ALAKNANDA HYDRO POWER COMPANY LIMITED ,SECUNDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-1(1), HYDERABAD

Facts of the case, in brief, are that the assessee is a company engaged in the business of generation of power through hydel. It filed its return of income on 9.9.2014 declaring loss of Rs.(-)30,87,399/-. The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee calling for certain information. In response to the said statutory notices, the AR of the assessee appeared before the Assessing Officer and filed the requisite details.

From the various details furnished by the assessee, the Assessing Officer noticed that the assessee has not yet commenced its business activities. From the balance sheet attached to the return of income, the Assessing Officer noted that the assessee has received interest income amounting to Rs.2,69,95,590/-. The Assessing Officer asked the assessee to explain as to why the interest income should not be taxed under the head “income from other sources” in view of the decision of the Hon'ble Supreme Court in the case of Tutoicorin Alkani Chemicals and Fertilizers Ltd vs. CIT (227 ITR 0172). In absence of any objection from the assessee, the Assessing Officer held that the interest earned by the assessee from investment of the borrowed funds in short term deposits would be chargeable to tax under the head “income from other sources”. He accordingly treated the interest income of Rs.2,69,95,590/- as income from other sources.

In appeal, the learned CIT (A) upheld the action of the Assessing Officer. She, however, noted that such interest income received for the impugned A.Y was at Rs.1,67,93,342/- and therefore, directed the Assessing Officer to restrict the addition of Rs.1,67,93,342/- by observing as under:

Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal by raising the following grounds: “

The learned Counsel for the assessee referring to the above additional grounds submitted that these are purely legal in nature and no fresh facts are required to be investigated since all material facts necessary for adjudication of the above grounds are available on record. Referring to the decision of the Hon'ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 and Jute Corporation of India Ltd reported in 187 ITR 688, he submitted that the additional grounds raised by the assessee should be admitted for adjudication.

The learned DR, on the other hand, strongly objected to the admission of the additional grounds. Page 4 of 10

After hearing both sides and in view of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 and Jute Corporation of India Ltd reported in 187 ITR 688, the request of the assessee for admission and adjudication of the additional grounds are accepted.

The learned Counsel for the assessee submitted that the assessee filed the original return of income on 9.9.2014 declaring Nil total income which was revised on 25.9.2015 by declaring loss of Rs.(-)30,87,400/-. He submitted that the assessee is in the business of construction of 330MW Hydro Power Project on Alaknanda River, Uttrakhand. During the relevant A.Y 2014-15, the project was under construction. He submitted that initially the cost of the Hydro Power Project was for a sum of Rs.2069 crores and the loan component was a sum of Rs.1494 crores. The assessee has availed foreign currency loan of USD 40 Million. Due to certain unavoidable reasons, the project got delayed and the project cost increased from 2069 crores to Rs.5083 crores. The learned Counsel for the assessee referred to the first loan agreement dated 03.08.2007 with the Banks and a power purchase agreement with UP Govt. entered on 28.06.2006 and submitted that the agreement with the Banks and Financial Institutions were amended and restated as and when loans increased from the initial amount. He submitted that during the impugned A.Y, the assessee has received interest on FDRs with the Bank of Rs.1,32,88,045/- and interest on Electricity Security Deposit of Rs.35,05,297/- both totaling to Rs.1,67,93,342/-. As against the above, the assessee has paid Rs.405.19 crores to various financial institutions and banks. Referring to the copy of the assessment order, he submitted that the Assessing Officer has wrongly mentioned at para 2 of the order that the assessee has Page 5 of 10 not objected to the proposal. He further observed that the assessee has not commenced the business activity during the year and the total interest income has been mentioned by the Assessing Officer at Rs.2,69,95,590/-.

The learned Counsel for the assessee submitted that the assessee has reduced the interest income to Rs.1,67,93,342/- from the pre-operative expenditure of Rs.471.11 crores incurred during the previous year since the interest income was inextricably linked with the construction of the power project.

Referring to the various decisions, he submitted that the ratio of Tuticorin Alkali (Supra) is not applicable to the facts of the present case for the following reasons: “(A) There was no surplus funds with the appellant. The Contractors of the project regularly sought the payments for the work done and usually the appellant had time of 2 to 3 months. In the Interregnum period, with the permission of the Lenders, investments was made in "the permitted Investments" and the appellant had no choice in selecting the investments.

The learned Counsel for the assessee further submitted that there was no accrual of income to the assessee and the right to receive vested with the lenders and income was to be compulsorily credited to the project loan account. Thus, it is a capital receipt and does not partake the nature of revenue as the business was not set up during the previous year.

Referring to the following decisions, he submitted that the interest income is not chargeable to tax during the previous year when such receipts are inextricably linked with the construction of the Hydro Power Project and go to reduce the cost of the project and such interest income is in the nature of capital receipts: (1) Bokaro steel Ltd- 236 ITR 315 (SC) (2) Karnal Cooperative Sugar Mill Ltd - 243 ITR 2 (SC) (3) Karnataka Power Corporate -247 ITR 268 (SC) (4) Shree Rama Multi Tech Ltd 403 ITR 426 (SC) (5) Indian oil Panipat Power consortium Ltd -315 ITR 255 (Del) (6) Adani Power Ltd -ITAT, (Ahm) -61 Taxmann.com 355 (7) VGR Foundations - 298 ITR 132 (Mad)

The learned Counsel for the assessee also filed a petition under Rule 29 of the ITAT Rules for filing of certain additional evidences which is in the shape of loan agreements with banks and financial institutions.

The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and the learned CIT (A).

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case made addition of Rs. 2,69,95,590/- being the interest income received by the assessee during the year treating the same as “income from other sources” by relying on the decision of the Hon'ble Supreme Court in the case of Tutoicorin Alkani Chemicals and Fertilizers Ltd vs. CIT (227 ITR 0172). We find the learned CIT (A) while upholding the order of the Assessing Officer restricted such amount to Rs.1,67,93,342/- on the basis of correct figure as per the financial statement. It is the submission of the learned Counsel for the Page 8 of 10 assessee that such interest income is inextricably linked with the construction of the power project which would go to reduce the cost of the project by efficiently and effectively using the fund for reduction of the cost of the project. It is also his argument that the ratio of the decision of the Hon'ble Supreme Court in the case of Tutoicorin Alkani Chemicals and Fertilizers Ltd vs. CIT (Supra) is not applicable to the facts of the present case in view of the fact that such interest income is inextricably linked with the construction of the Hydro Electric Project. It is also his submission that the Assessing Officer has wrongly mentioned that the assessee has not objected to the treatment of such interest income as “income from other sources”. We find the various arguments advanced by the learned Counsel before the Tribunal were never raised before the lower authorities. The agreement with the financial institutions which are filed before us as additional evidence were not considered by the lower authorities. Further, the order of the learned CIT (A) which has already been reproduced in the earlier paragraph is very cryptic one. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the Assessing Officer with a direction to re-adjudicate the issue in the light of the agreement now produced before the Tribunal for the first time and which goes to the root of the matter. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, appeal filed by the assessee is allowed for statistical purposes.