M/S. SHAPOORJI PALLONJI POWER COMPANY LTD, MUMBAI v. THE ITO 3(3)(2),

ITA 1049/MUM/2008 | 2004-2005
Pronouncement Date: 21-05-2010 | Result: Allowed

Appeal Details

RSA Number 104919914 RSA 2008
Assessee PAN AAACS9195F
Bench Mumbai
Appeal Number ITA 1049/MUM/2008
Duration Of Justice 2 year(s) 3 month(s) 8 day(s)
Appellant M/S. SHAPOORJI PALLONJI POWER COMPANY LTD, MUMBAI
Respondent THE ITO 3(3)(2),
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 21-05-2011
Date Of Final Hearing 03-05-2010
Next Hearing Date 03-05-2010
Assessment Year 2004-2005
Appeal Filed On 12-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J BEFORE SHRI N.V. VASUDEVAN (JM) & PRAMOD KUMAR (AM) I.T.A.NO. 1049/MUM/2008 (ASSESSMENT YEAR : 2004-0 5) SHAPOORJI PALLONJI POWER COMPANY LIMITED 41/44 MINOO DESAI MARG COLABA MUMBAI-400 005. VS. ITO 3(3)(2) AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT PAN/GIR NO. : AAACS9195F ASSESSEE BY : SHRI BEHARILAL DEPARTMENT BY : SHRI L.K. AGRAWAL ORDER PER N.V. VASUDEVAN JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 26.11.2007 OF LEARNED CIT(A)-XXXII MUMBAI RELATING TO A.Y. 2004-05. 2. FACTS AND CIRCUMSTANCES UNDER WHICH THE PRESENT APPEAL BY THE ASSESSEE ARISES FOR CONSIDERATION ARE AS FOLLOWS :- THE ASSESSEE IS A COMPANY INCORPORATED IN 1995 FOR IMPLEMENTING DIESEL BASED POWER PROJECT IN MADHYA PRADESH. THE A SSESSEE WANTED TO SET UP POWER PROJECT AT PITAMPUR MADHYA PRADESH. T HE PROJECT WAS TO BE SET UP ALONG WITH MADHYA PRADESH ELECTRICITY BOARD (MPEB). THE ASSESSEE HAD TO KEEP CERTAIN SUMS AS SECURITY DEPOS ITS WITH MPEB. THE BUSINESS OF THE ASSESSEE HAD NOT COMMENCED DURING T HE PREVIOUS YEAR RELEVANT TO A.Y.04-05 NOR WAS IT SET UP DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05. THE PROJECT ITSELF GOT FRUSTRATED FOR THE REASONS BEYOND CONTROL OF THE ASSESSEE. THE ASSESSEE RECEIVED INT EREST INCOME OF RS. 57 83 788/- IN RESPECT OF ITS DEPOSITS WITH MPEB. T HE ASSESSEE ALSO INCURRED EXPENDITURE TO THE TUNE OF RS. 3 06 744/-. THESE EXPENSES RELATED TO TRAVEL AND CONVEYANCE LEGAL FEES TELEP HONE EXPENSES ETC. THE SHAPOORJI PALLONJI POWER 2 ASSESSING OFFICER TREATED INTEREST INCOME PRIOR TO SETTING UP OF THE BUSINESS AS INCOME FROM OTHER SOURCES. SIMILARLY E XPENDITURE INCURRED PRIOR TO SETTING UP OF THE BUSINESS WAS TREATED AS CAPITAL EXPENDITURE AND NOT ALLOWED AS A DEDUCTION. THE ACTION OF THE ASSES SING OFFICER WAS CONFIRMED BY LEARNED CIT(A) AND THE ASSESSEE HAS RA ISED GROUND NO. 1&2 BEFORE THE TRIBUNAL AGAINST THE ORDER OF LEARNED CI T(A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER. 3. GROUND NO. 1&2 RAISED BY THE ASSESSEE READS AS F OLLOWS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LEARNED CIT(A)-XXXII ERRED : 1) IN CONFIRMING THE ASSESSING OFFICERS ACTION OF TRE ATING THE INTEREST INCOME OF RS. 57 83 788/- AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS CLAIMED BY THE APPELLANT. 2) IN CONFIRMING THE ASSESSING OFFICERS DISALLOWANCE OF RS. 3 06 744/- OUT OF THE BUSINESS EXPENSES CLAIMED FOR THE YEAR AND HOLDING THE SAME TO BE CAPITAL IN NATURE. 4. THE ASSESSEE ALSO FILED AN APPLICATION SEEKING T O RAISE THE FOLLOWING ADDITIONAL GROUNDS :- THE APPELLANT WITHOUT PREJUDICE TO THE MAIN GROUND S OF APPEAL IN THE ALTERNATIVE SUBMITS THAT (I) THE RECEIPT OF INT EREST OF RS. 57 83 788/- SHOULD BE TREATED AS CAPITAL RECEIPT ON THE BASIS OF JUDICIAL PRONOUNCEMENTS AND (II) EVEN IF THE INCOME IS HELD AS INCOME UNDER THE HEAD OTHER SOURCES EXPENSES SHOU LD HAVE BEEN ALLOWED U/S. 57 (III) BY REASON OF CLOSE NEXUS BETW EEN INCOME AND EXPENDITURE. 5. THE ADDITIONAL GROUND SOUGHT TO BE RAISED IS A L EGAL GROUND AND CAN BE DECIDED ON THE FACTS AVAILABLE ON RECORD. TH EY ARE THEREFORE ADMITTED FOR ADJUDICATION. 6. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BR OUGHT TO OUR NOTICE THAT IN A.Y. 2002-03 & 2003-04 SIMILAR ISSUE HAD CA ME UP FOR CONSIDERATION IN ASSESSEES OWN CASE IN ITA NO. 484 3 & 7559/MUM/06 AND THIS TRIBUNAL HELD THAT INTEREST INCOME WAS TO BE TREATED AS INCOME SHAPOORJI PALLONJI POWER 3 FROM OTHER SOURCES AND THAT THE EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS A CAPITAL EXPENDITURE. THE ASSESS EE RAISED THE VERY SAME ADDITIONAL GROUND RAISED IN THIS APPEAL IN BOT H THE APPEALS FOR THE AFORESAID ASSESSMENT YEARS. THE CONTENTION OF THE A SSESSEE WAS THAT THE RECEIPTS PRIOR TO SETTING UP OF THE BUSINESS HAD AN INEXTRICABLE LINK WITH SETTING UP OF BUSINESS OF THE ASSESSEE NAMELY POWER GENERATION. THE ASSESSEE THEREFORE SUBMITTED THAT INTEREST INCOME S HOULD ALSO BE CONSIDERED AS CAPITAL RECEIPT AND IT SHOULD BE CONS IDERED AS A RECEIPT WHICH WILL GO TO REDUCE THE COST OF THE ASSET. THE ASSESSEE IN THIS REGARD HAD RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD. 236 ITR 315 (SC). THE TRIBUNAL A FTER CONSIDERING THE ABOVE SUBMISSIONS HELD AS FOLLOWS :- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORDS OF THE CASE. THE DEPARTMENT HAS TREATED THE INTERES T EARNED BY THE ASSESSEE AS IN REVENUE FIELD AND HAS TAXED UNDER THE HEAD I NCOME FROM OTHER SOURCES. HOWEVER THE ASSESSEES CONTENTION IS TH AT THE INTEREST EARNED ON THE SECURITY DEPOSIT GIVEN IN PURSUANCE OF THE TERM S OF THE TENDER WAS IN CAPITAL FIELD. FOR THIS PROPOSITION LEARNED COUNS EL HAS RELIED ON THE DECISION IN THE CASE OF BOKARO STEEL (SUPRA). IN T HIS CASE MONEY WAS BORROWED BY A NEWLY STARTED COMPANY WHICH WAS IN T HE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT THE INTEREST I NCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORROWED MONEY ADMITTEDLY COULD BE CAPITALIZED AND ADDED TO THE COT OF FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. THE HONBLE SUPREME COURT HELD T HAT BY THE SAME REASONING IF THE ASSESSEE RECEIVES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS. THESE WE RE RECEIPTS OF CAPITAL NATURE AND COULD NOT BE TAXED AS INCOME. THE HONBL E SUPREME COURT IN THE CASE BOKARO STEEL (SUPRA) ALSO CONSIDERED THE DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILSIERS LTD(SUPR A) AND HELD THAT THE SAID DECISION WAS NOT APPLICABLE BECAUSE IN THAT CA SE THE MONEY BORROWED FOR BUSINESS PURPOSES WAS TEMPORARILY INVESTED AND UTILIZED ON INTEREST WHICH THE ASSESSEE COULD INCUR THE MANNER HE LIKES. HOWEVER IN THE CASE OF BOKARA STEEL (SUPRA) THE UTILISTION OF VARIOUS ASSETS OF THE COMPANY AND THE PAYMENTS RECEIVED FOR SUCH UTILIZATION WERE DIR ECTLY LINKED WITH THE ACTIVITIES OF SETTING UP STEEL PLANT OF THE SSESSEE . THESE RECEIPTS INEXTRICABLY LINKED WITH THE SETTING UP OF THE CAPI TAL STRUCTURE OF THE ASSESSEE AND THEREFORE THEY WERE HELD TO BE CAPIT AL RECEIPTS GOING TO REDUCE TO COST OF CONSTRUCTION APPLYING THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CHELLAPALI SUGAR (SUOR A). IN OUR OPINION THIS SHAPOORJI PALLONJI POWER 4 DECISION FULLY SUPPORTS THE CLAIM OF THE ASSESSEE R AISED BY WAY OF ADDITIONAL GROUND. WE HAVE HELD IN A.Y. 2002-03 THAT ASSESSEES BUSIN ESS HAD NOT BEEN SET UP. SAME SITUATION PERSISTED IN A.Y. 2003-04 AND THEREFORE IT CANNOT BE SAID THAT THE BUSINESS HAD BEEN SET UP IN ASSESSMEN T YEAR 2003-04. THAT BEING THE FACTUAL STATE OF AFFAIR WHATEVER EXPENDI TURE HAD BEEN INCURRED AND WHATEVER AMOUNT WAS RECEIVED ON SECURITY DEPOSI T WERE IN CAPITAL FIELD AND COULD NOT BE TREATED AS REVENUE IN NATURE . THE DECISION IN THE CASE OF TUTICORIN ALKALI CANNOT BE APPLIED BECAUSE IN THAT CASE THERE WAS NO DISPUTE REGARDING THE SETTING UP OF THE BUSINESS . THE BUSINESS WAS TREATED AS BEING SET UP AND THEREFORE THE RECEIPT S BY WAY OF INTEREST BY DEPLOYMENT OF SURPLUS FUNDS WERE HELD TO BE ASSESSE ES INCOME. BUT TILL THE BUSINESS IS SET UP THE RECEIPTS CANNOT BE HELD TO BE IN REVENUE FIELD. THE RECEIPTS UPTO THE STAGE OF SETTING UP OF BUSINE SS WOULD GO TO REDUCE THE COST OF SETTING UP OF BUSINESS. WHILE PARTING W E MAY OBSERVE THAT IT WOULD BE TRAVESTY OF JUSTICE IF THE ASSESSEES EXPE NDITURE UPTO THE STAGE OF SETTING UP IS TREATED AS CAPITAL IN NATURE BUT NOT THE RECEIPTS DURING THE SAME PERIOD. IN VIEW OF ABOVE DISCUSSION WE ALLOW THE ADDITIONAL GROUND RAISED BY ASSESSEE. 7. IN VIEW OF THE ABOVE WE ALLOW THE ADDITIONAL GR OUND RAISED BY THE ASSESSEE AND TREAT THE ORIGINAL GROUND RAISED BY TH E ASSESSEE IN ITS APPEAL AS ACADEMIC CALLING FOR NO COMMENTS. 8. IN THE RESULT APPEAL BY THE ASSESSEE IS ALLOWED . ORDER HAS BEEN PRONOUNCED ON 21 ST DAY OF MAY 2010. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 21 ST MAY 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT CONCERNED. 5. THE DR CONCERNED MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI PS