Investment interest from surplus funds is taxable under the “Income from other sources” category

Fact and issue of the case

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.

The revenue has raised the following grounds in ITA No. 6357/Del/2013 for Assessment Year 2010-11:

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

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.

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.

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.

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.”

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.”

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.”

Observation of the court

The Assessee submitted that despite the fact that deduction under section 80IB(9) of the Act was available, since the returned income was Nil there was no occasion to claim deduction under section 80IB(9) of the Act. Further, the Assessee also submitted that during the assessment proceedings, vide letter dated 8 March 2013, that disallowances of expenses under normal provision will not affect the taxability under normal provision since to the extent of increase in taxable income on account of disallowance, amount of tax holiday will also increase.

During the assessment proceedings, the assessee submitted the revised calculation of deduction u/s 80IB(9) of the Act vide letter dated 22 March 2013. It was submitted before the AO that the Assessee being eligible for deduction u/s 80IB(9) of the Act, in case if there is a positive income due to addition made, a deduction u/s 80IB(9) should also be allowed accordingly.

The claim of the Appellant with respect to deduction u/s 80IB(9) of the Act was not allowed by the AO on the sole reason that such claim was not claimed in the return of income and no adverse observations was made by the AO on the veracity of the claim of the Appellant u/s 80IB(9).

Heard the arguments of both the parties and perused the material available on record.

Circular NO.14(XL-35) dated 11 April, 1955 issued by the Central Board of Direct Taxes (‘CBDT’) states as under:

“Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessee’s on whom it is imposed by law, officers should—

(a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;

(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.”

We are in agreement with the finding of the ld. CIT(A), the AO has simply commented that since deduction has not been claimed in the return of income, it cannot be allowed. This argument is fallacious as when there is no taxable income in the return, then how can the appellant suppose to claim such a deduction. Once the income of the assessee is turns positive (instead of loss) then the deduction eligible should also be allowed in principle. Hence, the appeal of the revenue on this ground is dismissed.

In the result, the appeals of the assessee are partly allowed and the appeals of the revenue are dismissed. Order Pronounced in the Open Court on 31/01/2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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