Shalivahana Green Energy Ltd., Sec'bad, Hyderabad V. DCIT, Circle-3(1), Hyderabad, Hyderabad

ITA 267/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5972 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 01-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2015
• Court: TRIBUNAL
• Department Lawyers: B V GOPINATH
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 2 6 7 /H YD /201 5 ASSESSMENT YEAR : 2010 - 11 S HALIVAHANA GREEN ENERGY LTD., SECUNDER ABAD [PAN: A A L CS2271B ] VS DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE - 3 ( 1 ) , HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S . RAMA RAO , AR FOR REVENUE : S HRI B.V. GOPINATH, DR DATE OF HEARING : 01 - 0 3 - 201 6 DATE OF PRONOUNCEMENT : 04 - 0 3 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M : TH IS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX - 3 , HYDERABAD, DATED 27 - 0 1 - 201 5 . ASSESSEE IS CHALLENGING THE JURISDICTION U/S. 263 OF THE INCOME TAX ACT [ACT] BOTH ON FACTS AND ON LAW. 2. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS OF POWER GENERATION AND SALE OF ENERGY. FOR THE IMPUGNED ASSESSMENT YEAR ASSESSEE FILED RETURN OF INCOME ADMITTING TOTAL INCOME AT NIL UNDER NORMAL PROVISIONS AND BOOK PROFITS U/S. 115JB AT RS. 25,17,642/ - . THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S. 143(3) DT. 25 - 03 - 2013 I.T.A. NO. 2 6 7 / HYD / 201 5 S HALIVAHANA GREEN ENERGY LTD., : - 2 - : ASSESSING TOTAL INCOME AT RS. 29,39,996/ - BY MAKING ADDITION S U/S. 14A ETC., 3. LD. CIT NOTICED THAT THE AO HAS NOT EXAMINED MANY I SSUES AND INVOKED JURISDICTION U/S. 263 AND ISSUED A SHOW CAUSE NOTICE DT. 28 - 12 - 2014 ON THE FOLLOWING REASONS: I. THE EXPENSES CLAIMED FOR SHARE ISSUE EXPENS ES AMOUNTING TO RS. 28,51,436/ - , SINCE ANY EXPENDITURE INCURRED FOR INCREASING OF SHARE CAPITAL IS E SSENTIALLY THE CAPITAL IN NATURE, THE SAME CANNOT BE ALLOWED AS A DEDUCTION FOR COMPUTATION IN NATURE, THE SAME CANNOT BE ALLOWED AS A DEDUCTION FOR COMPUTATION OF INCOME AS IT IS A CAPITAL EXPENDITURE. THE SAME WAS UPHELD BY THE HON'BLE COURTS IN THE FOL LOWING CASES: A) PUNJAB STATE INDUSTRIAL CORPORATION LTD VS. CIT [225 ITR 792 (SC)]; B) BROOK BOND INDIA LIMITED VS. CIT [225 ITR 790 (SC)] II. A FURTHER CLAIM OF AN AMOUNT OF RS. 6,06,650/ - TOWARDS RATING FEE WHICH WAS PAID TO CRISIL FOR OBTAINING THE RATING IN THE CAPITAL MARKETS. SINCE THIS EXPENDITURE IS ALSO ESSENTIALLY INCURRED FOR THE PURPOSES OF ELICITING MORE ATTENTION AND INTEREST FROM THE PUBLIC FOR SUBSCRIBING TO THE SHARE CAPITAL, ALSO REQUIRE TO BE DISALLOWED AND ADDED BACK AND OF ENDURING BENEFI T. III. THE EXCESS CLAIM OF DEPRECIATION TO AN EXTENT OF RS. 1,31,92,401/ - HAS TO BE DISALLOWED, SINCE AS PER DEPRECIATION STATEMENT, THE WRITTEN DOWN VALUE OF THE ASSET WAS WRONGLY BROUGHT FORWARD. I.T.A. NO. 2 6 7 / HYD / 201 5 S HALIVAHANA GREEN ENERGY LTD., : - 3 - : 4. BEFORE LD. CIT, ASSESSEE FILED DETAILED OBJECTIONS AND SUB MITTED AS UNDER: (1) THE HON'BLE COMMISSIONER OF INCOME - TAX IS OF THE VIEW THAT THE EXPENSES CLAIMED FOR SHARE ISSUE AMOUNTING TO RS.28,51,436/ - WAS CLAIMED AS A DEDUCTION AND IS ALLOWED BY THE ASSESSING OFFICER. THE HON'BLE CIT IS OF THE VIEW THAT THI S AMOUNT IS NOT ALLOWABLE AND SHOULD HAVE BEEN ADDED. IN THIS REGARD IT IS HUMBLY SUBMITTED THAT THE ENTIRE AMOUNT OF RS.28,51,436/ - DOES NOT REPRESENT SHARE ISSUE EXPENSES. THE SHARE ISSUE EXPENSES AMOUNT ONLY TO RS.23,25,000/ - . THE ASSESSEE ALREADY DISALLOWED RS.24,49,744/ - INCLUDING THE AMOUNT OF RS.23,25,000/ - . THE ASSESSEE IS SUBMITTING THE DETAILS OF THE RATES, TAXES, DUTIES AND LICENCES. IT CAN BE SEEN THERE FROM THAT THE AMOUNT PAID TOWARDS STAMP FEE AND ROC FEE FOR INCREASING THE AUTHORIZED CAPITAL IS ONLY RS.23,25,000 / - AND THE ASSESSEE ALREADY DISALLOWED THE SAME WHILE FILING THE RETURN OF INCOME. THE ASSESSEE IS SUBMITTING THE COMPUTATION STATEMENT SHOWING THAT THE SAID SUM IS DISALLOWED. THEREFORE, IT IS NOT CORRECT TO M ENTION THAT THE SHARE ISSUE EXPENSES WERE ALLOWED WHILE COMPLETING THE ASSESSMENT. (2) THE SECOND ITEM IS WITH REGARD TO THE CLAIM OF RS.6,06,650/ - TOWARDS RATING FEE PAID BY THE ASSESSEE TO CRISIL. ACCORDING TO THE HONBLE CIT THIS AMOUNT REPRESENTS CAP ITAL EXPENDITURE AND IS NOT ALLOWABLE AS A DEDUCTION. IN THIS REGARD IT IS HUMBLY SUBMITTED THAT THE AMOUNT PAID IS NOT CAPITAL IN NATURE AS THE ASSESSEE DID NOT DERIVE ANY ADVANTAGE OF ENDURING NATURE. IT IS NOT USEFUL FOR APPLICATION FOR A LONG PERIOD OF TIME. THE HON'BLE COMMISSIONER OF INCOME - TAX IS OF THE VIEW THAT THE RATING IS OBTAINED FOR THE PURPOSE OF CAPITAL MARKETS. IT IS NOT CORRECT. THE RATING IS REQUIRED FOR THE PURPOSE OF OBTAINING LOANS FROM BANKS AND FINANCIAL INSTITUTIONS. THE AMOUNT PAID TOWARDS FEE TO CRISIL CANNOT, THEREFORE, BE CONSIDERED AS CAPITAL IN NATURE. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS INFOSYS TECHNOLOGIES LTD. REPORTED IN 349 ITR 582 HELD THAT THE EXPENDITURE INCURRED ON ACQUISITION OF ISO 9001 CERTIFICATE IS REVENUE EXPENDITURE. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS WMI CRANES LTD., REPORTED IN 326 ITR 523 HELD THAT THE EXPENDITURE INCURRED ON ISSUE OF BONUS SHARES HELD AS REVENUE EXPENDITURE. RELIANCE IS ALSO PLACED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS GUJARAT URJA VIKAS LTD., IN TAX APPEAL NO.820 OF 2014 VIDE ORDER DATED 26.8.2014 (COPY SUBMITTED). IT CAN BE SEEN THAT IN SO FAR AS THE ASSESSEE I S CONCERNED, IT DOES NOT GAIN ANY ADVANTAGE OF ENDURING NATURE. THEREFORE, IT IS HUMBLY SUBMITTED THAT THE EXPENDITURE WAS RIGHTLY ALLOWED AS REVENUE EXPENDITURE BY THE ASSESSING OFFICER. (3) THE THIRD ITEM OBSERVED BY THE HON'BLE CIT IS WITH REGARD TO THE CLAIM OF DEPRECIATION OF RS. 1,31,92,401 / - . ACCORDING TO THE HON'BLE CIT, THERE IS A MISTAKE THE FIGURES OF WDV BROUGHT FORWARD FROM THE EARLIER YEAR TO THE PRESENT YEAR. THE ASSESSEE IS SUBMITTING THE DETAILS OF THE I.T.A. NO. 2 6 7 / HYD / 201 5 S HALIVAHANA GREEN ENERGY LTD., : - 4 - : WDV AS ON 31.3.2009; THE ADDITIONS MADE DURING THE PREVIOUS YEAR UNDER CONSIDERATION AND THE TRANSFERS IF ANY MADE DURING THE YEAR. IT IS HUMBLY SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER. ACCORDING TO SEC.32(1)(I) OF THE LT. ACT, IN THE CASE O F THE ASSETS USED BY AN UNDERTAKING ENGAGED IN GENERATION AND DISTRIBUTION OF POWER THE DEPRECIATION IS ALLOWABLE ON THE ACTUAL COST THEREOF AND NOT ON WAV. THE ASSESSING OFFICER ALLOWED DEPRECIATION ON THE ACTUAL COST OF THE ASSET WITHOUT REFERENCE TO THE WDV OF THE PRECEDING YEAR. IT CAN BE SEEN FROM THE ASSESSMENT ORDERS OF THE EARLIER YEARS THAT THE ASSESSEE CLAIMED DEPRECIATION ON STRAIGHT LINE METHOD FOR THE EARLIER YEARS AND THE SAME WAS ALLOWED. THEREFORE, IT IS SUBMITTED THAT NO EXCESS DEPRECIATION WAS ALLO WED BY THE ASSESSING OFFICER. IN VIEW OF THE EXPLANATIONS THE ASSESSEE HUMBLY SUBMITS THAT THERE IS NEITHER AN ERROR IN THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFFICER U/S. 143(3) NOR THE ORDER CAN BE TERMED AS PREJUDICIAL TO THE INTERE ST OF REVENUE. THE PROVISIONS OF SEC.263 OF THE I.T.ACT HAVE NO APPLICATION. 5. LD. CIT WITHOUT EXAMINING THE CONTENTIONS AND D ISCUSSING THE SAME IN THE ORDER, SET ASIDE ASSESSMENT ORDER TO BE REDONE AFTER EXAMINING THE ABOVE ISSUES. 6. LD. COUNSEL S UBMITTED THAT THE ORDER OF CIT IS SILENT ON THE FACTUAL ASPECTS AND REFERRED TO THE DETAILED EXPLANATION FILED BEFORE THE LD. CIT. IT WAS ALSO SUBMITTED THAT ASSESS EE HAS ADDED BACK THE SHARE ISSUE EXPENSES AND SO THE ISSUE RAISED BY CIT DID NOT SURVIVE. ON THE ISSUE OF RATING FEE PAID TO CRISIL , IT WAS SU BMITTED THAT THE SAME WAS OF REVENUE NATURE. F URTHER, HE RELIED ON THE DECISIONS OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT URJA VIKAS LTD., IN ITA NO. 820/2014 DT. 26 - 08 - 2014 FOR TH E PROPOSITION THAT THE EXPENDITURE IS OF REVENUE NATURE. REGARDING THE DEPRECIATION CLAIM, IT WAS SUBMITTED THAT ASSESSEE IS CLAIMING DEPRECIATION IN STRAIGHT LINE METHOD ON THE ACTUAL COST AND THIS IS THE THIRD YEAR OF CLAIM AND SO THE CLAIM IS CORRECT LY MADE. HE REFERRED TO SIMILAR CLAIMS IN EARLIER YEARS. LD. COUNSEL ALSO I.T.A. NO. 2 6 7 / HYD / 201 5 S HALIVAHANA GREEN ENERGY LTD., : - 5 - : RELIED ON VARIOUS CAS E LAW TO SUBMIT THAT THE EXERCISE OF INVOKING JURISDICTION U/S. 263 BY LD. CIT IS BAD IN LAW. 7. LD. DR HOWEVER, DEFENDED THE ORDER AND REFERRED TO DEPRECIATIO N SCHEDULE FILED BY ASSESSEE TO STATE THAT THE WDV FIGURES ARE ADOPTED ON DRAFT BASIS. SO , CIT IS CORRECT IN INVOK ING JURISDICTION. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND DOCUMENTS PLACED ON RECORD. WE ARE SURPRISED TO NOTE THAT IN SPITE OF DE TAILED EXPLANATION GIVEN BY ASSESSEE (AS EXTRACTED ABOVE) ON FACTUAL ASPECT OF VARIOUS ISSUES, LD. CIT HAS NOT BOTHERED TO EX AMINE AND GIVE FINDINGS ON THEM ON HOW THE ORDER OF AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE. THERE IS NO NEED T O DELVE ON VARIOUS JUDICI AL PRINCIPLE S ON THE SUBJECT, ON THE SIMPLE REASON THAT THERE IS NO ERROR IN THE ORDER OF THE AO. ON ALL THE THREE ISSUES CONSIDERED BY THE LD. CIT, THERE IS NO ERROR OR MISTAKE WHICH REQUIRES ASSUM ING JURISDICTION U/S 263 OF THE IT ACT . AS FAR AS SHARE ISSUE EXPENSES ARE CONCERNED, THEY ARE ADDED BACK IN COMPUTATION BY ASSESSEE . THE FEE PAID FOR RATING THE COMPANY DOES NOT GIVE ANY ENDURING BENEFIT AND SO THE SAME IS REVENUE IN NATURE AND IS ALLOWABLE U/S. 37(1). AO HAS CORRECT LY ALLOWED IT, AS THE FEE IS AN ANNUAL FEE. VARIOUS CASE LAW RELIED ON BY ASSESSEE ALSO SUPPORT THE VIEW TAKEN BY AO. COMING TO DEPRECIATION, ASSESSEE HAS CORRECTLY CLAIMED THE DEPRECIATION ON STRAIGHT LINE METHOD ON THE ACTUAL COST INCURRED AS PER THE PROVISIONS OF LAW ALLOWED TO POWER COMPANIES AND THE SAME WAS ALLOWED IN SIMILAR MANNER IN EARLIER YEARS ALSO. HERE ALSO THERE IS NO MISTAKE OR ERROR. ASSESSEE HAS CORRECTLY CLAIMED THE AMOUNTS AND GAVE REASONS WHY THE PROCEEDINGS ARE BAD IN LAW BOTH ON F ACTS AND ON LAW. THAT MAY BE THE REASON WHY LD. CIT CHOOSES TO IGNORE THE DETAILED SUBMISSIONS AND HAS NOT DISCUSSED THE ISSUES AT ALL IN THE ORDER. IT WOULD HAVE BEEN BETTER IF LD. CIT HAS EXAMINED AND DROPPED THE PROCEEDINGS. AS WE DO NOT FIND THE ORD ER OF AO AS ERRONEOUS AND I.T.A. NO. 2 6 7 / HYD / 201 5 S HALIVAHANA GREEN ENERGY LTD., : - 6 - : PREJUDICIAL TO THE INTEREST OF REVENUE, RATHER THE ORDER OF LD. CIT IS ERRONEOUS BOTH ON FA C TS AND LAW, WE HAVE NO HESITATION IN SETTING ASIDE THE IMPUGNED ORDER OF LD. CIT AND RESTORING T HE ORDER PASSED BY THE AO U/S. 143(3) DT. 25 - 03 - 2013 . ASSESSEES GROUNDS ARE ALLOWED ACCORDINGLY. 9. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MARCH , 201 6 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOU NTANT MEMBER HYDERABAD, DATED 04 TH MARCH , 2016 TNMM COPY TO : 1. S HALIVAHANA GREEN ENERGY LTD., 7 TH FLOOR, MINERVA COMPLEX, 94, SD ROAD, SECUNDERABAD. C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CI R CLE - 3 ( 1 ), HYDERABAD. 3 . CIT - 3 , HYDERABAD. 4. D.R. ITAT, HYDERABAD. 5. GUARD FILE.