2021 (3) TMI 476 - AT - Income Tax

Setting off of Interest income with interest paid - 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 - HELD THAT - Tribunal has vide adjudicating Revenues appeal for ay 2013-14 and 2014-15 2021 (2) TMI 69 - ITAT ALLAHABAD set aside and restored the matter to the file of ld. CIT(A) for fresh determination of the issue with certain directions . Thus Respectfully following aforesaid decision of tribunal we are setting aside the appellate order passed by ld. CIT(A) on this issue and remitting the matter back to the file of ld. CIT(A) to decide this issue afresh on merits with the same directions as were given by us while adjudicating appeal for ay 2013-14 and 2014-15. The ld. CIT(A) will also look into specific additional contention of ld. CIT-DR that the bank is creating bank deposits because it is assessee who has itself given standing instructions to the bank shall also be looked into by ld. CIT(A) while adjudicating appeal denovo. Interest earned by assessee from IVRCL and M.G. Contractors for advances paid for execution of certain work - HELD THAT - We are also restoring the matter back to the file of ld. CIT(A) with a similar direction as above to look into the terms and conditions of the contract and the deposit made by the assessee with the contractors to see that whether the said deposits were made by assessee to contractors as part of the terms and condition of the contract for construction of the assessee project and if that be so then in that case it is to be held that the interest earned by assessee from said advances to contractors for carrying on said deposits is inextricably linked with the construction activity of the assessee for setting up of the project and hence it will go on to reduce the project. Reference is made to ratio of decision of Hon ble Supreme Court in the case of CIT v. Bokaro Steel Ltd 1998 (12) TMI 4 - SUPR EME COURT which shall than be applicable but If however ld. CIT(A) after investigation of the fact is of the view that the aforesaid interest income is earned by assessee on surplus funds deployed by the assessee to earn interest income then in that situation ratio of decision of Hon ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT 1997 (7) TMI 4 - SUPREME COURT shall be applicable.This issue is also allowed for statistical purposes. Nature of receipt - Forfeiture of EMD received from the contractors on account of non performance of the contract - assessee has not yet commenced commercial operations and its power plant is under construction during the year under consideration - HELD THAT - As decided in own case 2021 (2) TMI 69 - ITAT ALLAHABAD we are deciding this issue in favour of the assessee and the said receipt on account of forefeiture of EMD which were given by contractors to assessee on account of non performance of contract during the construction period of the project are held to be capital receipt which will go on to reduce the project cost.

Issues Involved:
1. Addition of interest received from banks during the construction period.
2. Addition of interest received on advances given to contractors.
3. Addition of forfeiture of earnest money and other miscellaneous recoveries from contractors.
4. Treatment of income earned before the commencement of business.
5. Non-appreciation of case laws cited by the assessee.
6. Non-following of the jurisdictional ITAT order in assessee’s own case for previous assessment years.

Detailed Analysis:

1. Addition of Interest Received from Banks During the Construction Period:
The assessee argued that the interest received from banks during the construction period, amounting to ?6,80,71,611 for AY 2015-16 and ?3,24,20,976 for AY 2016-17, should be considered as a capital receipt. The assessee claimed this interest pertains to a period when the business had not yet commenced and should be adjusted against pre-operative expenses, reducing the cost of the project. The Tribunal referred to its previous order dated 29.01.2021 for AY 2013-14 and 2014-15, where it was held that interest income from bank deposits should be taxed under "Income from Other Sources" as per the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. The Tribunal remitted the matter back to the CIT(A) for fresh adjudication, considering whether the bank deposits were made at the behest of the bank or by the assessee's standing instructions.

2. Addition of Interest Received on Advances Given to Contractors:
The assessee contended that the interest received from advances given to contractors for construction work, amounting to ?1,49,85,443 for AY 2015-16 and ?6,39,33,174 for AY 2016-17, is inextricably linked with plant setup activities and thus should be treated as a capital receipt. The Tribunal directed the CIT(A) to examine the terms and conditions of the contracts and the nature of the deposits made with the contractors. If the deposits were part of the contract terms for construction, the interest income should reduce the project cost. If the deposits were surplus funds, the interest income should be taxed under "Income from Other Sources" as per the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd.

3. Addition of Forfeiture of Earnest Money and Other Miscellaneous Recoveries from Contractors:
The assessee argued that the forfeiture of earnest money and other miscellaneous recoveries from contractors, amounting to ?3,33,000 for AY 2015-16 and ?7,85,000 and ?82,98,814 for AY 2016-17, are inextricably linked with plant setup activities and should be treated as capital receipts. The Tribunal referred to its previous order for AY 2013-14, where it was held that such receipts are capital in nature if they are linked to the project under implementation and should reduce the project cost as per the Supreme Court's decision in Bokaro Steel Ltd. The Tribunal decided this issue in favor of the assessee, treating the forfeiture of earnest money as a capital receipt.

4. Treatment of Income Earned Before the Commencement of Business:
The assessee claimed that since the income was earned before the commencement of business, it should be capitalized and treated as a capital receipt. The Tribunal reiterated its stance from previous orders that such income should be examined in light of the specific facts of each assessment year and relevant judicial precedents.

5. Non-Appreciation of Case Laws Cited by the Assessee:
The assessee argued that the CIT(A) did not appreciate the case laws cited, which were binding and covered the controversy. The Tribunal acknowledged the need for CIT(A) to consider relevant case laws and judicial precedents while adjudicating the issues afresh.

6. Non-Following of the Jurisdictional ITAT Order in Assessee’s Own Case for Previous Assessment Years:
The assessee contended that the CIT(A) erred by not following the jurisdictional ITAT order in the assessee's own case for previous assessment years. The Tribunal emphasized the importance of consistency and directed the CIT(A) to consider the previous ITAT orders and relevant judicial precedents while re-adjudicating the issues.

Conclusion:
The Tribunal condoned the delay in filing the appeals and remitted the matters back to the CIT(A) for fresh adjudication on the merits, considering the specific facts of each assessment year and relevant judicial precedents. The appeals for AY 2015-16 and 2016-17 were partly allowed for statistical purposes.

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