1997 (11) TMI 120 - AT - Income Tax

ITAT Decision: Revenue Treatment Upheld, Expenses Allowed, Assets Classified

The ITAT upheld the Assessing Officer's treatment of the amount transferred from the profit and loss account to capital work-in-progress as revenue ... Business Income Issues:1. Treatment of amount transferred from profit and loss account to capital work-in-progress as income.2. Consideration of interest receipts and hire charges as capital or revenue receipts.3. Treatment of income arising from the sale of energy during trial runs as revenue or capital receipt.4. Disallowance of pension and leave salary contributions.5. Classification of certain assets as plant and machinery for depreciation and investment allowance.Analysis:Issue 1:The Assessing Officer treated the amount transferred from the profit and loss account to capital work-in-progress as income of the assessee. The CIT (Appeals) considered two components of this amount and allowed relief to the assessee based on accounting principles. However, the ITAT, Bangalore Bench, referred to a Supreme Court judgment emphasizing that interest and hire charges are revenue receipts. Consequently, the ITAT reversed the decision of the CIT (Appeals) and upheld the treatment of the amount as revenue income.Issue 2:Regarding interest receipts and hire charges, the ITAT applied the principles from the Supreme Court judgment, stating that such receipts are of revenue nature and not capital receipts. The ITAT reversed the decision of the CIT (Appeals) and directed the Assessing Officer to treat the amount as revenue income.Issue 3:The dispute over income from the sale of energy during trial runs was analyzed. The CIT (Appeals) considered the unique circumstances of the trial runs and categorized the income as capital receipts. However, the ITAT, following the Supreme Court judgment, deemed the income as revenue receipts. The ITAT directed the treatment of the amount as revenue income, while allowing related expenses to be capitalized against it.Issue 4:The Assessing Officer disallowed pension and leave salary contributions, contending that such expenses were typically covered by parent departments. The CIT (Appeals) found that the assessee ultimately bore these costs and allowed the expenses. The ITAT agreed with the CIT (Appeals) findings, upholding the admissibility of the expenses.Issue 5:The Department challenged the classification of certain assets as plant and machinery for depreciation and investment allowance. The ITAT relied on previous decisions in favor of the assessee and upheld the order of the CIT (Appeals) in treating the assets as plant and machinery, allowing depreciation at a higher rate and investment allowance.In conclusion, the departmental appeal was partially allowed, with decisions made in accordance with relevant legal principles and precedents.