2011 (6) TMI 1001 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of amortization of BOT project expenditure.
2. Netting of interest earned and paid.
3. Treatment of interest on deposits as income from 'other sources' and not as 'business income'.
4. Allowability of depreciation on the cost incurred by the assessee.

Summary:

1. Disallowance of Amortization of BOT Project Expenditure:
The assessee, engaged in infrastructure projects under the BOT scheme, claimed amortization of project expenditure over 17/7 years. The assessing officer disallowed this, treating the expenditure as capital in nature. The CIT (A) allowed depreciation instead. The Tribunal, referencing the case of Nyse Infrastructure Pvt. Ltd. and the Supreme Court decision in CIT vs. Madras Auto Services Pvt. Ltd., held that amortization of BOT project expenditure is allowable as revenue expenditure. The Tribunal emphasized that the expenditure did not create a capital asset for the assessee but provided an enduring business advantage, thus qualifying as revenue expenditure.

2. Netting of Interest Earned and Paid:
The CIT (A) ruled that netting of interest income against interest payment debited to the Profit and Loss Account is not permissible. The Tribunal upheld this decision, rejecting the assessee's claim for netting interest earned and paid.

3. Treatment of Interest on Deposits as Income from 'Other Sources':
The assessing officer treated the interest on deposits made for business purposes as income from 'other sources' and disallowed the proportionate interest deduction. The CIT (A) upheld this treatment. The Tribunal, following its earlier decision in the assessee's own case for the assessment year 2000-01, confirmed that the interest received represents income from 'other sources' and denied the benefit of netting interest.

4. Allowability of Depreciation on the Cost Incurred by the Assessee:
The department appealed against the CIT (A)'s decision to allow depreciation on the cost incurred by the assessee. The Tribunal, having allowed the amortization of BOT project expenditure as revenue expenditure, rejected the department's appeal on this issue.

Conclusion:
The Tribunal partly allowed the assessee's appeals regarding the amortization of BOT project expenditure and dismissed the department's appeals on the allowability of depreciation. The Tribunal upheld the treatment of interest on deposits as income from 'other sources' and denied the netting of interest earned and paid.

Order pronounced in the Court on 08-06-2011.