The Assistant Commissioner of Income Tax, Circle-3(1), , Vijayawada V. Transmission Corporation of AP Limited, Vijayawada

ITA 484/VIZ/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7900 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 16-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M. CHANDRAMOULESWARA RAO
• Keywords: Business income; Depreciation; Capital receipt; TDS
• Section: 142(1); 201

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM (through web-based video conferencing platform) श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.484/Viz/2019 (ननधधारण वर्ा / Assessment Year : 2016-17) Asst.Commissioner of Income Tax Circle-3(1) Vijayawada Vs. M/s Transmission Corporation of AP Limited Vidyut Soudha Gunadala, Vijayawada [PAN : AABCT0088P] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) CO No.135/Viz/2019 (Arising out of ITA No.484/Viz/2019) (ननधधारण वर्ा / Assessment Year : 2016-17) M/s Transmission Corporation of AP Limited Vidyut Soudha Gunadala, Vijayawada [PAN : AABCT0088P] Vs. Asst.Commissioner of Income Tax Circle-3(1) Vijayawada अपीलधथी की ओर से/ Appellant by : Shri M.Chandramouleswara Rao, AR प्रत्यधथी की ओर से / Respondent by : Shri MN Murthy Naik, CIT, DR सुनवधई की तधरीख / Date of Hearing : 16.02.2022 घोर्णध की तधरीख/Date of Pronouncement : 25.02.2022 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by the revenue against the order of Commissioner of Income Tax (Appeals) [CIT(A)]-2, Hyderabad dated 2 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada 30.04.2019 for the Assessment Year (A.Y.)2016-17 and the cross objections are filed by the assessee in support of the order of the Ld.CIT(A). 2. The only grievance of the revenue is deletion of addition of interest income not shown as revenue, made by the Assessing Officer (AO) amounting to Rs.87,96,21,811/-. 3. Brief facts of the case are that the assessee company is engaged in the business of transmission of electrical energy and is also executing projects under Lift Irrigation Schemes (LIS) at various places in the erstwhile state of Andhra Pradesh. For each project the Govt. of AP (GoAP) releases the grants and the assessee keeps the unutilized grants as fixed deposits with the banks and earns interest thereon. During the year under consideration, the assessee company claimed TDS on this interest income. When asked for clarification by the Assessing Officer (AO), the assessee stated that this interest income is not offered as income as the same is transferred to the respective deposit account of Govt. of AP. The assessee further stated that the interest earned on these deposits is part and parcel of the original grants received from the GoAP. Notice u/s 142(1) dated 19.12.2018 was issued to the assessee to furnish 3 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada a note on this and to show cause as to why the interest on deposits – GoAP’s Lift Irrigation Scheme accrued during the year should not be treated as income of the assessee and added back to the total income of the assessee. In response to the notice, the assessee filed letter dated 20.12.2018. After considering the submissions and facts of the case, the AO observed that the submissions of the assessee are not tenable as the assessee is claiming TDS credit on the interest accrued on deposits – GoAP’s LIS on one hand and on the other hand, the assessee has not offered the interest income which is related to the TDS credit. The AO further observed that since the assessee is utilizing the TDS credit on interest accrued, the assessee has to offer corresponding receipts to tax. The interest payable of Rs.87,96,21,811/- is nothing but the interest earned by the assessee on the deposits / investments made with the DISCOMS and the assessee instead of recognizing the same as its revenue by crediting it to profit and loss account, credited it to GoAP LIS Deposits accounts and shown it as liability is not in order. The AO further observed that the assessee has not explained as to how the LIS project costs are met when the deposits / consumer contribution of GoAP was maintained with bank as fixed deposits. The assessee could not prove it otherwise with the support of fund flow statements. The assessee has 4 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada even failed to prove the nexus between the untilized LIS funds and the interest earned on the fixed deposits. The AO further observed that on completion of the project, the assessee does not refund the amount to GoAP, if the estimated cost is more than the actual cost, but keeps it as deposit with bank and uses it for another project under LIS. If the estimated cost falls short of the actual cost, the assessee uses the funds received for another LIS project. Thus the assessee keeps rotating the fund among various projects under LI scheme. From the above submissions of the assessee, the AO observed that the assessee never refunded any excess grant or interest on the deposits to the Government and the assessee failed to recognize the interest receipt as revenue and refunded the same to GoAP. The GoAP never wanted to adjust the interest on unutilized LIS funds against the grants. However, on request and proposal of the assessee, the GoAP issued permission for such accounting treatment. From this, it is evident that the letter obtained by the assessee from the GoAP is merely an after-thought to avoid tax liability on the interest income of Rs.87,96,21,811/- just by making book entries. The stipulation of adjustment of interest earned against the payment for LI Scheme obtained by the assessee company is only a self- inflicted liability which was not pre-existing. The AO viewed that the 5 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada assessee instead of recognizing the interest accrued on deposits made with DISCOMS as revenue, credited to “Deposits from GoAP for LIS account” and claimed the credit for the TDS made on the same, which is self defeating / contradicting action on the part of the assessee. To allow the claim of TDS, the provisions of section 199 are clearly applicable to the instant case. As per the provisions of sec.199, tax credit would be given only when the assessee offers corresponding income for tax purpose. However, in the present case, the assessee failed to offer the interest income on Deposits from GoAP for LIS account. Accordingly, the AO treated the amount of Rs.87,96,21,811/- being the interest earned by the assessee on the deposits / investments made from unutliized LIS funds as income and added back to the total income of the assessee. 4. On being aggrieved, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO, relying on the assessee’s own case for the A.Ys 2008-09 to 2013-14, wherein, the ITAT dismissed the appeals of the revenue in ITA Nos. 366 to 372/Hyd/18 dated 13.06.2018. 5. On being aggrieved, the revenue preferred an appeal before us and raised the following grounds of appeal : 6 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada 1. Whether on the facts and in the circumstances of the case and in Law the Hon'ble CIT(A) is correct in holding that the interest accrued on EDs does not accrue to the assessee company and the assessee company is accordingly not liable to pay tax there on. 2. Whether on the facts and in the circumstances of the case and in law the Hon'ble CIT(A) is correct in holding that the assessee is not liable to pay tax even though the assessee has claimed the credit of TOS made on interest without offering the corresponding interest income? 3. Whether on the facts and in the circumstances of the case and in law the Hon'ble CIT(A) is correct in holding that the assessee is not liable to pay tax without appreciating the fact that the Go.AP is only a managing authority and has a control over the utlization of funds, but the fact is that the ownership of the Grants remains with the assessee company and the same as its asset in the balance sheet? 4. Whether on the facts and in the circumstances of the case and in law the Hon'ble CIT(A) is correct in dismissing the appeal relying on the decision of Hon'ble ITAT wherein the Hon'ble ITAT in dismissing the appeal relied on the Hon'ble Supreme Court's judgment in the case of M/s Bokaro Steels Ltd.(236 Tm 315)(SC), when the facts of the present case are totally incomparable. 5. Whether on the facts and in the circumstances of the case and in law the Hon'ble CIT(A) is correct in allowing the appeal, when assessee’s Own case was dismissed by the Hon'ble CIT(A) for the A.Y. 2014-15 on the same issue. 6. Any other ground that may urged at the time of hearing. 6. The Ld.DR submitted that the assessee instead of recognizing the interest accrued on deposits made with DISCOMs as revenue, credited to GoAP LIS Deposits account and claimed credit for TDS made on the same, 7 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada which is self contradictory action on the part of the assessee. He further submitted that as per the provisions of sec. 199, tax credit would be given only when the assessee offers corresponding income for tax purpose. In the present case, the assessee failed to offer the interest income of Rs.87,96,21,811/- earned by the assessee on deposits. Therefore, the AO added back the same to the total income of the assessee, but the Ld.CIT(A) wrongly deleted the same. Hence, the orders of the AO to be confirmed. 7. On the other hand, the Ld.Counsel for the assessee has submitted that the Ld.CIT(A) considered the orders passed by the ITAT in assessee’s own case on similar set of facts and allowed the assessee’s appeal. Therefore, the orders passed by the Ld.CIT(A) to be upheld. 8. We have heard both the parties and perused the material placed on record. The only issue before us is whether the interest received by the assessee is revenue in nature or not. It is admitted fact that the Ld.CIT(A) on similar set of facts deleted the addition made by the AO relying on the decision of Coordinate Bench in the assessee’s own case in ITA Nos. 366 to 372/Hyd/2018 dated 13.06.2018. For the sake of clarity and 8 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada convenience, we extract relevant copy of the order of the Ld.CIT(A), which reads as under : “....These are seven appeals by Revenue from AYs. 2008-09 to 2013-14 and cross-objections by assessee. The Ld.CIT(A) has passed common order vide order dt. 20-11-2017 and amongst various issues decided by the Ld.CIT(A), Revenue is aggrieved on the exclusion of interest accrued on the funds received from the State Government towards Lift Irrigation Scheme Funds [LIS]. 2. Revenue has raised the common grounds in all the years. Briefly stated facts are that assessee is a company engaged in the business of transmission of electrical energy. During the course of assessment proceedings, amongst various additions / disallowances, the AO made addition towards interest earned on Fixed Deposits made out of unutilized LIS funds in all the assessment years. 2.1. For the sake of convenience, the additions made by AO on the issue involved in various assessment years is tabulated hereunder: S.No. Issue of addition / Asst.Years Interest accrued on deposits made from funds of State Govt. given for implementing Lift Irrigation Schemes (Tagged Grants) (Rs.) 1 2008-09 15,62,52,360 2 2008-09* 29,32,67,935 3 2009-10 68,81,34,162 4 2010-11 41,86,12,212 5 2011-12 34,17,18,508 6 2012-13 67,90,14,762 7 2013-14 1,26,87,93,701 Noticing that assessee has received Rs. 2516.90 Crores from 16 LI Schemes and also noticing that assessee has kept the amounts in Fixed Deposits and earned interest thereon, AO asked assessee to explain why the said interest cannot be brought to tax as accrued income of assessee. Assessee contended that the amounts are special grants in the nature of capital grants and they are deposited in a separate bank account and the State Government directed the assessee company to utilize any interest earned/accrued on such deposit in un-utilised grant funds only towards implementation of LIS projects and by various communications, the Government has directed to render account for such interest and to refund unused interest amount to the Government. AO did not agree and held that interest has accrued to assessee-company and brought the amounts to tax. 9 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada 3. Before the Ld.CIT(A) it was submitted that the funds are ‘tagged grants’ and the interest accrued/ earned on the amount of such grants can only be used for LIS projects and assessee cannot use at its discretion. It has relied on various communications from the Government. The facts and contentions are listed by the CIT(A) in para 6 as under:  The Capital Grant amounts have to be treated as Tagged Grants and an obligation is attached to it to utilise the amounts only for the implementation of LIS Projects. • The LIS Grant amount has to be deposited in a separate Bank Account and maintained separately for rendering account to the State Government. The same has been treated as a current Liability in the Balance Sheet to the extent of unutilised Grant amount. • Interest earned/ accrued on the deposits of LIS Grant amounts is also to be utilised for the implementation of the Schemes only and therefore, the same is also shown under the current Liabilities as an accession to the LIS Grant Funds. • The Appellant cannot exercise any discretion or right over such interest amounts except to utilise the same for the LIS Projects and as directed by the State Government of Andhra Pradesh. • The Appellant has furnished communication received from Special Secretary to Government, Energy Department, Government of A.P. dated 21/10/2011 through which the Secretary directed the Appellant Company to remit to Government Account the amount of interest accrued on deposits. • The Appellant Company is a State Government Public Sector Undertaking and is bound to follow the Government directions in Toto”. 3.1. Assessee has relied on the judicial principles also as under: i. Tax Appeal No. 855 of 2013 in the case of Commissioner of Income Tax-II V/s. SAR Infracon P Ltd.,; ii. Gujarat Municipal Finance Board V/s. Dy. CIT reported in (1996) 318 ITR 317; iii. Gujarat Power Corporation Limited V/s. Income Tax Officer reported in (2013) 354 ITR 201 (Guj.); iv. Karnataka Urban Infrastructure Development and Finance Corporation 150 ITR 533; 10 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada v. Hyderabad Infrastructure & Technologies Limited V/s. Addl. Director of Income Tax (International Taxation)-1, Hyderabad reported in (2014) 45 Taxmann.com 339 vi. CIT Vs. Punjab State E-Governance Society in ITA No. 75 of 2011; 3.2. Ld.CIT(A) has considered the submissions and deleted the addition, holding as under: “7. I have gone through the contentions of the appellant vis-avis order passed by the Assessing Officer. The issue is common to all the assessment years under appeal. Though the addition is made in all the assessment years from 2008-09 onwards, the detailed order with in- depth examination of the issue is passed for the Asst. Years 2013-14. The issue is dealt with at pages 2 to 11 of the order. After examination of various correspondence available on record, the Assessing Officer concluded that there is no condition put by the GoAP that the interest earned on deposit is to be treated as part of the grant. Further, the Assessing Officer brought out that the assessee never refunded any excess grant or interest on deposits to the Government. The evidence filed by the assessee to claim so was agreed to/permitted by the Government was letter issued only at the specific request of the assessee. The assessee has claimed credit for the TDS on the interest. 7.1 The assessee contends that the assessee right from the beginning i.e, from Asst.Year 2008-09 onwards treated the interest earned as part of the grant and accounted for accordingly. The same was discussed in the 74th Board Meeting of the Company on 28-06-2008 while finalizing the accounts for Asst. Year 2008-09. The same is represented by the Directors representing GoAP also. The funds are given as Grants for Lift Irrigation works and are capital grants in nature. The assessee relied on the ratio laid down in the following cases to contend that interest earned on deposits made from "Specific or Tagged Grants" can not be taxed as revenue receipt. 1. Tax Appeal No.855 of 2013 in the case of Commissioner of Income Tax-II V/s. SAR Infracon P Ltd. 2. Gujarat Municipal Finance Board V/s. Dy. CIT reported in (1996) 318 ITR 317. 3. Gujarat Power Corporation Limited V/s. Income tax Officer reported in (2013) 354 ITR 201(Guj.) 4. Karnataka Urban Infrastructure Development and Finance Corporation 150 ITR 533. 11 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada 5. Hyderabad Infrastructure & Technologies Limited V/s. Addl. Director of Income Tax (International Taxation)-l, Hyderabad reported in-(2014) 45 Taxmann.com 339. 6. CIT v Punjab State E-Governance Society in ITA No. 75 of 2011. The assessee also relied on the ratio laid down by the Hon'ble Supreme Court in the case of M/s Bokaro Steel 236 ITR 315 (SC) to contend that interest which is inextricably connected to the Capital Grant is to be treated as Capital Receipt only which will go to reduce the cost of the Capital Asset that is corning into existence by the utilisation of the Capital Grant along with the interest thereon. Further, it was pointed out that the interest earned was reduced while calculating depreciation on the asset by showing the same as part of the grants as received from the Government of Andhra Pradesh. 7.2. On consideration of the factual position as brought out in tin the assessment order, submissions of the assessee and material placed on record and also the legal issues raised, the following position emerges: i) The assessee is in receipt of total of the 2,516.9 Crores for 16 Lift Irrigation works from time to time as Capital Grants. ii) No specific direction is placed on record as received from the GoAP by the assessee as to the terms and conditions including treatment of interest on deposits. iii) The unutilized amount is kept in fixed deposits. The same are not mixed with other funds of the assessee. iv) The 'treatment' to be given to the interest earned on deposits is being discussed in the Board meetings of the assessee Company which is a State Government undertaking. The Board has nominees of the State Government. The implicit consent/ direction of the GoAP can be inferred from the decisions in the Board Meeting. This is contemporaneous record dating back to 28-06-2008. v) There is no finding that the interest was used for any purpose other than for the Lift Irrigation works for which capital grants are given by GoAP. vi) The above funds are given by the GoAP as Grants-in-Aid for the specific projects (electrical works) to be executed by the assessee and the same funds are separately placed in fixed deposits by the assessee. The above cannot be utilized by the assessee for any other purpose. 12 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada 7.3. Considering the factual position emerging from the records as above, it is seen that the amounts given by the Government are grants for specific purpose and interest earned thereon is inextricably connected to such grants. The facts of the case are similar to the various cases relied on by the assessee as at para-6.1 and the ratio laid down in case of M/s Bokaro Steel 236 ITR 315 (SC) is squarely applicable. Accordingly, it is held that the interest income cannot be assessed as 'business income' of the assessee and would go to increase the grants received from the GoAP. In view of the above, the grounds raised as regards to this issue are allowed”. 4. Ld.DR, reiterated the contentions of AO, whereas Ld. Counsel for assessee referred to the detailed submissions made before the CIT(A). 5. After considering the rival contentions, we do not find any merit in Revenue grounds. As can be seen, the funds are clearly allocated for a specific purpose and assessee has no control over the funds, except utilizing them for the scheme for which it was granted. These funds are also kept separately and the interest was also accounted for on behalf of the Government and has kept separately from assessee’s transactions. Hence, on the principles laid down by the Hon'ble Supreme Court in the case of M/s Bokaro Steel [236 ITR 315] (SC) and also relying on various case law on the issue, we are of the opinion that the decision of Ld.CIT(A) does not require any modification. Nothing was placed on record to counter the findings of CIT(A) both on facts and on law. In the result, all the Revenue appeals are dismissed. 6. The cross-objections are in support of the order of Ld.CIT(A), hence no separate discussion is required. Accordingly, all the cross- objections are considered dismissed. 7. To sum-up, all Revenue appeals and cross-objections are dismissed. The Coordinate Bench of the Tribunal also considered the principles laid down by the Hon’ble Supreme Court in the case of Bokaro Steel [236 ITR 315] (SC), wherein, it was held that the funds are clearly allocated for the specific purpose and the assessee has no control over the funds except utilising them for the scheme for which it was granted. In the present case also, the amounts given by the Governments are 13 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada grants for specific purpose and interest earned thereon is inextricably connected to such grants. Therefore we are of the considered view that the interest income cannot be assessed as business income of the assessee and would go to increase the grants received from the GoAP. The Ld.CIT(A) has rightly considered the issues involved in this appeal and allowed the assessee’s appeal. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and dismiss the appeal of the revenue. 9. The assessee filed cross objections in support of the order of the Ld.CIT(A). Since the appeal of the revenue is dismissed, cross objections filed by the assessee becomes infructuous, hence, dismissed. 10. In the result, the appeal of the revenue as well as the cross objections of the assessee are dismissed. Order pronounced in the open court on 25 th February, 2022. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 25.02.2022 L.Rama, SPS 14 I.T.A. No.484/Viz/2019 & CO No.135/Viz/2019 A.Y.2016-17 M/sTransmission Corporation of AP Ltd., Vijayawada आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 2. रधजस्व/The Revenue – Asst.Commissioner of Income Tax, Circle-3(1), Vijayawada 1. ननधधाऩरती/ The Assessee– M/s Transmission Corporation of AP Limited Vidyut Soudha, Gunadala, Vijayawada 3. आयकर आयुक्त (अपील)/ The Commissioner of Income Tax (Appeals)-2, Hyderabad 4. The Pr.Commissioner of Income-tax-2, Hyderabad 5. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam