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TMI Blog2008 (10) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... APSEB. In view of the Supreme Court's decision in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC), the interest income earned on margin money is exigible to tax under s. 56 of IT Act. 2. The company claimed a sum of Rs. 20,46,12,875 by way of upfront fees and included the same in the expenditure during the construction. You are required to explain the nature of upfront fees and its liability as capital expenditure. 3. The company claimed consultancy fees of Rs. 4.96 crores and consultancy charges of Rs. 3.47 crores. You are required to explain the nature of expenditure." The AO after examining the details filed, however, accepted the income returned by the assessee and made assessment at an income of Rs. 13,07,865 vide order dt. 8th March, 2002 passed under s. 143(3) of the IT Act, 1961 ('the Act'). Later on, the AO issued a notice under s. 148 dt. 29th March, 2006 after recording the following reasons appearing at p. 15 of the assessee's paper book: "In your case you have entered into an agreement with AP Transco for sale of power. As per the agreement entered into with the AP Transco and yourself, arts. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractual one. The company has kept margin with the banks for securing bank guarantee in favour of APSEB as required under PPA. If was submitted that the bank guarantee was issued only to honour the contractual obligations under PPA and in their case, the interest income was incidental to business. The assessee stated that it has not provided for margin money with an intention to earn interest but to honour the contractual obligations, but for which the project would not have come up. The assessee further submitted that interest on margin money should not be subjected to income-tax and the ratio of decision in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. vs. CIT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) should not be applied as the facts are entirely different. However, the AO has not accepted such explanation of the assessee. He observed that interest income earned by the assessee on deposits made with bank to provide, security is taxable under the head 'Income from other sources' and added the said amount to the income of the assessee and accordingly completed the reassessment on total income of Rs. 43,16,213 vide order dt. 29th Dec., 2006 passed under s. 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and for this proposition the reliance was also placed on the decision of the Hon'ble Supreme Court in Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC). He therefore, submits that the addition of Rs. 4,25,000 made by the AO and sustained by the learned CIT(A) be deleted. 8. On the other hand, the learned Departmental Representative supports the orders of the AO and the learned CIT(A). 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that during the previous year relevant to the asst. yr. 1999-2000 the power plant was under implementation stage and started commercial production i.e., generation of power w.e.f. 25th Oct., 2000. Clause 3.8 of art. 3 of PPA with Andhra Pradesh State Electricity Board (APSEB) (now AP Transco) referred to by the AO reads as under: "3.8 Any advance income-tax payable for the project in any month supported by a certificate of a chartered accountant approved by the board (such approval not to be unreasonably withheld or delayed) shall be reimbursed by the Board. After the tax assessment is completed for any ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause that any advance income-tax for the project shall be reimbursed by the board but it further says that the tax to be reimbursed will be calculated on the income from the project only. In the case before us except the income from interest, there is no other income to the assessee. The Revenue has not brought any material to show that there was any income from the project to the assessee during the financial year relevant to the asst. yr. 1999-2000. It is also not the case of the Revenue that the assessee has claimed the amount of advance tax from AP Transco or the said board has reimbursed the amount of tax to the assessee in any manner. In this view of the matter, we are of the view that the addition of reimbursement of advance tax of Rs. 4,25,000 made by the AO and sustained by the learned CIT(A) is not sustainable and accordingly the same is deleted. The grounds taken by the assessee are therefore allowed. ITA No. 479/Hyd/2008 (Revenue's appeal): 11. The Revenue has taken the following grounds of appeal: "(1) The order of the CIT(A) is erroneous in law. (2) The learned CIT(A) has erred in deleting the addition of Rs. 25,83,348 made by the AO in the reassessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be challenged on the ground of change of opinion. 5. In the case of UP State Brassware Corpn. Ltd. vs. CIT (2005) 194 CTR (All) 353 : (2005) 277 ITR 40 (All) the Allahabad High Court held "(ii) That in CIT vs. New Central Jute Mills Co. Ltd. (1979) 118 ITR 1005 (Cal), the Calcutta High Court had held that interest paid to the Government towards the loan obtained for erection of chemical plant pending starting of business could not be allowed as revenue expenditure. The principles laid down by the Calcutta High Court did constitute information on a point of law which should be taken into consideration by the ITO in forming his belief that the income to that extent had escaped assessment to tax. The reassessment was valid." 6. In the case of ITO vs. Saradbhai M. Lakhani Anr. (2000) 161 CTR (SC) 298 : (2000) 243 ITR 1 (SC) the Hon'ble Supreme Court held, reversing the decision of the High Court, that the information which wa1? received by the ITO was the decision of the Gujarat High Court in Banyan Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (Guj). When the ITO became aware of this decision, he could initiate the proceedings under s. 147(b) of the IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee which we have already reproduced in para 2 of this order. In point No. 1 of the said notice the AO has raised specific query that in view of the decision of Hon'ble Supreme Court in Tuticorin Alkali Chemicals Fertilizers Ltd. the interest income earned on margin money is exigible to tax under s. 56 of IT Act. The assessee vide is letter dt. 28th Dec., 2006 has inter alia submitted that the interest income is incidental to business and the provision for margin money is not with an intention to earn interest but to honour the contractual obligations but for which the project would not have come up. However, the AO was of the view that interest income earned by way of deposits in banks to provide security is an income to the assessee and taxable under the head "Income from other sources" and accordingly he rejected the deduction claimed by the assessee. 16. On appeal, the assessee while reiterating the same submissions, further submits that in response to the query raised by the AO, the assessee furnished full details in respect of the claim for deduction of the amount of Rs. 25,83,348 during the course of original assessment proceedings under s. 143(3) on 21st Jan., 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above proviso to s. 147 provides that an assessment, which has been completed under s. 143(3) or s. 147 can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessee to file a return of income or to disclose fully and truly all material facts necessary for his assessment. 18. At this juncture, it would be advantageous to take note of some of the judgments of the Hon'ble apex Court, High Courts and Tribunals, wherein the position of law on this aspect of the matter has been clearly enunciated. 19. In V. Jaganmohan Rao Ors. vs. CIT (1970) 75 ITR 373 (5C), it has been observed and held: "..........once proceedings under s. 34 are taken to be validly initiated with regard to two-thirds share of the income, the jurisdiction of the ITO cannot be confined only to that portion of the income. Sec. 34 in terms states that once the ITO decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under s. 22(2) and may proceed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en brought to tax during the course of the original assessment......" 21. In the case of Rama Boiled Modern Rice Mill vs. ITO (2006) 99 TTJ (Hyd) 607 : (2005) 97 ITD 379 (Hyd), it has been held at p. 387 as under: "...... Sec. 147 also empowers the AO to reassess such income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Therefore, the AO was justified in assessing not only the items in respect of which he has initiated reassessment proceedings but also other items of income." 22. In the ease of Poonam Rani Singh vs. Dy. CIT (2006) 99 TTJ (Del) 1167 : (2005) 97 ITD 390 (Del), on the following issue: Para 10(ii) "Whether, while making assessment, the AO can bring to charge items of income, which had escaped assessment other than or in addition to those items on the basis of which notice under s. 148 of IT Act was issued?" In answer to the above issue, the Tribunal held: "In view of the above discussion it is to be held that the AO is fully competent and entitled to consider other items of income also if such items of escaped income come to his notice during the course of assessment proceedings and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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