2015 (6) TMI 1213 - AT - Income Tax

Tribunal affirms capital treatment for income from pre-business sale of tender documents

The Tribunal upheld the ld. CIT(A)'s decision that income from the sale of tender documents, earned before the business commenced, was a capital receipt. ... Characterization of income - income from sale of tender documents - Addition under the head “income from other sources” - CIT-A Treated the receipt as capital receipt - HELD THAT:- We find that undisputedly the assessee has earned income from sale of tender documents during the course of setting up of plant. Since the assessee has earned income before commencement of the business of the assessee, it was to be capitalized and the assessee accordingly treated the receipt as capital receipt and adjusted against expenses reducing the cost of the project. CIT(A) examined this issue in the light of various judicial pronouncements and thereafter treated the receipt as capital receipt. Since no infirmity has been pointed out in the order of the ld. CIT(A) during the course of hearing, we find no justification to interfere with his order. We accordingly confirm the order of the ld. CIT(A) in both the assessment years. - Decided against revenue. Issues:Revenue's appeal against deletion of addition made under 'income from other sources' by Assessing Officer.Analysis:The appeals were filed by the Revenue against the orders of the ld. CIT(A) regarding the addition made under 'income from other sources.' The Assessing Officer treated the income from the sale of tender documents as taxable, but the assessee contended that it should be treated as a capital receipt. The ld. CIT(A) examined the issue in light of relevant judicial decisions and concluded that the income was indeed a capital receipt. The Revenue appealed to the Tribunal, maintaining the Assessing Officer's stance, while the assessee argued that the income was earned before the commencement of business and should be treated as capital. The Tribunal upheld the ld. CIT(A)'s order, stating that the income was earned during the setting up of the plant and should be treated as a capital receipt, reducing the cost of the project. Therefore, the appeals of the Revenue were dismissed.In the detailed analysis, it was noted that the assessee earned income from the sale of tender documents before the commencement of business, which was capitalized and adjusted against expenses to reduce the project's cost. The ld. CIT(A) considered various judicial pronouncements and deemed the receipt as a capital receipt. The Tribunal found no infirmity in the ld. CIT(A)'s order and upheld it, confirming that the income was rightly treated as a capital receipt. Consequently, the appeals of the Revenue were dismissed, and the order in favor of the assessee was upheld.