Brief of the case:
The Hon’ble Delhi High Court in the case of Maithon Power Ltd. vs. CIT concluded that:
- The expenditure incurred to set up operations forms the part of capital work in progress and thus, the subsequent reimbursement of any part thereof would be a capital receipt which will get reduced from the amount capitalized under the capital WIP.
- Thus, the drawback of excise and custom duties would also be the capital receipts which would reduce the capitalized cost of the project.
Facts of the case:
- The assessee company was engaged in execution of a project of setting up a thermal power generation plant at Maithon, Jharkhand. The project was at the stage of construction and installation of power plants.
- The assessee was required to pay excise and custom duties on purchase of raw materials & capital equipments. The assessee applied for refund claim of some part of duties which was approved by DGFT as a part of export benefits under the Foreign Trade Policy.
- The AO sought to tax the refund of Rs. 1059.35 lacs approved by the DGFT by invoking the provisions of Sec 28(iiic).
- The addition made by the AO was challenged by the assessee before the CIT (A) who allowed assessee’s appeal by holding that the excise duties were the part of project cost and the reimbursement thereof as export benefits would reduce the cost of project (i.e. it will reduce the amount to be capitalized in respect of the project). The ITAT also concurred with the findings of the CIT (A).
- Now, the revenue is in appeal before then Hon’ble High Court against the decision of ITAT.
Contention of the Revenue:
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