2018 (6) TMI 1511 - AT - Income Tax

Revenue's Appeal Dismissed, Assessee Prevails, Interest Income as Capital Receipt

DCIT, Cir. 1 Ahmedabad Versus Adani Power Ltd. And Vice-Versa

DCIT, Cir. 1 Ahmedabad Versus Adani Power Ltd. And Vice-Versa - TMI Issues Involved:1. Deletion of disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of TDS.2. Taxability and treatment of interest income as capital receipt or revenue receipt.3. Validity of raising new claims before appellate authorities without filing a revised return.4. Maintainability of cross-objection filed by the assessee.Issue-wise Detailed Analysis:1. Deletion of Disallowance under Section 40(a)(i) for Non-Deduction of TDS:The Revenue argued that the CIT(A) erred in deleting the disallowance of Rs. 1.97 crores made by the AO under Section 40(a)(i) due to non-deduction of TDS on consultancy and legal service charges. The AO treated the payment as fees for technical services under Section 9(1)(vii) and disallowed it due to failure to deduct TDS. The assessee contended that the expenditure was capitalized as the business was in the pre-commencement stage, and no amount was debited in the profit & loss account. The CIT(A) accepted this contention and deleted the disallowance. The Tribunal upheld the CIT(A)’s decision, noting that Section 40(a)(i) applies only if the assessee claims the expenditure as a deduction, which was not the case here. The Tribunal referenced similar cases, including Sonic Biochem Extractions P. Ltd. and Sumilon Industries Ltd., where depreciation or disallowance under Section 40(a) was not applicable when the expenditure was capitalized.2. Taxability and Treatment of Interest Income:The controversy involved whether the interest income amounting to Rs. 8.17 crores was a capital receipt to be set off against pre-operative expenses or a revenue receipt. The AO treated the interest income as taxable, referencing the Supreme Court’s decision in Tuticorin Alkali Chemicals & Fertilisers Ltd. The CIT(A) bifurcated the interest income, treating some as capital receipts and others as revenue receipts. The Tribunal, following its decision in the previous assessment year, held that the entire interest income was a capital receipt, inextricably linked to the setting up of the power project. The Tribunal relied on decisions like Bokaro Steel Ltd., Karnal Co-operative Sugar Mills Ltd., and Indian Oil Panipat Power Consortium Ltd., which established that interest earned on funds directly linked to project implementation should be treated as capital receipts.3. Validity of Raising New Claims Before Appellate Authorities Without Filing a Revised Return:The AO argued that the assessee could not raise new claims without filing a revised return, citing the Supreme Court’s decision in Goetze (India) Ltd. The Tribunal, however, noted that appellate authorities have the jurisdiction to entertain new claims, referencing the Gujarat High Court’s decision in CIT vs. Mitex Impex and other cases. The Tribunal clarified that the restriction in Goetze (India) Ltd. applies to assessing officers, not appellate authorities, which can entertain new grounds or legal contentions affecting tax liability.4. Maintainability of Cross-Objection Filed by the Assessee:The assessee filed a cross-objection in support of the CIT(A)’s order on the issue contested by the Revenue. The Tribunal noted that a cross-objection should demonstrate grievances against any part of the CIT(A)’s order. Since the assessee’s cross-objection did not demonstrate such grievances, it was deemed not maintainable and was rejected.Conclusion:The Revenue’s appeal was dismissed, the assessee’s appeal was allowed, and the assessee’s cross-objection was dismissed. The Tribunal upheld the CIT(A)’s deletion of disallowance under Section 40(a)(i) and treated the interest income as a capital receipt, reinforcing the principles established in prior judicial decisions.