DCIT Vs Cairn Energy Hydrocarbon Ltd (ITAT Delhi)
ITAT Delhi held that investment done from the surplus funds in FDs has nothing to do with the business connection. Accordingly, interest received from the same is to be treated under separate head i.e. Income from other sources and not as business income.
Facts- The issue is that the assessee deposited their surplus funds in the bank on which an interest amounting to Rs.36,19,348/- was earned and the same offered to tax under the head ‘income from business and profession’. AO erred in treated the interest earned from fixed deposits under the head income from other sources. CIT(A) confirmed treated income from FDs as income from other sources and interest income from temporary investments as business income
Conclusion- With regard to earning of interest of Rs. 3619348/-from FDs wherein the assessee has invested the surplus funds in the FDs has nothing to do with the business connection. In the instant FDs, we find that there was no compulsion on the part of the assessee to invest in bank FDs as a part of an agreement. No business contingency was brought out whether in this case the surplus funds have been kept as fixed term deposits in the bank which yielded interest. It is a passive income which is not directly relatable to the main functions of the business or the venture of oil exploration. This interest would be received even in the absence of lull/cessation of exploration activity. The interest was received is to be treated under a separate head for the purpose of tax as per the provisions of Section 14 of the Income Tax Act, 1961.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeals have been filed by the assessee and the Revenue against the orders of ld. CIT(A)-XXIX, New Delhi dated 10.09.2013 and the order of ld. CIT(A)-42, New Delhi dated 25.07.2018.
2. The revenue has raised the following grounds in ITA No. 6357/Del/2013 for Assessment Year 2010-11:
“1. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in allowing the exploration and development expenditure of Rs. 2,05,14,89,785/- which had been disallowed by the A.O on the ground that the assessee during the relevant previous year has contravened the provision of chapter XVII—B read with section 40a(i) and 40a(ia) of the Income Tax Act 1961 and these were also found unascertainable & unverifiable by the
2. CIT(A) has erred in allowing time cost and expenses of Rs. 11,88,89,517/- whereas the Assessing Officer had found these expenses without any actual evidences being made available for verification, their genuineness cannot be relied simply on the basis of certification/mechanism of charging such expenses to the UJV by the CA firm. Ld CIT(A) has also not gone in to the reasonableness and genuineness of the total claim made by the Appellant.
3. CIT(A) has erred in allowing expenses of Rs. 16,95,79,348/- without discussing the basis of issue raised by the A.O and has based on the finding given by the CIT(A) in earlier year where these expenses were allowed as deferred revenue expenses in 5 years starting from A.Y. 2010-11.
4. CIT(A) has erred in holding the interest of income Rs. 5,16,06,907/- and interest from FD Rs. 36,19,348/- as business income in place of income from other sources, whereas in both the cases the investments have been made out of the excess/surplus funds which was found idle by the appellant at the stage of investment with a sole purpose of earning interest. As such these interest incomes are “Income from other sources” on which no netting/set off is available as there is no such diminishing provision in section 57 of the Income Tax Act.
5. CIT(A) has erred in allowing in u/s 80IB even though the assessee was statutorily required to make such claim in the first year of commencement of production and this claim should have been made in the return of income irrespective of the fact whether there is positive income or not.”
3. The assessee has raised the following grounds in ITA No. 6346/Del/2013 for Assessment Year 2010-11:-
“1. THAT in the facts and circumstances of the case & in law, the Ld. CIT(A) erred in treating the interest income amounting to Rs. 36,19,348/- as income from other sources instead of income from business or profession.
2. THAT in the facts and circumstances of the case & in law, the Ld. CIT(A) erred in not allowing expenses incurred in the preceding years without appreciating that these expenses were disallowed by the Ld AO in the respective assessments on the ground that these expenses were to be allowed in the year of actual commencement of commercial production and the same ought to have been allowed in the captioned year wherein the commercial production has commenced.”
4. The revenue has raised the following grounds in ITA No. 5988/Del/2018 for Assessment Year 2013-14:-
“1. Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the exploration and development expenditure of Rs. 1,46,39,18,152/-which had been disallowed by the AO on the ground that the assessee company during the relevant previous year has contravened the provision of chapter XVII-B read with section 40a(i) and 40a(ia) of the Income Tax Act, 1961 and these expenses were also found unascertainable & unverifiable by the assessing officer.
2. Whether, on the facts and in the circumstances of the case, the Ld. CIT(A] has erred in allowing the total time cost and expenses recharged by the operator to the Unincorporated Joint Venture (UJV) amounting to Rs. 83,37,49,190/- (being part of E & D expenditure of Rs. 1,46,39,18,152/-) which is the appellant share in the cost. The same has been disallowed by the AO as these were all estimated basis and no actual evidence was produced during the course of hearing.
3. Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the payment of Rs. 12,06,69,199/- (being part of E & D expenditure of Rs. 1,46,39,18,152/-) made for parent company overhead which has been made from the books of Rajasthan block to parent company of operator, thus it was considered as head office expenditure covered u/s 44C for the block. The same has been disallowed by the AO as the same was on estimated basis without any evidence to support the same.”
5. The assessee has raised the following grounds in ITA No. 6277/Del/2018 for Assessment Year 2013-14:-
“1. That on the facts and circumstances of the case & in law, the Ld. C1T(A) erred in confirming action of Ld. AO in allowing claim of additional depreciation amounting to Rs. 10,43,83,712 (Rs. 18,26,71,497-7,82,87,784) under section 32(1 )(iia) of the Act and recomputed the deprecation of Rs 359,20,57,325 after giving effect to Assessment order of AY 12-13 despite the Appellant had not claimed the additional deprecation in Income Tax Return of the AY 2013-14.
1.1 That on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in confirming Ld. AO’s allegation that the claim of additional depreciation was to be mandatorily allowed in terms of Explanation 5 to section 32(1) of the Act, without appreciating that additional depreciation being optional in nature, is not covered within the purview of the said Explanation.
1.2 That on the facts and circumstances of the case & in law, the Ld CIT(A) erred in not appreciating that the additional depreciation, provided under Section 32(l)(iia) of the Act is in the nature of an incentive and cannot, therefore, be treated at par with ‘normal depreciation’.”
6. The assessee has raised the following grounds in ITA No. 6278/Del/2018 for Assessment Year 2014-15:-
