DANA INDIA TECHNICAL CENTRE PVT.LTD,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1 (2), PUNE

This appeal by the assessee is directed against the order dated 22-01-2019 passed by the CIT(A)-1, Pune in relation to the assessment year 2013-14.

The first ground is against the confirmation of addition of Rs.1,80,66,239/-, being, the amount of interest from FDRs held by the authorities below as taxable under the head ‘Income from other sources”.

The facts apropos this ground are that the assessee earned interest on fixed deposits amounting to Rs.1.80 crore, which was not credited to the Profit and loss account but was netted off against the interest payment of Rs.5.43 crore. The balance amount of Rs.3.63 was capitalized as work-in-progress. The Assessing Officer (AO) opined that the interest received by the assessee was liable to be taxed as ‘Income from other sources’. He, therefore, rejected the assessee’s contention and taxed the amount. No relief was allowed in the first appeal, against which the assessee has approached the Tribunal.

Having heard both the sides and gone through the relevant material on record, it is seen that the assessee obtained ECB loan for purchasing certain fixed assets. Till the utilization of such loan, the assessee kept the amount in fixed deposits with banks and earned interest of Rs.1.80 crore thereon. Interest on the loan obtained for purchasing the fixed assets, was paid to the tune of Rs.5.42 crore. The differential amount of Rs.3.63 crore was treated as capitalized to work-in-progress because the unit had not commenced till the year ending. It can be seen that there is a direct nexus between the borrowings made by the assessee for Dana India Technical Centre Private Ltd., purchasing fixed assets and keeping of such amount, for the time being, in the fixed deposits yielding interest income. The Hon’ble Supreme Court in CIT Vs. Bokaro Steel Plant (1999) 236 ITR 315 (SC) has held that interest and hire charges realized from contractor could not be taxed as ‘Income from other sources’.

The only other ground which survives in this appeal is against the confirmation of addition of Rs.5,82,110/-, being, the Dana India Technical Centre Private Ltd., amount of professional fees paid by the assessee for valuation towards Compulsory Convertible Debentures (CCDs).

The factual scenario of this ground is that the assessee claimed deduction of Rs.5,82,110/- as legal expenses paid to E&Y for certification on valuation of analysis as per the requirements of the RBI. This was done in connection with valuation for issuance of CCDs. The AO invoked the judgment of Hon’ble Supreme Court in Brooke Bond India Ltd. Vs. CIT (1997) 225 ITR 798 (SC) to hold that such amount was capital expenditure as expansion of capital base. The ld. CIT(A) upheld the assessment order on this score.

Having heard both the sides and gone through the relevant material on record, it is seen that the assessee paid Rs.5.82 lakh to E&Y for certification in connection with Compulsory Convertible Debentures, which is in the nature of a debt instrument. The decision in the case of Brooke Bond India Ltd. (Supra) has no application to the facts of the case inasmuch as the issue in that case was about the fees paid to Registrar of Companies for augmenting the authorized capital, which was held to be not allowable as deduction. Instantly, we are concerned with an Dana India Technical Centre Private Ltd., expenditure incurred by the assessee on raising loans and not capital. In that view of the matter any expenditure incurred on raising loan liability has to be treated as revenue expenditure.

In the result, the appeal is allowed.