SAURYA URJA COMPANY OF RAJASTHAN LIMITED,JAIPUR vs. ITO WARD 1(1), JAIPUR, JAIPUR

In the facts and circumstances of the case and in law, ld. CIT(A) has erred in not providing proper directions to the Assessing officer in relation to the credit of tax deducted at source as appearing in Form 26AS of the assessee company, specifically in relation to the interest earned by the assessee company from HDFC Bank Ltd. On local area development charges collected by the assessee company, even though it was clearly explained that the assessee company was entitled for claiming the entire such credit of tax deducted at source. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by providing appropriate directions to the ld. AO for allowing claim of the TDS credit. 3. The assessee company craves its rights to add, amend or later any of the grounds on or before the hearing.”

Apropos to the grounds so raised by the assessee the brief fact of the case as culled out from the record are that the assessee – M/s Saurya Urja Company of Rajasthan Limited is a joint venture between Government of Rajasthan and IL& FS Energy Development Company Limited for the purpose of development of solar parks, in the state of Rajasthan. For the year under consideration, the assessee filed its return of income on 09.01.2024 declaring total income at Rs. 15,31,91,980/-. The return of 3 Saurya Urja Company of Rajasthan Ltd. vs. ITO income so filed was processed u/s. 143(1) of the Act accepting the income returned by the assessee. But the claim of TDS to the extent of Rs. 86,66,719/- was denied because the income as reported in 26AS and in the return of income so filed were not matched.

Aggrieved, from the said order of assessment, assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after considering the contention of the assessee partly allowed the appeal. The relevant finding of the ld. CIT(A) reads as under:- “4. Decision- I have gone through the facts of the case, the grounds of appeal and the submissions made by the Appellant. Accordingly, the grounds of appeal are adjudicated together as under- 4.1 Ground No.1:Opportunity not provided as per first proviso to section 143(1)(a)- The appeal is filed against the order u/s 143(1) wherein the TDS credit to the extent of Rs. 86,66,719/- was denied. The Appellant has submitted that assessee company is a joint venture between the Government of Rajasthan and IL & FS Energy Ltd., engaged in the development of solar parks. In the return of income, the appellant had claimed TDS of Rs. 2,02,12,215/-whereas in the order u/s 143(1), the credit has been given of Rs. 1,15,45,496/-. Thus, AOCPC had restricted the credit for TDS of Rs. 86,66,719/-. 4.1.1 During the appellate proceedings it was submitted that TDS credit was restricted based on receipts as per form 26AS without giving reasonable opportunity of being heard as per provisions of section 143(1)(a). It may be apposite to mention here that the proviso to section 143(1)(a) provides for opportunity only when any adjustment to the income or loss is made. For the sake of easy reference section 143(1)(a) is reproduced hereunder-

Aggrieved with the part solution so provided by the ld. CIT(A) to the grievance of the assessee, they preferred the present appeal before this tribunal on the grounds as stated herein above. To support of the grounds

M/s Saurya Urja Company of Rajasthan Limited (“assessee company”)is a joint venture between Government of Rajasthan and IL&FS Energy Development Company Limited (“IEDCL”) for the purpose of development of solar parks, in the state of Rajasthan.

The assessee company, as part of its business activity, plays the role of a Solar Power Park Developer (“SPPD”). In this regard, the assessee company provides necessary infrastructure for the various power producers (also known as Solar Park Developer or “SPD”) to set up their solar power plants.

Activities of the assessee company include, (i) Acquisition of land and getting the requisite clearances; (ii) developing such land; (iii) creating requisite infrastructure on the land such as developing approach roads, drainage system, providing water supply; (iv) providing infrastructure for setting up transmission lines and connecting them to the grid; (v) construction of common facilities such as offices, housing etc.; (vi) carrying out operation and maintenance of the facilities provided.

Assessee company, being a SPPD, sub-leases the plot of land along with the infrastructure so created to the individual SPDs. Assessee company enters into two kinds of agreements with SPDs, (i) Implementation and Support Agreement (“ISA”) which lays down the terms and conditions between such SPD and the assessee company and the revenue to be received by the assessee company for the infrastructure so provided; (ii) Sub-lease deed for the land sub-leased by the assessee company to the SPD.

Once the land and necessary infrastructure is provided by the assessee company to the SPD, such SPD is responsible for establishment, construction and operation of Solar Power Projects on the leased land allotted to it, along with the requisite infrastructure. SPD in turn becomes the owner of the Solar Project constructed by it on such leased premises, along with the equipment, machinery, furniture, fixtures and/or all moveable assets installed by such SPD.

Assessee company, as part of the Lease Agreement entered by it with its customers (also referred to as Solar Park Developers (“SPDs”), collects Local Area Development (“LAD”) charges. The same is collected in accordance with ISA entered by the assessee company with the SPDs. Relevant screenshot in this regard is as under: -

The above-mentioned c charges on behalf of the company.

These charges are collec development work, for park is situated. These c the local people/commu

In normal circumstances as they are the one who purpose of developing s responsible for developin from the local community

However, assessee com out development work of company being the lesso area.

Thus, assessee compa i.e. SPDs, and on the collected.

For instance, if Rs.1000 charges, then the entire development of the local company, as part of its assessee company for th concept as prevalent in c 7 ITA Saurya Urja Company of Raja lause, in relation to the collection of local ar SPDs, is prevalent in all the ISA entered into cted by the assessee company for the purpose the local community, in and around the area charges are strictly to be expended for the unity. , these charges were to be expended by the S o have been leased out land by the assessee c solar park. Accordingly, SPDs are the ones ng the area, in and around their solar park, to a y, to be able to efficiently carry out their business pany provides support to the SPDs, its custom f the local area, for and on behalf of SPDs. F or is also under an obligation to ensure develop ny on one hand, collects LAD charges from other hand, incurs expenditures of the en is collected by the assessee company from it e Rs.1000 is expended by the assessee c area. No part of the LAD changes is retained income. Accordingly, the entire Rs.1000 is e he LAD, for and on behalf of SPDs. This is ak case of a maintenance society. No. 965/JPR/2024 13. However, there can be timing difference, in collection of such amount and, subsequently, such amount being expended. The LAD charges are collected by the assessee company on a year-on-year basis; however, the expenses are incurred as and when the need arises, which can be spread over a number of years, subsequent to the year in which they are collected. However, booked at over a period of time, not a single penny is to retained/to be retained by the assessee company out of such changes collected, as part of its income.

Thus, once the LAD charges are collected, assessee company only acts as a “trustee” for the amount, so collected, keeping such amount for and on behalf of the SPDs, till such amount is actually expended for the development of the local area. Accordingly, such LAD charges collected by the assessee company is not considered by it as part of its income, both while filing the return of income and also in the Audited Financial Statements, also demonstrated supra.

Since there is timing difference, between the collection of such charges and the ultimate expenditure being incurred, such amount is parked with a Scheduled Bank (HDFC Bank in the present case), as part of Fixed Deposits.

Interest earned on the Fixed Deposits is also utilised by the assessee company for the purpose of local area development only and no part of it is utilised for the purpose of its own business by the assessee company. This is for the reason that the assessee company keeps the charges collected with itself as a custodian. Accordingly, whatever benefits are derived on such amount, in terms of interest, are also utilised for the local area development itself.

Accordingly, assessee company, in other words, has no option, but to utilise even the interest amount, so collected, for the purpose of local area development. Thus, interest earned on the fixed deposits is also not considered by the assessee company as part of its income, while filing the return of income. Such interest income was shown as part of “Unearned Income” on “Liabilities Side” of Balance Sheet.

Thus, when interest is earned on the fixed deposits, TDS is deducted on the interest amount. The TDS deducted on such interest amount gets reflected in the Form 26AS of the assessee company. Although, such interest amount is not in the nature of income of the assessee company, however, still TDS gets reflected in the Form 26AS of the assessee company.

It is submitted that, the assessee company receives lesser amount as interest on such deposits, say Rs. 900 [out of Rs. 1000 of the interest amount] and the balance Rs. 100 gets reflected in the Form 26AS [assuming 10% being the rate at which TDS is deducted by the bank]. However, on the other hand, assessee company is duty bound, as per the agreement, to make expe bank account and Rs. 1 reflected in Form 26AS is development.

Resultantly, assessee co 26AS, in relation to the filing the return of income

This is for the reason t by the assessee com amounts to assessee co therefore it gets the right reflected in 26AS of the Assessment Tax” whic bank.

During the year under c HDFC Bank amounting to 17,17,674, whereas, the f part of its income amoun was pertaining to the Deposits created out of assessee company for 23. As already submitted ab charges and considers charges, when collected, company. Such Unearne Note 25 - Other Curren under consideration, the of the financial year. R forming part of the Audite

It is pertinent to mention submitted to the Hon’ble 2 (refer Page No. 273). 9 ITA Saurya Urja Company of Raja enditure of the entire Rs. 1000 [Rs. 900 actuall 100 reflected in Form 26AS]. Resultantly, the s also to be utilised by the assessee company f ompany claims the entire amount of TDS refle LAD charges and the interest earned on fixed e. that even the TDS amount is to be subsequ pany for the purpose of local area deve mpany having paid/obliged to pay the amount t to claim credit of said TDS against its tax liab e assessee company is nothing but in the h is deposited for and on behalf of assessee consideration, assessee company had receiv o Rs. 1,38,45,526 on which Tax at Source was fact remains that the assessee company only e nting to Rs. 5,00,843. The balance amount of e interest received by the assessee com f the LAD Charges collected and was to be e Local Area Development. bove, the assessee company collects local ar them as part of its liability. These local ar , are treated as part of the Unearned Income ed Income has been disclosed by the assessee nt Liabilities in its Audited Financial Statemen Unearned Incomeamounted to Rs. 37,81,83,5 elevant screenshot of Note 25 - Other Cur ed Financial Statements is set out herunder. that the copy of the Audited Financial Stateme Bench during the course of the hearing as par No. 965/JPR/2024 asthan Ltd. vs. ITO ly received in the TDS amount is for the local area cted in the Form d deposits, while uently expended elopment only.It equivalent TDS, ility. The TDS so nature of “Self- company by the ved interest from s deducted at Rs. 26. As evident from the information provided, the local area development charges forming part of the Unearned income of the assessee company as at the end of the financial year under consideration amount to Rs. 33.95 Crores. The ledger account of the local area development charges, as reflected in the books of the assessee company, has also been submitted to the Hon’ble Bench (refer to Paper Book 1, Page No. 225).Movement of local area development charges as collected by the assessee company is as under:

From the above table, it is evident that the assessee company earned Rs.1,33,44,683 as interest on the local area development charges, which were placed in fixed deposits. This interest income has been treated as part of the company's liability. However, the principal amount of Rs. 1.33 crore has not been offered as part of the taxable income of the assessee company and is reflected on the liability side of the balance sheet. The company claims that it holds this amount merely as a trustee on behalf of the SPDs for the purpose of developing the local area.

It is reiterated that the interest earned on the local area development charges, amounting to Rs. 1,33,44,683 has also been subjected to TDS by the bank. While the assessee company received a lesser net amount due to TDS deduction, it was required

Accordingly, the assessee company asserts its entitlement to claim credit for the TDS amount deducted on the interest income. This is because the said income, though reflected as liability, has been utilized entirely for the purposes of the local area development project.”

The ld. AR of the assessee also filed a detailed paper book in support of the contention so raised in the written submission and the index of the document submitted reads as under:- S. No. Particulars Page No. 1. Copy of Income Tax Return form filed by assessee company for the year under consideration 1-138 2. Copy of ledger accounts of various parties in the books of assessee company for the year under consideration 139-156 3. Copy of Form-26AS of the assessee company for the period under consideration 157-182 4. Copy of ISA entered by the assessee company with one of the SPD’s 183-222 5. Copy of ledger accounts of “Unearned Income” in the books of assessee company for the year under consideration 225 6. Copy of Audited Financial Statements of Assessee company for the year under consideration 226-290 7. Extract of Trial Balance of assessee company for the year under consideration 291

The ld. AR of the assessee in addition to what has been said in the written submission, vehemently argued that so far as the amount on which TDS deducted is concerned the same is not income of the assessee.