT(A) for fresh consideration. - The assessee’s appeal for the assessment year 2013-14 was allowed, with the tribunal holding that the forfeiture of earnest money and other miscellaneous recoveries should be treated as capital receipts, reducing the project cost. Order Pronouncement: The order was pronounced in the open Court on 29/01/2021 through video conferencing.
|
