POWER GRID MITHILANCHAL TRANSMISSION LTD,NEW DELHI vs. ITO, WARD 19(4), NEW DELHI

The Assessee has raised the following grounds of appeal:-

On the facts and circumstances of the case, the learned CIT(A). NFAC has erred both on facts and in law in ignoring the contention of the assessee that the claim of TDS has been denied without specifying any reason by the AO(CPC) in the intimation order passed under section 143(1) of the Income Tax Act.

We have heard the rival submissions and perused the materials available on record. The assessee is a wholly owned subsidiary of Power Grid Corporation of India Ltd., a Govt. of India Enterprise. During the year under consideration, the assessee filed its return of income for Assessment Year 2019-20 on 26.08.2019 claiming refund of Rs. 10,80,720/- on account of TDS u/s 194A of the Act deducted by Tata Projects Ltd. This return was duly processed u/s 143(1) of the Act, wherein the income returned was accepted but TDS credit of Rs. 10,80,720/- was not granted by the Ld. CPC u/s 143(1) of the Act, on the ground that the same is not reflected in Form No. 26AS of the assessee. This action of the Ld. CPC was upheld by the Ld. CIT(A) / (NFAC) by observing as under:

It was submitted that the assessee company had verified the tax credit details on the Income Tax E-portal and the status is shown in respect of Tax Credit, claim is fully matched with the tax credit available in 26AS. The main grievance of the Revenue is that the assessee had not disclosed any income corresponding to TDS claim. It was submitted that the interest earned by the assessee on said advances given to the contractors which is inextricably linked with the business activity of the assessee i.e. “construction activity” was credited to other income and the same was reduced from the “Expenditure during the construction period” in the balance sheet. This was done on the ground that project of the assessee had not yet commenced and the entire expenditure incurred towards project had been routed under ‘Expenditure during the construction period’ and since the interest income earned on advances given to the contractors was inextricably linked with the business activity of the assessee, the same was duly reduced from the said project expenditure reflected in ‘Expenditure during the construction period’ in Balance Sheet. We find that there is absolutely no dispute that the interest earned on advances of the contractors were part of business receipts and since the assessee had not commenced its business, the said interest income was duly reduced by the assessee from expenditure during the construction period in this balance sheet. Page 4 of 8

7. In the instant case it is not in dispute that TDS has been deducted in respect of sale of software patches. The credit of TDS deducted on aforesaid sale has not been to the relevant assessment year as the assessee had not disclosed the income from sale of software patches and modules and the same was instead reduced from the cost of software development. The assesses following Project Completion Method to recognize its revenue. The assesses is now claiming credit of TUS which has been earlier denied to the assessee. As per provisions of section Page 5 of 8

In the case of Supreme Renewable Energy Vs. ITO (supra) the Tribunal following the decision in the Case of CIT vs. Karnal Co-Op Sugar Mills Ltd., 243 ITR 2(SC) held that when the interest inn in the nodental to the acquisition and installation of an asset and not directly liable for tax, assessee is entitled for the credit of the TDS from the interest income which has been duly received by the Government. For the sake of completeness relevant extracts from the order is reproduced herein below. “6. ....................... Thus, it is clear from the judgment of Hon'ble Supreme Court that when `the deposit is directly linked with the purchase of machinery then the income earned on such deposit is incidental to the acquisition and installation of the said asset. Accordingly, the interest is a capital receipt and would go to reduce the asset. We are of the view that when the interest income is in the nature of capital then the assessee has rightly deducted the same from the cost of the assets and while doing so the assessee has offered the said income though capitalized for assessment. When the interest income is not directly liable for tax as the same is incidental in the acquisition and installation of the asset then the tax deducted at source from the interest income which was duly received by the Government shall be refunded to the assessee or the assessee is entitled for the credit of the same. The Government cannot benefit itself by taking advantage of legal technicalities. Even otherwise, once the income receipt has been deducted from the cost of machinery to be installed the assessee has indirectly offered the same for assessment and taxation because due to the reduction of cost of the machinery the depreciation on the said machinery would be lesser and the net result of this would be offering the same income otherwise. 7. xxxxxxxxxxxxx 8. xxxxxxxxxxx 9. From the above it is clear that when a particular income is received by the assessee after deduction of tax at source and the said TDS has been duly deposited with the Government and the assessee has received the requisite certificate to this effect, then on production of the said certificate the assessee becomes entitled for the credit of TDS even if the assessee has not directly offered the said income for tax, no the assessee considered the same was liable to tax.

In view of the above mentioned decisions of the Supreme Court and order of this Tribunal, clear position of law that when TDS is made on a particular income which is otherwise not liable for tax, the assessee is entitled for the said credit of the TOS. In the case in hand when the assessee has earned interest on deposit mandatory for acquisition on installation of Page 6 of 8 ITA No.-68/Del/2023 Power Grid Mithilanchal Transmission Ltd. machinery then the interest was earned by the assessee and is directly incidental to the acquisition in respect of machinery and therefore the same has been rightly reduced from the cost of the machinery, In this way the assessee has indirectly disclosed income and has offered for assessment. We are of the considered view that even if the income earned by the assessee has not been offered for tax being not liable for tax, the assessee is entitled for credit of TDS made in respect of that income. Accordingly, we set aside the orders of the lower authorities and hold that the assessee is entitled for credit of TDS relating to interest income of Rs. 51,21,287.”

Thus, in light of facts of the case and the decision discussed above, we are of the considered view that the assessee is eligible for TDS credit earlier not allowed to the assessee. The assessee succeeds on ground No. 1 of the appeal. 10 In the result, appeal by the assessee is allowed.”

In the result, appeal of the assessee is allowed.