2023 (7) TMI 1424 - AT - Income Tax

ITAT Bangalore follows precedent, deletes interest income addition and upholds revenue expenditure classification for renewable energy activities

The Joint Commissioner of Income Tax (OSD), Circle-4 (3) (1), Bengaluru Versus M/s. Karnataka Renewable Energy Development Ltd.

The Joint Commissioner of Income Tax (OSD), Circle-4 (3) (1), Bengaluru Versus M/s. Karnataka Renewable Energy Development Ltd. - TMI Issues Involved:1. Addition of interest income received on Fixed Deposits (FDs).2. Disallowance of business expenses related to solar and renewable energy projects.3. Disallowance of expenses categorized as capital expenditure.Detailed Analysis:1. Addition of Interest Income Received on Fixed Deposits (FDs):The primary issue was whether the interest income earned on Fixed Deposits (FDs) made out of grants received from the Government of Karnataka (GOK) should be taxed as income. The Assessing Officer (AO) included the interest income as taxable, arguing that the interest on FDs does not become part of the grants themselves. The CIT (A) provided relief to the assessee by deleting the addition, relying on the Tribunal's previous order in the assessee's own case for the Assessment Year 2014-15. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's grounds, by referencing the consistent judicial precedent in the assessee's favor.2. Disallowance of Business Expenses Related to Solar and Renewable Energy Projects:The assessee claimed expenses towards solar demo projects and other renewable devices, which the AO disallowed, arguing that such expenses were claimed out of earmarked schemes and no corresponding income was declared. The CIT (A) deleted the disallowance, again relying on the Tribunal's order in the assessee's own case for the Assessment Year 2014-15. The Tribunal affirmed the CIT (A)'s decision, noting the consistent judicial precedent that such expenses are allowable as business expenses.3. Disallowance of Expenses Categorized as Capital Expenditure:The AO disallowed expenses claimed for the propagation of renewable energy programs and the inauguration of a Solar Park, considering them capital in nature. The CIT (A) allowed these expenses as revenue expenditure, concluding that they were incurred for business purposes, including publishing advertisements and organizing inaugural functions. The Tribunal upheld the CIT (A)'s decision, emphasizing the factual nature of the CIT (A)'s findings and the lack of contrary evidence from the Revenue.Conclusion:The Tribunal dismissed the Revenue's appeals for the Assessment Years 2015-16, 2017-18, and 2018-19, consistently upholding the CIT (A)'s decisions across all issues. The Tribunal relied heavily on previous orders in the assessee's own cases, reinforcing the principle of judicial consistency. The Tribunal's judgment underscores the importance of adhering to established judicial precedents and the factual findings of lower authorities in tax disputes.