M/s. Western UP Tollway Limited, Hyderabad V. Addl. CIT, Range - 3, Hyderabad

ITA 236/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7757 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA B
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Capital asset; Business expenditure; Competent authority; Revised return; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.236/HYD/12 : ASSESSMENT YEAR 2008 - 09 M/S. WESTERN UP TOLLWAY L TD., HYDERABAD (PAN AA A C W 6002 B ) V/S. ADDL. COMMISSIONER OF INCOME - TAX RANGE 3, HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.SIVA KUMAR RESPONDENT BY : S HRI RAMAKRISHNA B., DR DATE OF HEARING 1.12.2014 DATE OF PRONOUNCEMENT 10.12.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THIS APP E AL FIL E D BY THE ASSESSEE I S DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) IV, HYDERABAD D A TED 12 TH DECEMBER, 2011 . 2. GROUNDS NO.1 AND 7 RAISED BY THE ASSESSEE IN THIS APPEAL ARE GENERAL AND NEED NO SPECIFIC ADJUDICATION. 3 . GROUNDS N O.2 AND 3 INVOLVE A COMMON ISSUE REL A TING TO DISALLOWANCE OF RS.13,39,61,010 MADE BY TH E ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF INCIDENTAL EXPENDITURE IN C URRED BY THE ASSESSEE DURING THE CON STR U CT ION PERIOD TR E ATIN G TH E SAME AS PRE - OPERATIVE EXPENSES. 4. THE ASSESSEE IN THE PR E S E N T CA S E IS A COMPANY WHICH IS INCORPORATED WITH TH E MAIN OBJECT OF CARRYING ON THE BU S IN E SS OF INFRASTRU C TURE CON T RACT ON BUIL D, OPERATE AND TRANSFER BASI S . THE I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 2 RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS ORIGINALLY FIL E D BY IT ON 30.9.2008 DECLARIN G TOTAL IN C OM E OF RS .57,05,943. SUBSEQUENTLY A REVISED RETURN WAS FIL E D BY THE ASSESSEE ON 18.2.2009, WHEREIN A NEW CLAIM FOR DEDUCTION OF RS.13,39,61,010 WAS MADE ON ACCOUN T O F INCIDENTAL EXPENDITURE INCURRED DURING THE CONSTRUCTION PERIOD , THEREBY DECLARING A LOSS OF R S .12,82,68,227. DU R IN G T HE COURSE OF ASSESSMENT PROCEEDINGS THE SAID C L AIM MA D E IN THE REVISED RETURN WAS SUBSTANTIATED BY THE ASSESSEE BY MAKING THE FOLLO W IN G SUBMI S SION S VIDE LETTER DATED 7.10.2010 - 'THE COMPANY IS A SPECIAL PURPOSE VEHICLE INCORPORATED FOR EXECUTION OF ROAD PROJECT 'IMPROVEMENT; OPERATION AND MAINTENANCE. REHABILITATION AND STRENGTHENING OF EXISTING 2 - LANE ROAD AND WIDENING TO 4 - LANE DIVIDED HIGHWAY OF NH - 5B' IN THE STATE OF UTTAR PRADESH ON BUILD - OPERATE - TRANSFER BASIS. THE COMPANY HAS ENTERED INTO A 'CONCESSION AGREEMENT' WITH NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) WHICH SPECIFIED A THREE YEAR CONSTRUCTION PERIOD AND A SEVENTEEN YEARS OF OPERATION AND MAINTENANCE. THE 'APPOINTED DATE' AS PER THE AGREEMENT WITH NHAI IS 09.09.2005. REVENUE FROM OPERATIONS UNDER THE BOT CONTRACT IS VET TO BE RECEIVED. H OWEVER, THE ASSESSEE HAS BEEN INCURRING SUBSTANTIAL EXPENDITURE SINCE THE DATE IT EMBARKED UPON THE PROJECT. INITIALLY THE ASSESSEE WAS OF THE VIEW THAT THE EXPENDITURE DIRECTLY ATTRIBUTABLE TO ACQUISITION OF CAPITAL ASSETS AS WELL AS INCIDENTAL EXPENDITURE DURING THE CONSTRUCTION PERIOD CAN BE CAPITALIZED ONCE THE CONSTRUCT/ON IS COMPLETED AND THE COGNIZABLE REVENUE FROM OPERATIONS STARTS ACCRUING TO/IS RECEIVED BY THE ASSESSEE. HOWEVER, ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES O F THE CASE, AND AFTER DUE DELIBERATION, THE ASSESSEE FOUND THAT IN THE BUSINESS MODEL UNDER WHICH IT HAS BEEN OPERATING VIZ BOT CONTRACT INVOLVING IMPROVEMENT; OPERATION, MAINTENANCE ETC., OF AN EXISTING HIGHWAY I TS BUSINESS OPERATIONS COMMENCED AS S OON AS IT EMBARKED UPON THE PROJECT AND IT WOULD HAVE BEEN IN ORDER TO CLAIM THE REVENUE EXPENDITURE RIGHT FROM THE DATE THE BUSINESS OF THE SPV WAS SET UP 5. THE ASSESSING OFFICER DID NO T FIND MERIT IN THE SUBMI S SION S MADE BY THE ASSESSEE ON THIS ISSUE. HE NO T ED THAT THE ASSESSEE COMPANY HAS ENTERED INTO AN AGRE E MENT WITH NHAI, WHICH SPECIFIED A THREE Y E AR CON S TRUC T ION PERIOD AND A SEVENTEEN YEARS OF I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 3 OPERATION AND MAI N TENANCE. HE ALSO NOTED T H A T THE ASSESSEE AS PER THE SAID AGREEMENT, WAS ENTITLED TO L E VY A ND COLLECT FE E F R OM THE USERS OF THE PROJECT HIGHWAY ONLY AFTER BUILDING AT L E AST 50 KMS OF CONTINUOUS STRETCH OF THE PROJECT HIGHWAY, WHICH WAS TO B E CERTIFIED BY AN INDEPENDENT CONSU L TANCY FOLLOWED BY ISSUE OF COMPLETION CERTIFICATE. IN THIS REGARD, NO SUCH COMPLETION CERTIFICATE COULD B E FURNI S H E D BY THE ASSESSEE. ON THE OTHER HAND, TH E ASSESSEE VIDE LETTER DATED 8.10.2010 AGREED THAT THE REVENUE FROM OPERATION UNDER BOT CONTRACT WAS YET TO B E RECEIVED, AS THE CON S TRUC T ION WAS N O T YET COMPLET E D. KEEPING IN VIEW THIS FACTUAL POSITION, THE ASSESSING OFFICER HELD THAT THE BUSINESS OPERATIONS OF THE COMPANY WERE NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION AND SINCE THE PROJECT WAS IN PRE - OPERATIVE STAGE, THE ENTIRE INCIDENTAL EXPENDITURE OF RS.13,39,61,010 WAS REQUIRED TO B E CAPITALIZED, B E IN G PRE - OP E RATIVE EXPENDITURE. ACCOR D INGLY THE CLAIM O F THE ASSESSEE FOR DEDUC T ION OF RS.13,39,61,010 ON ACCOUNT O F INCIDENTAL EXPENDITURE IN C URRED DURING CONSTRUCTION PERIOD WAS DISALLOWED BY THE ASSES SING OFFICER IN THE ASSESSMENT COMPLET E D UNDER S.143(3 ) VIDE O R DER D A TED 16.10.2010. 6. AGAIN S T THE ORDER PASSED BY THE ASSESSING OFFICER UN D ER S.143(3) , AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A), DISPUTING INTER - ALIA THE DISAL LOWANCE MADE ON ACCOUNT OF INCIDENTAL EXPENDITURE INCURRED DURING TH E CON S TRUC T ION PERIOD. 7. BEFOR E THE LEARNED CIT(A), IT WAS SUBMITTED THAT THE ASSESSEE COMPANY, AS P E R THE CON TR ACT, WAS REQUIRED TO INCUR TWO TYPES OF EXPENDITURE - ( I) ON TH E CONSTRU CTION OF TH E HIGHWAY ; AND ( 2) ROUTINE ADMINI S TRATIVE EXPENDITURE, SUCH AS SALARIES, RENT, TRAVELLING, INSURANCE, INTEREST ETC. IT WAS SUBMITTED THAT THE FIRST TYPE OF EXPENDITURE GIVING ENDURING B E NEFIT TO THE ASSESSEE FOR A I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 4 PERIOD OF SEVENTEEN YEARS WAS TRE A TED AS CAPITAL, WH E R E AS THE OTHER TYPE OF EXPENDITURE REPRESENTING PURELY PERIOD COST WAS CL A IM E D AS REVENUE EXPENDITURE, BEIN G INCUR R ED TO MAINTAIN THE BU S IN ES S OF THE ASSESSEE CO M PANY. IT WAS BROUGHT TO THE NO T I C E O F THE LEARNED CIT(A) THAT TH E ASSESSEE COMPA N Y HAD CL A I M ED REIMBURSEMENT OF EXPENSES FOR THE UTILITIES AS P E R TH E AGREEMENT WITH NHAI AND THIS BY ITSELF CONSTITUTED COMMENCEMENT OF BUSINESS OPE R ATION S . R E LI A NCE IN SUPPORT OF THIS CONTENTION WAS PLACED IN T ER - ALIA BY THE ASSESSEE ON THE DECISION OF THE HON'BLE DELHI HIGH COU R T IN THE CASE OF CIT V/S. ESPN SOFTWARE (I NDIA ) PVT. LTD. ( 182 T A XMANN 452 ) . 8. THE SUBMISSION MADE BY THE ASSESSEE ON THIS ISSUE DID NOT FIND FAVOUR WITH TH E LEARNED CIT(A), WHO REJECTING THE SAME CON F IRM E D THE DISALLOWANCE M A DE BY TH E ASSESSING OFFICER ON AC C OUN T OF INCIDENTAL EXPENSES INCURRED BY THE ASSESSEE DURING THE CON S TRUC T ION PERIOD FOR THE FOLLO W IN G REASONS GIVEN IN PARAGRAPH 6 AND 6.1 OF THE IMPU G N E D ORDER - 6. I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. EVEN AS PER THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF CIT V/S. ESPN SOFTWARE INDIA P. LTD. (SUPRA), WHICH HAS BEEN CITED BY THE APPELLANT, A BUSINESS HAS SAID TO HAVE BEEN SET UP AS SOON THE ESSEN TIAL ACTIVITIES OF THE BUSINESS ARE STARTED. FOR EXAMPLE, IN THE CASE OF A NEW TRADER, PURCHASE OF STOCK IN TRADE WOULD INDICATE THAT THE BUSINESS HAD BEEN SET UP, EVEN THOUGH THERE MAY NOT BE ANY SALE. HERE, PURCHASE OF STOCK IN TRADE IS INDEED AN ESSENT IAL ACTIVITY OF THE BUSINESS. SIMILARLY, IN THE CASE OF MANUFACTURER, THE MANUFACTURE COMMENCES AS SOON AS THE ACTIVITY REQUIRED FOR MANUFACTURING IS UNDERTAKEN. IN FACT, FROM THE DECISIONS RELIED UPON BY THE LEARNED REPRESENTATIVE OF THE APPELLANT, IT DE FINITELY EMERGES THAT BUSINESS EXPENDITURE INCURRED AFTER THE BUSINESS IS SET UP MAY BE ALLOWED, EVEN IF IT IS INCURRED BEFORE THE BUSINESS HAS ACTUALLY COMMENCED. 6.1 HOWEVER, IF WE EXAMINE THE APPELLANTS CASE, IT IS CLEAR THAT THE APPELLANTS BUSINESS WAS CONSTRUCTION OF THE HIGHWAY AND EARNING INCOME BY OPERATING THE SAME. THE INCOME GENERATING SET UP IN THE APPELLANTS CASE, THEREFORE, CANNOT BE SAID AS SET UP, UNTIL AND UNLE SS THE VERY HIGHWAY I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 5 COMES INTO EXISTENCE. THEREFORE, THE ESSENTIAL ACTIVITY FOR SETTING UP THE APPELLANTS BUSINESS IS THE CONSTRUCTION OF THE HIGHWAY AND THE APPELLANTS BUSINESS CAN BE SAID AS SET UP ONLY AFTER THE REQUISITE COMPLETION CERTIFICATE IS O BTAINED BY IT. OBVIOUSLY, A HIGHWAY, WHICH IS A PUBLIC UTILITY, CANNOT BE PUT TO USE LEGALLY UNTIL THE SAME IS CERTIFIED AS FIT TO USE BY THE COMPETENT AUTHORITY. ANY REVENUES CAN START COMING IN FROM THE SAME ONLY WHEN A CERTIFIED HIGHWAY IS PUT TO ACT UAL USE. IN FACT EVEN IF THERE IS AN INTERREGNUM BETWEEN THE RECEIPT OF SUCH COMPLETION CERTIFICATE AND THE SUBSEQUENT ACTUAL USE OF THE HIGHWAY BY PLYING OF VEHICLES, THE BUSINESS OF THE APPELLANT CAN BE SAID TO HAVE BEEN SET UP FORM THE DATE OF OBTAININ G SUCH COMPLETION CERTIFICATE ITSELF. HOWEVER, TILL THE TIME SUCH COMPLETION CERTIFICATE IS RECEIVED, IT CANNOT BE ENVISAGED WHETHER THE HIGHWAY WILL BE FINALLY FOUND FIT FOR PUBLIC USE. THEREFORE, I AM OF THE OPINION THAT THE APPELLANTS BUSINESS COULD N OT HAVE BEEN SAID AS SET UP TILL THE RECEIPT OF COMPLETION CERTIFICATE IN RESPECT OF THE HIGHWAY AND THE ESSENTIAL ACTIVITY IN ITS CASE CANNOT BE SAID AS STARTED UNLESS THE SAME IS READY FOR GENERATING INCOME. UNDER THESE CIRCUMSTANCES, THE APPELLANT, BE ING IN PRE - OP E R A TIVE STAGE ITSELF, COULD NO T H A VE BEEN CLAIM E D THE INCIDENTAL EXPENDITURE OF RS.13,39,61,010/ - AS A DEDUC T ION DURING THE Y E AR, AS I T WAS INDEED IN THE NATURE OF CAPITAL EXPENDITURE. UPHOL D ING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER THER E F O RE, THE G R OUND NO.2 IS DECIDED AGAINS T THE APPELLANT. 9. THE LEARNED COUNSEL FOR THE ASSESSEE, AT TH E TIM E OF H E ARING BEFORE US, MAINLY REITERATED THE SUBMI S SION S MADE BEFORE THE AUTHO R ITI E S BELOW IN SUP P O R T O F TH E ASSESSEE S CA S E ON THIS ISSUE. HE CONTENDED THAT WHAT W A S RELEVANT TO CON S I D ER THE CLAIM O F TH E ASSESSEE FOR DEDUC T ION ON ACCOUNT OF INCI D ENTAL EXPENSES INCURRED DURING TH E CON S TRUC T ION PERIOD WAS THE SETTING UP OF THE BU S IN E SS AND N O T T HE COMMEN C EMENT OF THE BUSINESS. HE CONTENDED THAT AS SOON AS THE ACTIVITY, WHICH I S ESSENTIAL IN THE COURSE OF CARRYING ON THE BU S I N ESS, WAS STARTED, THE BU S IN E SS HAS BEEN SET UP. I N SUPPORT OF THIS CON TENT IO N , HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH C OU R T IN THE CASE OF ESP N SOFTWARE (INDIA) P. LTD. (SUPRA) , WH E REIN IT WAS HELD BY THE HONBLE DELHI HIGH COU R T THAT THE ASSESSEE HAVING OBTAINED THE LICENCE TO DISTRIBUTE CHANNEL SERVI C ES, IT WAS IN A POSITION TO COMMENCE THE BUSINESS AND THE I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 6 BUSINESS ITSELF HA D BE E N SET UP WI TH THE FIRST STEP HAVING BEEN ALREADY TAKEN BY TH E ASSESSEE , BY OBTAINING THE REQUIRED LICENCE. HE CONTENDED THAT THE CON S TRUC T ION OF HIGHWAY WAS THE FIRST ACTIVITY UNDERTAKEN BY THE ASSESSEE TO CARRY ON ITS BU S IN E SS AND SIN C E THE SAME WAS DULY COMMENCED DURING THE Y E AR UNDER CON S I D ERATION, THE BU S IN E SS OF THE ASSESSEE WAS ALRE A DY SET UP MAKING IT ELIGIBLE TO CL A IM DEDUCTION ON ACCOUNT OF INCIDENTAL EXPEN S ES INCURRED DURING TH E CON S TRUC T ION PERIOD, BEIN G REVENUE IN NATURE. IN SUPPORT OF THE STAND OF THE ASSESSEE ON THIS ISSUE, THE LEARNED COUNSEL OR THE ASSESSEE ALSO RELIED ON THE FOLLO W IN G DECISIONS - ( A ) DECCAN GOLDMINE LTD. V/S. ACIT(31 TAXMANN.COM.279) - MUM.TRIB. ( B ) DHOOMKETU BUILDERS & D EVELOPMENT (P) LTD. V/S. ACIT (17 TA X MAN.COM 367 ) - DEL DT.30.11.2011 ( C ) CIT V/S. LG ELECTRONIC (INDIA) LTD. (149 TAXMAN 166) - DEL. DT.5.5.2005 ( D ) CIT VS., MFAR CONSTRUCTIONS L TD. (ITA NO.2860/2005 DATED 27.9.2010) - KAR. HC ( E ) SARDAR SAROVAR NARMADA NIGAM L TD. V/S. ACIT (25 TAXMANN.COM.198 ) - AHD(SB)) 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE , ON TH E O T H E R HAND, STR O NG L Y RELIED ON TH E IMPU G N ED ORDER O F THE LEARNED CIT(A) IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE INVITED O U R ATTENTION TO THE RELE V ANT OBSERVATION S RECORDED BY THE LEARNED CIT(A) IN THI S REGARD IN PARAGRA PHS 6 AND 6.1 OF HIS IMPU G N E D ORDER AND CONTENDED THAT THE SAME ARE SUFFICIENT TO SHOW THAT THE BU S IN ES S O F THE ASSESSEE WAS NO T EVEN SET UP DURING THE Y E AR UNDER CON S ID E RATION, GOING BY THE NATURE OF ITS BU S IN E SS. HE CONTENDED THAT THE ROAD OR NATIONAL HIGHWAY IS A PROFIT MAKING APPARATUS , GOI N G BY THE NATURE OF THE BU S IN E SS OF THE ASSESSEE CO M P A NY, AND I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 7 SIN C E THE SAID APPARATUS WAS NO T READY DURING THE Y E AR UNDER CONSIDERATION , THE ASSESSEE CANNOT B E SAID TO HA VE SET UP ITS BUSINESS, AS RIGHTLY H E LD BY THE LEARNED CIT(A). H E CONTENDED THAT THE RECEIPT FROM TOLL CON S T ITU T E D OPERATIONAL I N COM E OF THE ASSESSEE , AND SIN C E THE ASSESSEE COMPANY WAS NOT IN A POSITION TO GENERATE SUCH INCOME FOR WANT OF COMPLETION OF H IGHWAY, IT IS NO T A CA S E O F BUSINESS HAVING BEEN SET UP BY THE ASSESSEE. HE SUBMITTED T H A T NO INCOME F R OM BUSINESS OP E RA T ION WAS EARNED BY THE ASSESSEE DURING THE Y EA R UNDER CONSIDERATION AND WHATEVER IN C OM E WAS E A RNED BY THE ASSESSEE, IT WAS IN THE FORM OF INTEREST ETC., WHICH W AS DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME F R OM OTHER SOU R CES . AS REGARDS THE RELIANCE PLACED BY THE LEARNED COUNSEL FO R T H E ASSESSEE ON VARIOUS JU D I C I A L PRO N OUNC E MENT S , THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE SAME ARE DISTINGUISHABLE ON FACTS AS RIGHTLY POINTED OUT BY THE LEARNED CIT(A) IN THE IM P U G N E D ORDER. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS WELL SETTLED THAT THE DATE OF SETTING UP OF A BU S IN E SS IS DIFFERENT F R OM THE DATE OF COMMENCEMENT OF BU S IN E SS, AND AS HELD IN TH E VARIOUS JU DI CIAL PRONOUNCEMENTS INCLUDING TH E CA S E - LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, ONCE THE BUSIN E SS IS SET UP, THE ASSESSEE IS ENTITLED FOR DEDU CT ION ON ACCOUNT OF EXPENSES INCURRED WHOLLY A ND NECESSARILY FOR THE PU R PO S E OF BUSIN E SS WHICH ARE REVE N UE IN NATURE. TH E QUESTION THAT IS RELEVANT FOR A LLOWIN G THE CLAIM O F TH E ASSESSEE FOR DEDUCTION ON AC C OUN T OF BU S IN E SS EXPENDITURE OF REVENUE NATURE, IS WH E TH E R THE BUSINESS IS SET UP BY THE ASSESSEE. THIS QUESTION IS PURELY A FACTUAL ONE AND THE DETERMINATION OF THE D A TE OF SETTING UP OF THE BU S IN E SS DEPENDS ON THE FACTS OF EACH CA S E AND TH E N A TURE OF BUSINESS THE ASSE SSEE IS INTENDING TO CARRY ON. I N I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 8 THE PR E SEN T CA S E, THE BU S IN E SS WHICH IS INTENDED TO BE CARRIED ON BY THE ASSESSEE IS TO BUILD OR CONSTRUCT THE ROAD/HIGHWAY , OP E RATE AND TRANSFER THE SAME. THE PERIOD STIPULATED FOR CONSTRUCTION OF A ROAD WAS THREE YE A RS, AND AFTER COMPLETION OF TH E CONSTRUC T ION OF THE ROAD, THE ASSESSEE WAS ENTITLED TO COLLECT TOLL FOR A PERIOD O F NEXT SEVENTEEN Y EA RS. THE REVENUE GENERATING ACTIVITY OF THE ASSESSEE THUS WAS TO START ONLY AFTER THE COMPLETION OF THE CON S TRUC T ION OF THE R OAD, A N D THE CON S TRUC T ION OF TH E ROAD BEING THE B A SIC SET UP O R THE PROFIT MAKING APPARATUS OF THE BUSINESS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE BUSINESS OF THE ASSESSEE CANNO T B E SAID TO HAVE BEEN SET UP UNLESS AND UNTIL THE CON S TRUC T ION OF ROAD IS COMP L ETE. IT IS NOT IN DISPUTE THAT THE CON S TRUC T ION OF ROAD WAS NO T COMPL E TED DURING THE Y E AR UNDER CONSIDERATION , AND THE ASSESSEE THUS WAS NOT IN A POSITION EVEN TO COMMENCE ITS BUSINESS BY GENERATING OP E RATIONAL IN C OM E IN TH E FORM OF COLL E C T ION OF TOLL FROM TH E USERS OF THE ROAD. IN OUR OPINION, THE LEARNED CIT(A) HAS PROPERLY APPRECIATED THE L E GAL PO S I T ION ON THIS ISSUE AS PROPOUNDED IN THE VARIOUS JU D ICI A L PRONOUNCEMENTS IN C LU D ING THE ONES CITED ON BEHALF O F THE ASSESSEE BEFORE HIM AND AFTER AP PLYING TH E SAID L E GAL POSITION TO THE FACTS OF THE ASSESSEE S CASE, IN C LU D IN G THE EXACT NATURE OF THE BU S IN E SS THE ASSESSEE INTENDED TO CA R RY ON, HE HAS COME TO A CORRECT CON C LU S ION THAT THE BU S IN E SS OF TH E ASSESSEE HAVING NO T BEEN SET UP DURIN G THE Y E AR UN D ER CONSIDERATION , THE INCIDENTAL EXPENDITURE INCURRED DURING TH E CON S TRUC T ION PERIOD WERE LIABLE TO B E CAPI T A L ISED AS PRE - OPERATIVE E X PEN S ES. 12. AS REGARDS THE CA S E LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THE RATIO LAID DOW N THEREIN DOES NOT SUPPORT THE CA S E OF THE ASSESSEE. FOR INSTANCE IN THE CASE OF DECCAN GOLDMINE L TD. V/S. ACIT (SUPRA), THE ASSESSEE INTENDING TO CARRY ON THE BU S IN E SS OF EXPLORATION HAD PROCURED MACHINERY, RECRUITED I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 9 PERSONNEL AND OBTAINED PER M IT ALSO A ND IN THESE FACTS AND CIR C UM S TANCES OF THE CASE, IT WAS HELD BY THE MUMBAI BENCH OF THE TRIBUNAL THAT THE BU S IN E SS OF EXPLO R ATION COULD B E SAID TO HAVE BEEN SET UP BY THE ASSESSEE, EVEN THOUGH TH E COMM E RCIAL PRODUCTION HA D NO T COMMENC E D. 13. IN THE C A S E OF ESPN SOFTWA R E INDIA (P) LTD. (SUPRA), THE BUSIN E SS INTENDED TO B E CARRIED ON BY THE ASSESSEE WAS DISTRIBUTION O F PROGRAMMES IN INDIA VIA CABLE TELEVISION SYSTEM AND SIN C E THE REQUIRED LICENCES FOR SUCH DISTRIBUTION W ERE ALREADY OBTAINED BY IT ON 15.8. 1995, HON B LE DELHI HIGH COURT HELD THAT THE BU S IN E SS OF TH E ASSESSEE WAS SET UP ON 15.8.1995 ITSELF, WHEN IT AC Q UIRED THE LIC E NCES. 14. IN THE C A S E OF MFAR CON S TRUCTION S LTD. (SUPRA), I T WAS HELD BY THE HON'BLE KARNATAKA HIGH COU R T THAT THE REL E VANT FAC T THAT H A S TO BE TAKEN INTO ACCOUNT IN THI S C ON TEXT IS THE BASIC STRUCTURE OF THE BU S IN E SS THE ASSESSEE WAS IN T ENDING TO DO AND SET TING UP OF A BU S I N ESS MAY REQUIRE SEVERAL FACTORS LIKE IN VE STMENT IN BUILDING AND OTHER P E RMA N ENT STRUCTURES, WHICH CANNO T B E INTEGRAL PART OF A BUSIN ES S THOUGH IT CO U LD BE IN C IDENTAL PART OF BU S IN E SS. 15. AS ALREADY OBSERVED BY US, THE CONSTRUCTION OF ROAD, BEING THE PROFIT MAKING APPARATUS OF THE ASSESSEE , WAS A PART OF SETTING UP OF ITS BUSINESS, AN D UNLESS AND UNTIL THE CONSTRUCTION OF ROAD IS COMPLETED, IT CANNOT BE SAID THAT THE ASSESSEE HAS SET UP ITS BUSINESS. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE RELEVANT JUDICIAL PRONOUNCEMENTS, WE ARE OF THE VIEW THAT IN THE ABSENCE OF COMPLETION OF THE ROAD DURING THE YEAR UNDER CONSIDERATION, THE BUSINESS OF THE ASSESSEE COMPANY WAS NOT SET UP AND THE INCIDENTAL EXPENDITURE INCURRED BY I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 10 IT DURING THE YEAR UNDER CONSIDERATION WERE LIABLE TO BE TREATED AS CAPI TAL IN NATURE, BEING PRE - OPERATIVE EXPENSES, AS RIGHTLY HELD BY THE LEARNED CIT(A). IN THAT VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DISMISS GROUNDS NO.2 AND 3 OF THE ASSESSEES APPEAL. 16. A S REGARDS THE ISSUES I NVOLVED IN GROUN DS NO.4 TO 6 RELATING TO DISALLOWANCE OF R S .2 LAKH S MADE ON ACCOUNT O F DONATION AND DISALLOWANCE OF RS 1,98,689 MADE UNDER S.40A(IA), THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT BOTH THESE AMOUNTS HAVING BEEN I N CLU D ED IN THE IN C I D ENTAL EXPENSE INCURRED DURING THE CON S TRUC T ION PERIOD, SEPARATE DISALLOWANCE OF THESE AMOUNTS HAS RESULTED IN DOUBLE ADDITION. AS THIS POSITION CLEARLY EVIDENT FROM THE RELEVANT DETAILS FURNISHED BY THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN DISP UT E D EVEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE , WE ACCEPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DISALLOWANCE OF TH E SE AMOUNTS SEPARATELY H A S RESULTED IN DOUBLE ADDITION. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELETE THE SAME AND ALLOW GROUNDS NO.4 TO 6 OF THE ASSESSEE S APPEAL. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 10 TH DECEMBER, 2014 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 10 TH DECEMBER, 2014 I TA NO. 236/H YD/20 12 M/S. WESTERN UP TOLLWAY LTD. HYDERABAD 11 COPY FORWARDED TO: 1. M/S. WESTERN UP TOLLWAY LTD., VITH FLOOR, NCC HOUSE, MADHAPUR, HYDERABAD 500 081 2 . ADDL. COMMISSIONER OF INCOME - TAX RANGE 3, HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) IV HYDERABAD 4. COMMISSIONER OF INCOME - TAX V, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S