DCIT CORPORATE CIRCLE 1 (2), CHENNAI V. M/S BHARATIYA NABHIKIYA VIDYUT NIGAM LTD, CHENNAI

ITA 1304/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6207 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 18-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V M MAHIDAR IRS JCIT
• Keywords: Revenue expenditure; Set aside
• Section: 143(3); 15

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , , [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ] ./I.T.A. NO. 1304/CHNY/2018 ! / ASSESSMENT YEAR : 2013-2014. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2) CHENNAI 600 034. VS. M/S. BHARATIYA NABHIKIYA VIDYUT NIGAM LTD, NO.51, 1 ST FLOOR, MONTIETH ROAD, EGMORE, CHENNAI 600 008. [PAN AACCB 3460C] ( / APPELLANT) ( /RESPONDENT) '# $ % / APPELLANT BY : SHRI. V.M. MAHIDAR, IRS, JCIT. &' '# $ % /RESPONDENT BY : SHRI. Y. SRIDHAR, C.A. ( ) $ * /DATE OF HEARING : 08-08-2019 +,! $ * /DATE OF PRONOUNCEMENT : 11-10-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHEN NAI (CIT(A) FOR SHORT) DATED 31.01.2018 FOR THE ASSESSMENT YEAR (A Y) 2013-2014. ITA NO.1304/CHNY/2018 :- 2 -: 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE 2. THE LEARNED CIT(A) HAS ERRED IN DELETING THE DIS ALLOWANCE OF TRANSMISSION CHARGES PAID TO M/S. POWER GRID CORPOR ATION OF INDIA OF RS.1.43 CRORES DESPITE THE FACT THAT THE ASSESSEE H AD NOT COMMENCED ITS BUSINESS OPERATIONS 2.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E EXPENDITURE INCURRED BEFORE THE COMMENCEMENT OF BUSINESS HAD TO BE CAPITALIZED AND CANNOT BE CLAIMED AS REVENUE EXPENDITURE. 2.2 THE LEARNED CIT(A) ERRED IN HOLDING THAT CONSTR UCTION OF FAST BREEDER REACTOR AMOUNTED TO COMMENCEMENT OF BUSINE SS AND THEREFORE THE EXPENDITURE INCURRED BY THE ASSESSEE WAS REVENUE IN NATURE 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ASSESSEE HAD NOT STARTED GENERATING POWER/ELECTRICITY AND THEREF ORE COULD NOT BE SAID TO HAVE COMMENCED BUSINESS 2.3 THE LEARNED CIT(A) ERRED IN DELETING. THE DISAL LOWANCE MADE BY THE AO IN RESPECT OF PRELIMINARY EXPENSES CLAIMED U /S.35D OF THE ACT FOR PAYMENT OF RS.40.01 LAKHS (BEING 1/5TH OF TOTAL EXPENDITURE OF RS.2 CRORES) INCURRED FOR INCORPORATION OF THE ASSS ESSEES BUSINESS. 2.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT DE DUCTION U/S.SEC.35D IS ALLOWABLE TO AN ASSESSEE ONLY AFTER THE COMMENCEMENT OF BUSINESS. 2.5 THE LEARNED CIT(A) HAS ALLOWED THE DEDUCTION OF EXPENSES U/.35D OF THE ACT ONLY BECAUSE SHE HAD ALREADY HELD THAT THE ASSESSEE HAD COMMENCED ITS BUSINESS WITH THE MANUFA CTURING OF THE FAST BREEDER REACTOR. SINCE THE DECISION OF THE CIT (A) ON THE COMMENCEMENT OF BUSINESS HAS NOT BEEN ACCEPTED BY T HE DEPARTMENT AND IS BEING CHALLENGED, THE DELETION OF DISALLOWANCE OF PRELIMINARY EXPENSES ALSO IS NOT ACCEPTABLE. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE A.O. RESTORED . ITA NO.1304/CHNY/2018 :- 3 -: 3. T HE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT ASSESSEE NAMELY M/S. BHARATIYA NABH IKIYA VIDYUT NIGAM LTD IS A COMPANY WHOLLY OWNED ENTERPR ISE OF GOVERNMENT OF INDIA INCORPORATED UNDER THE PROVISIO NS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINES S OF GENERATION OF ELECTRICITY. DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, IT WAS UNDER PROCESS OF CONSTRUCTING AND COMMISSIONING THE FIRST 500MWE PROTOTYPE FAST BREEDER REACTOR AT KALPAKKAM IN TAMIL NADU. THE RETURN OF INCOME FOR THE AY 2013-14 WAS FILED ON 19.09.2013 DISCLOSING TOTAL INCOME OF RS.28,80,65, 560/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE I (2) CHENNAI (HEREINAFTER CALLED AO) VIDE ORDER DATED 30.09.20 15 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS.30,23,96,060/-. WHILE DOING SO, THE ASSESSI NG OFFICER DISALLOWED TRANSMISSION CHARGE OF RS.1,43,30,501/- PAID TO M/S. POWER GRID CORPORATION OF INDIA LIMITED ON THE GROUND TH AT EXPENDITURE HAS TO BE CAPITALIZED AND IT CANNOT BE CLAIMED AS REVE NUE EXPENDITURE PLACING RELIANCE ON THE DECISIONS OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASES OF M/S. ORIENT COSMETICS LTD VS DCIT, 74 ITD 135 AND M/S. MADRAS FERTILIZERS LIMITED VS CIT, 209 ITR 174. TH E ASSESSING OFFICER ITA NO.1304/CHNY/2018 :- 4 -: ALSO DISALLOWED PRELIMINARY EXPENSES WHICH ARE ELI GIBLE FOR DEDUCTION U/S.35D OF THE ACT OF RS.40,01,200/-. 4. . BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER HELD THAT ONCE T HE BUSINESS HAS BEEN SET UP, THE SAME SHOULD BE ALLOWED AS DEDUCTIO N AS REVENUE EXPENDITURE BY PLACING RELIANCE ON THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASES OF CARREFOUR WC & C INDIA PRIV ATE LTD VS. DCIT, (2015) 53 TAXMANN.COM 289 (DELHI) AND CIT VS. ESPN SOFTWARE INDIA (P) LTD, (2009) 184 TAXMAN 452 (DELHI). SIMILARLY I N RESPECT OF PRELIMINARY EXPENDITURE , THE LD COMMISSIONER OF INCOME TAX (APPEALS) HAD ALLOWED THE PRELIMINARY EXPENDITURE UNDER THE PROVISIONS OF SECTION 35D OF THE ACT. 5. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE U S IN THE PRESENT APPEAL. THE LD. DEPARTMENTAL REPRESENTATIV E CONTENDED THAT RESPONDENT ASSESSEE COMPANY HAD NOT COMMENCED ANY BUSINESS ACTIVITIES AND THEREFORE NO EXPENDITURE CAN BE ALL OWED AS DEDUCTION. SIMILARLY ASSESSEE COMPANY IS NOT ENTITLED FOR P RELIMINARY EXPENDITURE UNDER THE PROVISIONS OF SECTION 35D OF THE ACT. 6. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E PLACED RELIANCE ON THE ORDER OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS). ITA NO.1304/CHNY/2018 :- 5 -: 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ISSUES INVOLVED IN THE PRESENT CASE RE LATES TO WHETHER ASSESSEE HAD COMMENCED BUSINESS OPERATIONS, SET U P THE BUSINESS WHICH IS READY TO COMMENCE THE BUSINESS. THIS IS A QUESTION OF FACT WHICH REQUIRES TO BE ADJUDICATED WITH REFERENCE TO THE STAGE OF THE SETTING UP THE PLANT. FROM THE PERUSAL OF THE ANNU AL REPORT PLACED BEFORE US, THE STATUTORY AUDITORS HAD CLEARLY STAT ED AT CLAUSE 10 THAT COMPANY HAD NOT COMMENCED COMMERCIAL OPERATIONS. SIMILARLY FROM THE DIRECTORS REPORT, IT IS CLEARLY MENTIONED THAT ERECTION FOR CONSTRUCTION OF 500 MWE PROTOTYPE FAST BREEDER REAC TOR IS IN PROGRESSING IN A HEALTHY STATE, DESPITE TECHNOLOGI CAL CHALLENGES OF FIRST OF ITS TYPE SODIUM, COOL FAST REACTOR, THE CONSTRUC TION WORK HAS PROGRESSED WELL. THIS CLEARLY SHOWS THAT THE WORK IS STILL UNDER PROGRESS. THESE FACTS WOULD GO TO SHOW THAT PLANT W AS NOT SETUP / READY FOR COMMENCEMENT OF BUSINESS OPERATIONS. NO DOUBT, IT IS SETTLED POSITION OF LAW THAT WHEN BUSINESS IS SET UP AND READY TO COMMENCEMENT OF BUSINESS EVEN THOUGH THERE IS NO A CTUAL PRODUCTIVITY, EXPENDITURE INCURRED IN INTERVENI NG PERIOD IS ALLOWED AS EXPENDITURE. BUT IN THE PRESENT CASE, THE FAC TS ENUMERATED ABOVE WOULD GO TO SHOW THAT BUSINESS IS NOT READY TO COM MENCE AND THE QUESTION OF ALLOWING THE EXPENDITURE DOES NOT ARISE .SIMILARLY PRELIMINARY EXPENDITURE CANNOT BE CLAIMED AS DEDUC TION U/S35D OF THE ITA NO.1304/CHNY/2018 :- 6 -: ACT WHOLLY IN THE YEAR OF COMMENCEMENT OF BUSINESS. IN THE CIRCUMSTANCES, THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) HAD CLEARLY FELL IN ERROR IN HOLDING THAT EXPENDITURES IS ALLOWABLE AS DEDUCTION. THEREFORE, WE REVERSE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORE THE ASSESSMENT ORDER. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON 11TH DAY OF OCTOBER, 2019, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER - ) / CHENNAI . / DATED: 11TH OCTOBER, 2019. KV $ &*01 21!* / COPY TO: 1 . '# / APPELLANT 3. ( 3* () / CIT(A) 5. 16 &*7 / DR 2. &' '# / RESPONDENT 4. ( 3* / CIT 6. 8 9) / GF