JOINT COMMISSIONER OF INCOME TAX, (OSD), CIRCLE-4(3)(1) , BENGALURU vs. M/S. KARNATAKA RENEWABLE ENERGY DEVELOPMENT LIMITED, BENGALURU

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.

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. viii. The appellant craves, leaves to add, alter, amend and or delete any of the grounds that may be urged.

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.

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.

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.

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.

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. Whether on the facts and circumstances of the case, the Ld.CIT(A) iii. 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. 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.

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 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.

Pronounced in the open court on the date mentioned on the caption page.