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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Shri S.S. Godara & Shri Laxmi Prasad Sahu
ITA No.754/Hyd/2016
IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad (Through Video Conferencing) Before Shri S.S. Godara, Judicial Member AND Shri Laxmi Prasad Sahu, Accountant Member ITA No.754/Hyd/2016 Assessment Year: 2008-09 M/s. TN(DK) Expressways Vs. The Income Tax Officer, Ltd., Ward -2(2), C/o. P. Murali & Co., Hyderabad. Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82. PAN : AACCT5634J (Appellant) (Respondent) Assessee by: Shri P. Murali Mohana Rao. Revenue by: Sri Rohit Mujumdar. Date of hearing: 23/11/2021 Date of pronouncement: 26/11/2021 O R D E R Per S. S. Godara, J.M. This assessee’s appeal for A.Y 2008-09 arises from the CIT(A)-2, Hyderabad’s order dated 29.02.2016, in case No.0226/2014-15 involving proceedings under section 143(3) r.w.s. 147 of Income Tax Act, 1961 (in short, “the Act”).
Heard both sides. Case file perused.
ITA No.754/Hyd/2016
We straight away come to the assessee’s sole substantive grounds proposed during the course of hearing that both the learned lower authorities’ have erred in law and on facts in declining interest payment of Rs.66,96,818/- on netting basis. The CIT(A)’s detailed discussion to this effect reads as under :
“5. I have considered the assessment order and grounds of appeal. while completing the assessment, AO observed as under: On 25-04-2013, the assessee filed a letter along with a copy of Revised Return of income for the A. Y.2008-09 filed on 22- . 04-2013. In its letter, the assessee explained the reasons for revision that " During Previous Year (PY) 2007-08, we have received return from S81 Mutual fund and we have deducted the amount from Capital Work in Progress(Road cost). During scrutiny assessment for PY 2008-09, Assessing officer treated the return front Mutual funds as Capital Gain. Hence, we have revised our return for PY 2007-08 and treated the return from mutual fund as Capital Gain. We have also claimed interest expenditure paid on funds utilized for purchase of Mutual Funds as Cost of purchase of Mutual Funds. The assessee filed revised return of income for the A. Y.200809 on 22.04.2013 admitting income of Rs.Nil. As seen from the Capital Gain Schedule enclosed to the Revised Return of income, the assessee has shown total consideration at Rs.1,03,77,38,229 against Cost of acquisition at Rs.103,95,62,479 and declared Short Term Capital Loss at Rs.18,24,250/-, Notice u/s 143(2), dt: 19-08-2013 was issued and the same was duly served on the assessee. During the course of proceedings, inter alia; the details of S8I Premier Liquid Fund - Institutional - Growth Fund have been called for and examined. Perusal of information found That the assessee has derived Short Term Capital Gain of Rs.52,60,062 from sale of S8I Premier Liquid Fund - Institutional - Growth Fund. The assessee was asked to explain as to why Rs.52,60,626/- should not be brought to tax. In response, the assessee filed a letter on 28-03-2013, along with a calculation of Short Term Capital Gains as under: TN (OK) Expressways Limited is a Concessionaire to NHAI ~'~ and enters into Concession Agreement .: NHAI to Construct Road and recover road cost in the form of Toll Revenue after completion of Road project. For construction of Road, it has entered into EPC contract with Madhucon Projects Limited. After disbursements of term loans from banks, Company will make payments to Madhucon Projects Limited some times there will be some gap between disbursements and 2
ITA No.754/Hyd/2016
payments to Madhucon Projects Limited towards work done as EPC Contractor. At times, there will be some surplus funds in our account and we have invested those funds temporarily in Mutual Funds (SBI Premier Liquid Funds Institutional Growth) and will sell those shares as and when payments are made to Madhucon Projects Limited. Initially we have capitalized the income received on those funds with capital work in Progress of Road Work. But during scrutiny proceedings under 143(2) of Income Tax Act., for A. Y.2009-10 Assessing Officer has rejected this treatment and taxed the gain on such investments Difference between Sale and purchase value) under the head Capital Gains. Interest paid on borrowed funds utilized for those investments has not been considered while calculating Capital Gains ….” The assessee filed the following calculation: Full value of consideration Rs.103,24,77,602 received during F.Y. 2007-08 Less : Cost of Acquisition: Rs.103,77,38,229 Interest on borrowed fund Rs. 66,96,818 Rs.103,91,74,421 Short Term Capital Loss Rs.14,36,192
As seen from the Schedule - V enclosed to the Balance as on 31- 03-2008 for the year under consideration the assessee has claimed Finance Charges of Rs.6,56,94,592/- which is form part of Capital Work in progress . In subsequent veers, the assessee has already capitalized the same and claiming depreciation on it. Hence, the claim of interest of Rs.66,96,818/- against sale consideration is not ' in order end, therefore disallowed. 5.1 On the other hand, the AR contends as under : "2. The only issue in the appeal is whether the Appellant is entitled to claim interest paid on the funds utilized for making stop gap investments in SBI-SHF Liquid PLSU and in SBI Premiur Liquid Fund- Institutional Growth. The sale of investments resulted in short term capital gains from time to time. 3. The business of the Petitioner had not commenced in the assessment year under consideration and therefore the petitioner charged the interest amount to 'capital work in progress' and at the same time reduced the short term capital gains from the 'capital work in progress. The Assessing Officer found this method of accounting unacceptable and reopened assessment for taxing the income which allegedly escaped assessment.
ITA No.754/Hyd/2016
In response to notice under section 148 of the Income Tax Act; 1961 (henceforth "the Act"); the Appellant filed ROI offering short term capital gains resulting from the investments made in SBI-SHF Liquid PLSU and s8l Premiur Liquid Fund-Institutional Growth. However; since the investment was made from interest bearing funds; the Appellant while arriving at the short term capital gains has claimed deduction of interest charges of Rs.66,96,818/- as cost of acquisition of the investment. The Appellant also made alternative claim that if it is not allowable as cost of acquisition then the same is allowable as cost of improvement as unless the Appellant incurs such expenditure; it could not have held on to such investment. The Assessing Officer did not agree with the contention of the Appellant and brought to tax the short term capital gains of Rs.52,60,062 (Sale value of Rs.l,03,77,38,229/- minus Purchase value of Rs.l,03,91,421). The contention of the Assessing Officer is that the Appellant had capitalized interest and claimed depreciation on the same. 6. It is respectfully submitted that the reasons for which the Assessing Officer has denied the relief claimed by the Appellant is erroneous and unsustainable in law. It is submitted that the interest expenditure of Rs.66/96/818 is allowable from the short term capital gains either as cost of acquisition or as cost of improvement. It is allowable as cost of acquisition of the asset as without incurring such expenditure; the investments could not have been purchased. Alternatively; the interest expenditure is allowable as this is the cost paid by the petitioner to hold on to the investment made before ultimately selling the investment. In this regard the Appellant relies on the judgements Hon'ble Jurisdictional High Court in Addl. CIT Vs. KS Gupta (119 ITR 372) (Delhi High Court in CIT Vs. Mithlesh Kumari (92 ITR 9) and Karnataka High Court in CIT Vs. Maithreyi Pal (152 ITR 247). The copies of above judgements are enclosed hereto for ready reference. 7. It is submitted that the stand of the Assessing Officer that the Appellant had capitalized interest expenditure and added it to Capital Works in progress and therefore is not allowable for the deduction of interest while arriving at the short term capital gains is illegal and unsustainable in law. It is submitted that when the Assessing Officer found that the accounting method followed by the Appellant in respect of reducing short term capital gains from Capital Works in Progress is incorrect, then he is duty bound to correct even the incorrect method following by the Appellant in respect of the interest expenditure. As a matter of fact, the Appellant in the return which was filed in response to notice under section 148 of the Act has rectified the error committed by it and the same has to be accepted being well within law. So far as the apprehension of the Assessing Officer that the depreciation on the interest capitalized would be a double claim, it is submitted that such an apprehension is without reason. It is submitted that once the interest expenditure is allowed as cost of acquisition/cost of improvement of asset, then the deprecation claim could be easily be adjusted by reducing the interest from the asset and by working out appropriate depreciation.
ITA No.754/Hyd/2016
In the aforesaid circumstances, it is prayed that the Hon’ble Commissioner (Appeals) may be pleased to allow the appeal as prayed for. 5.2. The only issue involved in this appeal is with regard to AO's action in not allowing assessee's claim of interest charges of Rs.66,96,818/- as deduction for the purpose of computation of short term capital gains. It is seen from the facts that the assessee arrived at short term capital gains of Rs. 52,60,062/- (Sale value of Rs.1,03,77,38,229 - Rs.1,03,24,77,602).
5.3 I have gone through the above and I am in agreement with the AO’s view that the ass has capitalized the interest and claimed depreciation on the same and therefore, assessee can not claim the said amount of RS.66,96,818/- as deduction and hence, the action of the AO is confirmed. As a result, the grounds raised are dismissed.”
We have heard the rival submissions against and in support of the impugned interest disallowance. The Revenue took us to the Assessing Officer’s detailed discussion that the assessee had already capitalized the corresponding finance charges as part of its capital work-in-progress. The taxpayer on the other hand had vehemently contended that they had initially capitalized the said amount but the Assessing Officer rejected the corresponding accounting treatment in subsequent A.Y. 2009-10. 4. Faced with this situation, we are of the opinion that the leaned lower authorities have not taken in consideration the corresponding developments in A.Y. 2009-10. We accordingly direct the learned Assessing Officer to re-adjudicate the entire issue afresh within three effective opportunities of hearing subject to the condition that the assessee shall file all relevant details on record at its own risks and responsibility only.
ITA No.754/Hyd/2016
This assessee’s appeal is partly allowed for statistical purposes in above terms.
Order pronounced in the Open Court on 26th November, 2021. Sd/- Sd/- (LAXMI PRASAD SAHU) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, dated 26th November, 2021. TYNM/sps Copy to: S.No Addresses 1 M/s. TN(DK) Expressways Ltd., C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82. 2 The Income Tax Officer, Ward – 2(2), Hyderabad. 3 CIT (A)-2, Hyderabad 4 Pr. CIT –2, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order