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Income Tax Officer, Ward--9(1),New Delhi. Vs. M/s Smart Digi M/s Smart Digivision Pvt.Ltd., vision Pvt.Ltd., 8, Commercial Complex,Masjid Moth, GK--II, New Delhi 110 048.
February, 19th 2013
                                `G' : NEW DELHI
                    DELHI BENCH `G

                       G.D.AGRAWAL, VICE PRESIDENT AND
                      I.C.SUDHIR, JUDICIAL MEMBER
                 SHRI I.C.SUDHIR,

                         ITA No.3717/Del/2012
                       Assessment Year : 2009-

Income Tax Officer,              Vs.              Digivision Pvt.Ltd.,
                                        M/s Smart Digivision
Ward-                                   8, Commercial Complex,
New Delhi.                                           GK-II,
                                        Masjid Moth, GK-
                                        New Delhi ­ 110 048.
                                        PAN : AALCS1437P.
     (Appellant)                            (Respondent)

                   CROSS-          No.333/Del/2012
                   CROSS-OBJECTION No.333/Del/2012
                      Assessment Year : 2009-

M/s Smart Digivision Pvt.Ltd.,   Vs.    Income Tax Officer,
8, Commercial Complex,                  Ward-
Masjid Moth, GK-                        New Delhi.
New Delhi ­ 110 048.
     (Appellant)                           (Respondent)

             Revenue by          :     Shri Sukhveer Choudhary, DR.
             Assessee by         :     Shri Ved Jain, CA and
                                       Shri Venkatesh, Advocate.


      This appeal by the Revenue is directed against the order of
learned CIT(A)-XII, New Delhi dated 4th April, 2012 for the AY 2009-10.

2.    The only ground raised by the Revenue reads as under:-

      "On the facts and circumstances of the case, the ld.CIT(A)
      has erred in deleting the addition of Rs.1,65,81,054/- under
                                    2                     ITA-3717/D/2012 &

      the head income from "other sources" by treating it pre-
      operative income earned."

3.    We have heard both the sides and perused the material placed
before us. We find that the learned CIT(A) has allowed the relief to the
assessee following the decision of Hon'ble Jurisdictional High Court in
the case of CIT Vs. Jaypee DSC Ventures Ltd. ­ (2011) 335 ITR 132
(Delhi), wherein it was held as under:-

      "As is noticeable from the stipulations in the agreement,
      the performance guarantee by way of bank guarantee was
      required for faithful performance of its obligations. The
      non-submission of the guarantee would have entailed in
      termination of the agreement and NHAI would have been
      at liberty to appropriate bid security. That apart, the
      release of such performance security depended upon
      certain conditions. Thus, it is clearly evincible that the
      bank guarantee was furnished as a condition precedent to
      entering the contract and further it was to be kept alive to
      fulfill the obligations. Quite apart from the above, the
      release of the same was dependent on the satisfaction of
      certain conditions. Thus, the present case is not one
      where the assessee had made the deposit of surplus
      money lying idle with it in order to earn interest; on the
      contrary, the amount of interest was earned from fixed
      deposit which was kept in the bank for furnishing the bank
      guarantee. It had an inextricable nexus with securing the
      contract. The view expressed by the Tribunal cannot be
      found fault with. The Tribunal was therefore justified in
      holding that the interest earned by the assessee on the
      FDRs has intrinsic and inseggregable nexus with the work
      undertaken and, therefore, the interest earned by the
      assessee is capital in nature and shall go towards
      adjustment against the project expenditure and the same
      cannot be assessed as income from other sources."

4.    After considering the arguments of both the sides and the facts
of the case, we are of the opinion that the above decision of Hon'ble
Jurisdictional High Court is squarely applicable to the facts of the
assessee's case which is evident from the assessee's letter dated 1st
                                   3                      ITA-3717/D/2012 &

November, 2011 written to the Assessing Officer and reproduced in the
assessment order.     For ready reference, the same is reproduced

     "As the main activity of the company is to provide IPTV
     service all over India for which company has been awarded
     license by BSNL Govt. of India. For getting the license the
     company has to give a bank guarantee to BSNL Govt. of
     India for issuing the bank guarantees the require margin
     money in the form of FDR only. According the company
     has to make a FDR of Rs.19.31 crore and the same has
     been pledged with the bank as margin money for issuing
     the bank guarantee. The company has earned interest of
     Rs.16501064/- on FDR pledged with bank as margin money
     for issuing bank guarantee. The same has been shown
     under miscellaneous income in the schedule 4 of the
     accounts and being set off with the preoperative expenses.
     The project is not commenced during the current financial
     year. Hence no profit & loss account is prepared rather a
     statement of preoperative expenses (pending allocation) is
     prepared as per schedule 4 of the annual accounts for all
     the expenses and interest earned on FRD has been set off
     with the expenses.

     This is, therefore, not a case where any surplus share
     capital money which was lying idle had been deposited in
     the bank for the purpose of earning interest. The deposit
     of money in present case was directly linked with the
     business activity of the company. The same is intricately
     connected with the business activity of the company.
     Hence any income earned on such deposit was incidental
     to the business operation activity. The interest was a
     capital receipt, which would got reduce the cost of asset.
     Hence interest earned should not form part of profit & loss
     account and accordingly can not be taxed as income."

5.   Since the facts in the case of the assessee are identical to the
facts before the Hon'ble Jurisdictional High Court in the case of Jaypee
DSC Ventures Ltd. (supra), in our opinion, learned CIT(A), rightly
relying upon the above decision, deleted the addition. We, therefore,
                                    4                         ITA-3717/D/2012 &

uphold the order of learned CIT(A) and dismiss the appeal filed by the

6.    In the cross-objection, the assessee has raised the following

      "1(i) On the facts and circumstances of the case, the
      assessment is bad in the eye of law and on facts and
      unsustainable in view of the fact that the assessee having
      set up the business is entitled to claim all the expenditure
      of Rs.11,25,88,953/- during the year while computing the
      income for the year under consideration.

      (ii)  On the facts and circumstances of the case, the
      assessee     having    incurred     an     expenditure      of
      Rs.11,25,88,953/- in the course of its business is entitled to
      deduction of the same while computing its income."

7.    However, at the time of hearing before us, it was stated by the
learned counsel for the assessee that if the Revenue's appeal would be
dismissed on merits, the assessee shall not press the cross-objection.

8.    Since we have already dismissed the Revenue's appeal, we treat
the cross-objection filed by the assessee as not pressed and,
accordingly, the same is dismissed.

9.    In the result, the appeal of the Revenue as well as the cross-
objection of the assessee are dismissed.
      Decision pronounced in the open Court on 15th February, 2013.

                  Sd/-                                 Sd/-
          (I.C.SUDHIR)                         (G.D.AGRAWAL)
        JUDICIAL MEMBER                        VICE PRESIDENT

Dated : 15.02.2013
                                  5                     ITA-3717/D/2012 &

Copy forwarded to: -

1.   Revenue                           Ward-9(1), New Delhi.
                 : Income Tax Officer, Ward-
2.   Assessee    : M/s Smart Digivision Pvt.Ltd.,
                  8, Commercial Complex, Masjid Moth, GK-
                  New Delhi ­ 110 048.

3.   CIT
4.   CIT(A)
5.   DR, ITAT

                            Assistant Registrar
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