The DCIT, Cent Cir-1,, Visakhapatnam v. M/s Jeypore Sugars Ltd,, Chagallu

ITA 8/VIZ/2007 | 2003-2004
Pronouncement Date: 17-05-2010 | Result: Allowed

Appeal Details

RSA Number 825314 RSA 2007
Assessee PAN AAACT9942R
Bench Visakhapatnam
Appeal Number ITA 8/VIZ/2007
Duration Of Justice 3 year(s) 4 month(s) 13 day(s)
Appellant The DCIT, Cent Cir-1,, Visakhapatnam
Respondent M/s Jeypore Sugars Ltd,, Chagallu
Appeal Type Income Tax Appeal
Pronouncement Date 17-05-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 17-05-2010
Date Of Final Hearing 04-05-2010
Next Hearing Date 04-05-2010
Assessment Year 2003-2004
Appeal Filed On 04-01-2007
Judgment Text
ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.504/VIZ/2006 & ITA 191/VIZ/2008 ASSESSMENT YEARS: 2003-04 & 2004-05 M/S THE JEYPORE SUGAR CO. LTD. VS. JT.CIT CENTRA L CIRCLE-1 CHAGULLU W.G. DIST. VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAACT 9942 R ITA NO.08/VIZAG/2007 ASSESSMENT YEAR: 2003-04 DCIT CENTRAL CIRCLE-1 VS. MS/ THE JEYPORE SUGAR VISAKHAPATNAM COMPANY LTD. CHAGULLU (APPELLANT) (RESPONDENT) PAN NO.AAACT 9942 R APPELLANT BY : SHRI G.V.N. HARI CA RESPONDENT BY: SHRI SUBRATA SARKA R CIT (DR) ORDER PER SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER: THESE APPEALS ARE PREFERRED BY THE ASSESSEE AS WEL L AS THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CIT (A). SINCE THESE APPEALS WERE HEARD TOGETHER THE SAME ARE BEING DISPOSED OFF BY T HIS COMMON ORDER. WE HOWEVER PREFER TO ADJUDICATE THEM ONE AFTER THE OT HER. ITA NOS.504 OF 2006 AND 191 OF 2008: 2. THESE APPEALS ARE PREFERRED BY THE ASSESSEE AGAI NST THE RESPECTIVE ORDER OF THE CIT (A) ON COMMON GROUNDS. GROUND NO.2 IN ITA NO.504 OF 2006 AND GROUND NO.1 OF ITA NO.191 OF 2008 RELATE T O AN ADDITION ON ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 2 OF 7 ACCOUNT OF INTEREST RECEIVED FROM HUDCO TO THE TOTA L INCOME OF THE ASSESSEE. THE FACTS BORN OUT FROM THE RECORD ARE TH AT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE MANUFACTURING AND SALE OF SUGAR. THE ASSESSEE RECEIVED INTEREST FROM HUDCO BUT IT WA S NOT OFFERED TO TAX. IT WAS EXPLAINED BEFORE THE AO THAT THE ASSESSEE SECUR ED A TERM LOAN FROM HUDCO FOR WHICH THE ASSESSEE HAS TO GIVE FUNDS EQUI VALENT TO TWO INSTALLMENTS AS DEPOSIT WITH THE HUDCO. THE ASSESSE E DID NOT OFFER THE INTEREST INCOME SINCE IT WAS EARNED ON THAT FIXED D EPOSIT WITH HUDCO FROM WHOM THE TERM LOAN WAS SECURED FOR FINANCING THE CO -GENERATION PROJECT AND THIS INTEREST WAS EARNED DURING THE CONSTRUCTIO N OR DEVELOPMENT OF THE SAID PROJECT. THE ASSESSEE FURTHER CLAIMED THAT THE INTEREST WAS TO BE APPORTIONED AGAINST THE CAPITAL EXPENDITURE FOR WHI CH THE ASSESSEE PLACED RELIANCE UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LIMITED REPORTED IN 118 TA XMANN 489 OR (2000) 243 ITR 2 (SC). 3. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSE SSEE HAVING RELIED UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 IT R 172. THE AO TREATED THE INTEREST INCOME AS REVENUE RECEIPTS AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WITH THE SUBMISSIONS THAT THE ASSESSEE RECEIVED INTEREST FRO M HUDCO ON ACCOUNT OF DEPOSIT MADE WITH HUDCO IN CONNECTION WITH THE TERM LOAN OBTAINED FOR FINANCE CO-GENERATION PROJECT. AS PER THE TERMS AND CONDITIONS OF LOAN AGREEMENT THE DEPOSIT HAS TO BE MADE WITH THE HUDC O. THE INTEREST RECEIVED THEREIN HAS BEEN APPORTIONED AGAINST THE C APITAL EXPENDITURE INCURRED ON ACCOUNT OF CO-GENERATION PROJECT AND AC CORDINGLY DISCLOSED IN THE BOOKS OF ACCOUNT. THE DEPOSITS WERE PLACED WITH THE HUDCO UNDER COMPULSION AND NOT BECAUSE THE ASSESSEE HAD SURPLUS FUNDS. THE PURPOSE ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 3 OF 7 OF THE DEPOSIT IS INSEPARABLY TIED-UP WITH THE BORR OWING FROM HUDCO AND THE REPAYMENT THEREOF. ACCORDINGLY THE INTEREST EAR NED ON THE SAID DEPOSIT HAS A DIRECT NEXUS WITH THE BORROWING THE COST OF BORROWING AND REPAYMENT OF THE AMOUNT BORROWED TOGETHER WITH INTEREST THERE ON TO HUDCO. HE PLACED HEAVY RELIANCE UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT V. KARNAL COOPERATIVE SUGAR MILLS LTD. (2001) (118 TAXMANN 489) IN WHICH IT HAS BEEN HELD THAT INCOME ON DEPOSITS OF M ONEY WHICH IS DIRECTLY LINKED WITH THE ACQUISITION OF CAPITAL ASSETS IS IN CIDENTAL TO THE ACQUISITION OF ASSETS AND HENCE IS THE CAPITAL RECEIPT WHICH WOULD GO TO REDUCE THE COST OF THE ASSET. THE JUDGMENT OF THE APEX COURT IN THE CA SE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LIMITED VS. CIT (227 ITR 17 2) (SUPRA) CANNOT BE APPLIED TO THE PRESENT CASE AS THE ASSESSEE HAS NOT PUT A SURPLUS FUND FOR DEPOSITS TO EARN INTEREST. THE CIT (A) EXAMINED THE ISSUE BUT WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE AND HE CONFIRMED THE ADDITION. 5. NOW THE ASSESSEE HAS BROUGHT THE MATTER BEFORE T HE TRIBUNAL AND REITERATED ITS CONTENTION AS RAISED BEFORE THE CIT (A). THE LD COUNSEL FOR THE ASSESSEE HAS ALSO INVITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. MANIHAMSA POWER PROJECT LTD. ITA NO.467/V/2004 DATED 29-8-2009 COPY OF WHICH IS PLACED ON RECORD FOR PERUSAL WITH THE SUBMISSION THAT THE IDENTICAL ISSUE WAS EXAMINED BY THE TRIBUNAL IN THE LIGHT OF THE AFORESAID JUDGMENT OF THE APEX COURT AND HAS FINALLY CONCLUDED THAT THE INTEREST RECEIVED ON SUCH DEPOSITS WOULD REDUCE THE COST OF BORROWING. 6. THE LD DR ON THE OTHER HAND HAS PLACED HEAVY REL IANCE UPON THE ORDER OF THE CIT (A). 7. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES AND THE JUDGMENT REFERRED TO BY THE PARTIES WE ARE OF THE V IEW THAT THE VARIOUS SITUATIONS IN WHICH THE INTEREST WAS EARNED BY THE ASSESSEE ON DEPOSITS ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 4 OF 7 WERE EXAMINED BY THE APEX COURT IN THE CASE OF TUTI CORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) BOKARO STEELS LTD. 236 ITR 315 AND CIT VS. KARNAL COOPERATIVE SUGAR MILLS LIMITED (SUPRA). THE SE JUDGMENTS ARE NOT RENDERED IN IDENTICAL SITUATIONS. IN THESE JUDGMENTS DIFFERENT SITUATIONS WERE EXAMINED BY THE APEX COURT WHILE ADJUDICATING THE NATURE OF THE RECEIPTS ON DEPOSITS. IN THE CASE OF TUTICORIN ALKAL I CHEMICALS & FERTILIZERS THE SURPLUS FUND WERE ADVANCED OR PUT IN DEPOSITS A ND THE LORDSHIP HAS HELD THAT THE INTEREST GENERATED THERE ON AS AN INC OME FROM OTHER SOURCES AND IT WILL NOT REDUCE THE COST OF THE CAPITAL ASSE TS. IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD. (SUPRA) THE ASSESSEE HAD DEPOSITED THE MONEY TO OPEN A LETTER OF CREDIT FOR THE PURCHASE OF THE MUTUALLY REQUIRED FOR SETTING UP ITS PLANT IN TERMS OF THE ASSESSEE AGREE MENT WITH THE SUPPLIERS. IT WAS ON THE MONEY SO DEPOSITED THAT SOME OF INTERE ST HAS BEEN EARNED. SINCE THE DEPOSIT OF MONEY IN THIS CASE IS DIRECTLY LINKED WITH THE PURCHASE OF PLANT AND MACHINERY THE INCOME EARNED ON SUCH DE POSITS WAS CONSIDERED TO BE INCIDENTAL TO THE ACQUISITION OF THE ASSETS F OR SETTING UP OF THE PLANT AND MACHINERY. THEREFORE THE LORDSHIP OF THE APEX COURT HAS HELD THAT IT IS A CAPITAL RECEIPT WHICH WOULD GO TO REDUCE THE COST OF ASSETS. THE FACTS OF THIS CASE OF KARNAL COOP. SUGAR MILLS LTD. ARE MOR E CLOSE TO THE FACTS OF THE ASSESSEES CASE. THIS ISSUE WAS ALSO EXAMINED BY TH E TRIBUNAL IN THE CASE OF MANIHAMSA POWER PROJECT (SUPRA) AND WE FIND THAT TH E TRIBUNAL EXAMINED THE IDENTICAL SITUATIONS AND HAS FINALLY CONCLUDED THAT THE INTEREST RECEIVED ON SUCH DEPOSITS WOULD GO TO REDUCE THE COST OF ASS ETS. RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDE R: 2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSION ON EIT HER SIDE AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY THE ASSESSEE BORROWED FUNDS FROM IREDA FOR SETTING UP THE BUSINES S. AS PER THE TERMS AND CONDITIONS THE ASSESSEE HAS TO G IVE BANK GUARANTEE FOR THE PURPOSE OF AVAILING THE LOAN. IRED A ITSELF SANCTIONS RS.75 00 000/- FOR THE PURPOSE OF DEPOSIT ING THE SAME AS MARGIN MONEY FOR GETTING BANK GUARANTEE. TH E QUESTION THAT ARISES FOR CONSIDERATION IS WHEN THE ASSESSEE ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 5 OF 7 DEPOSITED MARGIN MONEY FOR THE PURPOSE OF AVAILING THE BANK LOAN WHETHER THE INTEREST PAID ON SUCH BORROWALS H AS TO BE ALLOWED WHILE COMPUTING THE TOTAL INCOME OF THE ASS ESSEE? THIS ISSUE WAS ELABORATELY CONSIDERED BY THE APEX C OURT IN THE CASE OF C.I.T. V. KARNAL COOPERATIVE SUGAR MILLS LTD. : [2000] 243 ITR 2 (SC) AND IN THE CASE OF C.I.T. V. BOKARO STEEL LTD. : [1999] 236 ITR 315 (SC). WHEREVER THERE WAS NEXUS OF INCOME WITH REGARD TO DEPOSIT THEN THE INTEREST RE CEIVED ON SUCH DEPOSIT WILL GO TO REDUCE THE COST FOR WHICH T HE DEPOSIT SO MADE. IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD. (SUPRA) THE ASSESSEE DEPOSITED MARGIN MONEY FOR THE PURPOSE OF GETTING BANK GUARANTEE IN ORDER TO IMPORT MACHIN ERIES. THE QUESTION WAS WHETHER INTEREST RECEIVED ON SUCH MONEY HAS TO BE SHOWN AS INCOME OR NOT. THE APEX COURT H ELD THAT INTEREST RECEIVED BY THE ASSESSEE WILL REDUCE THE C OST OF THE CAPITAL ASSET PURCHASED. IN THIS CASE ALSO THE MARGI N MONEY WAS DEPOSITED FOR THE PURPOSE OF GETTING BANK GUARA NTEE IN ORDER TO AVAIL LOAN SANCTIONED BY THE IRDEA. THERE FORE INTEREST RECEIVED ON SUCH DEPOSIT WOULD GO TO REDUC E THE COST OF BORROWALS. THEREFORE THERE IS NO QUESTION OF A NY DISALLOWANCE. IN VIEW OF THE JUDGMENT OF THE APEX C OURT IN THE CASE OF KARNAL COOPERATIVE SUGAR MILLS LTD. (SUPRA) AND BOKARO STEEL LTD. (SUPRA) THE JUDGMENT OF THE APEX COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. (SUPRA) CANNOT BE APPLIED TO THE FACTS OF THE CASE. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND A CCORDINGLY WE CONFIRM THE SAME ON THE ISSUE. 8. WE THEREFORE FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL ARE OF THE VIEW THAT THE INTEREST RECEIVED ON DEPOSITS IS THE CAPITAL RECEIPTS AND WOULD GO TO REDUCE THE COST OF ASSETS. ACCORDINGLY THE ORDER OF THE CIT (A) IS SET ASIDE AND THE AO IS DIRECTED TO COMPUTE THE INCOME IN TERMS INDICATED ABOVE. 9. GROUND NO.3 & 4 IN BOTH THE APPEALS RELATE TO TH E DISALLOWANCE OF LOSS INCURRED IN RAMA KRISHNA MILK PRODUCT UNIT AND GSR SUGAR UNITS. IN THIS REGARD LD COUNSEL FOR THE ASSESSEE HAS CANDIDL Y ADMITTED THAT THESE ISSUES ARE COVERED AGAINST THE ASSESSEE BY THE ORDE R OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y 2002-03 OF WHICH COP IES PLACED ON RECORD. ON CAREFUL PERUSAL OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 6 OF 7 WE FIND THAT THE IMPUGNED ISSUES ARE SQUARELY COVER ED AGAINST THE ASSESSEE. FOLLOWING THE SAME WE CONFIRM THE ORDER O F THE CIT (A) IN THIS REGARD. 10. GROUND NO.5 IN ITA 191 OF 2008 WHICH RELATES TO THE RESTRICTION OF CLAIM OF THE DEPRECIATION AT 100% IN RESPECT OF TEM PORARY STRUCTURE TO 10% IS NOT PRESSED BY THE LD COUNSEL FOR THE ASSES SEE DURING THE COURSE OF HEARING. THEREFORE THE SAID GROUND NO.5 IS DISMI SSED BEING NOT PRESSED. 11. GROUND NO.2 IN ITA NO.191 OF 2008 AND THE SOLE GROUND IN THE REVENUES APPEAL RELATE TO THE DISALLOWANCE OF LEAS E RENTALS. IN THIS REGARD THE FACTS BORN OUT FROM THE RECORD ARE THAT THE ASS ESSEE HAS ENTERED INTO AN AGREEMENT WITH CEAT FINANCE SERVICE FOR LEASING CER TAIN EQUIPMENT WHICH WERE IN THE NATURE OF SALE OF LEASE BACK TRANSACTIO N AND CLAIMED THE EXPENDITURE ON ACCOUNT OF LEASE RENTALS BUT IT WAS DISALLOWED BY THE AO. THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT (A) AND CIT (A) RELYING UPON ITS ORDER FOR THE AY 2002-03 AND EARLIER ORDER S HAS ALLOWED THE CLAIM OF THE ASSESSEE IN 2003-04. BUT IN 2004-05 THE CIT (A) DID NOT ALLOW THE CLAIM FOLLOWING THE ORDER OF THE TRIBUNAL IN THE AY 2002-03 AND HAS HELD THAT THE IMPUGNED TRANSACTIONS IS A FINANCE TRANSAC TIONS AND NOT LEASE TRANSACTIONS AND ACCORDINGLY DIRECTED THE AO TO DET ERMINE THE INTEREST COMPONENTS AFRESH AND ALLOW THE SAME AS REVENUE EXP ENDITURE. 12. NOW THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. DURING THE COURSE OF HEARING OUR ATTENTION WAS INVI TED TO THE ORDER OF THE TRIBUNAL FOR AY 2002-03 WHICH HAS NOT BEEN REVERSED SO FAR WITH THE SUBMISSION THAT THE IMPUGNED ISSUE IS SQUARELY COVE RED BY THE SAID ORDER OF THE TRIBUNAL FOR WHICH IT HAS BEEN HELD THAT IT IS A FINANCE TRANSACTION AND ONLY THE INTEREST COMPONENT CAN BE ALLOWED AS A REV ENUE EXPENDITURE. WE THEREFORE FOLLOWING THE SAID ORDER CONFIRM THE ORD ER OF THE CIT (A) IN ITA NO.191/VIZ/2008 AND SET ASIDE THE ORDER OF THE CIT IN THE ITA NO.8 OF 2008 ITA NO.1504 8 191 JEYPORE SUGAR/VIZAG/2004 PAGE 7 OF 7 AND DIRECT THE AO TO DETERMINE THE INTEREST COMPONE NT AND ALLOW IT AS REVENUE EXPENDITURE. ACCORDINGLY THESE APPEALS ARE DISPOSED OF. 13. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE PA RTLY ALLOWED AND THAT OF THE REVENUE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 17.5.2010. SD/- SD/- (B R BASKARAN) (SUNIL KUMAR YADA V) ACCOUNTANT MEMBER JUDICIAL MEMBER PVV/SPS VISAKHAPATNAM DATE: 17 TH MAY 2010 COPY TO 1 THE JEYPORE SUGAR CO. LTD. CHAGALLU 534 342 WES T GODAVARI DISTT. 2 THE DCIT CENTRAL CIRCLE VISAKHAPATNAM 3 4 THE CIT (A) I HYDERABAD THE CIT CENTRAL HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM