What did the Tribunal hold?

The Tribunal held that the transaction was composite and the Assessing Officer was not justified in bifurcating it. The interest income should be set off against the interest expenditure, and only the net amount, if any, should be taxed.

The assessee capitalized interest expenditure on a loan taken for a bank guarantee and also capitalized the interest income earned on that guarantee. The Assessing Officer bifurcated this, taxing the interest income separately.

What were the issues?

Whether interest income earned on funds used for a bank guarantee, where interest expenditure was capitalized, can be taxed separately from the expenditure.

Solapur Tollways Pvt. Ltd. vs I.T.O., Ward-11(3) | ITAT Kolkata 2023

Income Tax Appellate Tribunal, “A” BENCH KOLKATA

Before: Shri Sanjay Garg & Dr. Manish Borad

order : February 22, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 11.09.2019 of the Commissioner of Income Tax (Appeals)-24, Kolkata [hereinafter referred to as the ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). 2. The assessee, in this appeal, has taken the following grounds of appeal:

1. That on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) [hereinafter referred to as the ‘CIT(Appeals)’] was not justified and grossly erred in confirming the addition of interest of Rs.2,65,56,472/-.

Assessment year: 2015-16 Solapur Tollways Pvt. Ltd 2. That on the facts and in the circumstances of the case, the Learned CIT(Appeals) was not justified and grossly erred in confirming the addition of gains from mutual fund of Rs.56,212/-.

3. That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated hereinabove, either before or at the time of hearing of this appeal.”

Ground No.1 – At the outset, Ms. Sanve Sanwalka, the ld. AR of the assessee, has stated that the assessee is engaged in the business of infrastructure development. The assessee for a project had borrowed loan from some concern for the purpose of furnishing bank guarantee in the shape of FDR with the bank. The assessee capitalised the interest expenditure incurred on the loan as well as interest income received on the bank guarantee towards work-in-progress. However, the Assessing Officer bifurcated the interest received on FDR furnished for bank guarantee and taxed the same as income from other sources. The ld. counsel has submitted that the loan was taken for the purpose of furnishing of bank guarantee with the bank which was related to the project undertaken by the assessee and that the borrowings of the loan and paying interest thereupon and further earning of interest income on the said guarantee amount was part of the composite transaction and that the Assessing Officer was not justified in bifurcating the said transaction and thereby though allowed the capitalisation of the expenditure, whereas, disallowed the capitalisation of the interest income and thereby separately taxed the same.

The ld. DR, on the other hand, has relied upon the findings of the lower authorities.

Considering the overall facts and circumstances of the case, we find force in the contention of Ms. Sanve Sanwalka, the ld. AR of the assessee. Since the transaction was a composite transaction which was

SOLAPUR TOLLWAYS PVT. LTD.,KOLKATA vs. I.T.O.,WARD-11(3), KOLKATA

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