Angul Sukinda Railway Ltd. Vs ITO (ITAT Cuttack)
We find that during the course of assessment proceedings the assessee explained before the AO with regard to interest on mobilization advance is a capital receipt, therefore, it has been reduced from the capital work-in-progress and in case of interest earned on fixed deposit/flexi deposits is a business income, therefore, it has been treated as a revenue income. The AO did not accept the claim of the assessee and treated the same as income from other sources. In appeal, the CIT(A) accepted the claim of the assessee in regard to interest on mobilization advance but he did not agree with the interest received on fixed deposits/flexi deposits and upheld the action of AO holding that the AO has rightly treated the interest earned on FDR & Flexi Deposit as income from other sources.
We observe from the balance sheet for both the assessment years under consideration that the share application money pending for allotment is also appearing and we have decided the similar issue in the case of M/s Haridaspur Paradip Railway Company Limited Vs. DCIT in ITA No.383/CTK/2019, order dated 12.10.2020, in which the issue of share application money were pending for allotment has been remitted back to the file of AO
In the impugned case, on perusal of the orders of the authorities below as well as the submissions made by both the sides before us, we observe that the assessee has deducted the expenses from the interest and surplus has been transferred into the reserve and surplus account. Before the AO the assessee has also offered it as a business income in the form of written submissions, which has been incorporated by the AO in the assessment order. We found substance on the submission of the ld. CIT-DR. As the issue being similar to the case of Haridaspur Paradip Railway Company Ltd.(supra), therefore, we also remit the issue to the file of AO on the same directions given therein along with some additional direction to the AO for examination as to whether the income which has been transferred into the reserve and surplus account and its utilization, either for revenue purpose or for capital expenditure. The AO is also directed to decide the issue as per law after providing reasonable opportunity of being heard to the assessee. The assessee is also directed to avoid taking any unnecessary adjournment and cooperate with the AO for early disposal of the case. We order accordingly.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals filed by the assessee against the order dated 16.09.2019, passed by the CIT(A)-1, Bhubaneswar for the assessment year 2013-2014 & 2014-2015.
2. Grounds taken by the assessee for A.Y.2013-2014 are as under :-
1. That the order of the Ld. AO is illegal, arbitrary contrary to evidence on record and without application of mind and for that matter the said order is liable to be quashed and/or annulled.
2. That on the facts of circumstances of the case, the Ld. AO has erred in treating interest on FDR and Flexi deposit amounting to Rs. 1,08,02,969/- as revenue receipt and made addition although the said interest is inextricably linked to the project and is purely a capital receipt and hence the aforesaid addition is liable to be deleted.
3. That the Ld. AO has erred both in law and facts by treating capital receipt as revenue
5. That the appellant craves leave to add or to amend the above grounds of appeal before or at the time of hearing of the appeal.
6. For these and among other grounds to be urged at the time of hearing, adequate relief as may be deemed fit be granted in the matter.
3. Grounds taken by the assessee for A.Y.2014-2015 are as under :-
1. That the order of the Ld. AO is illegal, arbitrary contrary to evidence on record and without application of mind and for that matter the said order is liable to be quashed and/or annulled.
2. That on the facts and circumstances of the case, the Ld. AO was not justified in denying that the interest on mobilization advance amounting to Rs.45,84,391/- received from the contractors during the construction/project period is a capital receipt and is adjustable against pre-operative expenses.
3. That on the facts of circumstances of the case, the Ld. AO has erred in treating interest on FDR and Flexi deposit amounting to Rs.3,85,82,206/- as revenue receipt and made addition although the said interest is inextricably linked to the project and is purely a capital receipt and hence the aforesaid addition is liable to be deleted.
4. That the Ld. AO has erred both in law and facts by treating capital receipt as revenue
5. That the appellant craves leave to add or to amend the above grounds of appeal before or at the time of hearing of the appeal.
6. For these and among other grounds to be urged at the time of hearing, adequate relief as may be deemed fit be granted in the matter.
4. The grounds raised in both the appeals are same to the grounds taken before the CIT(A) for both the assessment years under consideration. However, the interest on mobilization advance amounting to Rs.45,84,391/- for the assessment year 2014-2015 has been deleted by the CIT(A) in spite of the assessee has challenged this issue before us. As per our considered opinion, this issue is not required to adjudicate, hence, this ground of appeal for the assessment year 2014-2015 is dismissed. Now, we have to decide the issue involved regarding addition of interest on FDR and Flexi deposit amounting to Rs.1,08,02,969/- and Rs.3,85,82,206/-, respectively for both the above assessment years.
5. First we shall take up appeal of the assessee in ITA No.384/CTK/2019 for the assessment year 2013-2014, wherein the assessee has raised sole issue of disallowance of interest on FDR & Flexi deposit treating the same as revenue receipt.
6. Brief facts of the case are that the assessee is a public limited company filed its return of income electronically on 26.09.2013 disclosing a loss of Rs.11,85,939/-, however a tax was paid u/s.115JB of the Act on an income of Rs.92,02,009/-. The case of the assessee was selected for scrutiny under CASS and statutory notices were issued to the assessee. After examination of the details including books of account and written submission filed by the assessee, the AO observed that the assessee has received interest on Fixed Deposits and Flexi Deposits of Rs.1,08,02,969/- against which the assessee has made provision for income tax of Rs.29,82,746/- against which the assessee has claimed as some expenditure and the balance amount has been transferred into the General Reserve Account and interest earned on mobilization advance of Rs.68,55,574/- has been treated as capital receipts which has been adjusted against Fixed Assets as per Note No. 7 of the audit report. The Assessing Officer after considering the written submissions filed by the assessee determined the total income of the assessee at Rs.1,76,58,540/- for the assessment year 2013-2014 and Rs.4,31,66,600/- for assessment year 2014-2015.
7. Aggrieved from the assessment order, the assessee appealed before the CIT(A) and the CIT(A) after considering the submission of the assessee and findings of AO, he accepted the contention of the assessee in respect addition of Rs. 68,55,574/- and uphold the addition of Rs. 1,08,02,969/-, accordingly partly allowed the appeal of the assessee for both the assessment years.
8. Against the above order of CIT(A) for both the assessment years under consideration, the assessee is in appeals before the Income Tax Appellate Tribunal.
9. AR has reiterated the submissions made before the lower authorities and he has also relied on number cases and filed his written submissions for A.Y.2013-2014 as under :-
1. This issue is squarely covered by the decision of the Hon’ble Cuttack Tribunal in the case of DCIT v. M/s Radhikapur (West) Coal and Mining Pvt. Ltd., I.T.A. Nos.396/397CTK/2018, dated 21.10.2019. Wherein the Hon’ble Tribunal, after relying on the order of Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. 315 ITR 255, held that Interest earned on funds primarily brought for infusion in the business activity cannot be termed as income from other sources.
2. Further, the Hon’ble Karnataka High Court on a similar issue in the case of PCIT v. M/s Banknote Paper Mill India Pvt. Ltd. in ITA 690/2017 held that this issue is ex facie covered by the decision of the jurisdictional High Courts or even the Hon’ble Supreme Court of India. Thus, no substantial question of law arises in the present case and the Appeal filed by the Revenue is without merit and liable to be dismissed.
3. The Hon’ble Karnataka HC in the above case has relied on the order of the Tribunal. Wherein, the Tribunal held that the interest income earned by the Assessee Company on bank deposits made out of share capital received by it from the Reserve Bank of India could not be taxed as “Income from Other Sources” as the said interest income was earned prior to commencement of operations of the company during the construction period.
Brief facts of the case
4. The assessee is a Joint Venture Company of Rail Vikas Nigam Limited, Jindal Steel and Power and Bushan Limited, incorporated in the year 2009. The assessee was incorporated as a Special Purpose Vehicle (SPV) to construct a New Rail Line between (Budhapank) Angul and (Baghupal) Sukida. Copy of MOU entered between Rai Vikas Nigam Limited, Jindal Steel and Power and Bushan Limited is enclosed at PB Pg. 25-35 (Relevant Pg. 27)
5. That, it has been provided in the MOU that the Joint Venture Partners via Equity Participation will fund the cost of the project. PB Pg. 28. Further, RVNL will undertake the construction of the project. Copy of construction agreement is at PB Pg. 36-59
6. Accordingly, the assessee company infused equity which is being utilised for expenditure incurred on the construction of Railway Line. Further, the small number of funds are parked in various banks in the form of term deposit to meet day to day cost of the project.
7. Moreover, on a regular basis, the assessee has made certain advances to RVNL to enable it to execute the construction work. Furthermore, on such advances, the assessee company received Interest which was later adjusted against the dues of RVNL from their bills.
8. That, the assessee treated interest income as a capital receipt. The interest income is utilised to meet the expenses of the project, and it is inextricably linked with the process of construction of Railway Line. Copy of Audited Balance sheet and P/l account for the FY 2013-14 is at PB Pg.6-24
9. That, the assessee filed its return of income for AY 2014-15 on 25.09.2014, declaring NIL income. Copy of acknowledgement of ROI along with the computation of income is at PB Pg. 1.
10. That, the case was selected for scrutiny assessment and notice u/s 143(2) & 142(1) of the Act, were issued to the assessee. The Ld. AO asked the assessee to explain the treatment of Interest received on Mobilisation Advances and Fixed Deposit.
11. That, in compliance with the same, the assessee produced the books of accounts and other relevant documents. Moreover, it explained that Mobilisation advance and Interest of FD are inextricably linked with the setting up of the Railway Line. Therefore, the same should not be treated as Income from Other Sources. Copy of reply submitted by the assessee is at PB Pg. 60-55
12. Subsequently, AO completed the assessment assessing the total income at Rs. 4,31,66,600/- and its passed order u/s 143(3) of the Act, dated 01.09.2016 making the following addition–
