Interest income from unutilised government grants not taxable as part of grant-in-aid; sponsorship expenditure allowed as revenue expenditure

ITAT Bangalore held that interest income from unutilised government grants is part of the grant-in-aid and not taxable income under the Act, following its earlier decisions for the same assessee. The Tribunal confirmed CIT(A)'s order as the department failed to produce any HC or SC orders overruling the Coordinated Bench decisions. Additionally, sponsorship expenditure was treated as revenue expenditure since it was incurred for awards and prizes pursuant to the assessee's statutory obligation to promote solar energy, constituting allowable business expenses. Decision favoured the assessee on both issues.

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Issues Involved:
- Appeal challenging order by National Faceless Appeal Centre under Income Tax Act for AY 2020-21.
- Treatment of interest income on fixed deposits.
- Classification of expenditure for setting up Karnataka Visveswaraya Solar Award.

Analysis:

1. Interest Income on Fixed Deposits:
The appeal contested the treatment of interest income on fixed deposits received by the assessee. The Revenue argued that the interest should be considered income under the Act, citing a pending case before the Supreme Court. However, the CIT(A) ruled in favor of the assessee, following precedent decisions by the Tribunal. The Tribunal upheld the CIT(A)'s decision, stating that the interest earned from unutilized grants is part of the grant and not taxable income. The Tribunal found no reason to deviate from previous judgments, affirming the CIT(A)'s order on this issue.

2. Expenditure for Karnataka Visveswaraya Solar Award:
The second issue revolved around the classification of expenditure incurred for setting up the Karnataka Visveswaraya Solar Award. The AO treated the expenditure as capital, disallowing it, while the CIT(A) reversed this decision, considering it as revenue expenditure. The CIT(A) justified this by highlighting the business purpose behind the expenditure and statutory obligations of the assessee to promote solar energy. The Tribunal supported the CIT(A)'s reasoning, citing relevant case laws and previous decisions. It emphasized that the expenditure was in line with the core activities of the assessee and eligible for deduction as revenue expenditure. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order on this issue as well.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s orders on both issues related to the treatment of interest income on fixed deposits and the classification of expenditure for setting up the Karnataka Visveswaraya Solar Award. The Tribunal found the CIT(A)'s decisions to be in accordance with the provisions of the Income Tax Act and consistent with previous Tribunal rulings, ultimately ruling in favor of the assessee.

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