DCIT, NEW DELHI vs. M/S. POWERLINK TRANSMISSION LTD., NEW DELHI

PER: ANADEE NATH MISSHRA, AM

ITA No. 3869/Del/2014 by Revenue is directed against the order of Learned

Commissioner of Income Tax (Appeals)-XVII, Delhi (for short hereinafter referred to as

the “Ld. CIT(A)”) dated 09.04.2014 for Assessment Year 2007-08, on the following

grounds of appeal: -

ITA No.-3869/Del/2014

i. “ On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.6,45,21,521/- u/s 36 (1) (iii) of the Act on account of disallowance of interest expenditure, by not appreciating the fact that the assessee company has used the borrowed funds for non- business purposes. ii. On the facts and circumstances of the case and in law, the ld. CIT (A) has erred in deleting the above addition u/s 36 (1) (iii) of the Act by not appreciating the fact that the AO has mentioned detailed reasons of disallowances in assessment order. iii. The appellant craves to be allowed to add any fresh grounds of appeal and / or delete or amend any of the grounds of appeal.”

(1.1) ITA No. 3870/Del/2014 by Revenue is directed against the order of Learned

Commissioner of Income Tax (Appeals)-XVII, Delhi (for short hereinafter referred to as

the “Ld. CIT(A)”) dated 09.04.2014 for Assessment Year 2010-11, on the following

grounds of appeal: -

ITA No.-3870/Del/2014

i. “On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.15,41,80,533/- u/s 36 (1) (iii) of the Act on account of disallowance of interest expenditure, by not appreciating the

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fact that the assessee company has used the borrowed funds for non- business purposes. ii. On the facts and circumstances of the case and in law, the ld. CIT (A) has erred in deleting the above addition u/s 36 (1) (iii) of the Act by not appreciating the fact that the AO has mentioned detailed reasons of disallowances in assessment order. iii. The appellant craves to be allowed to add any fresh grounds of appeal and / or delete or amend any of the grounds of appeal.”

(1.2) Cross Objection 128/Del/2017 has been filed by the Assessee for the

Assessment Year 2007 -08, on the following grounds:

C/o No.- 128/Del/2017

“i The Ld. Commissioner of Income-tax (Appeal)-XVII[CIT-(A)] has erred in confirming the actions of the ld. Assessing Officer of re-opening of assessment proceeding u/s 148 read with section 147 of the Income-tax Act, 1961 (the Act) without appreciating the facts of the case the law. ii. That the CIT(A) erred in ignoring the submissions of the Appellant that in absence of fresh and tangible material and on mere change of opinion the proceedings u/s 148 read with section 147 of the Act were invalid, bad in law and order passed u/s 143(3) read with section 147 ought to have been quashed. iii. That the appellant craves leave to add, alter, amend or modify any ground on or before the time of hearing.

(1.3) In this order, the following abbreviations have been used: a. Assessing Officer as AO b. Assessment Year as A.Y. c. Commissioner of Income Tax (Appeals) as CIT(A) d. Departmental Representative as DR e. Dated as dtd. f. Income Tax Act, 1961 as I.T. Act,1961 g. Income Tax Appellate Tribunal as ITAT h. Learned as Ld. i. Read with as r/w j. Under Section as U/s

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ITA Nos.-3869 & 3870/Del/2014 and C/O No. 128/Del/2017. M/s Powerlink Transmission Ltd., New Delhi.

(1.4) For the sake of convenience, we hereby dispose off the aforementioned two

appeals and Cross Objection vide ITA No. 3869/Del/2014 (A.Y. 2007-08), ITA No.

3870/Del/2014 (A.Y. 2010-11) and Cross Objection 128/Del/2014 (A.Y. 2007-08)

through this consolidated order. The Assessee filed the return of income for A.Y. 2007-

08 showing Nil income. Original Assessment Order dated 10.12.2009 was passed U/s

143(3) of I. T. Act wherein Assessee’s returned income was accepted and assessment

was made on Nil income. Thereafter, the assessment was reopened U/s 147 r/w 148 of

I.T. Act. Vide notice dated 30/03/2012 pursuant to which Assessment Order U/s

143(3)/147 of I.T. Act, was passed on 10/01/2013, in which an addition of Rs.

6,45,21,521/- was made towards disallowance of interest U/s 36(1)(iii) of I.T. Act.

Aggrieved, the Assessee filed appeal before Ld. CIT(A), who, vide impugned order

dated 09/04/2014, deleted the disallowance. However, the Ld. CIT(A) upheld the

reopening of assessment U/s 147 of I.T. Act. The relevant portion of the order of Ld.

CIT(A) is reproduced as under:

5.1 The appellant has stated that the order u/s 148/143(3) is bad in law. However, there were sufficient reasons for the AO to believe that income had escaped assessment and proceedings were initiated after recording reasons. A re- assessment is valid if there is prima facie reason to believe that income had escaped assessment. Information was received by the AO and reasons were recorded that there was escapement of income. The following case laws reaffirm this contention:- i) Ratnachudamani S. Utnal v ITO (2004) 269 ITR 212 (Karn) ITO & Others v Shree Bajrang Commercial Co (Pvt.) Ltd (2004) 269 ITR 338 ii) (Cal) 5.2 So far as the legality for assuming jurisdiction u/s 147 is concerned there should be a reason to believe that income chargeable to tax has escaped assessment. After the amendment of section 147 w. e. f. 01.04.1989, the scope of section 147 has been considerably widened. After the amendment, the only requirement under the section is that AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The AO is not required to conclusively prove escapement of income at the stage of issue of notice u/s 148. This aspect was Page 4 of 18

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considered by Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd (1999) 236 ITR 34. The Hon'ble Supreme Court held as under:

“In this case, we do not have to give a final decision as to whether there is suppression of material fuels by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficient or correctness of the material is not a thing to he considered at this stage. We are of the view that the court cannot strike down the reopening of the-case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs."

5.3 The issue was again examined by the apex court in the case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 161 TAXMAN 316 (SC) wherein it was held as under: "16. Section 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income far any assessment year has escaped assessment. The word "reason in the phrase "reason to believe" would mean cause or justification, if the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot he read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Off leer is to administer the statute with .solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. /. ITO [199!] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is' essential At that stage, the, final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At issue of notice, the only question is whether there was relevant material on which a reasonable person could have firmed a requisite belief whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction. 17. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances Page 5 of 18

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under which income escaping assessment for the past assessment years could be assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the AO must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose filly or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under section 148 read with section 147(q). But under the substituted section 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. 18. So long as the ingredients of section 147 are fulfilled, the AO is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued."

5.4 The Hon'ble Courts in the judgments mentioned above have clearly held that formation of belief by the AO is within the realm of subjective satisfaction and it is not necessary for the AO to conclusively prove the escapement of income before initiating proceedings u/s 147. Therefore, it is held that the AO had reasons to believe that income had escapement assessment and he was within his competence to invoke the powers contained in section 147 to initiate reassessment of the income of the appellant. The ground of appeal is thus ruled against the appellant.

6.1 The AO held that the appellant company used substantial amount of funds which were borrowed as investments, which was not the business of the company. Therefore, the AO disallowed proportionate interest paid on account of funds utilized as investments stating that it was for non business purposes. 6.2 The appellant on the other hand stated that the loans borrowed and the utilization of funds was purely for business purposes. A part of the loans was utilized for investment in debt oriented funds. These funds were the appellant’s own funds. The balance funds were used for investment in banks. The appellant stated that it had entered into a loans agreement with the lenders of capital. As per the agreement, the appellant was compulsorily to keep a deposit in the bank and not withdraw it. 6.3 The appellant has quoted the case of the Hon'ble Supreme Court in Madhav Prasad Jatia vs. CIT, AIR 1979 SC 1291: 118 ITR 200, 208. 6.4 The judgment of Bombay High Court in the case of CIT v Reliance Utility & Power Ltd. as well as Woolcombers of India Ltd. and of the apex court in the case of East India Pharmaceuticals Ltd. has held that if there are funds available with the appellant then the presumption would arise that investment would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment. The judgment of S A Builders Ltd. v CIT held that Page 6 of 18

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what is relevant is whether the amount was advanced as a measure of commercial expediency. The judgment of the Hon'ble Delhi High Court in the case of CIT v Dalmia Cement Ltd. has held that it should be established that there was nexus between the expenditure and purpose of the business. 6.5 As per section 36(l)(iii) the clause envisages the fulfillment of three conditions before interest can be allowed as a deduction: (1) There should a borrowing; (2) Capital must have been borrowed for business purposes; and (3) Interest should have been paid or payable in respect thereof. 6.6 Borrowal implies a consensual act: The word 'borrow' has not been defined in the statute and, therefore, its dictionary meaning has to be looked up. The meaning of the word 'borrow' as given in the Shorter Oxford Dictionary is to take (a thing) on security given for its safe return. Since borrowing implies a consensual act by a debtors receiving money from a creditor, it would not cover a case of any and every liability. Borrowing money and payment or interest is a mere commercial transaction. Where the appellant, a public limited company, carrying on the business in manufacture of sugar, owning about 2000 acres of land on which it grew sugarcane, borrowed a certain sum which was credited to the agricultural section of the appellant, it was held that the interest payable on the borrowings credited to the agricultural section was an admissible deduction. The borrowing must be a genuine borrowing and not a bogus one. The borrowing may be on a permanent footing such as by way of debenture loan or a spasmodic one such as from year to year, or for short term such as by way of overdrafts from banks, or loans from time to time. 6.7 The amount should be borrowed for the purposes of the business. The moneys should be borrowed by the appellant for purposes of the appellant's business. Further, the expression 'for the purpose of the business' may take into account not only the day to day running of a business but several other matters. A borrowing diverted from business would cease to be a borrowing for purpose of business, so that the interest proportionate to such diverted funds is liable for disallowance. In order to be allowable as expenses, it should be in respect of business which was carried on by the appellant and the profits of which are computed and assessed, and should be incurred after the business is set up. Where the expenses were in connection with or related to a business which was yet to commence, the decision of the Tribunal in disallowing the deduction claimed by the appellant was correct. Interest on money borrowed for investment in a joint venture company could be treated as one borrowed for appellant's business and therefore deductible. Where an appellant borrows money for expansion of its existing business, the interest paid thereon is allowable. 6.8 In state of Madras vs. Coelho (GJ), the Supreme Court has held that, in ordinary commercial practice, payment of interest is taken as a revenue expenditure. The money borrowed must be for the purposes of the appellant's business or profession that is carried on during the year of account. 6.9 In respect of interest paid, deduction permissible under this clause is in respect of interest as distinguished from other kinds of compensation. Interest is a permissible deduction under this clause only if it has been 'paid'. It need not have Page 7 of 18

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been actually paid in cash. It may have been paid by way of adjustment in accounts by any equivalent mode when the accounts are maintained on the mercantile basis. Interest on borrowed capital is allowable under this clause 6.10 The issue whether borrowed capital had been actually used for business is one relating to facts and does not give rise to a question of law. Even if it were a question of law, it may not give rise to a substantial question of law where the appellant agrees to pay interest on loan originally treated as interest free. The inference that borrowing is for non-business purposes on the particular facts of the case may be a question of fact. But it may give rise to a question of law where the inference does not follow the facts of the case. 6.11 It is quite apparent that the appellant is not incurring any such expenditure which is not a business expenditure. All expenditure has been incurred for the purpose of business. The appellant had borrowed funds which was for business purposes and was paying interest on these funds. In view thereof, the addition of Rs.6,45,21,521/- is deleted. The ground of appeal is ruled in favour of the appellant.

(1.4.1) Against the aforesaid order of Ld. CIT(A), the Revenue is in appeal before us,

vide aforesaid ITA No. 3869/Del/2014 for A.Y. 2007-08 and the assessee has filed Cross

Objection vide C.O. No. 128/Del/2017 for A.Y. 2007-08.

(1.5) The Assessment Order U/s 143(3) of I.T. Act for A.Y. 2010-11 was passed on

27/12/2012, in which inter alia, an addition of Rs. 15,41,80,533/- was made towards

disallowance on account of interest U/s 36(1)(iii) of I.T. Act. Aggrieved, the Assessee

filed an appeal before Ld. CIT(A), who, vide impugned order dated 09/04/2014, deleted

the addition made by the AO, on account of the aforesaid disallowance of Rs.

15,41,80,533/- U/s 36 (1)(iii) of I. T. Act. The Revenue is in appeal against the

aforesaid order dated 09/04/2014 of Ld. CIT(A) vide ITA No. 3870/Del/2014 for

Assessment Year 2010-11. Relevant portion of the order of Ld. CIT(A) for A.Y. 2010-11

is as under:-

“7. Ground No. 3 is in respect of disallowance under section 36 (1)(iii). Page 8 of 18

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7.1 The AO held that the appellant company used substantial amount of funds which were borrowed, as investments, which was not the business of the company. Therefore, the AO disallowed proportionate interest paid on account of funds utilized as investments stating that it was for non business purposes. 7.2 The appellant on the other hand stated that the loans borrowed and the utilization of funds was purely for business purposes. A part of the loans was utilized for investment in debt oriented funds. These funds were the appellant's own funds. The balance funds were used for investment in banks. The appellant stated that it had entered into a loans agreement with the lenders of capital. As per the agreement the appellant was compulsorily to keep a deposit in the bank and not withdrawal it. 7.3 The appellant has quoted the case of the Hon'ble Supreme Court in Madhav Prasad Jatia vs. CIT, AIR 1979 SC 1291: 118 ITR 200, 208. 7.4 The judgment of Bombay High Court in the case of CIT v Reliance Utility A Power Ltd. as well as Woolcombers of India Ltd. and of the apex court in the case of East India Pharmaceuticals Ltd. has held that if there are funds available with the appellant then the presumption would arise that investment would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment. The judgment of S A Builders Ltd. v CIT held that what is relevant is whether the amount was advanced as a measure of commercial expediency. The judgment of the Hon'ble Delhi High Court in the case of CIT v Dalmia Cement Ltd. has held that it should be established that there was nexus between the expenditure and purpose of the business. 7.5 As per section 36(1)(iii) the clause envisages the fulfillment of three conditions before interest can be allowed as a deduction: (1) There should a borrowing; (2) Capital must have been borrowed for business purposes; and

(3) Interest should have been paid or payable in respect thereof.

7.6 Borrowal implies a consensual act: The word 'borrow' has not been defined in the statute and, therefore, its dictionary meaning has to be looked up. The meaning of the word 'borrow' as given in the Shorter Oxford Dictionary is to take (a thing) on security given for its safe return. Since borrowing implies a consensual act by a debtors receiving money from a creditor, it would not cover a case of any and every liability. Borrowing money and payment or interest is a mere commercial transaction. Where the appellant, a public limited company, carrying on the business in manufacture of sugar, owning about 2000 acres of land on which it grew

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sugarcane, borrowed a certain sum which was credited to the agricultural section of the appellant, it was held that the interest payable on the borrowings credited to the agricultural section was an admissible deduction. The borrowing must be a genuine borrowing and not a bogus one. The borrowing may be on a permanent footing such as by way of debenture loan or a spasmodic one such as from year to year, or for short term such as by way of overdrafts from banks, or loans from time to time. 7.7 The amount should be borrowed for the purposes of the business. The moneys should be borrowed by the appellant for purposes of the appellant's business. Further, the expression 'for the purpose of the business' may take into account not only the day to day running of a business but several other matters. A borrowing diverted from business would cease to be a borrowing for purpose of business, so that the interest proportionate to such diverted funds is liable for disallowance. In order to be allowable as expenses, it should be in respect of business which was carried on by the appellant and the profits of which are computed and assessed, and should be incurred after the business is set up. Where the expenses were in connection with or related to a business which was yet to commence, the decision of the Tribunal in disallowing the deduction claimed by the appellant was correct. Interest on money borrowed for investment in a joint venture company could be treated as one borrowed for appellant's business and therefore deductible. Where an appellant borrows money for expansion of its existing business, the interest paid thereon is allowable. 7.8 In state of Madras vs. Coelho (GJ), the Supreme Court has held that, in ordinary commercial practice, payment of interest is taken as a revenue expenditure. The money borrowed must be for the purposes of the appellant's business or profession that is carried on during the year of account. 7.9 In respect of interest paid, deduction permissible under this clause is in respect of interest as distinguished from other kinds of compensation. Interest is a permissible deduction under this clause only if it has been ’paid'. It need not have been actually paid in cash. It may have been paid by way of adjustment in accounts by any equivalent mode when the accounts are maintained on the mercantile basis. Interest on borrowed capital is allowable under this clause. 7.10 The issue whether borrowed capital had been actually used for business is one relating to facts and does not give rise to a question of law. Even if it were a question of law, it may not give rise to a substantial question of law where the appellant agrees to pay interest on loan originally treated as interest free. The inference that borrowing is for non-business purposes on the particular facts of the case may be a question of fact. But it may give rise to a question of law where the inference does not follow the facts of the case. 7.11 It is quite apparent that the appellant is not incurring any such expenditure

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which is not a business expenditure. All expenditure has been incurred for the purpose of business. The appellant had borrowed funds which was for business purposes and was paying interest on these funds. In view thereof, the addition of Rs.15,41,80,533/- is deleted. The ground of appeal is ruled in favour of the appellant.”

(1.5.1) Against the aforesaid order of Ld. CIT(A), Revenue is in appeal before us vide

ITA No. 3870/Del/2014.

(1.6) During appellate proceedings, the Assessee filed Paper Books containing the

following particulars:

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A synopsis of the case was also filed from the assessee’s side.

(2) The Ld. Counsel for Assessee, at the time of hearing before us, took us through

the records of the appeals, including the Paper Books to make the following

contentions: (A) Borrowed funds were utilized exclusively for purposes of business and no borrowed funds were used for making investments in the mutual funds. (B) The assessee had sufficient funds of its own to make the investments. (C.1) In respect of loan agreement with (ADB) Asian Development Bank, a final repayment of the loan is due on 15.01.2019 and, if, there was any pre- payment of loan amount, assessee would be liable for liquidation damages. As per the loan agreement, the utilization of loan was restricted to project only. A periodic audit report, on the progress of the project and loan utilization needs were submitted to the lenders. (C.2) In respect of loan taken from IFC (International Financial Corporation), a final repayment of the loan is due on 15.01.2019 and the utilization of loan is restricted to project only and in case of any pre-payment by the assessee, the assessee was liable to heavy pre- payment charges. Page 12 of 18

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(C.3) In respect of loans taken from State Bank of India (senior lender), the last installment is due on 31/12/2018 and there are restrictions on use of borrowed funds taken on loans by the assessee.

Further, at the time of hearing before us, with the help of materials available on record,

including the Paper Books; the Ld. Counsel for Assessee contended that the company

had used the borrowed funds for the purposes of business only. The borrowed funds

were used by the Assessee for investment in fixed assets which was entirely for the

purposes of business, the Ld. Counsel contended. He further contended that

investments in mutual funds started only after the assessee company had started

earning operating income from the business of transmission of electricity; and till that

time, investments in mutual funds had not even started. The Ld. Counsel further

contended, taking us through materials on record, including the Paper Books, that the

assessee always had sufficient interest free funds of its own, adequate for making

investments in mutual funds; and at no point of time investments in mutual funds

exceeded the assessee’s own interest free funds. The Ld. Counsel for assessee further

contended, with the help of the following judicial precedents, that in the facts and

circumstances of the assessee, in any case, there is presumption that investments were

made out of interest free funds generated or available with the company including the

share capital and reserves.

• Reliance Utility and power Limited [2009] 313 ITR 340/178

Taxman 135 (Bom.) • Woolcoombers of India Limited [1982] 134 ITR 219 (Cal.)

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• East India Pharmaceuticals [1997] 224 ITR 627 (SC)

• DD Industrial Ltd. [2015] 57 taxmann.com 310 (Delhi)

• Tin Box Co. 135 taxman 145 (Delhi)

(2.1) The Ld. Counsel for assessee also drew our attention to Cash Flow Statement of

the respective Financial Years which is as under, in support of the contention that the

assessee had adequate interest free funds of its own for making investments in mutual

funds:

Year ended Revenue (A) Share Drawn loan Loan Investment Whether Capital (B) amounts as utilized= in mutual (D)- at end of Asset funds as at [(B)+(c)] year (C) Capitalization year end (E) + CWIP+ Capital advance (D) 2006 NIL 420 980 (loan 1429.57 NIL Yes raised Rs. (Schedule 4 (Schedule 3) 570.83 crore) and 5) (Schedule 3) 2007 138.45 468 1060.05 1524.71 115.10 Yes (loan raised (Schedule 4 (Schedule 6) Rs. 75.45 and 5) crore) (Schedule 3) 2008 255.53 468 1092.00 1538.94 68.50 Yes (Schedule 3) (Schedule 4) (Schedule 5) 2009 254.50 468 NIL* 1550.33 129.50 Yes (Schedule 4) (Schedule 5) 2010 300.98 468 NIL* 1554.45 67.52 Yes (Schedule 4) (Schedule 5) Total 93,568.64 3,77,165.41 4,15,716.22 38,061.41

(3) In response, the Ld. DR did not dispute the facts contended by the Ld. Counsel

for assessee, at the time of hearing, before us. The Ld. DR also did not distinguish the

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facts of the assessee with the facts of the judicial precedents on which the Ld. Counsel

for assessee relied or on which the Ld. CIT(A) deleted the addition made by the AO on

account of disallowance of interest U/s 36(1)(iii) of I.T. Act. However, he relied on the

Assessment Orders for A.Y. 2007-08 and A.Y. 2010-11, passed by the AO.

(4) We have heard both sides patiently and we have perused the materials on

record, including the paper book, synopsis etc. filed in the course of appellate

proceedings in ITAT, carefully. We have also considered the judicial precedents

referred to in the record and also the precedents brought to our attention, at the time

of hearing before us.

(4.1) The common issue involved in both the appeals filed by Revenue is regarding

disallowance of interest U/s 36(1)(iii) of I.T. Act. As mentioned earlier, the Ld. DR did

not dispute the facts contended by the Ld. Counsel for assessee. The relevant facts are

not in dispute. It is not in dispute that the investments in mutual funds had not started

till the time, the assessee started earning operating income from transmission of

electricity. It is also not in dispute that the borrowed funds were entirely used by the

assessee for investment in fixed assets for the purposes of business. It is further not in

dispute that the assessee had adequate interest free funds of its own for making

investments in mutual funds. It is, furthermore, not in dispute that there were

contractual restrictions imposed on assessee in respect of utilization of borrowed funds;

and also, the assessee was liable for payment of substantial amounts of liquidation

damages/pre-payment charges in case the assessee made pre-payment of loan

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repayments. Thus, it is also not in dispute that due to contractual restrictions and

liquidation damages/pre-payment charges, as aforesaid; it was neither prudent for the

assessee to divert any part of borrowed funds for non-business purposes; nor was it

prudent to make pre-payment of loan repayments even if the assessee had its own

interest free funds. In these specific and peculiar facts and circumstances, there is no

case for any disallowance of interest U/s 36(1)(iii) of I.T. Act. Moreover, Ld. DR failed

to bring any material facts to our notice to distinguish the facts of the assessee with the

facts of the judicial precedents on which the Ld. CIT(A) relied upon and on which the

Ld. Counsel for assessee relied upon during appellate proceedings in ITAT. The Ld. DR

thus failed to make any case for any interference by us with the order of Ld. CIT(A) on

this issue.

(4.2) In view of the aforesaid specific and peculiar facts and circumstances of the

case, and in view of the foregoing discussion, we decline to interfere with the decision

of Ld. CIT(A) on the issue of disallowance of interest U/s 36(1)(iii) of I.T. Act, on

merits. Accordingly, both the appeals filed by the Revenue are dismissed.

(5) In the Cross Objection, the Assessee has objected to that part of the order of the

Ld. CIT(A) wherein she upheld the reopening of assessment proceedings U/s 148 r.w.s.

147 of I.T. Act for Assessment Year 2007-08. However, since we have already upheld

the order of Ld. CIT(A) on the issue of disallowance of interest U/s 36(1)(iii) of I.T. Act,

the Cross Objection of Assessee for the A.Y. 2007-08 becomes infructuous and

academic in nature. Therefore, we decline to adjudicate on the Cross Objection of the

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ITA Nos.-3869 & 3870/Del/2014 and C/O No. 128/Del/2017. M/s Powerlink Transmission Ltd., New Delhi.

assessee for A.Y. 2007-08, Cross Objection being infructuous/merely academic. For statistical purposes, the cross objection is partly allowed.

(6) In the result, both the appeals filed by the Revenue for A.Y. 2007-08 and 2010- 11 are dismissed and Cross Objection filed by the Assessee for A.Y. 2007-08 is partly

allowed for statistical purposes.

Order pronounced in the open court on 21/12/2018

Sd/- Sd/- (AMIT SHUKLA) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 21.12.2018 Pooja/-