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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Appellant by : Sri.V.Srinivasan, Advocate Respondent by : Sri.Sri.Gudimella V.P.Pavan Kumar, JCIT-DR Date of Pronouncement : 19.12.2022 Date of Hearing : 19.12.2022 O R D E R
Per George George K, JM :
This appeal at the instance of the assessee is directed against the CIT(A)’s order dated 12.09.2022. The relevant assessment year is 2014-2015.
The brief facts of the case are as follows: The assessee is a limited company engaged in the business of generation of hydroelectric power. For the assessment year 2014-2015, the return of income was filed on 26.09.2014 declaring loss of Rs.12,23,146. The assessment was selected for scrutiny and notice u/s 142(2) was issued. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had earned interest on fixed deposits with IDBI Bank of Rs.2,39,59,720 and the assessee had set off the same against
M/s.Sneha Kinetic Power Projects Pvt.Ltd. the interest expenditure incurred for construction etc. and the net amount was capitalized. The A.O. show caused the assessee why the interest should not be treated as `income from other sources’. It was contended that the assessee had taken certain loans from IDBI Bank for its business and one of the conditions for the issue of loan was that the assessee was required to keep certain amount in fixed deposits as “Construction Period Debt Service Reserve Account”. It was argued by the assessee that the interest was earned during the course of its business and as such the same has been correctly been capitalized after netting off. However, the contentions of the assessee were not accepted by the A.O. The A.O. held that there was no nexus between the interest earned on fixed deposit and setting up of the projects of the assessee. The A.O. relied on the following judicial pronouncements and held that the interest income is to be assessed as income from other sources.
(i) Tuticorin Alkali Chemicals & Fertilisers Ltd. v. CIT (1997) 227 ITR 172 (ii) CIT v. Coromandal Cements Ltd. (1998) 234 ITR 412 (SC) (iii) CIT v. Autokast Ltd. (2001) 116 Taxman 244 (SC) (iv) M/s.Z Square Shopping Mall (P) Ltd. in 660 & 661/Lkw/2013 dated 09.09.2015 (v) Kakinada SEZ (P) Ltd. v. ACIT 141 ITD 635 (Hyd.)
Aggrieved by the assessment order, the assessee preferred appeal before the first appellate authority. The CIT(A) confirmed the view taken by the A.O. by relying on the M/s.Sneha Kinetic Power Projects Pvt.Ltd.
order of the CIT(A) in assessee’s own case for assessment years 2012-2013 and 2013-2014.
4. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal, raising the following grounds:-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT(A) is not justified in upholding the disallowance of Rs.12,23,146 being the loss claimed under the head “Profits and Gains of business” on the ground that the appellant had consented to the said disallowance before the learned A.O. under the facts and in the circumstances of the appellant’s case.
3. The learned CIT(A) is not justified in upholding the assessment of the sum of Rs.2,39,59,720 being the interest income accrued on fixed deposit on the ground that the said interest was liable for assessment under the head “Other Sources” instead of being reduced from the capital work-in- progress as contended / treated in the accounts by the appellant under the facts and in the circumstances of the appellant’s case.
Without prejudice to the above, the authorities ought to have appreciated that the appellant was entitled to netting of the interest earned since the said interest was earned on account of the stipulations of the lenders to keep funds in fixed deposits as observed and directed by the Hon’ble ITAT in the appellant’s own case for the earlier assessment years under the facts and in the circumstances of the appellant’s case.
5. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234B of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered
M/s.Sneha Kinetic Power Projects Pvt.Ltd. and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The learned AR submitted that the issue raised in ground 4 has been considered by the Tribunal in assessee’s own case for assessment years 2012-2013 and 2013-2014 [ITA Nos.141 & 142/Hyd/2017 (order dated 09.02.2021)]. It was submitted that the Tribunal had directed the A.O. to allow set off of interest receipt with the interest expenditure. The learned AR submitted that if ground No.4 is decided in favour of the assessee following ITAT’s order in assessee’s own case for assessment years 2012-2013 and 2013-2014 (supra), the other grounds may be left open and need not be adjudicated.
The learned Departmental Representative supported the orders of the A.O. and the CIT(A).
We have heard rival submissions and perused the material on record. Ground No.4 raised above has been decided by the Tribunal in assessee’s own case for assessment years 2012-2013 and 2013-2014 (supra). The Tribunal in the above case, by following the judgment of the Hon’ble Supreme Court in the case of ACG Associates Capsules Pvt. Ltd. v. CIT reported in (2012) 343 ITR 89 (SC) had directed the A.O. to adopt the netting method. The relevant finding of the Tribunal reads as follows:-
“7. Next comes Mr.Rama Rao yet another plea that both the lower authorities ought to have adopted netting method by following the decision of Hon’ble apex court ACG Associated
M/s.Sneha Kinetic Power Projects Pvt.Ltd.
Capsules Pvt. Ltd. Vs. CIT (2012) [343 ITR 089] (SC) than assessing the entire interest income u/s 57 of the Act.
8. Mr.Pandey, on the other hand, vehemently contended that the assessee is not entitled for netting since the corresponding interest expenditure has to be treated as part of capital account only. The fact remains that this issue has neither been examined in the course of of assessment nor in the CIT(A)’s order. We therefore draw support from their lordship’s above decision and direct the Assessing Officer to finalise necessary computation on netting basis. No other ground has been pressed before us.
In view of the above order of the Tribunal in assessee’s own case for assessment years 2012-2013 & 2013-2014 (supra), which is identical to the facts of the instant case, we direct the A.O. to allow the netting off of interest. The other grounds raised by the assessee are not adjudicated and are left open. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this day of 19th December, 2022.