Gas Authority of India Ltd.,, v. JCIT, Special Rnage-14,,

ITA 1372/DEL/2001 | 1997-1998
Pronouncement Date: 22-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 137220114 RSA 2001
Bench Delhi
Appeal Number ITA 1372/DEL/2001
Duration Of Justice 8 year(s) 9 month(s) 10 day(s)
Appellant Gas Authority of India Ltd.,,
Respondent JCIT, Special Rnage-14,,
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 22-01-2010
Date Of Final Hearing 13-01-2010
Next Hearing Date 13-01-2010
Assessment Year 1997-1998
Appeal Filed On 12-04-2001
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI D.R.SINGH JM AND SHRI R.C.SHARMA AM ITA NO.1372/DEL/2001 ASSESSMENT YEAR : 1997-98 M/S GAS AUTHORITY OF INDIA LTD. 16 BHIKAJI CAMA PLACE NEW DELHI 110 066. PAN NO.AAACG1209J. VS. JT.COMMISSIONER OF INCOME TAX SPECIAL RANGE-14 NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.1724/DEL/2002 ASSESSMENT YEAR : 1998-99 M/S GAS AUTHORITY OF INDIA LTD. 16 BHIKAJI CAMA PLACE NEW DELHI 110 066. PAN NO.AAACG1209J. VS. DY.COMMISSIONER OF INCOME TAX RANGE-12 NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.2577/DEL/2004 ASSESSMENT YEAR : 1999-2000 M/S GAS AUTHORITY OF INDIA LTD. 16 BHIKAJI CAMA PLACE NEW DELHI 110 066. PAN NO.AAACG1209J. VS. CIT DELHI-IV NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.E.DASTUR SR.ADVOCATE. RESPONDENT BY : SMT.KAVITA BHATNAGAR CIT-DR. ORDER PER R.C.SHARMA AM : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(A) FOR AY 1997-98 1998-99 AND 1999-2000 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE IT ACT. ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 2 2. THE ASSESSEE IS GOVERNMENT OF INDIA UNDERTAKING COD APPROVAL IS REQUIRED TO BE OBTAINED BEFORE HAND. LEARNED AR PL ACED ON RECORD VARIOUS LETTERS OF APPROVAL OF COD IN RESPECT OF DIFFERENT ASSESSME NT YEARS INVOLVED IN THE APPEALS FILED BEFORE US. WITH REGARD TO THE SPECIF IC QUERY OF BENCH FOR THE APPROVAL GRANTED BY COD ON VARIOUS GROUNDS RAISED I N THE APPEAL LEARNED AR PLACED ON RECORD THE STATEMENT OF VARIOUS GROUNDS I NVOLVED DULY INDICATING THE DISPUTED AMOUNT WITH RESPECT OF EACH GROUND. OUR A TTENTION WAS ALSO INVITED TO THE CORRIGENDUM PASSED BY COD WHICH INDICATED THE T OTAL DISPUTED AMOUNT. BY ACCEPTING THE STATEMENT OF LEARNED AR GIVEN AT BAR WITH REGARD TO THE APPROVAL ACCORDED BY COD IN RESPECT OF ALL THE GROUNDS RAISE D IN APPEAL MEMO WITH REFERENCE TO THE AMOUNT DISPUTED IN VARIOUS GROUNDS WHICH CORRESPONDS TO TOTAL AMOUNT INDICATED IN COD APPROVAL WE PROCEED FURTHE R TO DECIDE THE APPEALS FILED BY ASSESSEE IN RESPECT OF AY 1997-98 1998-99 AND 1 999-2000. 3. AS COMMON ISSUES ARE INVOLVED IN ALL THESE APPEA LS WE HAVE HEARD THE LEARNED DR AND LEARNED AR WITH RESPECT TO ALL THE Y EARS INVOLVED AND ARE NOW DECIDING THE SAME BY THIS CONSOLIDATED ORDER. 4. IN ALL THE YEARS COMMON GROUNDS HAVE BEEN RAISE D BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80 HH 80-I AND 80-IA OF THE IT ACT. LEARNED AR PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 1996-97 1992-93 & 1993-94 WHICH HA S DEALT WITH THE VERY SAME ISSUE OF DEDUCTION U/S 80HH/80I/80IA OF THE IT ACT. CONTENTION OF LEARNED AR WAS THAT THE TRIBUNAL HAS RESTORED THE ISSUE FOR DE CIDING AFRESH TO THE FILE OF THE AO THEREFORE ISSUE IN RESPECT OF DEDUCTIONS CLAIME D DURING THE YEARS UNDER CONSIDERATION MAY ALSO BE RESTORED TO THE FILE OF T HE AO FOR CONSIDERING AFRESH. LEARNED DR SHOWN HER NO OBJECTION FOR THE SAME. 5. FACTS IN BRIEF ARE THAT THE COMPANY IS ENGAGED I N THE BUSINESS OF PURCHASE PROCESSING REFINING FRACTIONATION AND SALE/DISTRI BUTION OF NATURAL GAS MANUFACTURING AND PRODUCTION OF LPG AND ITS SALE AT VARIOUS PLACES THROUGHOUT ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 3 INDIA. FOR THE PURPOSE OF THE ABOVE ACTIVITIES TH E COMPANY HAS ESTABLISHED PLANT AND MACHINERY CONSISTING OF PROCESSING/FRACTIONATIO N PLANTS COMPRESSOR STATIONS AND PIPELINE SYSTEMS INCLUDING TERMINALS WHERE THE PROCESSING ACTIVITIES ARE CARRIED OUT. IN THE RETURN FILED FOR THE RESPECTIVE ASSESSMENT YEARS UNDER CONSIDERATION THE CLAIM OF DEDUCTION U/S 80HH 80I AND 80IA WAS INCORPORATED. THE AO DECLINED CLAIM OF DEDUCTION BY STATING THAT ASSESSEE COMPANY WAS NOT CARRYING OUT MANUFACTURING/PROCESSING ACTIVITY AS R ELATING TO PRODUCTION AND MANUFACTURE OF LPG. CONTENTION OF THE ASSESSEE WAS THAT SEPARATE AND INDEPENDENT UNITS WERE THERE FOR MANUFACTURING OF L PG. IT WAS ALSO THE CONTENTION THAT ALLOWABILITY OF DEDUCTION UNDER THESE SECTIONS ARE TO BE DECIDED IN THE FIRST YEAR OF THE ALLOWABILITY AND ONCE THE AO HAD MADE T HIS DECISION THE SAME IS NOT TO BE DISTURBED IN THE SUBSEQUENT YEARS EXCEPT FOR QUA NTIFYING AMOUNT OF DEDUCTION. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GON E THROUGH THE ORDER OF THE TRIBUNAL DATED 15.2.2008 IN ASSESSEES OWN CASE FOR THE AY 1996-97 AS WELL AS ORDER FOR AY 1992-93 AND 1993-94 DATED 13.2.2009. THE RELEVANT CONCLUDING OBSERVATIONS OF THE TRIBUNAL FOR AY 1996-97 ARE AS UNDER:- 7. ON GOING THROUGH THE NATURE OF THE DOCUMENTS I T IS FOUND THAT EXAMINATION AND CONSIDERATION OF THESE DOCUMENTS IS ESSENTIAL FOR DECIDING THE MAIN ISSUE INVOLVED IN THESE GROUNDS W HICH IS AS TO WHETHER THE ASSESSEE WAS MANUFACTURING LEAN GAS OR NOT. HOWEVER SINCE THESE DOCUMENTS WERE NOT PLACED BEFORE THE AU THORITIES BELOW IT WILL NOT BE PROPER ON OUR PART TO TAKE THE SAME INTO CONSIDERATION FOR DECIDING THE MATTER. 8. AFTER CONSIDERING THE TOTALITY OF THE CIRCUMSTAN CES AND THE NATURE OF THE ISSUE RAISED BY THE ASSESSEE IN THE G ROUNDS MENTIONED ABOVE WE CONSIDER IT PROPER TO SET ASIDE THE FINDI NG OF THE LEARNED CIT(APPEALS) AND RESTORE THE MATTER BACK TO THE LEA RNED CIT(APPEALS) FOR DECIDING THE ISSUE AFRESH. THE DO CUMENTS WHICH HAVE NOW BEEN BROUGHT ON RECORD BY THE ASSESSEE MAY BE PRODUCED BEFORE THE AO. THE ASSESSEE MAY ALSO ADDUCE ANY OT HER EVIDENCE TO SUPPORT ITS CASE BEFORE HIM. THE AO SHALL EXAMINE THE ENTIRE PROCESS OF MANUFACTURE IN RELATION TO THIS IN THE L IGHT OF ENTIRE RELEVANT MATERIAL INCLUDING THE EVIDENCE ADDUCED BY THE ASSESSEE. IT ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 4 MAY BE POINTED OUT THAT BOTH THE PARTIES HAVE AGREE D FOR ADOPTING THIS COURSE. 9. IN VIEW OF THE ABOVE IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF THE LEARNED CIT(APPEALS) AND RESTORE THE M ATTER BACK TO THE FILE OF AO FOR DECIDING THE CLAIM OF DEDUCTION U/S 80-HH 80-I AND 80-IA IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND A FTER DULY CONSIDERING THE ENTIRE MATERIAL ON RECORD INCLUDING THE OTHER EVIDENCE TO BE FILED BY THE ASSESSEE BEFORE HIM. G ROUND NOS.1 & 2 ARE THEREFORE DECIDED ACCORDINGLY. 7. WE FOUND THAT THE ISSUE WITH REGARD TO CLAIM OF DEDUCTION U/S 80HH/80I/80IA HAS BEEN RESTORED TO THE FILE OF THE AO RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL THE MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING AFRESH ASSESSEES CLAIM OF ALLOWABILITY OF DEDUCTIO N U/S 80HH/80I/80IA OF THE IT ACT. 8. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALL OWANCE OF EXPENDITURE INCURRED ON HORTICULTURE. THE ALLEGATION OF THE AO WAS THAT THESE EXPENDITURE WAS CAPITAL IN NATURE. LEARNED AR PLACED ON RECORD THE ORDER OF ITAT IN ASSESSEES OWN CASE WHEREIN SIMILAR DISALLOWANCE WAS RESTORED BACK TO THE FILE OF THE AO WITH RESPECT TO THE APPEAL FILED FOR AY 1996-97. W E HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL FOR AY 1996-97 DATED 15.2.2008 WHE REIN ISSUE WITH REGARD TO DISALLOWANCE OF EXPENDITURE WAS RESTORED BACK TO TH E FILE OF THE AO FOR EXAMINATION AFRESH. LEARNED DR DID NOT CONTROVERT THIS FACTUAL POSITION. RESPECTFULLY FOLLOWING THE SAME IN ALL THE YEARS UN DER CONSIDERATION THE ISSUE WITH REGARD TO CLAIM OF EXPENDITURE ON ACCOUNT OF H ORTICULTURE AND ITS ALLOWABILITY IS RESTORED BACK TO THE FILE OF THE AO FOR DECIDING AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. WE DIRECT ACCORDINGLY . 9. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALL OWANCE ON ACCOUNT OF AMORTIZING THE COST OF LAND BY HOLDING THE SAME AS CAPITAL EXPENDITURE. COST INCURRED FOR LAND IS ALWAYS CAPITAL IN NATURE UNLES S ASSESSEE IS DEALING IN LAND. NO DEPRECIATION IS ALLOWABLE ON SUCH COST OF LAND THE REFORE THERE IS NO QUESTION FOR ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 5 ALLOWING AMORTIZATION OF SUCH COST OF LAND. WE THE REFORE CONFIRM THE DECISION OF LOWER AUTHORITIES ON THIS ISSUE. 10. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISAL LOWANCE OF INVESTMENT ALLOWANCE CLAIMED ON ADDITIONAL COST OF PLANT & MAC HINERY. FACTS IN BRIEF ARE THAT THE CONTRACT FOR LAYING OF HBJ PIPELINE WAS AWARDED BY ASSESSEE COMPANY TO M/S SPIE-CAPAG WHICH WAS CAPITALIZED DURING AY 1989-90. M/S SPIE-CAPAG LODGED CLAIMS AGAINST M/S SPIE CAPAG AND THE MATTER WAS RE FERRED TO JOINT COMMITTEE SET UP BY INDO FRENCH GOVT. WHICH FINALIZED THE DISPUTE . MOP&NG VIDE ITS LETTER DATED 8.11.1996 I.E. DURING AY 1997-98 INSTRUCTED GAIL TO PAY RS.99 CRORES TOWARDS FULL AND FINAL SETTLEMENT OF THE DISPUTE. THE CLAIMS MADE BY M/S SPIE CAPAG AMOUNTING TO US$ 450 MILLION WERE DISCLOSED B Y WAY OF A NOTE I ACCOUNTS RIGHT FROM THE AY 1991-92. THE AWARD MADE BY GOVT. OF INDIA WAS AN ADDITIONAL AMOUNT TOWARDS COST OF PLANT AND MACHINERY WHICH HA S BEEN CAPITALIZED BEFORE 31.3.1990 DURING THE PERIOD THE REBATE U/S 32A WAS AVAILABLE. THIS AWARD OF RS.99 CRORES MADE BY GOVT. OF INDIA WAS CLAIMED TO BE ELI GIBLE FOR INVESTMENT ALLOWANCE. THE AO DECLINED THE CLAIM BY OBSERVING THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO SHOW HOW THE SAID PLANT AND MACHINE RY WAS USED FOR THE MANUFACTURING BUSINESS OF THE ASSESSEE. ON PERUSAL OF NOTE 4 TO THE COMPUTATION OF INCOME THE ASSESSEE HAS SUBMITTED THAT SPIE CAP AG WAS THE SUPPLIER OF ITS HBJ PIPELINE SYSTEM. ON PERUSAL OF THE ORDER U/S 143(3 ) FOR AY 1994-95 IT WAS SEEN THAT THE INVESTMENT ALLOWANCE CLAIMED BY THE ASSESS EE HAD BEEN DISALLOWED ON THE GROUNDS THAT THE PROVISIONS OF SECTION 32A ARE NOT APPLICABLE TO ENHANCED COST OF THE ASSET AFTER ITS INSTALLATION. BY THE IMPUGNED ORDER CIT(A) CONFIRMED AOS ACTION AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PE RUSED. CONTENTION OF LEARNED AR WAS THAT IN RESPECT OF PLANT & MACHINERY INSTALLED IN THE YEAR 1989-90 BILL FOR ADDITIONAL COST HAS BEEN RAISED BY THE SUP PLIER EQUIVALENT TO APPROXIMATE VALUE OF RS.400 CRORES AND WHICH WAS SETTLED AFTER GREAT DEAL OF NEGOTIATIONS AT RS.99 CRORES. THIS ADDITIONAL COST HAS INCREASED T HE ORIGINAL COST OF PLANT & ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 6 MACHINERY AND SINCE THE SAME WAS ELIGIBLE FOR INVES TMENT ALLOWANCE THE ADDITIONAL COST SO INCURRED WAS ALSO STATED TO BE E LIGIBLE FOR INVESTMENT ALLOWANCE. HE FURTHER CONTENDED THAT EVEN THOUGH IN THE EARLIE R YEARS THE ELIGIBLE AMOUNT OF INVESTMENT ALLOWANCE ON THE ORIGINAL COST COULD NOT BE UTILIZED IN VIEW OF THE LOSSES HOWEVER IN THE SUBSEQUENT YEARS SINCE THERE WAS PROFIT THE ASSESSEE SHOULD BE ALLOWED TO TAKE BENEFIT OF THE INVESTMENT ALLOWA NCE WITH RESPECT TO THE ENHANCED COST OF PLANT & MACHINERY. 12. LEARNED AR RELIED ON THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF GUJARAT SIDHI CIVIL APPEAL NO.6144 OF 2008 WHEREI N IT WAS HELD THAT AMOUNT ATTRIBUTABLE TO FLUCTUATION IN FOREIGN EXCHANGE RAT E IS PART OF COST OF ASSET ENVISAGED U/S 43A(1) AND THAT ASSESSEE WAS ENTITLED TO CLAIM OF INVESTMENT ALLOWANCE ON THE INCREASED COST OF PLANT & MACHINER Y DUE TO SUCH EXCHANGE RATE FLUCTUATION. HE ALSO RELIED ON THE DECISION OF HON 'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED BEARING CO. 286 ITR 341 WHEREI N IT WAS HELD THAT ASSESSEE IS ENTITLED FOR INVESTMENT ALLOWANCE ON ACCOUNT OF ENH ANCED LIABILITY DUE TO FLUCTUATION IN FOREIGN EXCHANGE RATE. 13. FROM THE RECORD WE FOUND THAT THE PIPELINE IN RESPECT OF WHICH ENHANCED CLAIM OF INVESTMENT ALLOWANCE WAS MADE WAS SET UP I N THE AY 1989-90. EVEN THOUGH THE ASSESSEE HAS CLAIMED INVESTMENT ALLOWANC E WITH RESPECT TO THE ORIGINAL COST OF PLANT & MACHINERY WHICH WAS NOT DECLINED BUT DUE TO INADEQUACY OF PROFIT THE ASSESSEE COULD NOT TAKE THE BENEFIT OF THE SAME. DURING THE AY 1997-98 UNDER CONSIDERATION THE CLAIM OF INVESTMENT ALLOWA NCE WAS NOT IN DISPUTE BUT THE ISSUE IN DISPUTE WAS ONLY WITH RESPECT TO INCREASE IN CLAIM OF INVESTMENT ALLOWANCE DUE TO ADDITIONAL BILL RAISED BY THE SUPPLIER OF PI PELINE AND TO WHICH THE ASSESSEE AGREED TO PAY. 14. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL P ROPOSITION THAT ANY COST INCURRED TOWARDS PLANT & MACHINERY INCLUDING ENHANC ED COST PAYABLE DUE TO REVISION IN COST OR DUE TO EXCHANGE FLUCTUATION IS REQUIRED TO BE CONSIDERED WHILE ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 7 DETERMINING THE ACTUAL COST AND WITH REFERENCE TO T HIS ACTUAL COST CLAIM FOR DEDUCTION ON ACCOUNT OF DEPRECIATION INVESTMENT AL LOWANCE ETC. IS TO BE CONSIDERED. AS THE FACTS WITH REGARD TO QUANTUM OF ACTUAL EXPENDITURE INCURRED TOWARDS ADDITIONAL COST IS NOT CLEAR FROM THE ORDER S OF LOWER AUTHORITIES WE ARE RESTORING THE MATTER BACK TO THE FILE OF THE AO WIT H A DIRECTION TO CONSIDER ASSESSEES CLAIM OF INVESTMENT ALLOWANCE WITH REFER ENCE TO THE ENHANCED COST OF PLANT & MACHINERY AFTER DUE VERIFICATION. THE AO IS TO VERIFY THE FACTS AND FIGURES AND ASSESSEE IS DIRECTED TO FURNISH DETAILS OF THE ADDITIONAL COST SO FINALLY SETTLED BETWEEN THE SUPPLIER FOR DECIDING THE ACTUA L ADDITIONAL COST SO INCURRED. AO IS TO RECOMPUTE THE ELIGIBLE AMOUNT OF INVESTMEN T ALLOWANCE. AO IS TO VERIFY THE OTHER CONDITIONS FOR ELIGIBILITY OF CLAIM OF IN VESTMENT ALLOWANCE BEFORE ALLOWING THE SAME. ASSESSEE IS DIRECTED TO FURNISH THE REQUIRED DOCUMENTS AS PER PROVISIONS OF SECTION 32A OF IT ACT. WE DIRECT ACC ORDINGLY. 15. GROUND NOS.7 8 & 11 WERE NOT PRESSED BY THE LE ARNED AR THEREFORE SAME ARE DISMISSED IN-LIMINE. 16. IN AY 1997-98 THE ASSESSEE HAS ALLEGED DISALLO WANCE OF RS.1 70 09 450/- U/S 43B. 17. FACTS IN BRIEF ARE THAT ASSESSEE HAS PAID INCEN TIVE TO THE WORKERS WHICH WAS LINKED TO THE PRODUCTIVITY ACHIEVED BY THE WORKERS AS PER MOU TARGET FIXED BY THE GOVERNMENT. HOWEVER THE AO TREATED THE SAME AS IN THE NATURE OF BONUS THEREFORE DISALLOWED THE SAME U/S 43B. THE AO OBSE RVED THAT AS PER ANNEXURE 15 OF THE TAX AUDIT REPORT THESE AMOUNTS WERE NOT PAI D DURING THE PREVIOUS YEAR. CONTENTION OF LEARNED AR WAS THAT THE AMOUNT SO PAI D WAS IN THE NATURE OF INCENTIVE BASED ON HIGHER PRODUCTIVITY ACHIEVED BY WORKERS THEREFORE NOT HIT BY PROVISIONS OF SECTION 43B. HE FURTHER CONTENDED TH AT EVEN THOUGH THE AMOUNT WAS NOT PAID BEFORE CLOSE OF FINANCIAL YEAR BUT THE SAM E WAS PAID BEFORE THE LAST DATE OF FILING THE RETURN THEREFORE NO DISALLOWANCE IS WAR RANTED U/S 43B. ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 8 18. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. AS P ER OUR CONSIDERED VIEW THE AMOUNT PAID ON ACCOUNT OF PRODUCTIVITY LINKED INCEN TIVE IS NOT COVERED BY THE PAYMENT STIPULATED U/S 36(1)(II) THEREFORE THE SAM E CANNOT BE DISALLOWED BY INVOKING PROVISIONS OF SECTION 43B. HOWEVER SINCE THE PAYMENT HAS BEEN ALLEGED TO BE MADE BEFORE LAST DATE OF FILING THE RETURN T HE SAME IS TO BE ALLOWED DURING THE YEAR UNDER CONSIDERATION IN VIEW OF THE AMENDME NT BROUGHT IN SECTION 43B WHICH IS HELD TO BE RETROSPECTIVE IN NATURE. THE A O IS DIRECTED TO VERIFY THE ACTUAL DATE OF PAYMENT AND TO ALLOW THE SAME ACCORDINGLY KEEPING IN VIEW OUR OBSERVATION CONTAINED HEREINABOVE. WE DIRECT ACCOR DINGLY. 19. NEXT GRIEVANCE OF ASSESSEE RELATES TO ADDITION OF RS.2 87 78 000/- ON ACCOUNT OF INTEREST AND MISCELLANEOUS INCOME. 20. FACTS IN BRIEF ARE THAT DURING AY 1997-98 THE ASSESSEE WAS IN RECEIPT OF INTEREST INCOME AND MISCELLANEOUS INCOME WHICH WAS ALLEGED TO BE IN RELATION TO THE PROJECTS UNDER IMPLEMENTATION. THESE INCOME WE RE ADJUSTED BY THE ASSESSEE AGAINST THE PROJECT EXPENSES. NO SEPARATE INCOME W AS OFFERED BY ASSESSEE IN THE RETURN OF INCOME. BY APPLYING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. 227 ITR 172 THE AO HELD THAT INTEREST RECEIPT IN THE PRE-COMMENCEMENT STAGE IS T O BE TAXED AS INCOME FROM OTHER SOURCES RATHER THAN ALLOWING REDUCTION FROM THE CAPITAL WORK IN PROGRESS. ACCORDINGLY THE INCOME ON ACCOUNT OF INTEREST WAS BROUGHT TO TAX. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 21. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD WE FOUND T HAT THE ASSESSEE WAS IN RECEIPT OF INTEREST AND OTHER INCOME RELATED TO THE PROJECT S UNDER CONSIDERATION. IT WAS IN THE FORM OF INTEREST FROM SUPPLIERS CONTRACTORS E MPLOYEES AND OTHERS RECOVERY OF HIRE CHARGES ON CONSTRUCTION EQUIPMENT SALE OF TEN DER FORM RECOVERIES FROM EMPLOYEES AND OTHERS FOR ELECTRICITY AND WATER CHAR GES ETC. THIS INCOME WAS ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 9 ADJUSTED AGAINST THE CAPITAL WORK IN PROGRESS. HOW EVER THE AO HAS APPLIED THE PROPOSITION OF LAW LAID DOWN IN THE CASE OF TUTICOR IN ALKALI & CHEMICALS (SUPRA) WHEREIN IT WAS HELD THAT SURPLUS FUNDS WHICH WERE N OT IMMEDIATELY REQUIRED FOR DEPLOYMENT DURING THE PHASE OF SETTING UP OF PLANT AND DEPOSITED IN FIXED DEPOSITS INTEREST INCOME OUT OF SUCH FIXED DEPOSITS WAS HELD TO BE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER IN TH E INSTANT CASE BEFORE US IT IS NOT THE CASE OF THE AO THAT ASSESSEE COMPANY WAS HA VING SURPLUS FUNDS WHICH WERE DEPOSITED INTO THE BANK ACCOUNT AND ON WHICH I NTEREST INCOME HAD BEEN GENERATED. PROPOSITION WITH REGARD TO THE INCOME E ARNED ON ACCOUNT OF INTEREST AND MISCELLANEOUS INCOME DURING THE IMPLEMENTATION OF THE PROJECT HAS BEEN CONSIDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF BOKARO STEELS 236 ITR 315 AND KARNAL COOPERATIVE SUGAR MILLS 243 ITR 2. IN THE CASE OF BOKARO STEELS (SUPRA) THE COMPANY EARNED INTEREST FROM AD VANCE TO THE CONTRACTORS BY THE ASSESSEE FOR THE PURPOSE OF FACILITATING THE WORK O F CONSTRUCTION AND IT WAS HELD BY THE HON'BLE SUPREME COURT THAT SUCH RECEIPT WAS DIR ECTLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF PLAN UNDE RTAKEN BY THE COMPANY AND IT WAS HELD THAT AMOUNTS WHICH ARE INEXTRICABLY LINKED WITH THE SETTING UP OF PLANT & MACHINERY WILL GO TO REDUCE THE COST OF ITS ASSETS AS THESE ARE RECEIPTS OF CAPITAL NATURE AND CANNOT BE TAXED AS INCOME. SIMILARLY IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS (SUPRA) THE MONEY WAS DEPOSITED BY THE ASSESSEE TO OPEN A LETTER OF CREDIT UNDER THE TERMS OF THE AGREEMENT WITH THE SU PPLIER OF MACHINERIES. THE HON'BLE SUPREME COURT FOUND THAT IT WAS NOT A CASE WHERE SURPLUS SHARE CAPITAL MONEY LYING IDLE AND UNUTILIZED WAS DEPOSITED IN TH E BANK. THE MONEY WAS DEPOSITED OUT OF SHARE CAPITAL FOR THE PURPOSE OF A CQUIRING AN ASSET. THUS THE HON'BLE SUPREME COURT REJECTED THE PLEA OF THE DEPA RTMENT THAT UNUTILIZED AND SURPLUS MONEY WAS DEPOSITED BY THE ASSESSEE. IT WA S FOUND THAT ACTIVITY OF DEPOSITING MONEY OUT OF SHARE CAPITAL WAS AN ACTIVI TY INCIDENTAL TO THE ACQUISITION OF ASSETS. THE DEPOSIT OF MONEY WITH THE BANK WAS WITH A DEFINITE PURPOSE TO EXECUTE AN AGREEMENT FOR THE PURPOSE OF ACQUIRING T HE MACHINES. THUS IT WAS FOUND THAT THERE WAS A DIRECT NEXUS BETWEEN THE PUR CHASE OF MACHINERY AND THE DEPOSIT OF MONEY IN THE BANK AND IT WAS HELD THAT S UCH NEXUS SHALL BRING ABOUT A ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 10 PRESUMPTION IN ASSESSEES FAVOUR THAT THE MONEY WAS DEPOSITED NOT WITHOUT A PURPOSE BUT WITH THE OBJECT OF ACQUIRING MACHINES F ROM THE SUPPLIER AND THEREFORE INTEREST INCOME BEING DIRECTLY RELATABLE TO THE TER MS OF THE CONTRACT IN ACQUIRING BUSINESS ASSETS SHOULD GO TO REDUCE THE COST OF THE ASSET. 22. IN VIEW OF THE ABOVE DISCUSSION THE MORE APPRO PRIATE CASE APPLICABLE TO THE FACTS OF THE PRESENT CASE WILL BE THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF BOKARO STEELS (SUPRA) AND KARNAL COOPERATIVE SUG AR MILLS (SUPRA). AFTER EXAMINING THE FACTS OF THE PRESENT CASE IN THE LIGH T OF ABOVE DECISION OF HON'BLE SUPREME COURT WE FOUND THAT IT IS NOT A CASE WHERE UNUTILIZED AND SURPLUS MONEY WAS DEPOSITED BY THE ASSESSEE TO EARN INTEREST INCO ME ON THE OTHER HAND INTEREST AND MISCELLANEOUS INCOME WAS RELATED TO THE PROJECT S UNDER CONSIDERATION AND THE ASSESSEE COMPANY HAS ADJUSTED THESE INCOME AGAINST THE EXPENDITURE INCURRED ON PROJECT RESULTING IN LOWER COST OF PROJECT. 23. APPLYING THE RATIO OF ABOVE MENTIONED TWO DECIS IONS OF HON'BLE SUPREME COURT AND IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT THE INTEREST AND OTHER MISCELLANEOUS INCOME EARNED BY THE ASSESSEE WHICH P ERTAINS TO THE PROJECTS UNDER IMPLEMENTATION WILL GO TO REDUCE THE CAPITAL WORK I N PROGRESS AND THE SAME CANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. AGREEING WITH THE LEARNED AR WE ARE INCLINED TO REVERSE THE FINDINGS AND CONCLUSIONS OF THE LOWER AUTHORITIES AND DIRECT THE AO TO ALLOW NETTING OF SUCH INCOME AGAINST THE PROJECT EXPENDITURE AS CLAIMED BY THE ASSESSEE. WE DIRECT ACCORDINGLY. 24. NEXT GRIEVANCE IN AY 1997-98 PERTAINS TO DISALL OWANCE OF INTEREST EXPENDITURE OF RS.13 07 71 000/- ALLEGED TO BE PERT AINING TO THE PRIOR PERIOD. 25. WITH REGARD TO DISALLOWANCE OF RS.13 07 71 000/ - ALLEGED TO BE AS INTEREST EXPENDITURE PERTAINING TO THE PRIOR PERIOD THE CON TENTION OF LEARNED AR WAS THAT THIS INCOME HAS ALREADY BEEN OFFERED BY THE ASSESSE E IN AY 2007-08 THEREFORE THE ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 11 DEPARTMENT SHOULD HAVE ALLOWED THE ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST EXPENDITURE PERTAINING TO THE EARLIER YEAR . 26. WE HAVE CONSIDERED THE RIVAL CONTENTIONS FROM THE ORDERS OF THE LOWER AUTHORITIES WE FOUND THAT NO DOCUMENTARY EVIDENCE WITH REGARD TO ACTUAL INCURRING OF INTEREST EXPENDITURE WAS PLACED BEFORE THE AO. CONTENTION OF THE ASSESSEE BEFORE THE AO WAS GENERAL IN NATURE WHEREIN IT WAS STATED THAT EXPENDITURE ON INTEREST HAD ACCRUED DURING THE YEAR AND ACCORDINGL Y PROVISION WAS MADE AS PER THE REQUIREMENT OF COMPANIES ACT 1956 ACCOUNTING STANDARD AS-5 HAS BEEN ADOPTED ACCORDING TO WHICH EXPENDITURE OF EARLIER PERIOD HAS BEEN SHOWN UNDER THE HEAD PRIOR PERIOD EXPENDITURE. BEFORE THE BENC H IT WAS CONTENDED BY LEARNED AR THAT DISALLOWANCE WAS ON ACCOUNT OF PROVISION OF GUARANTEE FEES PAYABLE TO CENTRAL GOVERNMENT IN RESPECT OF GUARANTEE GIVEN BY THEM BEFORE 4.6.1993 AS PRIOR PERIOD EXPENDITURE. AS PER LEARNED AR LEVY OF GUARANTEE FEE IN RESPECT OF GUARANTEES ISSUED BY THE CENTRAL GOVERNMENT BEFORE 4.6.1993 WAS DISPUTED BY THE ASSESSEE FOR WHICH A LETTER WAS WRITTEN BY THE ASSE SSEE TO THE MINISTRY OF PETROLEUM & NATURAL GAS ON 4.1.1995 AND BY THE MINI STRY OF PETROLEUM & NATURAL GAS TO THE MINISTRY OF FINANCE ON 10.1.1995. ULTIM ATELY PROVISION IN RESPECT OF THIS GUARANTEE FEE WAS MADE IN THE ACCOUNTS OF THE PRESENT YEAR. THIS PROVISION WAS REVERSED IN THE PREVIOUS YEAR RELEVANT TO AY 20 07-08 AND OFFERED FOR TAX IN THAT YEAR AND HAS IN FACT BEEN ASSESSED. SINCE THE WRITE BACK HAS BEEN ASSESSED TO TAX IN AY 2007-08 DEDUCTION MAY BE ALLOWED FOR THE YEAR UNDER CONSIDERATION AS IT WOULD NOT CAUSE ANY PREJUDICE TO THE REVENUE AND IN FACT AVOID REOPENING OF CONCLUDED MATTERS. HE FURTHER STATED THAT THE AO M AY BE DIRECTED TO VERIFY THAT THE WRITE BACK HAS BEEN ASSESSED AS INCOME IN AY 2007-0 8 AND IF SO ALLOW DEDUCTION FOR THE YEAR UNDER CONSIDERATION. IT WAS ALSO CLAI MED THAT THESE WERE REVENUE IN NATURE. 27. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THER E APPEARS TO BE CONTRADICTION IN THE OBSERVATION MADE BY THE AO WIT H REGARD TO DISALLOWANCE OF PROVISION OF INTEREST WHEREAS CONTENTION OF THE AS SESSEE WAS THAT IT WAS PROVISION ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 12 FOR GUARANTEE FEES PAYABLE PERTAINING TO THE PRIOR YEAR. SINCE NO DOCUMENTARY EVIDENCE OF THE EXPENDITURE WAS FILED BEFORE THE LO WER AUTHORITIES IN THE INTEREST OF JUSTICE AND FAIR PLAY WE RESTORE THE MATTER BAC K TO THE FILE OF THE AO AND THE ASSESSEE IS DIRECTED TO FILE DETAILS OF THE INTERES T EXPENDITURE ON GUARANTEE ACTUALLY INCURRED ALONGWITH THE DOCUMENTARY EVIDENCE FOR THE SAME. SINCE THE ASSESSEE HAS ALREADY REVERSED THIS ENTRY OF EXPENSES AND OFFERED INCOME FOR AY 2007-08 THE AO IS DIRECTED TO VERIFY THE ASSESSMENT PARTICULARS FOR AY 2007-08 WHEREIN INCOME OFFERED ON ACCOUNT OF INTEREST WAS ACCEPTED BY THE DEPARTMENT WHILE FRAMING THE ASSESSMENT. THE AO IS TO DECIDE THE IS SUE AFRESH BY CONSIDERING ALL THESE FACTUAL POSITION. WE DIRECT ACCORDINGLY. 28. IN THE RESULT THE APPEALS OF THE ASSESSEE IN A LL THE YEARS ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY 2010. SD/- SD/- (D.R.SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22.01.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR ITA-1372/D/2001 1774/D/2002 & 2577/D/2004 13