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

ITA 396/BANG/2023

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The case involves the Joint Commissioner of Income Tax (OSD), Bengaluru, as the appellant, and Karnataka Renewable Energy Development Ltd., as the respondent. The appeals pertain to the assessment years 2015-16, 2017-18, and 2018-19, challenging the orders of the CIT(A) which had provided relief to the assessee on several grounds. The main issues revolved around the taxability of interest income earned from fixed deposits and the classification of certain expenditures related to solar and renewable energy projects. The Tribunal referenced its previous decisions in similar cases involving the same assessee, leading to the dismissal of the Revenue's appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124911 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-07-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 16-05-2023
• Other Referred Cases: CIT vs M/s Karnataka State Agricultural Produce Processing and Export Corporation Limited for the A.Y 2008-09
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 250; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA Nos.387,396 and 397/Bang/2023 Assessment Years: 2015-16, 2017-18 and 2018-19 The Joint Commissioner of Income Tax (OSD), Circle – 4(3)(1), Bengaluru. Vs. M/s. Karnataka Renewable Energy Development Ltd., #39, Shanthi Gruha, Bharat Scouts & Guides Campus, Palace Road, Bengaluru – 560 001. PAN : AACCK 3953 F APPELLANTRESPONDENT Assessee by:Shri.Ganesh S, Advocate Revenue by :Shri.Sunil Kumar Singh, CIT-2(DR), ITAT, Bengaluru. Date of hearing:31.07.2023 Date of Pronouncement:31.07.2023 O R D E R Per Bench: These appeals at the instance of the Revenue are directed against three Orders of CIT(A) (all orders dated 17.03.2023), passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2015-16, 2017-18 and 2018-19. 2. Common issues are raised in these appeals; hence, they were heard together and are being disposed off by this consolidated order. Grounds raised for ITA No.387/Bang/2023 for Assessment Year 2018-19 read as follows: ITA Nos.387, 396 and 397/Bang/2023 Page 2 of 10 i.The Order of the Ld. CIT(A) in so far as it is prejudicial to tile interest of the Revenue is opposed to law and the fact and circumstances of the case. ii.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in giving relief to the assessee on the ground of addition made on interest received on FDs of Rs. 24,54,60,772/- by relying on the decision of Hon'ble High Court of Karnataka in the case of CIT vs of M/s Karnataka State Agricultural Produce Processing and Export Corporation Limited for the A.Y 2008-09, which is not accepted by the Department and further appeal is pending as SLP before the Hon'ble Supreme Court. iii.Whether on the facts and circumstances of the case, the Ld.CIT(A) ought to have appreciated that the assessee is receiving interest on FDs which are made out of grants received from GOK and it does not become the grants itself Therefore, the interest on such FDs have rightly been taxed as income. iv.Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in giving a finding that the expenditure incurred on solar and other renewable devices and other items are business expenditure when these items of expenditure are incurred out of grant in aid from GOK, hence not an allowable expenditure. v.Whether on the facts and circumstances of the case the Ld.CIT(A) ought to have appreciated that the assessee has not offered any income out of above item of expenditure mentioned in the table at page-4&5 of his order. Hence, relief should not be granted. vi.Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in giving a finding that the expenditure incurred prior to commencement of business claimed as inaugural function when these items of expenditure are need to be capitalized as being capital in nature. Hence, not an allowable expenditure. vii.The other grounds may be urged at the time of hearing it is prayed that the order of Ld. CIT(A) in so far as it related to above grounds may be reversed and that of AO may be restored. ITA Nos.387, 396 and 397/Bang/2023 Page 3 of 10 viii.The appellant craves, leaves to add, alter, amend and or delete any of the grounds that may be urged. 3. Grounds i, vii and viii are general in nature and no specific adjudication is called for. Hence, the same are dismissed. The surviving grounds / issues viz., grounds ii to vi are adjudicated hereunder by referring to facts pertaining to Assessment Year 2018-19. 4. Grounds ii and iii (addition of Rs.22,38,21,592/-). Assessee is a company established by the Government of Karnataka. It is engaged in the business of exploitation of non-conventional energy. For the Assessment Year 2018-19, the return of income was filed on 27.09.2018 declaring total income of Rs.54,93,38,750/-. The assessee had invested the unutilized funds earmarked under the Government of Karnataka project funds in the fixed deposits with banks and earned interest income of Rs.22,38,21,592/- which was not offered to tax in the return of income filed by the assessee. Assessment was completed under section 143(3) vide order dated 07.04.2021 wherein the AO held that interest income on such grants-in-aid is liable to tax as income of the assessee for the year under consideration. 5. Aggrieved, the assessee raised this issue before the First Appellate Authority (FAA). The CIT(A) deleted the addition by following the Tribunal’s order in assessee’s own case in ITA No.1347/Bang/2019 (order dated 29.05.2020). 6. Aggrieved, the Revenue has raised this issue before the Tribunal. Learned DR supported the order of the AO and relied on the grounds raised. ITA Nos.387, 396 and 397/Bang/2023 Page 4 of 10 7. The learned AR, on the other hand, submitted that the issue in question is squarely covered by the order of the Tribunal in assessee’s own case for Assessment year 2014-15 (supra). 8. We have heard the rival submission and perused the material on record. It is admitted fact that on identical issue, the Tribunal in assessee’s own case for Assessment Year 2014-15 (supra) had deleted the addition of the interest income earned on the Fixed Deposit. Respectfully following the Co-ordinate Bench’s order of the Tribunal in assessee’s own case (supra), we dismiss grounds ii and iii raised by the Revenue. 9. Grounds iv and v (Disallowance of Rs.16,81,954/- claimed as business expenses) The assessee had claimed expenses of Rs.16,81,954/- towards solar demo projects and solar & other renewable devices. The AO had disallowed these expenses on the ground that as per the head of expenses debited, such expenses were claimed out of earmarked schemes and there cannot be any expenses towards which no income is declared. 10. Aggrieved, the assessee filed appeal before the FAA. The CIT(A), following Tribunal’s order in assessee’s own case for Assessment Year 2014-15, deleted the addition made amounting to Rs.16,81,954/-. 11. Aggrieved by the order of the CIT(A), the Revenue has raised this issue before the Tribunal. The learned DR supported the order of the AO and relied on the grounds raised. ITA Nos.387, 396 and 397/Bang/2023 Page 5 of 10 12. The learned AR, on the other hand, submitted that the issue in question is squarely covered by the order of the Tribunal in assessee’s own case for Assessment Year 2014-15 (supra). 13. We have heard the rival submissions and perused the material on record. On identical issue, the Bangalore Bench of the Tribunal in assessee’s own case for Assessment Year 2014-15 (supra) had decided the issue in favour of the assessee and had deleted the disallowance made. In light of the Bangalore Bench of the Tribunal’s decision in assessee’s own case for Assessment Year 2014-15 (supra), we affirm the CIT(A)’s order on the deletion of disallowance of Rs.16,81,954/-. It is ordered accordingly. 14. Ground No. vi (Disallowance of expenses of Rs.1,82,80,555/- by holding the same to be capital expenditure) The assessee had claimed expenditure of Rs.1,82,80,555/- towards propagation of renewable energy programmes and expenses for inauguration of Solar Park at Pavagada. The AO had disallowed the claim of expenditure on the ground that the same was capital in nature and assessee failed to prove that these expenditures have been incurred wholly and exclusively for the business purposes. 15. Aggrieved, the assessee has raised this issue before the FAA. The CIT(A) decided the issue in favour of the assessee by holding that the expenditure claimed amounting to Rs.1,82,80,555/- is to be allowed as a revenue expenditure. The CIT(A), after going through the details of the expenditure claimed, held that the same was incurred for publishing advertisements in newspapers for popularization of renewable energy and for organizing inaugural function of first phase of 600 MW Capacity at world’s largest 2000MW Pavagada Solar Park. ITA Nos.387, 396 and 397/Bang/2023 Page 6 of 10 The CIT(A), after listing of the judicial precedents on the subject, concluded as under: “5.3.5 In this backdrop, the nature of expense incurred by the appellant for the inaugural function of first phase of 600MW capacity at 2000MW Solar energy park at Pavagada is held to be a revenue expense incurred for the purpose of business. The finding of the AO that these need to be capitalized is held to be erroneous and the appellant's claim for deduction of Rs.1,82,80,555/- is hence allowed. The ground of appeal raised is allowed.” 16. Aggrieved by the order of the CIT(A), the Revenue has raised this issue before the Tribunal. The learned DR relied on the order of the AO. 17. The learned AR reiterated the submissions made before the Income Tax authorities and relied on the findings of the CIT(A). 18. We have heard the rival submissions and perused the material on record. It is an admitted fact that the assessee is into the core activity of propagating renewable energy programmes since March, 1996, and is a nodal agency of Government of Karnataka. In propagation of renewable energy, the assessee had incurred expenditure for publishing advertisement in newspaper for popularization of renewable energy. The CIT(A), after going through the Board’s approval for incurring the expenditure and also the ledger account, bills, etc., had allowed the claim of the expenditure as revenue in nature. The CIT(A) has also found the inauguration function of 600MW capacity at Pavagada Solar Park is an expenditure incurred which is in the revenue field. The above finding of the CIT(A) is factual in nature which was not controverted by the Revenue. Accordingly, we affirm the order of the CIT(A) on this issue. ITA Nos.387, 396 and 397/Bang/2023 Page 7 of 10 19. In the result, the Revenue’s appeal in ITA No.387/Bang/2023 pertaining to Assessment Year 2018-19 is dismissed. ITA No.396/Bang/2023 (Assessment Year 2015-16) 20. The grounds raised read as follows: i.The Order of the Ld. CIT(A) is opposed to the law and facts of the case. ii.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in giving relief to the assessee on the ground of addition made on interest received on FDs of Rs. 2,76,73,508/- by relying on the decision of Hon'ble High Court of Karnataka in the case of CIT vs of M/s Karnataka State Agricultural Produce Processing and Export Corporation Limited for the A.Y 2008-09, which is not accepted by the Department and further appeal is pending as SLP before the Hon'ble Supreme Court. iii.Whether on the facts and circumstances of the case, the Ld.CIT(A) ought to have appreciated that the assessee is receiving interest on FDs which are made out of grants received from GOK and it does not become the grants itself Therefore, the interest on such FDs have rightly been taxed as income. iv.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in giving a finding that the expenditure incurred on solar and other renewable devices and other items are business expenditure when these items of expenditure are incurred out of grant in aid from GOK, hence not an allowable expenditure. v.Whether on the facts and circumstances of the case the Ld. CIT(A) ought to have appreciated that the assessee has not offered any income out of above item of expenditure mentioned in the table at page-4&5 of his order. Hence, relief should not be granted. ITA Nos.387, 396 and 397/Bang/2023 Page 8 of 10 vi.The other grounds may be urged at the time of hearing it is prayed that the order of Ld. CIT(A) in so far as it related to above grounds may be reversed and that of AO may be restored. vii.The appellant craves, leaves to add, alter, amend and or delete any of the grounds that may be urged. 21. Ground Nos.i, vi and vii raised in the above appeal are general in nature, hence, same are rejected. Ground Nos.ii and iii relates to the issue of addition made on interest income received on fixed deposits. For our reasoning mentioned in paragraph 8 (supra) in appeal No.389/Bang/2023 for Assessment Year 2018-19, grounds ii and iii in this appeal are dismissed. 22. The grounds iv and v relate to the issue of disallowance of expenditure of Rs.23,52,062/-. For our reasoning mentioned in paragraph 13 (supra) relating to appeal No.389/Bang/2023 for Assessment Year 2018-19, grounds iv and v in this appeal are rejected. 23. In the result, Revenue’s appeal in ITA No.396/Bang/2023 is dismissed. ITA No.397/Bang/2023 (Assessment Year 2017-18) 24. The grounds raised read as follows: i.The Order of the Ld. CIT(A) is opposed to the law and facts of the case. ii.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in giving relief to the assessee on the ground of addition made on interest received on FDs of Rs. 2,76,73,508/- by relying on the decision of Hon'ble High Court of Karnataka in the case of CIT vs of M/s Karnataka State Agricultural Produce Processing and Export ITA Nos.387, 396 and 397/Bang/2023 Page 9 of 10 Corporation Limited for the A.Y 2008-09, which is not accepted by the Department and further appeal is pending as SLP before the Hon'ble Supreme Court. iii.Whether on the facts and circumstances of the case, the Ld.CIT(A) ought to have appreciated that the assessee is receiving interest on FDs which are made out of grants received from GOK and it does not become the grants itself Therefore, the interest on suc FDs have rightly been taxed as income. iv.Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in giving a finding that the expenditure incurred on solar and other renewable devices and other items are business expenditure when these items of expenditure are incurred out of grant in aid from GOK, hence not an allowable expenditure. v.Whether on the facts and circumstances of the case the Ld. CIT(A) ought to have appreciated that the assessee has not offered any income out of above item of expenditure mentioned in the table at page-4& 5 of his order. Hence, relief should not be granted. vi.For these and other grounds may be urged at the time of hearing it is prayed that the order of Ld. CIT(A) in so far as it related to above grounds may be reversed and that of AO may be restored. vii.The appellant craves, leaves to add, alter, amend and or delete any of the grounds that may be urged. 25. In the above appeal, ground Nos.i, vi and vii are general in nature and no specific adjudication is called for, hence, the same are dismissed. Ground Nos.ii and iii relates to the issue of addition made on interest income received on fixed deposits. For our reasoning mentioned in paragraph 8 (supra) in appeal No.389/Bang/2023 for Assessment Year 2018-19, grounds ii and iii raised in ITA No.397/Bang/2023 are dismissed. ITA Nos.387, 396 and 397/Bang/2023 Page 10 of 10 26. The grounds iv and v relates to the issue of disallowance of expenditure amounting to Rs.8,30,631/-. For our reasoning mentioned in paragraph 13 (supra), grounds iv and v raised in ITA No.397/Bang/2023 are rejected. 27. In the result appeals filed by the Revenue for Assessment Years 2015-16, 2017-18 and 2018-19 are dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (LAXMI PRASAD SAHU) (GEORGE GEORGE K) Accountant MemberVice President Bangalore. Dated: 31.07.2023. /NS/* Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR, ITAT, Bangalore.6.Guard file By order Assistant Registrar, ITAT, Bangalore.