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TMI Blog2013 (6) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibited grant as well as interest from any use, except the purposes given in the approval letter. In case of project is not materialized the same has not be repaid to the respective agencies with interest. The case laws cited by the appellant i.e. Gujarat Municipal Finance Board v. DCIT (supra), are squarely applicable. It is true that the appellant had been granted refunds on the basis of TDS Certificate, even though, income earned by way of the interest earned on FDs had not been disclosed as income but the appellant has to refund the grant/contribution with interest to the Government of India and GHB. Thus, we have considered view that in both the years, the CIT(A) was not justified in confirming the addition. Accordingly, appeals in both years are allowed. - ITA No. 1079 & 1080/Ahd/2010 - - - Dated:- 15-2-2013 - Shri D. K. Tyagi And Shri T. R. Meena,JJ. Shri S. N. Soparkar, Sr. Adv. With Ms. Urvashi Shodhan, A.R. By Appellant Shri Y. P. Verma, Sr. D. R. ORDER These two appeals are filed by the Assessee in ITA Nos. 1079 1080/Ahd/2010, which have been emanated from the orders of the learned CIT(A)-IV, Surat, dated 23-11-2009 for both A.Ys. 2006-07 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (Appeals) has not at all property construed the ratio of the judgements and was not justified in not giving deduction based on the above. (4) The Learned Commissioner of Income-tax (Appeals) further erred in not considering the copy of computation and final accounts of Gujarat Hira Bourse for the year ended 31.03.2008 by treating as additional evidence when this evidence was called for by the predecessor of the Commissioner of Income-tax (Appeals) and, therefore, admissible as per para 4 of Rule 46A of the Income-tax Rules, 1962 and ought to have been taken into consideration." The amount of interest is different in both the years. 2. The assessee company filed return of income both the years on declaring income at Nil filed on 31.03.2006 23.03.2007 respectively. The asseessee is a Private Limited Company engaged in development of SEZ, Diamond Training Institution and other such infrastructure to promote the diamond industry to a worldwide level. In A.Y. 05-06, the scrutiny assessment was made u/s.143(3) r.w.s. 147, whereas in A.Y. 06-07 u/s. 143(3) of the IT Act. In A.Y. 05-06, the appellant received interest from Bank of India to the extent of Rs. 21,22,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t earned on the grant and contribution not earned by it as grant and contribution is alongwith interest was either belonged to Central Government or GHB. There was a rider on this grant/contribution. He further placed reliance on Hon'ble Gujarat High Court decision in case of Gujarat Municipal Finance Board v. DCIT (1996) 221 ITR 317, 336, wherein the Hon'ble Gujarat High Court has categorically held that interest received in respect of Grant in Aid cannot be treated as income of the assessee in view of the specific directive of the Government that interest earned will be treated as part of Grant - in Aid. Thus, it was argued before the A.O., the interest accrued on money kept with bank during the pre-construction period cannot be treated as income of the assessee. Alternatively, it was argued that the appellant is a custodian of the grant/contribution. It had no power to use/spend the money on its own. The project in the year under consideration could not take off as the notification for declaring the SEZ was not received from Central Government as well as there were number of hitches in allotment of land by GIDC and other Government approvals. Thus, the funds remain idle in bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A), who has confirmed the addition by considering the reply of the assessee, dated 21.04.2009 10.08.2009. Ld. CIT(A) observed that as per letter dated 24.11.2004 of department of Industrial Policy and Promotion of Ministry of Commerce and Industry, Government of India had conveyed the approval of the Government of India for upgradation of infrastructure facilities at Gems and Jewellery cluster, Surat under the Industrial Infrastructure Upgradation Scheme (IIUS), 2003, at the tentative cost of Rs. 85 crores, which was in confirming of grant from the Central Government and contribution by the user Industry. The project was to start within the time of six months and was to be completed within 24 months. Certain conditions also laid down by the Central Government. The initial grant was given by the Central Government at Rs.16.70 crore and contribution from GHB was Rs.5.56 crores. Both the funds were made available to the appellant company, which were deposited in the Escrow Account/FD account. The appellant earned interest on both funds as mentioned above. He supported the findings of the A.O. that in case of company had not commenced its business did not mean that the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook which is reply to the CIT(A), page no. 71 which is copy of letter dated 24.11.2004 Ministry of Commerce Industry, Department of Industrial Policy Promotion, approval for upgradation of infrastructure facilities at Gems Jewellery cluster, Surat, Gujarat for under Industrial Infrastructure Upgradation Scheme (IIUS), 2003. He further drawn our attention in item nos. 1,4,6,9 10 as per this approval, the grant of Central Government by the Government of India would be utilized only for sub-project mentioned in this letter. Any deviation there from would require the approval of the Government of India in writing. The next installment shall be released before getting utilization certificate and depend upon the contribution made by the promoter. As per page no. 51, the interest earned on the central grant already released would form part of the Central Grant Limit of Rs. 50 crore. Thus, it was contended that interest earned on the Escrow/FDs Accounts was grant as per Government of India letter dated 20.02.2007. GHB released its contribution alongwith the interest vide letter dated 26.07.2008. As per page no.15 of the paper book, the appellant had shown interest earned on Escrow ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustee of the Government of Gujarat. The Hon'ble Apex Court decision in case of Tuticorin Alkali Chemical and Fertilizers Ltd. (supra), was not applicable as the assessee had earned interest out of investment made from the borrowed funds prior to the commencement of the business. It was in this background, that the Hon'ble Apex Court held that such interest would be taxable and interest earned cannot be utilized to discharge liability for payment of interest. It was held that this was not a case of diversion of income by overriding title and that the deduction of set off against interest liability on the borrowed funds would not be permissible. Thus, the appeal is allowed in favour of the Revenue against the assessee by the Hon'ble Apex Court. At the outset, ld. Sr. D.R. vehemently relied upon the order of the CIT(A) and A.O. and argued that the appellant had taken credit on TDS deducted on interest in his return. As per Section 198, the appellant has to show the interest income in respective return. Thus, he argued for the confirmation of the order of the lower authorities. 5. We have heard the rival contentions and perused the materials on record. The appellant was a custodian ..... X X X X Extracts X X X X X X X X Extracts X X X X
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