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TMI Blog2025 (2) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... elay is requested. After hearing both the parties, it is observed that there are sufficient reasons for the delay and following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, delay in filing both the appeals before the Tribunal is condoned. 3. Since the issues involved in both the appeals are identical, only change in figures, therefore for the sake of convenience and brevity, we are taking first ITA No.857/Bang/2024 and the decision of this appeal shall apply mutatis and mutandis to ITA No.858/Bang/2024. The grounds of appeal are as follows:- "Whether in the facts and circumstances of the case, the Ld. CIT(A) was right in law in not following the settled law of the Hon'ble Apex court in the case of Tuticorin Alkali Chemicals and Fertilizer Ltd, reported in 227 ITR 172 wherein it has been clearly held that if the capital of the company is fruitfully utilized instead of keeping it idle, the income generated will be of revenue nature and not accretion to capital? 2. Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in law in holding that the company is a nod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received on such grant was offered as income without claiming as exempt income. The AO allowed expenses claimed as per P&L account of Rs. 23,00,829 and assessed income at Rs. 13,67,46,710. Aggrieved from the above order, the assessee filed appeal before the First Appellate Authority (FAA) 5. The ld. FAA allowed the appeal of the assessee by observing as under:- "Decision: The AO had made the additions for the following reasons: * The appellant is incorporated as a company under the Companies Act. * The interest income is revenue in nature and any deduction, if any, should have been claimed as per the provisions of the income tax act. However, the appellant did not claim any deduction * Ratio in Tuticorin Alkali Chemicals of the Apex Court and the Kedar Narain Singh vs CIT is applicable to the facts of the case. On the contrary, the appellant made out a clear case as to why these decisions are not applicable in its own case for the assesses in those cases had a business purpose and reiterated that the appellant is a nodal and implementing agency with no business purposes. It drew attention to the plethora of legal precedents squarely applicable to the facts of its case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of India for implementation of Smart City Scheme. The respondent assessee receives grants from the Central and State Government for implementation of Smart City Scheme. The grants so received are parked in the bank account of the respondent until the time the same is used for the purposes of the smart city project. Interest on the deposits accrues and has been received for both these assessment years. The interest earned by the respondent assessee on the aforementioned funds for the years under appeal are as under:" AY Interest 2017-18 Rs. 13,90,47,536/- 2018-19 Rs. 16,65,00,533/- 5. It is submitted that from the financial year relevant to the assessment year 2017-18, the Respondent assessee is subject to the General Financial Rules, 2017 issued by the Ministry of Finance effective from 11/02/2017. The relevant extracts of the General Financial Rules, 2017 are placed at Page 01 of these submissions. It is submitted that the Grants received by the respondent from the Central Government are covered by Chapter IX : Grants-In-Aid and Loans of the General Financial Rules, 2017 [see Page 02 to 13 of these submissions]. 6. It is submitted that in accordance with Rule 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]; 9. It is also relevant to point out here that vide order dated 11/11/2021 [copy placed at Page 28 to 34 of these submissions], the Government of Karnataka has adjusted the accrued interest against the contribution by the Government of Karnataka pending to be released towards the smart city mission. In other words, the interest on the deposits has been ultimately used or applied for the smart city project being implemented by the Respondent assessee either by way of adjustment against future grants or by repaying the same to the Consolidated Fund of India. 10. Thus, it is submitted that the interest earned by the respondent during the assessment year 2017-18 and 2018-19 has been utilized in the manner explained above and cannot be considered to form a part of the income of the respondent assessee. 11. Apart from the aforesaid query, the Hon'ble Bench had also enquired about the status of assessment for the subsequent assessment years. It is submitted that the income reported by the respondent has been accepted u/s 143[1] of the Act for the assessment years 2019-20 to 2022-23. The details of the same are tabulated below for ease of reference: AY Date of Intimation pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. BANGALORE METRO RAIL CORPORATION, BENGALURU. 208 216 CIT[A] 15. Copy of the decision of the Hon'ble High Court of Karnataka, in the case of M/s. KARNATAKA URBAN INFRA- STRUCTURE DEVELOPMENT AND FINANCE CORPORATION reported in 284 ITR 582. 217 218 CIT[A] 16. Copy of the decision of the Hon'ble High Court of Karnataka in the case of M/s. KARNATAKA URBAN INFRA- STRUCTURE DEVELOPMENT AND FINANCE CORPORATION reported in 315 ITR 301. 219 220 CIT[A] 17. Copy of the decision of the Hon'ble High Court of Karnataka in the case of M/s. KARNATAKA STATE AGRICUTLURAL PRODUCE PROCESSING AND EXPORT CORPORATION LTD reported in 377 ITR 496. 221 224 CIT[A] ASST.YEAR 2018 - 19 18. Copy of the acknowledgement for having filed the return of income on 27/10/2018 along with the computation of total income, financials and Audit report in Form 3CA and 3CD of the Act. 225 245 AO Et CIT[A] 19. Copy of the Notice U/s 142[1] of the Act dated 07/01/2021 246 248 AO 20. Copy of the reply dated 14/01/2021 in response to the above notice u/s. 142[1] of the Act 249 252 AO 21. Copy of the Notice u s 142[1] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is concerned, it is not disputed by either of the parties that the grant received from the Central Government, which was not immediately utilized was kept in short term deposits in the banks and interest income was earned on such deposits. In fact, as it would appear from the materials on record, the assessee itself was treating such interest income as its business income and claimed deduction under S.80IA of the Act on such income. However, the fact remains that the Central Government in the Ministry of Commerce and Industry, through its Department of Industrial Policy and Promotion, had issued a letter dated 5th December, 2011 to all the SPVs implementing the IIUS projects, giving certain instructions. Clause 7 of the said letter reads as under:- "(vii) Amount of interest earned actually so far on the central grant released to the SPV. The SPV shall not utilize the interest earned on the grant so released it for any purpose. The interest earned shall be indicated in the UC which can either be adjusted in next release or to be refunded to Government of India after grants-in-aid sanctioned is utilized." A plain reading of the aforesaid clause would make it clear that the Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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