Case Law Details
Jhabua Power Limited Vs DCIT (ITAT Kolkata)
It is observed that the construction of Power Plant of the assessee-company was under progress during the year under consideration and in connection with the same, security deposit was required to be kept by the assessee to Commercial Tax Officer for sales-tax registration as well as with Executive Engineer for supply of water. The said deposits thus were inextricably linked with the construction of Power Plant of the assessee and as held by the Hon’ble Delhi High Court in the case of Jaypee DSC Ventures Limited (supra) cited by the ld. Counsel for the assessee, interest earned by the assessee on the said deposits was liable to be adjusted against the Project construction expenditure and the same could not be assessed as income from other sources. The ld. CIT(Appeals), in our opinion, thus is not justified in confirming the addition made by the Assessing Officer to the total income of the assessee by treating the said interest income as chargeable to tax in the hands of the assessee-company under the head “income from other sources” and deleting the said addition, we allow the Ground 1 of the assessee’s appeal.
FULL TEXT OF THE ITAT JUDGMENT
This appeal filed by the assessee is directed against the order of Id. Commissioner of Income Tax (Appeals)-4, Kolkata dated 24.08.2016 and the grounds raised therein by the assessee read as under:-
“(1) That on the facts and circumstances of the case, the ld. CIT(Appeals)-4, Kolkata was wrong in holding that interest (Rs.9,87,836/-) earned on security deposit inextricably linked to the construction of power plant for generation of power as ‘income from other sources’ of the Income Tax Act, 1961.
(2) That the ld. CIT(A)-4, Kolkata was wrong in construing the fact that the appellant company is engaged in the business of civil construction in place of generation of power upon erection and commissioning of power plant and held that income of deposits having direct nexus with the capital cost (work in progress) as income from other source”.
2. At the time of hearing before the Tribunal, the ld. Counsel for the assessee has not pressed Ground No. 2 raised in the appeal of the assessee. The same is accordingly dismissed as not pressed.
3. Apropos the issue involved in Ground No. 1, the relevant facts are that the assessee is a Company, which was setting up a Thermal Power Plant at Seoni in Madhya Pradesh during the year under consideration. The return of income for the year under consideration was filed by it on 28.09.20 11 declaring total income of Rs.2,37,54,826/-, which comprised of interest income, capital gain from sale of Mutual Funds, etc. As found by the Assessing Officer during the course of assessment proceedings, the assessee had earned interest income of Rs.9,87,836/- during the year under consideration, which was not offered to tax. In this regard, it was explained on behalf of the assessee-company that the said interest income was earned on the deposits given to the various Government Organisations in connection with construction of its Power Plant and the same, therefore, was a capital receipt not chargeable to tax. This explanation of the assessee was not found acceptable by the Assessing Officer and treating the interest earned by the assessee as a revenue receipt chargeable to tax, he made an addition of Rs.9,87,836/- to the total income of the assessee under the head “income from other sources”. On appeal, the ld. CIT(Appeals) confirmed the said addition made by the Assessing Officer.
4. The ld. Counsel for the assessee submitted that the interest of Rs.9,87,836/- in question was earned by the assessee on the security deposits kept with Government Organization in connection of the construction of its Power Plant. He contended that the said interest income thus was inextricably linked with the Project of construction of the Power Plant of the assesses-company and the same was rightly reduced from the project development expenditure incurred by the assesses-company during the year under consideration. He contended that this factual position was duly disclosed by the assesses in Notes to Accounts and the same was specifically brought to the notice of the Assessing Officer vied letter dated 11.02.2014 (copy at pages no. 20 & 21 of the paper book) during the course of assessment proceedings. Relying, inter alia, on the decision of the Hon’ble Delhi High Court in the case of CIT –vs.- Jaypee DSC Ventures Limited (335 ITR 132), he contended that the interest earned by the assessee on the FDRs having intrinsic and inseggregable nexus with the work undertaken was the capital receipt and the same was liable to be adjusted against the Project expenditure and could not be assessed as income from other sources. The ld. D.R., on the other hand, relied on the orders of the authorities below in support of the assessee’s case on this issue.
5. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the construction of Power Plant of the assessee-company was under progress during the year under consideration and in connection with the same, security deposit was required to be kept by the assessee to Commercial Tax Officer for sales-tax registration as well as with Executive Engineer for supply of water. The said deposits thus were inextricably linked with the construction of Power Plant of the assessee and as held by the Hon’ble Delhi High Court in the case of Jaypee DSC Ventures Limited (supra) cited by the ld. Counsel for the assessee, interest earned by the assessee on the said deposits was liable to be adjusted against the Project construction expenditure and the same could not be assessed as income from other sources. The ld. CIT(Appeals), in our opinion, thus is not justified in confirming the addition made by the Assessing Officer to the total income of the assessee by treating the said interest income as chargeable to tax in the hands of the assessee-company under the head “income from other sources” and deleting the said addition, we allow the Ground 1 of the assessee’s appeal.
6. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 23rd day of March, 2018.
