Konaseema Power Corporation Limited, Hyderabad v. ITO, Hyderabad

ITA 1033/HYD/2006 | 2002-2003
Pronouncement Date: 13-01-2011 | Result: Allowed

Appeal Details

RSA Number 103322514 RSA 2006
Assessee PAN AABCK4135E
Bench Hyderabad
Appeal Number ITA 1033/HYD/2006
Duration Of Justice 4 year(s) 2 month(s) 4 day(s)
Appellant Konaseema Power Corporation Limited, Hyderabad
Respondent ITO, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 13-01-2011
Assessment Year 2002-2003
Appeal Filed On 09-11-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.1253/H/2004 ASSESSMENT YEAR 2001-02 THE ITO WARD 2(1) HYDERABAD VS. KONASEEMA POWER CORPORATION LIMITED HYDERABAD (PAN AABCK 4135E) (APPELLANT) (RESPONDENT) ITA NOS.1033 & 1034/H/2006 ASSESSMENT YEAR 2002-03 & 2003-04 KONASEEMA POWER CORPORATION LIMITED HYDERABAD (PAN AABCK 4135E) VS. THE ITO WARD 2(1) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. V. MADHUVANI DR RESPONDENT BY: SHRI G. SARANG & SH.C.N. PRASAD O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THE APPEALS IN ITA NOS.1033 & 1034/H/2006 PREFERR ED BY THE ASSESSEE AND THE APPEAL IN ITA NO.1253/H/04 PREFERR ED BY THE REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORDERS PASSED BY THE CIT(A) III HYDERABAD AND PERTAINS TO THE ASSESSMENT YEARS 2001 -02 2002-03 & 2003-04. SINCE THE ISSUES INVOLVED IN THESE THRE E APPEALS ARE COMMON IN NATURE THEY ARE CLUBBED TOGETHER HEARD TOGETHER A ND DISPOSED OFF VIDE THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. BRIEF FACTS OF THE CASES ARE THAT THE GOVT. O F ANDHRA PRADESH HAS FLOATED GLOBAL TENDERS FOR POWER PROJECTS. ONE SUCH SUCCESSFUL BIDDERS ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 2 2 WAS A COMPANY NAMED M/S OKWELL ENGINEERING LTD. SIN GAPORE (OEL) WHICH SECURED LICENSE TO SET A POWER PROJECT NEAR K AKINADA AP TO EXECUTE THIS PROJECT OEL ENTERED INTO A COLLABORATION AGREE MENT WITH M/S ENGINEERING POWER SYSTEMS (EPS). A NEW COMPANY WAS FLOATED FOR THIS PURPOSE WHICH WAS NAMED AS M/S EPS OKWELL POWER LT D. (EOPL). THE LEGAL ENTITY OF EOPL COULD NOT OBTAIN ALLOCATION OF FUEL TO IMPLEMENT IT PROJECT; THOUGH IT HAD ENTERED INTO AN AGREEMENT FO R PRODUCING AND SELLING IN SPITE OF HAVING ENTERED INTO AGREEMENT FOR PRODU CING POWER WITH ERSTWHILE AP STATE ELECTRICITY BOARD (APSEB NOW APT RANSCO). SIMULTANEOUSLY THERE WAS ANOTHER COMPANY NAMED M/S KONASEEMA POWER CORPORATION LTD. I.E. THE ASSESSEE COMPANY WHICH WAS ALSO INCORPORATED TO VENTURE IN POWER GENERATION. KPCL W AS SUCCESSFULLY IN SECURING FIRM ALLOCATION OF NATURAL GAS FOR SETTING UP A POWER PLANT FROM MINISTRY OF PETROLEUM AND NATURAL GAS. THIS FIRM A LLOCATION OF NATURAL GAS IN FAVOUR OF KPCL WAS TO BE FORMALIZED BY ENTERING INTO AN AGREEMENT WITH GAIL WHICH IN TURN REQUIRED THE ASSESSEE TO ENTER INTO A GAS SUPPLY AGREEMENT WITHIN 60 DAYS AND SUBMIT SECURITY DEPOS IT OF RS.3 10 50 000/- AND FURTHER A BANK GUARANTEE OF RS .9 31 50 000/- AT THE TIME OF AGREEMENT. AS PER CLAUSE 2.02(II) OF THE G AS SUPPLY AUTHORITY ENTERED INTO WITH GAIL THE SECURITY DEPOSIT WAS TO CARRY A SIMPLE INTEREST @ 7% P.A. AS PER CLAUSE 2.02(IV) OF THE AGREEMENT THE AMOUNT OF DEPOSIT ALONG WITH INTEREST AND ALSO THE BANK GUARANTEE WAS TO BE REFUNDED/DISCHARGED BY GAIL ONLY ON COMMENCEMENT O F SUPPLY OF GAS. FURTHER AS PER CLAUSE 2.02(III) OF THE AGREEMENT GAIL HAD A RIGHT TO TERMINATE THE CONTRACT AND FORFEIT BOTH THE SECURIT Y DEPOSIT AND THE BANK GUARANTEE IN CASE IMPLEMENTATION OF VARIOUS ACTIV ITIES OF THE PROJECT I.E. SITE DEVELOPMENT PLACING OF ORDER FOR EQUIPMENT C OMPLETION OF CIVIL WORKS AND ERECTION AND COMMENCEMENT OF DRAWAL OF GAS WAS NOT COMPLETED WITHIN 3 MONTHS FROM THE SCHEDULE DATES AS PER THE AGREEMENT. WHILE GAIL AGREED TO SUPPLY GAS IT LAID DOWN CONDITIONS SPECIFYING THAT IF GAS ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 3 3 WAS NOT BEGUN TO BE CONSUMED WITHIN THE TIME PRESCR IBED THE WOULD BE PURCHASER OF GAS WILL BE PENALIZED BY THE LOSS OF S ECURITY DEPOSIT AND THE BANK GUARANTEE. THE KPCL HAD ENTERED INTO AN AGREE MENT WITH GAIL FOR CARRYING SUCH AN ONEROUS BURDEN; IT HAD NOT SUCCEED ED IN GETTING A BASIC LICENSE TO PRODUCE POWER AND A POWER PURCHASE AGREE MENT WITH AP TRANSCO. ON THE OTHER HAND EOPL HAD THE LICENSE T O PRODUCE THE POWER AND ALSO A POWER PURCHASE AGREEMENT WITH AP TRANS CO. THE TWO COMPANIES SAW SYNERGY BETWEEN THEIR POSITIONS. ACC ORDINGLY THEY ENTERED INTO A MOU. THIS MOU IS DATED 10 TH AUGUST 1999 AND IS BETWEEN 3 PARTIES. THE THIRD PARTY IS NAMED M/S VBC FERRO AL LOYS LTD. (VBCFAL) WHOSE JOB WAS TO IMPLEMENT THE MOU. THE IMPORTANT CLAUSES ARE REPRODUCED AS UNDER: 1. EOPL SHALL ENDEAVOUR TO ACHIEVE COMMERCIAL OPERATIO N DATE OF THE PROJECT AS PER PPA. 2. KPCL HEREBY AGREES TO ASSIGN/TRANSFER 9 LAKH SCMD A LLOCATION OF NATURAL GAS TO THE PROJECT ON THE FOLLOWING TERMS A ND CONDITIONS: A) ALL EXPENDITURE INCURRED BY KPCL FOR SECURING A LLOCATION OF NATURAL GAS AND EXPENDITURE TO BE INCURRED FOR EFFECTING AS SIGNMENT/TRANSFER OF NATURAL GAS IN FAVOUR OF EOPL WILL HAVE TO BE REIMB URSED/MET BY EOPL. B) EOPL SHALL PROVIDE ALL ASSISTANCE TO KPCL FOR CO NCLUDING GAS SUPPLY AGREEMENT ON ACQUIRING RELEASE OF GAS FROM GAIL INC LUDING PROVISION OF FINANCIAL ASSISTANCE FOR PAYMENT OF CASH SECURITY D EPOSIT/MARGIN MONEY FOR PROVISION OF BANK GUARANTEE/CORPORATE GUARANTEE TO GAIL/OTHER GOVT./SEMI GOVT. AGENCIES ON BEHALF OF KPPCL FROM T IME TO TIME. C) ENTIRE AMOUNT OF INTEREST/OTHER INCOME ACCRUING ON THE DEPOSITS MADE TO GAIL FROM TIME TO TIME AS PER GAS SUPPLY AG REEMENT OUT OF MONEYS PROVIDED BY EOPL ON BEHALF OF KPCL SHALL BE FOR THE BENEFIT OF EOPL AND KPCL SHALL NOT HAVE ANY RIGHT WHATSOEVER O N SUCH INTEREST/OTHER INCOME AS ALL THE MONEYS ARE PROVID ED BY EOPL FROM TIME TO TIME. TILL THE TIME THIS AGREEMENT DATED 10.9.1999 WAS SI GNED THE TOTAL GAS AVAILABLE TO M/S KPCL WAS ONLY NINE LAKH SCMD. THI S WAS FURTHER ENHANCED BY ANOTHER 7 LAKH SCMD. THE SAME WAS ALSO TRANSFERRED TO M/S EOPL BY WAY OF A SUPPLEMENTARY AGREEMENT DATED 12.6.2000. IN THIS AGREEMENT M/S KPCL ALSO ENSURED TO TAKE A PER FORMANCE ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 4 4 GUARANTEE FROM M/S EOPL FOR RS.10 CRORES WHICH WAS TO BE FORFEITED IN CASE OF M/S EOPL WAS NOT ABLE TO USE THE GAS AS PE R THE TERMS ON WHICH M/S GAIL MADE GAS AVAILABLE TO M/S KPCL. THE ESSENTIAL FEATURES OF THIS AGREEMENT ARE AS UNDER: NOW THEREFORE THE PARTIES AGREE TO ENTER INTO A SUPPLEMENTARY MEMORANDUM OF AGREEMENT IN WITNESSTH THEREOF IT IS AGREED TO BY THE PARTIES TO THIS SM OU AS FOLLOWS: 1. EOPL SHALL COMPLETE THE PROJECT AS PER THE TERM S AND CONDITIONS OF APTRANSCO GOVT. OF AP GAS AUTHORITY OF INDIA LIMI TED (GAIL) OR LENDERS. 2. EOPL SHALL DEPOSIT AN INTEREST FREE SECURITY DEP OSIT OF RS.10/- CRORES (RUPEES TEN CRORES ONLY) WITH KPCL ON OR BEFORE 31 ST DAY OF MARCH 2002. THIS SECURITY DEPOSIT WILL BE REFUNDED TO EO PL WITHOUT INTEREST ON AND AFTER COMPLETION OF ONE FULL YEAR OF COMMERC IAL GENERATION OF POWER BY EOPL AFTER ADJUSTING DUES IF ANY 3. PROVIDED THAT IN THE EVENT OF EOPL FALLING TO B EGIN THE COMMERCIAL GENERATION OF POWER WITHIN THE TIME PRESCRIBED BY A PTRANSCO/GAIL OR OTHER AUTHORITIES CONCERNED RESULTING IN THE FORFEI TURE OF SECURITY DEPOSITS AND INVOCATION OF BANK GUARANTEES GIVEN TO GAIL BY EOPL THROUGH KPCL THEN KPCL SHALL UNCONDITIONALLY FORFE IT THE SECURITY DEPOSIT OF RS.10 CRORES. EOPL SHALL NOT ON AND AFT ER SUCH EVENT HAVE ANY RIGHTS WHATSOEVER ON SUCH FORFEITED SECURITY DE POSIT AND THE SAME SHALL BE APPROPRIATED BY KPCL. 3.1. THERE IS AMENDMENT DATED 15.9.2000 TO ABOVE SUPPLEMENTARY AGREEMENT WHERE THE AMOUNT OF INTEREST EARNED BY KP CL IS ACKNOWLEDGED TO BE AN EARNING BELONGINGS TO EOPL SINCE FUNDS WH ERE PROVIDED BY EOPL. THIS CLAUSE IS REPRODUCED AS UNDER: NOW THEREFORE THE PARTIES AGREES TO ENTER INTO AN AMENDED SUPPLEMENTARY MEMORANDUM OF AGREEMENT IN WITNESSTH THEREOF IT IS AGREED TO BY THE PARTIES T O THE ASMOU AS FOLLOWS: 1. KPCL IS REQUIRED TO PROVIDE BANK GUARANTEE FOR AN AMOUNT OF RS.7 24 50 000 TO GAIL AS PER TERMS AND CONDITIONS OF ALLOCATION OF 7.0 SCMD OF NATURAL GAS BY THE MINISTRY OF PETROLEUM AN D NATURAL GAS. FURTHER KPCL HAS REQUESTED EOPL PURSUANT TO THE TE RMS AND CONDITIONS OF AGREEMENT(S) TO PROVIDE NECESSARY BANK GUARANTEE IN ADDITION TO FURNISHING OF CASH DEPOSIT. EOPL HAS EXPRESSED ITS INABILITY TO ARRANGE FOR ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 5 5 BANK GUARANTEE AND OFFERED KPCL TO PROVIDE FUNDS FO R AN AMOUNT OF RS.7 24 50 000/- TO KPCL FOR THE PURPOSE OF MAKING A FIXED DEPOSIT OF AN EQUIVALENT AMOUNT WITH A SCHEDULED BANK TO BE UTILI ZED BY KPCL AS ADDITIONAL SECURITY TO BE FURNISHED BY GAIL IN LIEU OF FURNISHING OF BANK GUARANTEE FOR AN EQUIVALENT AMOUNT OF RS.7 25 50 00 0. IT IS FURTHER AGREED THAT THE BANK INTEREST INCOME ACCRUING TO KPCL OUT OF THE SAID FIXED DEPOSIT SHALL BE TRANSFERRED TO EOPL BY KPCL AS AND WHEN THE SAME IS RECEIVED BY KPCL AS THE ENTIRE FUNDS ARE PROVIDED B Y EOPL. 2. ALL OTHER CLAUSES IN MOU DATED 10 TH AUGUST 1999 AND SMOU DATED 12 TH JUNE 200 SHALL REMAIN UNALTERED. 3.2. IN KEEPING WITH PROVISIONS OF ABOVE REFERRED AGREEMENTS M/S EOPL HAD PROVIDED CASH ASSISTANCE TO KPCL SO THAT K PCL FULFILLED ITS OBLIGATIONS TOWARDS GAIL WHEREIN A PERFORMANCE GUA RANTEED DEPOSIT WAS TO BE KEPT WITH GAIL ALONG WITH A FURTHER BANK GUAR ANTEE AS REQUIRED. THE BANK GUARANTEE WAS GIVEN AGAINST THE DEPOSIT KEPT W ITH IDBI. THE AMOUNT OF BANK DEPOSIT AND THE GUARANTEE WAS CHANGED IN BE TWEEN BUT IT WILL SUFFICE FOR THAT PURPOSE IN THE END IT WAS MUTUAL LY AGREED UPON VIDE AN AGREEMENT DATED 9.10.2000 BETWEEN KPCL AND GAIL THA T THE TOTAL MONEYS TO BE KEPT WITH GAIL AS SECURITY DEPOSIT WILL AMOUN T TO RS.5 52 00 000/- AND A FURTHER DEPOSIT OF RS.7 24 00 000/- WILL BE K EPT WITH IDBI BANK TO GIVE A BANK GUARANTEE TO GAIL. THE ENTIRE MONEYS F OR PROVIDING THESE SECURITIES WERE PROVIDED BY EOPL. 3.3. IN THESE ASSESSMENT YEARS THE ISSUE IN DISPU TE IS WITH REGARD TO CONFIRMING THE ADDITION/DELETION BY CIT(A) ON T HESE POINTS: SL.NO. DETAILS ASSESSMENT YEAR 2001-02 (RS.) ASSESSMENT YEAR 2002-03 (RS.) ASSESSMENT YEAR 2003- 04 (RS.) 1 INTEREST ON DEPOSIT WITH GAIL 29 72 382/- (DELETION) - - 2 INTEREST ON DEPOSITS WITH IDBI 33 48 083 (DELETION) 57 87 404 11 22 089 3 INTEREST ON LOAN FROM IDBI - 23 94 953 13 10 002 3.4. FOR THE ASSESSMENT YEAR 2001-02 THE REVENUE IS I N APPEAL BEFORE FOR DELETION AND FOR THE ASSESSMENT YEARS 2002-03 A ND 2003-04 THE ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 6 6 ASSESSEE IS IN APPEAL FOR CONFIRMING THE ADDITION B Y CIT(A) ON THE ABOVE ISSUES. 3.5. THE ASSESSEE HAS RECEIVED INTEREST ON DEPOSI T OF RS.7 24 00 000/- KEPT IN IDBI BANK AS FOLLOWS: ASSESSMENT YEAR (RS.) 2001-02 RS.33 48 083 2002-03 RS.57 87 404 2003-04 RS.11 22 089 3.6. ORIGINALLY THE ASSESSEE DISCLOSED IT HAS IN TEREST INCOME AND LATER THE ASSESSEE CLAIMED THE EXPENSES U/S 57 OF T HE ACT ON THE GROUND THAT THE ENTIRE INTEREST INCOME ACTUALLY BELONG TO M/S EOPL WHO HAVE BEEN PROVIDED THE FUNDS AND TO WHOM THE INCOME HAD ACCRUED BY OVERRIDING TITLE UNDER MOU DATED 10.8.99 MOU DATED 12.6.2000 AND MOPU 15.9.2000. THE ASSESSING OFFICER NOT AGREED W ITH THE ASSESSEE IN THESE ASSESSMENT YEARS PLACING RELIANCE ON THE SUPR EME COURT IN THE CASE OF TUTICORIN ALKALINE CHEMICALS AND FERTILIZERS LTD . (227 ITR 127) AND DISALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL T HE CIT(A) ALLOWED THE CLAIM FOR THE ASSESSMENT YEARS 2001-02. AGAINST T HIS THE REVENUE IS IN APPEAL BEFORE US. HOWEVER THE SAME RECEIPT WAS T REATED AS INCOME OF THE ASSESSEE BY THE CIT(A) FOR THE ASSESSMENT YEARS 200 2-03 AND 2003-04. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AR SUBMITTED THAT AS PER CLAUSE 2 .02 (II) OF THE GAS SUPPLY AGREEMENT ENTERED INTO WITH GAIL THE BA NK GUARANTEE SHALL BE DISCHARGED BY GAIL ONLY ON COMMENCEMENT OF SUPPLY O F GAS. HOWEVER AS PER CLAUSE 2.02(III) OF THE AGREEMENT GAIL HAS RIG HT TO TERMINATE THE CONTRACT AND FORFEIT THE SECURITY DEPOSIT AS WELL A S EN-CASH THE AMOUNT OF BANK GUARANTEE IN CASE THE IMPLEMENTATION OF VARIOU S ACTIVITIES CONNECTED ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 7 7 WITH SETTING UP OF POWER PLANT VIZ. SITE DEVELOP MENT PLACEMENT OF ORDER FOR EQUIPMENTS COMPLETION OF MAIN CIVIL WORKS AND ERECTION AND IF COMMENCEMENT OF DRAWAL OF GAS IS NOT COMPLETED WITH IN 3 MONTHS FROM THE SCHEDULED DATES AS PER THE AGREEMENT. THE AUTH ORISED REPRESENTATIVE FURTHER SUBMITTED THAT AS PER THE MOU DATED 10.8.99 ENTERED BY THE ASSESSEE WITH EOPL THE ENTIRE AMOUNT OF INTEREST/OT HER INCOME WHICH MAY ACCRUE TO THE ASSESSEE ON THE DEPOSITS MADE WITH GA IL OR DEPOSITS MADE WITH BANKS FOR OBTAINING BANK GUARANTEE IN FAVOUR O F GAIL SHALL BE FOR THE BENEFIT OF EOPL AND THE ASSESSEE SHALL NOT HAVE ANY RIGHT WHATSOEVER ON SUCH INTEREST/OTHER INCOME AS ALL THE MONEYS ARE P ROVIDED BY EOPL SUBJECT TO THE CONDITION THAT INTEREST EARNED ON SU CH MONIES SHALL BELONG TO EOPL ONLY. 5. HE FURTHER SUBMITTED THAT IN ACCORDANCE WITH T HE MOU DATED 10.8.99 WHATEVER INTEREST/OTHER INCOME ACCRUES ON T HE DEPOSITS MADE WITH GAIL AND IDBI BANK SUCH INTEREST BELONGS TO EOPL O NLY AND ACCORDINGLY THE ASSESSEE HAS TRANSFERRED THE SAID INTEREST TO E OPL. IN THE CIRCUMSTANCES EXPLAINED ABOVE THE ASSESSEE HAS NOT DECLARED THE SAID INTEREST OF RS.57 87 404/- EARNED ON DEPOSIT WITH I DBI BANK/GAIL IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2002-03 A S THE SAID INTEREST NEITHER BELONGED NOR ACCRUED TO THE ASSESSEE COMPAN Y. THEREFORE HE SUBMITTED THAT SINCE THE SAID INTEREST OF RS.57 87 404 FROM DEPOSITS WITH IDBI BANK BELONGS ONLY TO EOPL THERE IS NO JUSTIFIC ATION IN BRINGING TO TAX THE SAID INTEREST IN THE HANDS OF THE ASSESSEE AS T HERE IS DIVERSION OF INCOME BY OVERRIDING TITLE. 6. HE FURTHER SUBMITTED THAT EOPL HAS FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEARS 2002-03 DECLARING INTEREST OF RS.57 87 404/- AND ITS INCOME AND PAID THE TAXES THEREON AND HENCE THE ASSESSEE SUBMITTED THAT THERE IS NO JUSTIFICATION IN BRINGING TO TAX A GAIN THE SAID INTEREST OF ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 8 8 RS.57 87 404/- IN THE HANDS OF THE ASSESSEE WHICH A MOUNTS TO TAXING SAME INCOME TWICE. 7. HE FURTHER SUBMITTED THAT AS STATED EOPL HAS P ROVIDED FUNDS TO KPCL FOR THE PURPOSE OF MAKING DEPOSIT WITH IDBI FOR FURNISHING BANK GUARANTEE TO GAIL. LATER ON CERTAIN FUNDS WERE RE QUIRED BY EOPL FOR WHICH PURPOSE KOPL PLEDGED FIXED DEPOSIT AND TOOK T HE LOAN AND PASSED ON THE LOAN THUS RAISED TO EOPL. INTEREST OF RS.23 94 953 WAS DEBITED TO EOPL ON ACCOUNT OF LOAN PROVIDED TO THEM AND SIMILA R INTEREST WAS INCURRED AS LOAN TAKEN FROM IDBI BANK ON THE PLEDGE OF FIXED DEPOSIT. THUS THERE IS NO INCOME FROM THIS TRANSACTION AS I NTEREST EARNED AND INCURRED ARE SAME. HOWEVER WHILE FILING ITS RETUR N OF INCOME ORIGINALLY ON 26.12.2002 THE ASSESSEE BY MISTAKE OFFERED RS.23 94 953 AS ITS INCOME IGNORING INTEREST PAYABLE TO IDBI BANK WHICH IS AN EXPENDITURE INCURRED IN RELATION TO SUCH INTEREST EARNED. THEREFORE REVISE D RETURN WAS FILED ON 16.2.2002 DECLARING INCOME OF RS.5 47 660/- CORRECT LY AFTER SETTING OFF INTEREST INCURRED AGAINST INTEREST EARNED. IN THE AUDITED P&L ACCOUNT INTEREST EARNED AND PAID WERE SHOWN SEPARATELY. 8. HE FURTHER SUBMITTED THAT HOWEVER THE ASSESSI NG OFFICER COMPLETED THE ASSESSMENT TAKING INTO CONSIDERATION ONLY INTEREST EARNED OF RS.23 94 953/- AS INCOME STATING THAT THE ASSESSEE RETURN INCOME AT RS.29 42 610/- IN THE ORIGINAL RETURN OF INCOME WHI CH IS NOT PROPER AND JUSTIFIED IGNORING THE PAYMENT OF INTEREST OF RS.23 94 953/- INCURRED FOR EARNING SUCH INCOME AS GIVEN ABOVE. FURTHER HE SU BMITTED THAT ONLY THE INCOME DECLARED IN THE REVISED RETURN FOR THE ASSES SMENT YEAR 2002-03 AT RS.5 47 660/- TO BE CONSIDERED. FOR THE ASSESSMENT YEAR 2003-04 THE INTEREST INCOME OF RS.13 10 002/- CANNOT BE CONSIDE RED AS TAXABLE SINCE THERE THE SAME AMOUNT INCURRED TOWARDS PAYMENT OF I NTEREST TO IDBI ON THE LOAN TAKEN ON PLEDGING FDR WHICH WAS ACTUALLY B ELONG TO EOPL. ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 9 9 9. THE LEARNED AR RELIED ON THE FOLLOWING JUDGEM ENTS: 1. CIT VS. LG ELECTRONICS (I) (P) LTD. 309 ITR 265 (D ELHI) WHEREIN HELD THAT WHEN THE ASSESSEE MADE DEPOSITS WITH THE BANK TOWARDS MARGIN MONEY FOR ISSUANCE OF LETTER OF CREDIT THE INTERES T EARNED ON THE DEPOSIT WAS TO BE SET OFF AGAINST THE PREOPERATIVE EXPENSES AND CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. 2. INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (3 15 ITR 255) (DELHI) WHEREIN IT WAS HELD THAT THE INTEREST EARNE D ON FUNDS PRIMARILY BROUGHT FOR INFUSION IN THE BUSINESS COULD NOT BE CLASSIFIED AS INCOME FROM OTHER SOURCES. SINCE THE INCOME WAS EARNED IN A PERIOD PRIOR TO COMMENCEMENT OF BUSINESS IT WAS IN THE NA TURE OF CAPITAL RECEIPT AND WAS REQUIRED TO BE SET OFF AGAINST PREO PERATIVE EXPENSES. 3. CIT VS. C.N. PATUCK (71 ITR 713) (BOM. HC). 4. CIT VS. KANSARA MODULAR (218 CTR 21) FOR THE PROPOS ITION THAT: WHEN THERE ARE TWO SETS OF JUDGEMENTS PROCEEDING O N DIFFERENT LINES OF REASONING AND BOTH STAND ON THEIR OWN LOGICAL FO OTING WHEN THE TRIBUNAL HAS ACCEPTED ONE LINE OF REASONING SUPPORT ED BY ONE SET OF JUDGEMENT IT CANNOT BE SAID THAT THE TRIBUNAL WAS NOT LEGALLY JUSTIFIED IN FOLLOWING THE DECISION AS FOLLOWED BY IT SIMPLY BECAUSE IT MIGHT HAVE BEEN POSSIBLE OR MORE APPROPRIATE TO FOL LOW THE OTHER SET OF JUDGEMENTS. 10. ON THE OTHER HAND THE LEARNED DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THE RECEIPT OF INTEREST INCOME WHETH ER DIVERTED TO THE LENDER OR APPLIED IN A DIFFERENT MANNER IS TO BE FI RST ASSESSED AS INCOME IN THE HANDS OF THE ASSESSEE AS THE BASIC FACT REMAINS THAT THE INTEREST INCOME ON DEPOSITS MADE DURING PRE COMMENCEMENT PER IOD INCOME OF THE ASSESSEE AND INTEREST PAID TO THE LENDER WAS NOT PE RMITTED AS DEDUCTION UNDER ANY OF THE PROVISIONS OF THE ACT. SHE SUBMIT TED THAT THE TAKEN LOAN FROM M/S EOPL WAS NOT FOR EARNING INTEREST INCOME O R TO MAKE DEPOSIT WITH THE IDBI BUT TO GET BANK GUARANTEE FOR GETTIN G ALLOCATION OF GAS. THEREFORE THE INTEREST PAYABLE ON THE MONEY BORROW ED FROM M/S EOPL CANNOT BE SAID TO BE EXPENDITURE INCURRED FOR THE P URPOSE OF EARNING INCOME. SHE RELIED ON THE FOLLOWING JUDGEMENTS: ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 10 10 1. TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (277 ITR 172) (SC) 2. CONSOLIDATED FIBERS & CHEMICALS LTD. VS. CIT(273 IT R 253) (CAL.HC) 3. DERPO COOLING FOIL LTD. (198 ITR 375) (AP HC) 4. KARNATAKA FOREST PLANTATIONS CORPORATION LTD. VS. C IT (156 ITR 275)(KAR. HC) 5. SESHASAI PAPERS & BOARDS (156 ITR 542) (MDS. HC) 11. FURTHER SHE SUBMITTED THAT THE DEPOSITS WERE KEPT IN THE NAME OF THE ASSESSEE THE INTEREST THEREON ACCRUED TO THE ASSESSEE AND TDS CERTIFICATE ISSUED WERE IN THE NAME OF THE ASSE SSEE WHICH SHOWS THAT ONLY AFTER THE INCOME HAD ACCRUED AND RECEIVED BY T HE ASSESSEE THE SAME WAS TRANSFERRED BY MOU TO M/S EOPL AND OFFERING THE SAID INCOME IN THE HANDS OF M/S EOPL WAS OF NO CONSEQUENCE BECAUSE DED UCTION OF SET OFF OF SUCH INCOME WAS ALLOWABLE WITHIN THE FRAME WORK OF IT ACT. ACCORDING TO HER ENTIRE INTEREST INCOME FROM IDBI TO BE TAXED A S INCOME IN THE HANDS THE ASSESSEE AS INCOME FROM OTHER SOURCES WITHOUT A LLOWING ANY SET OFF OF INTEREST PAID TO EOPL. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE A SSESSEE IS THAT THE ASSESSEE HAS GIVEN A DEPOSITS AND BANK GUARANTEE ON THE SIGNING OF THE AGREEMENT WITH GAIL OUT OF MONEY PROVIDED BY EOPL. SINCE EOPL IS HAVING GOVT. LICENCE FOR SETTING UP OF POWER PLANT AND THE ASSESSEE IS NOT HAVING THE LENIENCE FROM THE GOVT. THE ASSESSEE HA S ENTERED INTO MOU ON 10.8.99 WITH EOPL AND THE EOPL PROVIDED NECESSARY M ONEY TO PROVIDE REQUIRED DEPOSIT WITH GAIL AND IDBI SO THAT THE ASS ESSEE ABLE TO CARRY ON BUSINESS WITH GAIL AS REQUIRED BY THEM. WITH THE ASSESSEE HAS ENTERED INTO CONTRACT WITH GAIL ON 24.11.99 FOR SUPPLY OF 9 LAKH ONLY SCMD NATURAL GAS FOR THE PURPOSE OF GENERATION OF POWER BY FURNISHING SECURITY ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 11 11 DEPOSIT AND BANK GUARANTEE. SUBSEQUENTLY THE SAID AGREEMENT WAS ENTERED INTO ON 24.11.1999 WAS AMENDED BY AN AGREEM ENT DATED 9.10.2000 FOR SUPPLYING ADDITIONAL 7 LAKHS SCMD OF NATURAL GAS. BY VIRTUE OF THIS AMENDED AGREEMENT THE ASSESSEE HAD TO PAY ADDITIONAL SECURITY DEPOSIT AT RS.2 41 50 000 AND TO FURNISH ADDITIONAL BANK GUARANTEE FOR RS.7 24 50 000 TO GAIL FOR WHICH ALSO MONEY WAS PRO VIDED BY EOPL . THUS WITH MONEY PROVIDED BY EOPL THE ASSESSEE DEP OSITED WITH WITH GAIL AT RS.5 52 00 000 AND MADE DEPOSIT OF RS.7 24 50 000 WITH IDBI BANK FROM THE MONEY WAS PROVIDED BY EOPL. THE AS SESSEE RECEIVED INTEREST OF RS.33 48 083/- RS.57 87 404/- AND RS.1 1 22 089/- RELATING TO ASSESSMENT YEAR 2001-02 2002-03 AND 2003-04 RESPEC TIVELY FROM IDBI. SIMILARLY THE ASSESSEE RECEIVED INTEREST ON DEPOSI TS AT RS.29 72 382/- FROM GAIL IN THE ASSESSMENT YEAR 2001-02. THE ASSE SSEE SHOWN THESE INCOME AS INTEREST INCOME. BUT ALSO CLAIMED EXPENS ES TOWARDS THE SAME AMOUNT U/S 57 OF THE ACT AS THE INTEREST INCOME ACT UALLY BELONG TO M/S EOPL WHO HAVE PROVIDED THE FUNDS TO THE ASSESSEE VI DE MOU DATED 10.8.1999 12.6.2000 AND 15.9.2000. IN OUR OPINION WHATEVER THE ASSESSEE HAS RECEIVED THE INTEREST ON THESE DEPOSIT S WOULD BE THE RECEIPT OF THE EOPL. THOUGH THE INTEREST INCOME ACCRUED THE ASSESSEE HAVING NO RIGHT OVER THIS INCOME . THE INTEREST INCOME ACCRUED ON THE DEPOSITS COULD NOT BE UTILIZED BY THE ASSESSEE FOR ANY PURPOSE AS THE SAME REQUIRED TO BE GIVEN BACK TO THE M/S EOPL SINCE THE AMOUNT OF DEP OSIT WAS PROVIDED BY EOPL. M/S EOPL HAS THE FULL CONTROL WITH THE INTER EST INCOME WHICH THE ASSESSEE DERIVED FROM GAIL/IDBI. THE ASSESSEE IS H AVING NO RIGHT OVER THAT INTEREST INCOME. THE ASSESSEE IS MERELY THE C USTODIAN OF THIS AMOUNT AND THE OWNERSHIP OF THE FUNDS CONTINUES WITH M/S E OPL. THE ASSESSEE IS NOT ALLOWED TO USE THE INTEREST INCOME IN ANY WAY. THOUGH THE DEPOSITS ARE IN THE NAME OF THE ASSESSEE THE ACTUAL OWNERSH IP OR RIGHT OVER THE FUNDS ARE SAID TO BE WITH THE EOPL. AS SUCH IT CO ULD NOT BE SAID THAT THE INTEREST ON DEPOSITS HAS ACCRUED TO THE ASSESSEE. IT IS ONLY THE FUND HAS ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 12 12 BEEN ASSIGNED TO THE ASSESSEE THAT OWNERSHIP OF THE FUND IS ALWAYS VESTED WITH THE EOPL. IN OUR OPINION THERE WAS DIVERSIFI CATION OF INCOME BY OVERRIDING TITLE IN THIS CASE AND THE INCOME ON DEP OSITS NOT THE INCOME OF THE ASSESSEE. SINCE THERE IS OBLIGATION ATTACHED T O THE SOURCE OF INCOME AND THE INCOME CANNOT BE SAID TO HAVE BEEN ACCRUED TO THE ASSESSEE AND THE INTEREST INCOME IS REQUIRED TO BE PASSED TO THE EOPL BEFORE IT REACHES TO THE ASSESSEE. THE ASSESSEE HAS NOT CONCERNED WI TH THE INCOME AND REQUIRED TO DIVERT THE INCOME TO THE EOPL. BEING S O THE ASSESSEE CANNOT BE SAID TO BE THE RECIPIENT OF THE INCOME. THE CAS E LAW RELIED BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUPPORTS OUR VIEW. 13. WE HAVE ALSO CAREFULLY GONE THROUGH THE VARIO US CASE LAW CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN THO SE CASES THE FACTS ARE ENTIRELY DIFFERENT. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE EOPL PROVIDED FUND TO THE ASSESSEE ON CERTAIN CONDITIONS AND THE INTEREST INCOME GENERATED TO THAT FUND IS REQUIRED TO BE PAS SED TO THE EOPL. BEING SO WE CANNOT SAY THAT THE ASSESSEE HAS RECEIVED I NCOME ON THE IMPUGNED DEPOSITS. ACCORDINGLY IN OUR OPINION THE INTERES T INCOME CANNOT BE TREATED AS INCOME OF THE ASSESSEE. 14. THE NEXT GROUND IN ASSESSEE APPEAL IS WITH RE GARD TO TREATING THE INCOME AT RS.23 94 953/- AND RS.13 10 000/- AS INTEREST INCOME OF THE ASSESSEE IN THE ASSESSMENT YEARS 2002-03 & 2003 -04. 15. BRIEF FACTS OF THE ISSUE ARE EOPL HAS PROVIDE D FUNDS TO KPCL FOR THE PURPOSE OF MAKING DEPOSIT WITH IDBI FOR FUR NISHING BANK GUARANTEE TO GAIL. LATER ON CERTAIN FUNDS WERE REQUIRED BY EOPL FOR WHICH PURPOSE KOPL PLEDGED FIXED DEPOSIT AND TOOK THE LOAN AND PA SSED ON THE LOAN THUS RAISED TO EOPL. INTEREST OF RS.23 94 953 WAS DEBIT ED TO EOPL ON ACCOUNT OF LOAN PROVIDED TO THEM AND SIMILAR INTEREST WAS I NCURRED AS LOAN TAKEN FROM IDBI BANK ON THE PLEDGE OF FIXED DEPOSIT. TH US THERE IS NO INCOME FROM THIS TRANSACTION AS INTEREST EARNED AND INCURR ED ARE SAME. HOWEVER ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 13 13 WHILE FILING ITS RETURN OF INCOME ORIGINALLY ON 26. 12.2002 THE ASSESSEE BY MISTAKE OFFERED RS.23 94 953 AS ITS INCOME IGNORING INTEREST PAYABLE TO IDBI BANK WHICH IS AN EXPENDITURE INCURRED IN RELAT ION TO SUCH INTEREST EARNED. THEREFORE REVISED RETURN WAS FILED ON 16.2 .2002 DECLARING INCOME OF RS.5 47 660/- CORRECTLY AFTER SETTING OFF INTERE ST INCURRED AGAINST INTEREST EARNED. IN THE AUDITED P&L ACCOUNT INTEREST EARNE D AND PAID WERE SHOWN SEPARATELY. HOWEVER THE ASSESSING OFFICER COMPLETE D THE ASSESSMENT TAKING INTO CONSIDERATION ONLY INTEREST EARNED OF R S.23 94 953/- AS INCOME STATING THAT THE ASSESSEE RETURN INCOME AT RS.29 42 610/- IN THE RETURN OF INCOME WHICH IS NOT PROPER AND JUSTIFIED IGNORING I NTEREST OF RS.23 94 953/- INCURRED FOR EARNING SUCH INCOME AS GIVEN ABOVE. SIMILARLY FOR THE ASSESSMENT YEAR 2003-04 THIS INT EREST INCOME WAS AT RS.13 10 000/- . SINCE THE INTEREST INCOME WAS TRE ATED AS INCOME OF THE ASSESSEE THE ASSESSEE IS IN APPEAL BEFORE US. 16. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSE SSEE THIS AMOUNT CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE SINC E THE ASSESSEE IS REQUIRED TO PAY INTEREST TO THE IDBI BANK. 17. ON THE OTHER THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE TDS CERTIFICATE WAS ISSUED IN TH E NAME OF THE ASSESSEE AND ONLY AFTER THE RECEIPT OF INCOME IT WAS TRANSFE RRED TO EOPL. FURTHER SHE SUBMITTED THAT PAYMENT OF INTEREST TO THE SISTE R CONCERN IS A COLOURABLE DEVICE ADOPTED BY THE ASSESSEE AND THERE IS NO OVERRIDING THE TITLE. THERE WAS NO STATUTORY OBLIGATION TO TRANSF ER THE INTEREST TO THE EOPL. SHE RELIED ON THE JUDGEMENT OF SC IN THE CA SE OF KEDARNATH JUTE MANUFACTURING LTD. REPORTED IN 82 ITR 363 FOR THE P ROPOSITION THAT THE ENTRIES MADE BY THE ASSESSEE IN ITS BOOKS CANNOT BE DETERMINATIVE FACT IN THE MATTER OF TAXATION. ITA NO.1253/H/04 & 1033 1034/H/2006 KONASEEMA POWER CORPORATION LTD. HYDERABAD 14 14 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. AS HELD IN EARLIER PARAS THE INTEREST INCOME IS GENERATED ON THE DEPOSITS WITH BANKS. THE FUND FOR THE DEPOSITS HAS BEEN PROVIDED BY THE EOPL AND THE INCOME GENERATED FROM SUCH FUND TO BE THE INCOME OF EOPL AND THEY HAVE OFFERED THE SAME IN TH EIR HANDS FOR TAXATION. SINCE THERE IS AN OVERRIDING TITLE IT C ANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE AND THE INCOME RECEIVED HAS TO BE PASSED TO THE EOPL. THIS INTEREST INCOME CANNOT BE ASSESSED IN T HE HANDS OF THE ASSESSEE. SIMILARLY THE ASSESSEE EVEN IN THIS CASE THOUGH RECEIVED INTEREST IT IS REQUIRED TO PAY THE INTEREST TO THE IDBI ON LOAN RAISED AGAINST THE FDS. AS HELD IN EARLIER PARA THE INCOME GENER ATED FROM THE FUND PROVIDED BY THE EOPL CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSIONS AS MENTIONED IN EARLI ER PARAS WE ALLOW THIS GROUND TAKEN BY THE ASSESSEE. 20. IN THE RESULT THE APPEAL OF THE REVENUE IN I TA NO.1253/H/2004 IS DISMISSED AND THAT OF THE ASSESSE E IN ITA NOS.1033 & 1034/H/06 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 13.1.20 11 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 13 TH JANUARY 2011 COPY FORWARDED TO: 1. THE ITO WARD 2(1) HYDERABAD 2. M/S KONASEEMA POWER CORPORATION LTD. 6-2-913/91 4 4 TH FLOOR PROGRESSIVE TOWERS KHAIRATABAD HYDERABAD. 3. CIT(A)- III HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP