Interest on Fixed Deposit given as Bank Guarantee pre-requisite condition to pollution Board is capital receipt as business activities not commenced

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘‘A’ SMC, NEW DELHI

I.T.A .No.-6257/DEL/2015 (ASSESSMENT YEAR-2012-13)

NV International Pvt. Ltd. (APPELLANT)  vs. ITO (RESPONDENT)

Date of Order: 08-03-2016

ORDER

PER SUCHITRA KAMBLE, JM

This appeal is filed by the assessee against the order dated 8/10/2015 passed by the CIT (A) – 20, New Delhi.

2. The grounds of appeal are follows:-

“1. On the facts and circumstances of the case, the order passed by the Ld. Commissioner of Income Tax (Appeals)- 30 (herein after CIT(A) is bad both in the eyes of law and on facts.

2. The Ld. CIT(A) has erred, both on facts and in law by concluding that the assessee has failed to establish that funds invested in the FD’s is meant for Capital Expenditure & consequently making it as basis of sustaining additions by Rs.1,64,077/- and prayed for granting relief against it.

3. The Ld. CIT(A) has erred, both on facts and in law by not adjudicating that addition of Rs.1,64,847/- was made without confronting the assessee by A.O of the same and is against the natural justice & fairplay. On this basis the order of Ld. CIT(A) is declared null & void & balance asked relief of Rs.1,64,847/- being granted to assessee.

3. The assessee company was incorporated on 6/6/1994 with object to carry on business of trader’s importers, exporters and representatives of all kinds of beer liquor, food products etc. During the year under consideration, the company purchased a land and was in the process of setting up of distillery at Village Badoli, District Ambala, Haryana. Perusal of the balance sheet showed that the assessee was having FDRs of Rs.18, 75,000/- on which interest of Rs.1,64,847/- was received. The same was appearing in Form 26 AS also. The Assessing Officer observed that TDS u/s 194A was deducted by the Oriental Bank of Commerce for payment of interest of Rs.64, 847/-. The assessee did not offer the interest income for taxation and treated it as a capital income. The Assessing Officer made an addition to that effect and held it as revenue income.

4. Being aggrieved the assessee filed appeal before the CIT(A). The CIT (A) held that the assessee failed to bring out that the fund invested in the FDRs was meant for capital expenditure. The CIT (A) upheld the order of Assessing Officer.

5. The Ld. AR submitted that the guarantee/FDR were made to the Haryana State Pollution Centre Board for the project which was under construction. The same was on record before the Assessing Officer.

6. The Ld. AR submitted that the said bank guarantee (FDR was given for construction of factory as per the norms set out therein. The production of the assessee started only in September 2014 and the Assessing Officer cannot take the same for the Assessment Year 2012-14 at present. As per the balance sheet and profit and loss account, it was clear that there was no revenue activity carried out by the assessee during the year. All funds were used for capital expenditure only. The FDR which was treated as surplus points was in fact a pre-requisite condition to Haryana State Pollution Control Board for providing guarantee in respect of construction of factory as per their norms. Thus, it amounts to capital expenditure.

7. The Ld. DR relied upon the order of CIT (A) and assessment order.

8. We have perused all the records and heard both the parties. The assessee company was in the process of setting up a power project for which additional share capital was raised from various sources. The FDR was a pre-requisite condition for the guarantee before the Haryana State Pollution Centre Board. Thus, it cannot be treated as surplus point. Therefore, the CIT(A) as well as Assessing Officer both over-looked the factual aspect that the assessee has not commenced any business activity in this particular assessment year and the entire process was of capital in nature and the same cannot be treated as revenue income.

9. In result, the appeal of the assessee is allowed.

The order is pronounced in the open court on 8th of March 2016.

( S. V. MEHROTRA) ACCOUNTANT MEMBER  (SUCHITRA KAMBLE) JUDICIAL MEMBER

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