High Court of Delhi was dealing with the petition filed challenging the order dated 29th November, 2019 passed by Income Tax Appellate Tribunal for the Assessment Year 2012-13.
Brief Facts:
The assessee had taken Foreign ECB loan of Rs.82.37 crores for the purpose of acquisition of a capital asset i.e., renovation and refurbishment of hotel acquired by the assessee under SARFEASI Act. The entire ECB loan was disbursed in a single trench in the year under consideration and during this year, the assessee could utilise only Rs.33.70 crores. Therefore, the assessee had temporarily parked the ECB loan in FDRs till utilisation for fixed asset/capital expenditure strictly in compliance with RBI instructions. The assessee had paid interest of Rs.13.38 crores and has earned interest on FDRs of Rs.4.03 crores. The net amount of interest of Rs.9.35 crores has been added to the preoperative expenditure pending capitalization.
Appellant’s Contention:
Learned counsel for the appellant submitted that the ITAT has erred in allowing the capitalisation of interest on FDRs earned during the period of construction without appreciating the fact that while utilizing the ECB funds the assessee did not follow RBI guidelines.
HC’s Observations:
After hearing both the sides Court relied upon the case of Commissioner of Income Tax, Bihar II, Patna vs. Bokaro Steel Ltd., Bokaro, where the SC has held “if the assessee receives any amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. These are receipts of a capital nature and cannot be taxed as income.”
HC also relied upon the case of Indian Oil Panipat Power Consortium Limited, New Delhi vs. Income Tax Officer, where it was held that “in our opinion the Tribunal misdirected itself in applying the decision of the Supreme Court in Tuticorin Alkali Chemicals (supra) in the facts of the present case. In our opinion on account of the finding of fact returned by the CIT(A) that the funds infused in the assessee by the joint venture partner were inextricably linked with the setting up of the plant, the interest earned by the assessee could not be treated as income from other sources. In the result we answer the question as framed in favour of the assessee and against the Revenue”
HC Held:
After evaluating submissions made by both the parties the Court held that “no substantial question of law arises for consideration as the questions sought to be raised in the present appeal are squarely covered by the decisions of the Apex Court as well as this Court. Accordingly, the present appeal is dismissed.”
Case Title: Principal Commissioner of Income Tax v. M/S Triumph Realty Pvt. Ltd.
Bench: Hon'ble Mr. Justice Manmohan and Hon'ble Mr. Justice Dinesh Kumar Sharma
Citation: ITA 70/2022
Decided on: 31st March 2022
Read Judgment @Latestlaws.com
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