* IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on: 20.12.2025 Judgment delivered on: 10.04.2026 Judgment uploaded on: As per Digital Signature~

+ ITA 795/2004 + ITA 796/2004 VNG AUTOMOTIVE P. LTD .....Appellant versus ASSTT. COMMISSIONER OF INCOME TAX .....Respondent Advocates who appeared in this case For the Appellant : Mr. Satyen Sethi & Mr. Arta Trana Panda, Advocates.

For the Respondent : Mr Abhishek Maratha, SSC, Mr Apoorv Aggarwal, Mr Parth Samwal, JSCs, Ms Nupur Sharma, Mr Gaurav Singh, Mr Bhanukaran Singh Jodha, Ms Muskan Goel, Mr Himanshu Goel and Mr Nischay Purohit, Advocates CORAM:

HON'BLE MR. JUSTICE V. KAMESWAR RAO HON'BLE MR. JUSTICE VINOD KUMAR

JUDGMENT

V. KAMESWAR RAO, J.

1. The challenge in these appeals is against the common order of the Income Tax Appellate Tribunal (“ITAT”) dated 23.06.2004 in ITA. 3792/Del/2002 and ITA. 3793/Del/2002 for the Assessment Years (“AY”)

1993-94 and 1994-95 respectively.

2. The appellant company was incorporated on 24.03.1992 with the object of carrying on business of manufacture and export of ecological brake-shoes for two-wheelers, cars and trucks. For AYs 1993-94 and 1994- 95, returns declaring “nil” income were filed on 29.12.1993 and 29.11.1994, respectively. In computing the income, interest earned during the respective previous years was adjusted against project expenses.

3. On 25.05.1992, the appellant entered into an agreement with CDB Holding Pte. Ltd, Singapore for acquiring technical know-how. In terms of the agreement, the appellant was to pay USD 2, 50,000/- out of which, USD 50,000/- (Rs.20,27,000/-) was paid during AY 1993-94. The balance USD 2,00,000 /- was to be paid in five equal yearly installments. The appellant in AY 1993-94 raised a loan of Rs.72,69,500/- from its Directors. The payment of technical fee and other expenses aggregating to Rs.23,17,618/- and Rs.20,27,157/- (inclusive of payment for land) were paid out of the said loan from the directors. The funds not immediately required were deposited in the bank, on which the appellant earned interest of Rs.1,23,151/- and Rs.2,37,770/- for the AYs 1993-94 & 1994-95.

4. The Assessing Officer (AO) re-opened the assessment under Section 148 A of the Income Tax Act, 1961, („the Act‟) by referring to the Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT, (1997) 227 ITR 172 (SC), and treated the amount deposited in the bank as surplus amount, and that the surplus fund/interest to be taxed as „income from other sources‟. Aggrieved by the order of the AO, the appellant filed an appeal before the Commissioner of Income-tax (Appeals)-XIV, New Delhi, [“CIT (A)”], which was allowed. Aggrieved by the order of the CIT (A), the respondent filed the appeal before the ITAT.

5. The ITAT, vide order dated 23.06.2004, set aside the order of CIT(A) and held that the decisions of CIT v. Bokaro Steel Ltd. 236 ITR 315 (SC) and CIT v. Karnal Cooperative Sugar Mills Ltd., 243 ITR 2(SC), as relied upon by CIT(A), were not applicable and as such, interest received was wrongly adjusted against project expenses. Accordingly, the interest income was liable to be taxed separately as “income from other sources”.

6. Aggrieved by the common order of the ITAT, the appellant filed these appeals. On 21.04.2005, this Court framed the following substantial questions of law:

“(1) Whether on the facts and circumstances of the case, the Tribunal was right in law in upholding the reassessment, even though, the department had not raised any ground against the finding of CIT(A) that jurisdiction to re-assess the income was assumed on mere change of opinion?

(2) Whether, on the facts and circumstances of the case and in law, the Tribunal had any material before it, which justified reversal of finding recorded by CIT(A) that it is not a case where surplus capital lying idle has been deposited in the bank for the purpose of earning interest?”

CASE OF THE APPELLANT

7. It is the case of the appellant that in terms of the agreement with CDB Holding Pvt.