PCIT-2 Vs Tata Power Company Ltd. (Bombay High Court)
The Bombay High Court dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961, challenging the ITAT’s order for Assessment Year 2003-04. The Revenue questioned the ITAT’s findings that income of ₹9.81 crore earned from broadband project trial runs and ₹1.27 crore from the sale of scrap generated before installation of the project were capital receipts rather than revenue receipts, and also challenged the computation of deduction under Section 80-IA.
The Court noted that the assessee, engaged in the business of generation and distribution of power, had treated the broadband trial run income and scrap sale receipts arising before installation of the broadband project as capital work-in-progress without offering them to tax. The Assessing Officer treated these receipts as revenue income, and the CIT(A) upheld that view. The ITAT, however, found that the broadband unit was still under trial runs and not installed when the receipts arose, and that both receipts were inextricably linked with the project in its installation phase. Relying on CIT Vs. Bokaro Steel, the ITAT held the receipts to be capital in nature.
The High Court examined the Supreme Court’s decision in Bokaro Steel and held that receipts generated before commencement of business, which are intrinsically connected with setting up a capital asset, are capital receipts reducing the cost of construction and are not taxable income. It held that the ITAT’s findings were findings of fact and that no substantial question of law arose on these issues.
