M/s. CLP Power Pvt. Ltd., Ahmedabad V. The ACIT.,(OSD)Range-1, Ahmedabad

ITA 1517/AHD/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5854 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure
• Section: 143(3); 244A; 37(1); 37; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER CLP POWER INDIA PVT. LTD. AHMEDABAD PAN: AAACP6900B (APPELLANT) VS THE ITO, WARD - 1(3), AHMEDABAD (RESPONDENT) CLP POWER INDIA PVT. LTD. AHMEDABAD PAN: AA ACP6900B (APPELLANT) VS THE ITO, WARD - 1(3), AHMEDABAD (RESPONDENT) REVENUE BY : S H RI PRASOON KABRA , SR. D . R. ASSESSEE BY: S H RI S.N. SOPARKAR , A.R. DATE OF HEARING : 24 - 01 - 2 018 DATE OF PRONOUNCEMENT : 23 - 03 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THESE TWO ASSESSEE S APPEAL S FOR A.Y. 2005 - 06 & 2009 - 10 , AR ISE FROM ORDER OF THE CIT(A) - V I, AHM EDABAD DATED 16 - 12 - 2010 & 01 - 06 - 2012 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; I N SHORT THE ACT I T A NO . 759 / A HD/20 11 A SS ESSMENT YEAR 200 5 - 06 ITA NO. 1517/AHD/2012 ASSESSMENT YEAR 200 9 - 10 I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - ITA NO. 1517/AHD/2012 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REFUSING TO ADJUDICATE UPON GROUND NO. 1 OF THE APPELLANT'S APPEAL CHALLENGING THE VALIDITY OF THE ASSESSMENT ORDER IMPUGNED BEFORE HIM, ON THE GROUND THAT IT WAS GENERAL IN NATURE. 2 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED I N UPHOLDING THE DISALLOWANCE OF DEDUCTION FOR EXPENDITURE (MADE BY THE LEARNED ASSESSING OFFICER BY FOLLOWING THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING A. Y. 2007 - 08 AND 2008 - 09) OF RS.1,36,85,119 IN THE COMPUTATION OF THE APPELLANT'S INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' ON THE GROUND THAT IT WAS CAPITAL IN NATURE. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING GROUND NO. 4 OF THE APPELLANT'S AP PEAL BEFORE HIM BY OBSERVING THAT LEVY OF INTEREST UNDER SECTIONS 234D WAS MANDATORY. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING GROUND NO. 5 OF THE APPELLANT'S APPEAL BEFORE HIM ON THE GROUND THAT THE APPELLANT'S CHALLENGE AGAINST INITIATION OF PENALTY PROCEEDINGS. 3. GROUND NO. 1 4. BRIEF FACT OF THE ISSUE UNDER GROUND S OF APPEAL IS THAT ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 26 TH DECEMBER, 2011 .T HE ASSESSING O FFICER HAS MADE DISALLOWANCE OF RS. 1 , 36 , 85 , 119/ - OF CAPITAL EXPENSES. ON SCRUTINY, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE DEBITED EXPENSES UNDER VARIOUS HEADS OF EXPENDITURE PERTAINING TO NEW LINE OF BUSINESS NAMELY DEVELOPMENT OF POWER PROJECTS. THE DETAIL OF EXPENDITURE DEBITED BY THE ASSESSEE PERTAINING TO THE PROPOSED NEW POWER PROJECTS ARE AS UNDER: - CLP POWER INDIA PRIVATE LIMITED DETAILS OF EX PENSES INCURRED ON NEW PROJECTS OF (AY 09 - 10) CODE DESCRIPTION AMOUNT DETAILS I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 3 IIA 30 SOLAR PROJECTS 35,87,615 SOLAR PROJECT INVESTMENT OPPORTUNITY EVALUATION IN GUJARAT AND MAHARASHTRA - CONSULTANT SUCH AS TEARI HIRED FOR DOING THE TECHNICAL/DUE DILIGENCE. DD WORK IN PROGRESS (INDEPENDENT PROJECT) IIG75 SHIK ARPUR WIND PROJ - GUJARAT 23,73,626 AMOUNT SPENT ON DUE DILIGENCE OF POTENTIAL INVESTMENT OPPORTUNITY. PROJECT NOT PURSUED FOR THE OWING TO CERTAIN TECHNICAL ISSUES IDENTIFIED DURING DUE DILIGENCE SO A/SO BECAUSE OF THE PROJECT COMMERCIA LS NOT PROVING TO BE VIABLE IIH10 PROJECT BLACK STONE - HARYANA/MP 15,58,755 SHAHPURA POWER COMPANY (SPV) OF MP GOVERNMENT - FROM WHOM WE OBTAINED QUALIFICATION DOCUMENT. TECHNICAL .FINANCIAL QUALIFICATION WERE SUBMITTED A FTER GETTING ENDORSEMENT FROM AUDITOR ENGAGED FOR THE PROGRESS OF PROJECTS. QUALIFICATION DOCUMENTS SUBMITTED, DISCUSSION WERE HELD WITH INITIAL EXPENDITURE. WE GOT QUALIFIED, HOWEVER SHAHPURA POWER COMPANY NOT FURTHER PROGRESS AN D DUE TO NON AVAILABILTY OF COAL LINKAGE. AS SOON AS FURTHER FURTHER PROGRESS MY THE SPC TO CONDUCT THE BID, THE CLP WILL CONSIDER FURTHER PARTICIPATION. IIWI21 PROJECT PRAKRITI - MAHARASHTRA 15,00,000 IN THIS THERE ARE 2 PROJECTS - ONE E ACH RAJASTHAN AND MAHARASNTRA. IN CASE OF RAJASHTAN THERE IS SOME ISSUE OF GETTING LAND AND WATER SOURCE WHICH WAS NOT RESOLVED FOR LONG, HENCE IT IS DECIDED NOT TO PURSUE FURTHER. IN CASE OF MAHARASTRA - COUNTER PARTY (SUGAR MILL) WEN BACK ON DEVELOPMENT AGREEMENT WHICH WAS CRUCIAL FOR PROJECT GOING HEAD, HENCE DECIDED NOT TO PURSUE FURTHER IIM25 ANDRA LAKE 24,13,639 PROJECT DUE DILIGENCE COMPLETED (PROJECT NEAR PUNE). INVESTMENT APPROVAL RECEIVED IIM30 MAHARST & KRNTKA - WIND MITCHEL 7,337 AMOUNT SPENT ON DUE DILIGENCE. PROJECT NOT PURSUED FOR CERTAIN COMMERCIAL ISSUES. I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 4 IIR20 RATAN WIND PROJ. - RAJASTHAN 22,44,147 AMOUNT SPENT ON DUE DILIGENCE OF POTENTIAL INVESTMENT OPPORTUNITY. PROJECT NOT PURSUED FOR THE OWING TO CERTAIN \ TECHNICAL ISSUES IDENTIFIED DURING DUE DILIGENCE SO ALSO BECAUSE OF THE PROJECT COMMERCIALS NOT PROVING TO BE VIABLE TOTALS 1,36,85,119 THE ASSESSING OFFICER HAS QUESTIONED THE ASSESSEE ABOUT THE CLAIM OF THESE EXPENSES PERTAI NING TO THE PROPOSED NEW POWER PROJECT AS REVENUE EXPENSES SINCE IT WAS NOT A BUSINESS ACTIVITY BEING CARRIED ON BY THE ASSESSEE. THE ASSESSEE COMPANY SUBMIT THAT IT IS ENGAGED, INT ER ALIA , IN BUSINESS OF THE DEVELOPMENT OF POWER PROJECTS AND OPERATION AND MAINTENANCE OF POWER PROJECTS. FURTHER THIS POWER PROJECT WAS PROPOSED TO BE SET UP, OWNED, OPERATED AND MAINTAINED UNDER THE SAME MANAGEMENT AND COMMON FUNDS. THE ASSESSEE HAS ALSO SUBMITTED THAT THERE WAS SUPPOSED TO BE A COMPLETE INTERCONNECTION, INTER LACING AND INTERDEPENDENCE OF BOTH THE UNITS BECAUSE THE COMPANY WANTED TO USE THE COMMON MANAGEMENT AND COMMON FUNDS FOR SETTING UP, OPERATING AND MAINTAINING THE POWER PROJECTS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE BECAUS E ASSESSEE HAS BEEN CARRYING ON BUSINESS OF OPERATION AND MAINTENANCE OF POWER PROJECTS. IT IS NOT CARRIED ON THE BUSINES S OF DEVELOPMENT OF POWER PROJECTS AS CLAIMED BY IT EITHER IN THE CURRENT YEAR OR IN ANY EARLIER YEARS. T H E ASSESSING OFFICER HAS STA TED THAT IT WAS CLEAR FROM THE ASSESSEE S REPLY THAT THE EXPENDITURE WAS INCURRED IN CONNECTION WITH THE PURPOSE OF SETTING UP NEW PROJECTS . THE ASSESSING OFFICER HAS ELABORATED VARIOUS JUDICIAL PRONOUNCEMENT IN HIS ORDER AND COME TO THE CONCLUSION THAT E XPENDITURE INCURRED BY THE AS SSESSEE IN CONNECTION WITH T H E ESTABLISHMENT OF NE W PROJECT WHICH WAS ULTIMATELY ABANDONED WAS CAPITAL EXPENDITURE. THEREFORE, THE CLAIM O F THE ASSESSEE WAS DISALLOWED BY TREATING THE AFORESAID EXPENDITURE AS CAPITAL IN NATURE . I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 5 5. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER: - 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. THE UNDISPUT ED FACTS ARE - APPELLANT IS I N THE BUSINESS OF OPERATING AND MAINTAINING POWER PLANTS IN THE COUNTRY. APPELLANT INCURRED EXPENDITURE FOR DEVELOPING OR ACQUIRING NEW POWER AND COAL PROJECTS IN THE FORM OF FEASIBILITY STUDY, DUE DILIGENCE AND OTHER EXPENSES. THESE NEW PROJECTS ARE DIFFERENT THAN EXISTING BUSINESS OF OPERATING AND MAINTAINING POWER PLANTS. IT IS ADMITTED BY THE APPELLANT THAT I F THESE NEW PROJECTS WOULD HAVE MATERIALIZED, IT WOULD HAVE RESULTED IN CREATION OF NEW CAPITAL ASSETS. IN THE LIGHT OF THESE FACTS IT IS QUITE CLEAR THAT THESE EXPENSES ARE CAPITAL IN NATURE AND NOT REVENUE FOR RUNNING THE EXISTING BUSINESS. THE NOMENCLATURE OF EXPENSE IS NOT DECISIVE OF ITS NATURE WHETHER REVENUE OR CAPITAL. THE PURPOSES FOR WHICH THESE EXPENSES WERE INC URRED DECIDE THE NATURE AS REVENUE OR CAPITAL. IF THE EXPENSES ARE INCURRED FOR RUNNING THE BUSINESS AND ARE NOT CREATING ANY CAPITAL ASSET, THE SAME IS REVENUE IN NATURE BUT IF THE SAME EXPENSE IS NOT FOR RUNNING THE BUSINESS BUT FOR CREATING NEW ASSET OR FOR NEW PROJECTS, THESE EXPENSES ARE CAPITAL IN NATURE. CONSIDERING THIS, EXPENSES LIKE TRAVELLING, LEGAL AND PROFESSIONAL SERVICES ETC CAN BE BOTH REVENUE AND CAPITAL DEPENDING ON THE PURPOSE FOR WHICH THESE WERE INCURRED. IN THE CASE OF APPELLANT, EXPEN SES ON ACCOUNT OF PROFESSIONAL FEES AND CONSULTATION SERVICES WERE INCURRED FOR NEW PROJECT AND THEREFORE THESE EXPENSES ARE IN THE NATURE OF CAPITAL EXPENSES. IF THE NEW PROJECTS WOULD HAVE MATERIALIZED, THESE EXPENSES WOULD HAVE BEEN JPGRT OF COST OF NEW PROJECT. HOWEVER THE NEW PROJECT FOR WHICH THESE EXPENSES WERE INCURRED DID NOT MATERIALISE. THEREFORE THESE EXPENSES CANNOT BE CAPITALISED BUT THE NATURE OF THESE EXPENSES WILL NOT CHANGE. IT WILL STILL BE CAPITAL IN NATURE NOT ALLOWABLE UNDER SECTION 3 7 (1) OF IT ACT. ASSESSING OFFICER RELIED UPON SEVERAL DECISIONS INCLUDING FOLLOWING DECISIONS OF JURISDICTIONAL HIGH COURT DIRECTLY ON THE ISSUE - (I) CIT VS. AMBI CA MILLS LTD. 236 ITR 921 (GUJ) EXPENDITURE - GETTING FEASIBILITY REPORT FOR SETTING UP A NEW MINI STEEL PLANT - PROJECT DID NOT EVENTUALLY MATERIALIZE - THE FEES PAID TO THE CONSULTANTS WERE HELD TO BE A CAPITAL EXPENDITURE. (II) CIT VS. DIGVIJAY CEMENT CO. LTD 153 ITR 253 (GUJ.) EXPENDITURE FOR OBTAINING FEASIBILITY REPORT FOR DEVELOPING A SHIP BU ILDING YARD - EXPENSES NOT ELIGIBLE AS REVENUE EXPENDITURE (III) CIT VS. SLM MANEKLAL INDUSTRIES LTD, 107 ITR 133 (GUJ.) EXPENDITURE INCURRED TO OBTAIN AN EXPERT'S OPINION IN CONNECTION WITH ERECTION OF FOUNDRY TO MANUFACTURE RAW MATERIALS - HELD THAT T HE SAID EXPENDITURE WOULD BE CAPITAL IN NATURE - NOT ELIGIBLE U/S. 37 OF THE INCOME TAX ACT, 1961. THE ABOVE DECISIONS OF JURISDICTIONAL HIGH COURT ARE VERY CLEAR THAT EXPENSES INCURRED FOR NEW PROJECTARE_CG2ITALIN NATURE AND NOT ALLOWABLE AS REVENUE. APPE LLANT TRIED TO DISTINGUISH THESE DECISIONS BY SUBMITTING THAT IN ALL THESE CASES, THE NEW PROJECT WAS IN NEW LINE OF BUSINESS A ND HENCE EXPENSES WERE TREATED AS CAPITAL BY GUJARAT HIGH COURT. THIS IS WRONG ON THE PART OF APPELLANT FOR MAKING SUCH CLAIM BEC AUSE IN ALL THESE DECISIONS, THE NEW PROJECTS WERE IN THE SIMILAR LINE OF BUSINESS OR FOR SUPPORTING THE EXISTING BUSINESS BUT STILL SUCH EXPENSES WERE HELD TO BE CAPITAL IN NATURE BECAUSE THESE WERE RELATING TO NEW CAPITAL ASSET TO BE CREATED IN NEW PROJE CT. THE DISTINCTION OF EXISTING LINE OF BUSINESS OR NEW LINE OF BUSINESS IS NOT THERE IN SECTION 37 (1). ANY TYPE OF CAPITAL EXPENSE INCURRED FOR EXISTING BUSINESS OR NEW BUSINESS ARE NOT ALLOWABLE UNDER THIS SECTION. WHAT IS ALLOWABLE IS REVENUE EXPENSE I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. CAPITAL EXPENSES ARE SPECIFICALLY NOT ALLOWABLE UNDER SECTION 37 (1). FOR CLAIMING INTEREST UNDER SECTION 36 (1) (III), INTEREST ON CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE WHICH MEANS CAPITAL BORROWED FOR EXISTING BUSINESS I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 6 EVEN IF USED FOR NEW PROJECT IS ALLOWABLE. HOWEVER DEDUCTION UNDER SECTION 37 (1) IS ALLOWED ONLY IF EXPENSE IS IN THE NATURE OF REVENUE. IF THE EXPENSES ARE CAPITAL IN NATURE, THE DISTINCTION BETWEEN EXISTING O R NEW BUSINESS IS NOT RELEVANT. REVENUE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS ARE ALLOWABLE THEREFORE ANY REVENUE EXPENSE INCURRED FOR NEW BUSINESS IS ALLOWABLE ONLY AFTER NEW BUSINESS IS SET UP. BUT CAPITAL EXPENDITURE IS NOT AT ALL ALLOWABLE. THE APPELLANT'S CLAIM THAT EXPENDITURE ON NEW PROJECTS IS ALLOWABLE IF THE NEW PROJECT IS IN THE SAME LINE OF BUSINESS IS NOT UPHELD IN THE FOLLOWING DECISION - CIT VERSUS JK CHEMICALS LTD, 80 TAXMAN 19 (BOMBAY HIGH COURT) - HEAD NOTE IN THIS DECISION IS AS UND ER - 'SECTION 37(1) OF THE INCOME - TAX ACT, 1961 - BUSINESS EXPENDITURE - CAPITAL OR REVENUE EXPENDITURE - ASSESSEE - COMPANY, WHICH WAS ENGAGED IN BUSINESS OF MANUFACTURING FERTILIZERS, CONTEMPLATED TO SET UP A NEW UNIT OF SAME KIND OF MORE REFINED FERTILIZER - ASSESSEE OBTAINED A PROJECT REPORT AND A MARKET SURVEY IN CONNECTION WITH AFORESAID PROJECT AND INCURRED CERTAIN EXPENDITURE - WHETHER, AS PROJECT REPORT EXPENDITURE INCURRED BY ASSESSEE WAS IN ORDER TO DECIDE WHETHER TO ACQUIRE SOME PROFIT - MAKING ASSET FOR PURPOSE OF ITS BUSINESS, WHICH WOULD BE OF ENDURING NATURE, IT COULD BE SAID THAT EXPENDITURE WAS CAPITAL IN NATURE - HELD, YES' FROM THE ABOVE IT IS CLEAR THAT EVEN IF ASSESSEE'S NEW PROJECT IS IN THE SAME LINE OF BUSINESS, EXPENSES RELATING TO NEW P ROJECTS ARE CAPITAL IN NATURE AND NOT ALLOWABLE AS REVENUE. THIS DECISION CLEARLY GOES TO SHOW THAT APPELLANT'S CLAIM IS NOT JUSTIFIED. APART FROM THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER, GUJARAT HIGH COURT IN THE CASE OF ME GRAW RAVINDRA LABORA TORIES VERSUS CIT, 207 ITR 239 HELD THAT FOREIGN TRAVELLING EXPENSES OF THE GENERAL MANAGER IN CONNECTION WITH TH.E ESTABLISHMENT OF THE UNIT IN THE SAME LINE OF BUSINESS FOR NEW PRODUCT IS CAPITAL IN NATURE AND NOT ALLOWABLE AS REVENUE. JUST BECAUSE APPEL LANT'S PROJECTS ON WHICH EXPENSES WERE INCURRED DID NOT MATERIALISE, DOES NOT MEAN THAT NATURE OF EXPENSE WILL CHANGE. THIS VIEW IS CONFIRMED BY HONORABLE DELHI HIGH COURT IN THE CASE OF TRIVENI ENGINEERING WORKS LTD VERSUS CIT, 100 TAXMAN 19. THE RELEVANT HEAD NOTE IS QUOTED BELOW - 'SECTION 37(1) OF THE INCOME - TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABLE AS - ASSESSMENT YEAR 1971 - 72 - ASSESSEE SPENT SOME AMOUNT ON PROJECT REPORTS ON MANUFACTURING INSECTICIDE FORMULATION AND FOR SURVEY REPORT ON EXTRA M ELKRAL ALCOHOL - ASSESSEE'S CLAIM AS REVENUE EXPENDITURE WAS DISALLOWED AS PROJECT REPORTS DID NOT MATERIALISE AND AS THE EXPENDITURE WAS INCURRED WITH A VIEW TO MANUFACTURING NEW PRODUCTS - WHETHER EXPENDITURE WAS ATTRIBUTABLE TO CAPITAL HAVING BEEN INCURR ED WITH A VIEW TO BRINGING AN ASSET OR ADVANTAGE INTO EXISTENCE AND HAVING ENDURING BENEFIT - HELD, YES - WHETHER, MERELY BECAUSE PROJECT DID NOT MATERIALISE, NATURE OF EXPENDITURE WOULD NOT CHANGE TO REVENUE - YES' IN THE AFORESAID DECISION IT IS HELD BY HONOURABLE DELHI HIGH COURT THAT EXPENSES RELATING TO NEW PROJECT EVEN IF NOT MATERIALIZED WILL NOT BE ALLOWABLE AS REVENUE. IN THIS CASE ALSO, NEW PROJECT WAS IN THE SAME LINE OF BUSINESS WITH NEW PRODUCT BUT THE EXPENSE WAS HELD TO BE CAPITAL NATURE. IN THE CASE OF APPELLANT, THE EXISTING BUSINESS IS OPERATING AND MAINTAINING POWER PLANT. THE EXPENSES WERE INCURRED FOR ACQUISITION OR SETTING UP OF NEW POWER PLANTS WHICH ARE IN ANY CASE DIFFERENT THEN PRESENT LINE OF BUSINESS. SETTING UP OF POWER PLANT CAN NOT BE EQUATED WITH OPERATING AND MAINTAINING THE SAME. ASSESSEE'S EXISTING BUSINESS IS NOT OF SETTING UP OF NEW POWER PLANTS. THE OBJECT CLAUSE IN MEMORANDUM IS NOT RELEVANT SINCE ALL PROSPECTIVE AND POSSIBLE BUSINESSES ARE INCLUDED IN SUCH MEMORANDUM OF ASSOCIATION. WHAT IS MATERIAL IS THE EXISTING BUSINESS AND NOT PROPOSED BUSINESSES. SINCE THE EXPENDITURES WERE INCURRED FOR NEW PROJECTS WHICH ARE NOT FOR OPERATION I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 7 AND MAINTENANCE OF POWER PLANTS, THE NEW PROJECTS ARE NOT EXPANSION OF EXISTING BUSINESS. THEREFORE EVEN IF APPELLANT'S ARGUMENT OF TREATING EXPENSES OF NEW PROJECT IN SAME LINE OF BUSINESS AS REVENUE IS CONSIDERED, STILL APPELLANT'S CASE WILL NOT FALL IN THIS CATEGORY. APPELLANT'S FACTS ARE NOT SIMILAR TO ANY OF THE CASE CITED BY THE APPELLANT IN ITS FAVOR. AS AGAINST THIS, SEVERAL JURISDICTIONAL HIGH COURT DECISIONS ARE AGAINST THE APPELLANT'S CLAIM. THE DECISION OF BOMBAY HIGH COURT IS CATEGORICAL AS EVEN IN THE SAME LINE OF BUSINESS, THE EXPENSES RELATING TO NEW PROJECTS ARE NOT ALLOWABLE. C ONSIDERING ALL THESE FACTS AND JUDICIAL DECISIONS, I DO NOT FIND MERIT IN APPELLANT'S CLAIM AND THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. ANOTHER ARGUMENT OF THE APPELLANT IS THAT THE EXPENSE SHOULD BE ALLOWED AS BUSINESS LOSS UNDE R SECTION 28 SINCE THESE PROJECTS WERE IN THE NORMAL COURSE OF BUSINESS. THIS IS ALSO NOT CORRECT SINCE WHAT IS ALLOWABLE UNDER SECTION 28 IS LOSS INCIDENTAL TO THE RUNNING OF EXISTING BUSINESS. ANY EXPENSES INCURRED FOR SETTING UP OF NEW PROJECT FALL OUTS IDE THE NORMAL BUSINESS CARRIED ON BY THE APPELLANT AND THEREFORE THE SAME IS NOT ALLOWABLE UNDER SECTION 28 AS BUSINESS LOSS. THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF GMDC IS THEREFORE NOT APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. IN VIEW OF THIS, THIS ARGUMENT IS ALSO REJECTED. 6. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS SUBMITTED PAPER BOOK CONTAINING DETAIL OF SUBMISSION MADE BEFOR E T HE LD. CIT(A) AND COPY OF COMPUTATION OF TOTAL INCOME, AUDIT REPORT ET C. THE LD. COUNSEL HAS CONTENDED THAT EXPENDITURE PERTAINING TO ABANDONMENT OF PROJECT ARE REVENUE EXPENDITURE AS PROJECT WAS NOT COMPLETED BECAUSE IT WAS NOT FEASIBLE. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON T H E ORDER S OF TAX APPEAL NOS. 447 OF 2000 WITH 522 OF 2009 WITH 2033 OF 2009 DATED 09 - 12 - 2014 (GUJARAT HIGH COURT) DATED 19/12/2004 IN THE CASE OF DCIT VS GUJARAT NARMADA VELLEY FERTILIZERS CO. LTD. . ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THE NATURE OF EXPENDITURE I NCURRED BY THE ASSESSEE ON ABANDONMENT OF PROJECT IS OF THE NATURE OF CAPITAL EXPENDITURE AS THE EXPENDITURE WERE INCURRED FOR NEW LINE OF BUSINESS BY THE ASSESSEE. HE HAS ALSO PLACED RELIANCE ON THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD BOTH THE SID ES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE HAVE NOTICED THAT THE IDENTICAL ISSUE IN RESPECT OF ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 IN THE CASE OF THE ASSESSEE ITSELF HAS BEEN DECIDED BY THE CO - ORDINATE OF THE ITAT AGAINST THE ASSESSEE VIDE ITA 53 1 AND 3214/AHD/2011 ASSESSENT YEARS 2007 - 08 & 20 08 - 09 DATED21 - 02 - 2014. THE I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 8 RELEVANT PART OF FINDING OF THE CO - ORDINATE BENCH OF THE ITAT IS R EPRODUCED AS UNDER: - 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS PER AUDIT REPOR T, THE ASSESSEE IS ENGAGED INTER ALIA IN THE BUSINESS OF DEVELOPMENT OF POWER PROJECT AND OPERATION AND MAINTENANCE OF POWER PROJECT, WHEREAS LD. A.O. HAD OBSERVED THAT ASSESSEE HAD SHOWN INCOME FROM OPERATION AND MAINTENANCE FEES RECEIVED FROM M/S. GUJARA T PAGUATHAN ENERGY CORPORATION PVT. LTD., OTHER INCOME COMPRISING ON INTEREST AND DEPOSIT . IT APPEARS THAT ASSESSEE DEVELOPED POWER PROJECT AND OPERATED AND MAINTAINED ON BEHALF OF OTHERS. IT MEANS HE IS RENDERING SERVICES TO THE OWNER OF POWER PROJECTS. THE EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE VARIOUS HEADS ON NEW PROJECT. AS PER MEMORANDUM OF ASSOCIATION AND ARTICLE OF ASSOCIATION, THE ASSESSEE HAS VARIOUS MAIN OBJECTS BUT AS PER STATEMENT OF FACTS, THE ASSESSEE HAD PROVIDED SERVICES TO POWE R PLANT ON MOBILIZATION PHASE AND OPERATIONAL PHASE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD SUBMITTED BIDS TO BUILD, OPERATE AND MAINTAIN ITS OWN POWER PLANT AND THESE EXPENDITURES OF RS.4.75 CRORE AND RS.1.63 CRORE WERE INCURRED ON BIDDING FOR ULTRA MEGA POWER PROJECT, GUJARAT, GUJARAT IMPORTED COAL, MP DISTRIBUTION, PROJECT PRAKRITI MAHARASHTRA, PROJECT COBRA MAHARASHTRA, RAINBOW, SHIKARPUR WIND PROJECT, GUJARAT, PROJECT BLACKSTONE, HARYANA/MP, PROJECT NAGPUR DISTRIBUTION & RATAN W IND PROJECT RAJASTHAN, WHICH WERE ABANDONED AND HAD NOT MATERIALIZED. THUS, IT IS CLEAR FROM THE FACTS THAT ASSESSEE WAS RENDERING SERVICES FOR OPERATING AND MAINTAINING OF POWER PLANT BUT DURING THE YEAR, THE ASSESSEE WAS TO START ITS OWN POWER PLANT. T HE NEW PROJECTS WERE NOT EXPANSION OF EXISTING BUSINESS. EVEN IF, THE ASSESSEE S NEW PROJECTS ARE IN THE SAME LINE OF BUSINESS EXPENSES RELATING TO NEW PROJECTS ARE CAPITAL IN NATURE AND NOT ALLOWABLE AS REVENUE AS HELD BY THE HON BLE BOMABY HIGH COURT IN CASE OF J. K. CHEMICAL LTD. (SUPRA). THE CASE LAW CITED BY THE ASSESSEE IS NOT SQUARELY APPLICABLE ON IT BECAUSE THE ASSESSEE HAD INCURRED EXPENDITURE TO EXPAND THE SAME BUSINESS. THUS, WE CONFIRM THE ORDER OF THE CIT(A). THE ASSESSEE S APPEAL ON THIS GROUND IS DISMISSED. 8. WE HAVE FURTHER NOTICED THAT THAT THE F ACT S OF THE JUDICIAL PRONOUNCEMENT OF JUDICIAL HIGH C OURT IN THE CASE OF GUJARAT NARMADA VALLEY FERTILIZER S CO. LTD AS CITED SUPRA RELIED UPON BY THE LEARNED COUNSEL ARE DISTINGUISHABLE FROM T HE FACTS OF THE CASE OF THE ASSESSEE . IN THE AFORESAID CITED CASE THE SEAMLESS S TEE L T UBE P ROJECT WAS AN EXP ANSION OF THE EXISTING BUSINESS OF THE ASSESEE WHEREAS IN THE CASE OF THE ASSESSEE THE EXPENDITURE W ERE INCURRED ON THE NEW LINE OF BUSINE SS NAMELY DEVELOPMENT NEW P OWER P PROJECT. HOWEVER, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OPERATION AND MAINTENANCE OF POWER AND PLANT , THEREFORE, THE JU DICIAL PRONOUNCEMENT RELIED UPON IS NOT APPLICABLE TO THE CASE OF THE ASSESS EE. THEREFORE, R ESPE CTABLY FOLLOWING THE DECISION OF C O - ORDINATE BENCH OF THE ITAT AHMEDABAD, WE DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF THE LD. CIT(A). THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED . I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 9 9 . IN RESPECT OF G ROUND NO. 3 , REGARDING LEVY OF INTERES T U/S 234 D , W E DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL OF THE ASSESSEE AS LEVY OF INTEREST IS CONSEQUENTIAL AND MANDATORY AS PER LAW , THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 10 . GROUND NO. 4 AGAINST INITIATION OF PENALTY U/S. 271(1)(C) OF THE ACT IS PREMATURE AND THE SAME IS DISMISSED. 11. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - ITA NO. 759/AHD/2011 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REFUSING TO ADJUDICATE UPON GROUND NO. 1 OF THE APPELLANT'S APPEAL CHALLENGING THE VALIDITY OF THE ASSESSMENT ORDER IMPUGNED BEFORE HIM, ON THE GROUND THAT IT WAS GENERAL IN NATURE. 2.1 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LE ARNED CIT(A) HAS GROSSLY ERRED IN SUSTAINING DISALLOWANCE OF RS.3,98,124 OUT OF REPAIRS TO BUILDING .DEBITED TO THE APPELLANTS PROFIT AND LOSS ACCOUNT, MADE BY THE LEARNED ASSESSING OFFICER ON THE GROUND THAT IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. 2 .2 WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN OMITTING TO CONSIDER GROUND NO.2.2 OF THE APPELLANT'S APPEAL BEFORE HIM READING AS UNDER: '2.2 WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN NOT ALLOWING ANY DEDUCTION ON ACCOUNT OF DEPRECIATION ON THE AFORESAID AMOUNT OF RS.3,98,124 DISALLOWED BY HIM ON THE GROUND THAT THE EXPENDITURE WAS CAPITAL IN NATURE AND FOR WHICH REASON, THE DEDUCTION ON ACCOUNT OF DEPRECIATION THEREON WAS ALLOWABLE ON THE VERY STAND OF THE LEARNED ASSESSING OFFICER.' 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APP ELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION FOR EXPENDITURE OF RS.44,14,734 IN THE COMPUTATION OF THE APPELLANT'S INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' ON THE GROUND THAT IT W AS CAPITAL IN NATURE. 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED, EVEN WHILE ISSUING AN APPROPRIATE DIRECTION TO THE LEARNED ASSESSING OFFICER IN DISPOSAL OF GROUND NO. 4.1 OF THE APPEL LANT'S APPEAL BEFORE HIM, IN OMITTING TO CONSIDER GROUND NO. 4,2 OF THE APPELLANT'S APPEAL READING AS UNDER: '4.2 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED ASSESSING OFFICER HAS FURTHER GROSSLY ERRED IN NOT GRANTING I NTEREST U/S. 244A ON THE AMOUNT OF RS. 17,86,244 REFUNDABLE TO THE APPELLANT AS AFORESAID.' 5. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING GROUND NO. 5 OF THE APPELLANT'S APPEA L BEFORE HIM I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 10 READING AS UNDER ON THE GROUND THAT THE APPELLANT'S CHALLENGE AGAINST INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) WAS PREMATURE. 1 2 . GROUND NO. 1 IS GENERAL AND IT DOES NOT REQUIRE ANY ADJUDICATION AND THE SAME IS DISMISSED. GROUND NO. 2.1 AND 2.2 ARE INTER - CONNECTED SO THE SAME IS ADJUDICATION TOGETHER. GROUND NO. 2.1 TO 2.2 DISALLOWANCE OF RS. 398,124/ - OUT OF REPAIR ON BUILDING 1 3 . THE BRIEF FACT ON SCRUTINY , T H E ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS DEBITED EXPENDITURE I N RESPECT OF BUILDING TO THE AMOUNT OF RS. 11 , 98 , 471/ - FROM THE DETAILS SUBMITTED BY THE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT THE FOLLOWING EXPENSES OF RS. 389124/ - IS OF THE CAPITAL NATURE . S. NO. DESCRIPTION AMOUNT 1. GERMAN WOODEN FL OORING 'FLOOR LINE'AT 4B, AMARCHAND MANSION, MADAM CAMA ROAD, MUMBAT CARRIED OUT BY M/S. AMBTEEN AS PER CONTRACT AWARDED. IN RESPECT OF M.D.'S CABIN VIDE COMPANY'S LETTER DATED 26/07/2004 & PAYMENT MADE AS PER VOUCHER DATED 13/09/2007 RS. 2,29,424/ - 2. INTERIOR WORK IN RESPECT M.D.'S CABIN AWARDED TO RACHANA ENTERPRISE AS PER PAYMENT MADE ON DATED 05/08/2004 RS. 1,68,700/ - TOTAL 3,98,124/ - THE ASSESSING OFFICER STATED THAT THESE EXPENSES WERE INCURRED FOR INTERIOR WALLS AND FLOORING WORK IN RESPECT OF CABIN OF THE MANAGING DIRECTOR, THEREFORE , THE SAME WAS NOT CONSIDERED AS A CURRENT REPAIR. HE OBSERVED THAT THE NATURE OF EXPENDITURE IS OF CAPITAL EXPENDITURE WHICH WILL PROVIDE ENDURING BENEFIT TO T HE ASS ES SSEE , THEREFORE, THE SAME WAS DISAL LOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 11 14 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER BY OBSERVING AS UNDER: - 3.3. I HAVE CONSIDERED THE FACTS OF THE C ASE, ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT SPENT MONEY FOR WOODEN FLOORING AND INTERIOR WORK AND NOT REPAIRS OF THE EXISTING BUILDING OR FURNITURE. ASSESSING OFFICER ALSO RELIED UPON SEVERAL DECISIONS WHILE HOLDIN G THAT THE EXPENDITURE INCURRED IS NOT CURRENT REPAIRS AND THEREFORE NOT ALLOWABLE AS REVENUE EXPENSE. IT IS CLEAR THAT THE AMOUNT SPENT WILL HAVE ENDURING BENEFII AND THEREFORE THFE SAME CANNOT BE TREATED AS CURRENT REPAIRS. APPELLANT RELIED UPON CERTAIN DECISIONS OF VARIOUS COURTS WHEREIN RENEWAL AND REPLACEMENT WERE CONSIDERED AS REVENUE EXPENSE HOWEVER AN EXPLANATION IS INTRODUCED TO BOTH SECTION 30 AND 31 WITH EFFECT FROM 1 - 4 - 2004 THAT CURRENT REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. NONE OF THE DECISIONS RELIED UPON BY THE APPELLANT IS AFTER CONSIDERING THIS EXPLANATION. IN VIEW OF THIS, THESE DECISIONS ARE NOT RELEVANT TO THE FACTS OF THE APPELLANT'S CASE, IT IS NOT IN DISPUTE THAT THE EXPENDITURES ARE RESULTING IN IMPROVEMENT OF CAPITAL ASSET GIVING ENDURING BENEFIT. CONSIDERING THIS, SUCH EXPENSES WILL FALL OUTSIDE THE PURVIEW OF SECTION 30 AND 31. ACCORDINGLY THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 15 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE OBSERVE THAT T HE ASSESSEE HAS INCURRED EXPENSES ON INTERIOR WALLS AND FLOORING WORK IN RESPECT OF CABIN OF THE MANAGING DIRECTOR AND THE A SSESSEE DID NOT CARRY OUT ANY STRUCTURAL CHANGE IN BUILDING AND THESE SMALL QUANTUM OF EXPENDITURE WERE INCURRED IN ORDER TO MEET ITS BUSINESS REQUIREMENT OF KEEPING A GOOD STANDARD OFFICE . IN VIEW OF THE ABOVE AND AFTER TAKING INTO CONSIDERATION THE SMALL QUANTUM OF EXPENDITURE WE ALLOW THE APPEAL OF THE ASSESSEE. GROUND NO. 3 16 . T HE FACTS OF THIS GROUND OF APPEAL OF THE ASSESSEE ARE IDENTICAL TO THE GROUND NUMBER ONE THE ASSESSEE VID E ITA NO 1517 OF ASSESSMENT YEAR 2009 - 10 WHICH HAS BEEN ADJUDICATED AS SUPRA IN THIS ORDER. THEREFORE AFTER APPLYING THE FINDING OF THE ABOVE CASE T HIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO DISMISSED. GROUND NO. 4 . 17 . THIS GROUND OF APPEAL OF THE ASSESSEE IS PERTAINING TO GRANTING OF INTEREST UNDER SECTION 244A OF THE ACT. IN THIS CONNECTION WE DIRECT THE ASSESSING OFFICER I.T.A NO S . 759 /AHD/20 11 & 1517/AHD/2012 A.Y. 2005 - 06 & 2009 - 10 PAGE NO CLP POWER INDIA PVT. LTD. VS. ITO 12 TO VERIFY THE CLAIM OF THE ASSESSEE OF INTEREST ON RE FUND AND CONSIDERE THE SAME AS PART SECTION 244A OF THE ACT. THEREFORE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. GROUND NO. 5 18 . THIS I S GENERAL REGARDING INITIATION OF PENALTY, WE OBSER VE THIS GROUND OF APPEAL OF THE ASSESSEE IS PREMATURE AND THE SAME IS DISMISSED. 19 . IN THE RESULT , GROUND NUMBERS 1 TO 4 OF THE ASSESSEE OF I TA NO. 1517 /AHD/2011 ARE DISMISSED . IN RESPECT OF ITA NO. 759 /AHD/2012 GROUND NO S.1,3 & 5 ARE DISMISSED, GROUND NO. 2 IS ALLOWED AND GROUND NO.4 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN C OURT ON 23 - 03 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 23 /03 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,