DCIT Vs Prayagraj Power Generation Company Limited (ITAT Lucknow)
Revenue filed appeal against CIT(A)’s order deleting addition of ₹42.56 crore on account of infirm power sale during trial run & directing recomputation of book profit u/s 115JB.
AO had treated the receipt from sale of power generated during trial run as revenue income, thereby reducing returned loss & increasing book profit. He also added ₹2.72 crore as interest income. CIT(A) confirmed the interest income addition but deleted the addition of infirm power sale, holding it to be a capital receipt, since the trial run occurred before commencement of business & all pre-commencement expenses were capitalized in fixed assets.
Before the Tribunal:
- Revenue argued that trial run happens after setting up of plant, thus the related power sale should be taxable.
- Assessee relied on settled principle that receipts during pre-operative trial run are capital in nature, as corresponding expenses are capitalized.
Tribunal upheld the CIT(A)’s view. It held that when trial run expenses are treated as part of actual cost of fixed assets, the matching trial run receipts must also be treated as capital receipts. Therefore, the addition of ₹42.56 crore was rightly deleted.
Regarding book profit u/s 115JB, Tribunal held:
-As the assessee has accepted addition of ₹2.72 crore interest income & not appealed, this income must be included in the Statement of Profit & Loss as per Companies Act.
-Book profit must be computed using the correct P&L figure, i.e., after including the accepted interest income.
Thus, Tribunal directed the AO to recompute book profit u/s 115JB by including ₹2.72 crore interest income, but upheld deletion of infirm power sale addition.
