2012 (11) TMI 580 - AT - Income Tax

Capital Gain Agricultural land purchase for commercial use and sold without use, constitute capital asset or not - Assessee purchase land for setting up the power plant Later on due to some constraints assessee sold part of land and incurred loss - AO argued that the concerned agricultural land not being a capital asset - Loss on the sale of the same would not result in any long term capital loss - No such loss would be permitted to be carried forward for purposes of set off in future years Held that - As the assessee purchased this land with no intention to use it for carrying out any agricultural operations, but to set up a power plant. Right from its acquisition and upto the date of its sale, no agricultural operations were carried out on this land by the assessee or by any person on behalf of the assessee. Consequently, as on the date of sale, the concerned land cannot be treated as an agricultural land. It was definitely a business asset held as such in the books of the assessee hence, loss on sale of such land would constitute a long term capital loss and would be eligible for carry forward for set off to future years. In favour of assessee Interest u/s 234D Interest on excess refund - Assessee contended that the provisions of Sec. 234D came into force in June 2003 and cannot have the application in respect of the A.Y. 2003-04 Held that - Following the decision in case of Infrastructure Development Finance Co. Ltd. (2011 (9) TMI 591 - MADRAS HIGH COURT) that since the regular assessment had been completed on March 30, 2004 and section 234D came into operation on and from June 1, 2003, which was prior to the completion of the regular assessment, the assessee was liable to pay interest on the excess refund amount received as contemplated u/s 234D. It is not the year of assessment that falls for consideration in such circumstances, but the date on which the regular assessment order has been passed. In favour of revenue Recognition of income - Whether in case where receipt is uncertain and is subject to the outcome of the events in future, can be treated as accrued during the relevant period Held that - If a receipt is uncertain and is subject to the outcome of the events in future, it cannot be treated as having accrued during the relevant period. Since TNEB has refused to accept as its liability the start up fuel cost incurred by the assessee the income in respect of start up fuel cost based on the invoices raise by the assessee cannot be treated as having accrued to the company even it has been following mercantile system of accounting. In favour of assessee

Issues Involved:
1. Inflated Operation and Maintenance (O&M) Expenditure
2. Long Term Capital Loss on Sale of Land
3. Levy of Interest under Section 234D of the Income Tax Act, 1961
4. Addition of Start-Up Fuel Costs
5. Interest under Sections 234B & 234C

Detailed Analysis:

1. Inflated Operation and Maintenance (O&M) Expenditure:
The Revenue contended that the assessee company had inflated the O&M expenditure by the amount received as a deposit towards Major Maintenance Expenditure (MME). The Tribunal referenced its previous decision in ITA Nos. 894 and 1657/Mds/2009, where it was established that the O&M expenditure was legitimate based on various documents including the Plant Manufacturer's manual, financial statements, and acknowledgments from the O&M contractor. Consequently, the Tribunal dismissed the Revenue's grounds on this issue, following the precedent set in the assessee's own case.

2. Long Term Capital Loss on Sale of Land:
The assessee incurred a long-term capital loss on the sale of land initially purchased for constructing a power plant. The AO argued that the land was agricultural and not a capital asset, thus the loss could not be carried forward. However, the CIT(A) and the Tribunal, referencing the Tribunal's earlier decision and relevant case law, concluded that the land was a business asset since no agricultural operations were conducted on it post-purchase. Therefore, the loss was recognized as a long-term capital loss eligible for carry forward.

3. Levy of Interest under Section 234D of the Income Tax Act, 1961:
The AO levied interest under Section 234D, which the assessee contested, arguing that the provision was applicable only from June 2003 and not for the assessment year 2003-04. The CIT(A) agreed with the assessee, but the Tribunal, referencing the jurisdictional High Court's decision in CIT v. Infrastructure Development Finance Co. Ltd., held that since the regular assessment was completed after the provision came into effect, the interest was applicable. Thus, the Revenue's appeal on this issue was allowed.

4. Addition of Start-Up Fuel Costs:
The AO added start-up fuel costs billed to TNEB but not included in the assessee's receipts. The Tribunal, referencing its previous decision, noted that TNEB had not accepted the liability for these costs, and thus the income had not accrued to the assessee. The Tribunal upheld the CIT(A)'s decision to allow the assessee's appeal, dismissing the Revenue's grounds on this issue.

5. Interest under Sections 234B & 234C:
The AO charged interest under Sections 234B and 234C, which the assessee contested. The Tribunal, following its earlier decision, held that the interest could not be levied retrospectively on taxes computed based on a law that was not in force at the time of payment. The Tribunal dismissed the Revenue's appeal on this issue.

Conclusion:
- ITA No. 381/Mds/2011: Partly allowed (Levy of interest under Section 234D allowed; other issues dismissed).
- ITA Nos. 382 & 383/Mds/2011: Dismissed.

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