2021 (9) TMI 757 - AT - Income Tax

Interest Income from short term investments - Interest earned on unutilized funds - inextricably linked for the purposes of developing highway as taxable income kept in accordance with NHAI mandate with no liberty to utilize at free discretion and which was reduced from cost of project - contract has been received from NHAI and available funds were to be kept in Escrow Account - HELD THAT - There are so many stipulations contained and it is clear that there is strategic investment policy in existence and the assessee has received the income from strategic investments - Income received from the investments made from Escrow Account and deposited it into general proceedings account, is taxable under the head Income From Other Sources . Further, going through the conditions of Escrow account any value addition is made either in the form of Interest credited or profit on sale of Investments from permitted investments are to be deposited in the General Proceedings Account as per clause 8.2 (c)(iii) r.w.s. clause 8.5. Both the parties have not brought to our notice about the use of amount deposited in General Proceedings Account. If the said account is to be treated with parity to the Escrow account, then, the assessee is liable to tax on income received in the year in which the assessee is eligible to utilize the disputed amount. In view of the above observations, we remit the issue back to the file of the AO with a direction to examine the issue as per pages 8 to 14 of the paper book filed by the assessee before us. Thus, the ground raised by the assessee on this issue is treated as allowed for statistical purposes. Disallowance of interest on late payments of TDS - grievance of the revenue authorities is that the appellant has deducted TDS but not remitted to the Government Account within the stipulated time for which the appellant had to pay penal interest which has been claimed by the appellant as business expenditure - HELD THAT - As assessee has not remitted the TDS amounts within stipulated time and paid interest on TDS, which is not allowable expenditure u/s. 37(1) of the Income Tax Act, 1961. At Sl. No. 5 i.e. the income tax paid by the assessee of an amount is also not allowable as per section 37(1) of the Act. Therefore, following the said decision of M/S. GOVINDAM CLEARING AGENCIES PVT. LTD. 2020 (9) TMI 577 - ITAT JAIPUR we uphold the order of the CIT(A) in confirming the disallowance made by the AO on account of interest paid by the assessee on TDS/Income-tax. Thus, this ground of appeal of the assessee is dismissed. Restricting the TDS credit - HELD THAT - We do not find any error in restricting the TDS credit to ₹ 2,96,061/- as the assessee has not offered the corresponding receipts as income in the impugned AYs. The AO is directed to give credit in the year in which the corresponding receipts have been offered as income by the assessee and give credit after due verification as per law. The assessee is also directed to produce the necessary documentary evidence for proof of payment of TDS by the deductor in the name of the assessee. Therefore, we uphold the order of the CIT(A) on this issue and dismiss the ground raised by the assessee.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Treatment of interest earned on unutilized funds.
3. Disallowance of expenditure on interest for late payment of TDS.
4. Credit for TDS on utility shift advances and mobilization advances.

Detailed Analysis:

1. Delay in Filing Appeals:
The appeals filed by the assessees suffered from delays of 57 and 10 days respectively. The delay was attributed to the preoccupation of the companies' MDs with other important work. Citing case law such as *Collector Land Acquisition vs Mst. Katiji & Ors* and *University of Delhi Vs. Union of India*, the Tribunal held that the delay, supported by cogent reasons, deserved to be condoned to ensure substantial justice. Thus, the delays were condoned, and the cases were taken up for adjudication on merits.

2. Treatment of Interest Earned on Unutilized Funds:
The primary issue was whether the interest income of ?87,73,686/- earned from short-term investments should be treated as "Income from Other Sources" or be adjusted against the capital work in progress. The assessee argued that the funds were temporarily invested as per the mandate of NHAI and should be deducted from the capital work in progress. The Assessing Officer (AO) treated the interest as "Income from Other Sources" based on the decision in *Tuticorin Alkali Chemicals and Fertilizers Ltd.*. The CIT(A) upheld this view.

The Tribunal, after considering submissions and various judgments including *Bokaro Steels Ltd.*, noted that the funds were mandatorily invested as per the Escrow Agreement and the interest earned was inextricably linked to the project. Hence, the Tribunal remitted the issue back to the AO for examination, directing that the income should be taxed in the year it is eligible to be utilized, treating the ground as allowed for statistical purposes.

3. Disallowance of Expenditure on Interest for Late Payment of TDS:
The AO disallowed an amount of ?17,03,927/- related to interest on late payments of TDS, treating it as non-allowable under Section 37 of the Act. The CIT(A) confirmed this disallowance, stating that it was a penal interest for non-remittance of TDS, which is a serious offence.

The Tribunal referred to the decision in *Govindam Clearing Agencies Pvt. Ltd. Vs. DCIT* and other relevant cases, concluding that interest on delayed payment of TDS is not allowable as business expenditure under Section 37(1) of the Act. Therefore, the Tribunal upheld the CIT(A)'s order, dismissing the ground of appeal.

4. Credit for TDS on Utility Shift Advances and Mobilization Advances:
The AO restricted the credit for TDS to ?2,96,061/- as the corresponding receipts were not offered as income in the impugned assessment years. The CIT(A) confirmed this decision.

The Tribunal found no error in restricting the TDS credit and directed the AO to give credit in the year when the corresponding receipts are offered as income by the assessee, after due verification. The assessee was also directed to produce necessary documentary evidence for proof of TDS payment by the deductor. Thus, the Tribunal upheld the CIT(A)'s order and dismissed the ground of appeal.

Conclusion:
The appeals were partly allowed, with the Tribunal remitting the issue of interest earned on unutilized funds back to the AO for further examination and confirming the disallowance of interest on late payment of TDS and restriction of TDS credit.