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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI R. K. PANDA & MS. SUCHITRA KAMBLE
PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 10.04.2017 of the CIT(A)- 4, New Delhi relating to assessment year 2013-14.
The only effective ground raised by the assessee reads as under :- “The learned CIT has erred in holding that decision of the Supreme Court in Tuticorin Alkalies Chemicals & Fertilizers Ltd., 227 ITR 172 would apply to interest earned on deposits of temporarily surplus for a new unit being established which is a receipt of Capital nature resulting in abatement of Expenses During Construction, including the interest on borrowings for the new unit, Capitalized-during the period
of setup of industry rather than the subsequent decision of the Supreme Court in Cit Vs Bokaro Steels Ltd. 236 ITR 315 and Bongaigon Refinery & Petrochemicals Ltd., 251 ITR 239 which were followed by the jurisdictional High Court of Delhi in a number of cases.”
Facts of the case, in brief, are that the assessee is a company engaged in preparing feasibility and financial viability report for setting up the business of Coal and Mine in Australia and Mozambique. It filed its return of income on 30.09.2013 declaring loss of Rs.3,06,60,709/-. During the course of assessment proceedings, the Assessing Officer observed that an amount of Rs.59,88,324/- has been shown as “interest income” which has been shown as “work in progress”. He observed that this interest income was shown to have been netted against the interest paid. He, therefore, asked the assessee to explain as to why the entire interest income amounting to Rs.59,88,324/- should not be taxed as “income from other sources”. Rejecting the various explanations given by the assessee and relying on the decision of the Hon'ble Supreme Court in the case of Tuticorin Alkalies Chemicals & Fertilisers Ltd. vs. CIT reported in 227 ITR 172, the Assessing Officer disallowed an amount of Rs.59,88,324/-.
In appeal, the ld. CIT(A) upheld the action of the Assessing Officer.
Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal.
6. The ld. counsel for the assessee at the outset submitted a copy of the order of the Tribunal in assessee’s own case in the immediately preceding assessment year and submitted that the Tribunal vide order dated 06.04.2018 has decided an identical issue and held that the assessee is entitled to net off the interest paid against interest received and the balance to be reduced from the work in progress. He accordingly submitted that this being a covered matter the ground raised by the assessee should be allowed.
7. The ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the ld. CIT(A).
After hearing both the sides, we find identical issue had come up before the Tribunal in assessee’s own case in the immediately preceding assessment year. We find the Tribunal in order dated 06.04.2018 for the assessment year 2012-13 while deciding the issue in favour of the assessee has observed as under :-
“5. Perused the material on record in the light of the submissions on either side. In so far as the facts are concerned, absolutely there is no dispute. The assessee received Rs.157 crores from RINL and kept Rs.156 crores in FD account in the process of acquiring coal mines for the conduct of their business. The FD accrues some interest out of which the assessee had to pay back interest to RINL on their demand. Now the question is whether the assessee is entitled to net all the interest received against the interest paid and whether the assessee is entitled to reduce the work-in-progress to the extent of the net interest by treating it as business income.
In the case of Bokaro Steels Ltd. (supra), the Hon'ble Apex court held that when the activities of the assessee in connection with a receipt is directly connected with or incidental to the business, such receipts be allowed to be adjusted against the work-in-progress and are capital receipts and not income of the assessee from an independent source. Here, in this matter, the very purpose of assessee receiving Rs.157 crores from RINL was to increase the paid up share capital in furtherance of their business and such an amount accrued interest during the period of their study for acquiring coal mines, during which period on day to day basis the assessee incurred an expenditure of Rs.4,48,78,068/-.
Though assessee has placed reliance on catena of decisions, while respectfully following the decision of the Hon'ble Apex Court in the case of Bokaro Steels Ltd. (supra), we hold that the assessee is entitled to net of the interest paid against the interest received and the balance to reduce the work-in- progress. Consequently, we hold that the interest received in this matter is not taxable under the head "Income from other sources". Accordingly, the grounds of appeal
are allowed and the learned AO is directed to delete the addition made on account of the interest earned.
8. In the result, appeal is allowed.”
9. Respectfully following the decision of the Tribunal in assessee’s own case in the immediately preceding assessment year and in absence of any contrary material brought to our notice, we hold that the assessee is entitled to net off interest paid against interest received and the balance to be reduced from the work in progress. The ground raised by the assessee is accordingly allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 30th July, 2018.