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TMI Blog2021 (7) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... AT CHANDIGARH] We hold that the interest received to the extent of ADB loan parked in investments in FDRs is not revenue in nature and not liable to be taxed under the head income from other sources - Decided in favour of assessee. - ITA Nos. 789/Chd/2019 & 790/Chd/2019 - - - Dated:- 24-6-2021 - Annapurna Gupta, Member (A) And R.L. Negi, Member (J) For the Appellant : Vishal Mohan, Adv. For the Respondents : C. Chandrakanta, CIT, DR ORDER Annapurna Gupta, Member (A) The above two appeals have been preferred by the same assessee against the consolidated order of the Learned Commissioner of Income Tax (Appeals) [in short the 'Ld. CIT(A)], Shimla dated 28.03.2019 relating to assessment years 2014-15 and 2015-16 respectively, passed u/s. 250(6)) of the Income Tax Act, 1961 (hereinafter referred to as 'Act') 2. A delay of 175 days was marked by Registry in the filing of both the appeals. An Application seeking condonation of the delay was filed stating therein that the appeal had been filed within time, however, the appeal fees had been deposited under the wrong head and despite the best efforts of the applicant the head could not be got ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting fees afresh in the correct head, legitimatized the appeal filed on the original date itself. Therefore, we hold in the present facts and circumstances, there was no delay in filing the appeal at all. 6. In any case it stands reasonably demonstrated that the delay was inadvertent. That the defect in filing the appeal was not deliberate and corrective action was taken by the assessee immediately on being notified of the defect. The delay if any therefore deserves to be condoned. And was accordingly done so in open court. 7. Thereafter proceeding with the appeal, it was common ground that a solitary and identical issue was raised in both the appeals, relating to the treatment of interest earned on fixed deposits made out of funds of the assessee in the period prior to commencement of business, whether 'revenue or capital'. 8. Since the issue involved was identical in both the appeals they were taken up together for hearing and are being disposed off by a common order. For the sake of convenience, we shall be dealing with the facts in ITA No. 789/Chd/2019 relating to assessment year 2014-15 and our decision rendered in this appeal shall also apply mutatis mutandis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO rejected the same pointing out that identical arguments and submissions had been rejected by the ITAT in the case of the assessee itself in the appeal for assessment year 2010-11 and that the issue was squarely covered by the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. Vs. CIT (1997) 227 ITR 172 (SC). Accordingly, the interest of ₹ 11,64,79,756/- was assessed to tax in the hands of the assessee as 'income from other sources . 11. The matter was carried in appeal before the Ld. CIT(A) who upheld the order of the AO stating that no distinguishing facts had been pointed out by the assessee from the preceding years wherein the issue had been decided against the assessee by the ITAT. The relevant findings of the Ld. CIT(A) at para 5.2 to 5.2.2 of the order are as under: 5.2 The issue is regarding the taxability of interest income received on the funds parked with various banks or otherwise as mentioned above. The issue under consideration is not a new issue. This is a decided issue against the assesses by CIT(A) in its own cases for the A.Y. 2010-11 2011-12 in appeal No. IT/74/2013-14/Sml dated 27/06/2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preceding years as detailed supra. 5.2.2 Therefore, it is held that there is no infirmity in the order of the A.O. and the order of the A.O. in making the addition of ₹ 11,64,79,756/- on account of 'income from other sources' needs no interference and the same is confirmed. In the result, order of the A.O. upheld and the appeal of the assessee is dismissed. 12. Before us the Ld. Counsel for the assessee though fairly admitted that the findings of the authorities below was correct that this issue had been adjudicated in the preceding years also against the assessee by the ITAT, but at the same time he pointed out that certain facts distinguished the case of the assessee from the preceding years and in view of those facts the issue stood squarely covered by the order of the ITAT in the case of M/s. H.P. Power Corporation Ltd. in ITA No. 842/Chd/2014 for assessment year 2010-11 which had adjudicated in favour of the assessee. He first drew our attention to the order of the ITAT in the case of M/s. H.P. Power Corporation Ltd. (supra) placed before us at paper book page no. 42-47 and drew our attention to the specific findings of the ITAT at para 8 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y more interest as against the small interest received by assessee. Therefore, if any adjustment is made against interest paid, still there is a liability of the assessee to pay interest on the loans. The assessee also explained that for effective funds management, the temporary surplus funds were kept in short term bank deposits and thereafter, interest was earned and so was also used for construction of the project and for paying interest to the power finance company which have not been adversely commented upon by the authorities below. Therefore, the reliance of the Assessing Officer on the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT (supra) was totally misplaced. The Hon'ble Supreme Court in the case of CIT vs. Bokaro Steel Ltd. held as under: Held, dismissing the appeal, that the first three heads of income were (i) the rent charged by the assessee to its contractors for housing workers and staff employed by the contractor for the construction work of the assessee including certain amenities granted to the staff by the assessee, (ii) hire charges for plant and machinery which was given to the contractors by the assessee for use in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to commencement of business it was in the nature of a capital receipt and was required to be set off against pre-operative expenses. 13. Considering the facts of the case in the light of the above decisions, it is clear that the funds with the assessee, even if temporarily used for savings/short term deposits, but the earning of the interest were directly connected with work of construction of the project employed by the assessee. Therefore, the earning of interest could not be treated as income from other sources, since the income was earned in the period prior to commencement of the business and it was the nature of capital receipt and was required to be set off against pre-operative expenses. We, therefore, set aside the orders of authorities below and delete the addition of ₹ 83,06,897/-. However the details of these funds are not available on record therefore, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction to examine bifurcation of funds borrowed by the assessee and funds owned by the assessee. Interest earned on account of funds borrowed should not be subjected to tax and only interest on balance surplus fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts shall be the Rupee. The aggregate amount to be expenditure to be deposited into the imprest accounts shall not exceed the lower of (i) the estimated expenditure to be financed from the imprest accounts for the first 6 months of Project implementation, or (ii) the equivalent of 10% of the Loan amount. 14. Referring to the same he pointed out that the loan disbursed could not have been used by the assessee for any purpose other than that for which it was granted being funding of four Transmission projects as mentioned in the agreement as under :(P.B. 3) Whereas the Government of India is taking a loan of 350 million US Dollar from Asian Development Bank in various branches under Himachal Pradesh Clean Energy Transmission Investment Programme for execution of various Transmission projects covered in Power, System Master Plan for Himachal Pradesh. Out of the above loan of 350 Million US Dollar, Tranche-1 loan of 113 Million US Dollar shall fund following four number Transmission Projects: i) 22/66/220 kV, '(22/66 kV, 2x10 MVA +66/220 kV, 31.5 MVA) GIS sub station at Bhoktoo in Distt. Kinnaur with LILO of one circuit of 220 kV Kashang-Bhaba D/C line. ii) 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by the assessee in the preceding year also. She, therefore, stated that there were no distinguishing facts from the preceding year and the issue had been rightly held to be covered by the order of the ITAT in the case of the assessee for the preceding year. 17. We have heard the contentions of both the parties and have also gone through the orders of the authorities below and documents referred to before us. The issue to be adjudicated is regarding the treatment of interest received on FDRs/Deposits made out of funds during the period pertaining to the pre-commencement of business of the assessee, which has been held to be taxable as being revenue in nature by the Revenue Authorities, while the assessee claims the same to be capital in nature. 18. The contention of the Ld. Counsel for the assessee is that though admittedly identical issue stands decided against the assessee in the preceding years but the facts are distinguishable and the facts are, on the contrary, identical to that in the case of M/s. H.P. Power Corporation Ltd. (supra) where the issue was decided in favour of the assessee. 19. We have gone through the aforementioned orders of the ITAT. In the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore held not taxable. 21. In the present case the Ld. Counsel for the assessee has drawn our attention to the facts pointing out that the loans had been taken from ADB by the assessee also amounting to ₹ 11,056 lacs on which interest income of ₹ 246.96 lacs had been earned and that these loans were to be utilized for specific projects and on account of delay in the project in the project the same had been parked in temporary funds. The aforesaid facts, clearly, are identical to that in the case of M/s. H.P. Power Corporation Ltd. (supra). 22. Moreover, the facts in the present case have been demonstrated before us to be distinguishable from that in the preceding year in the case of the assessee where only surplus funds were found to be available with the assessee. No doubt in the preceding year also interest was earned on ADB funds(specific purpose funds) deposited in FDR's, but the same was a meager amount of ₹ 3.34 lacs as against interest earned on other funds of ₹ 1206.78 lacs, which facts are recorded in the annual accounts of the assessee. While in the impugned year the amount of interest earned on ADB funds is ₹ 246.96 lacs while ..... X X X X Extracts X X X X X X X X Extracts X X X X
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