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

ITA 3214/AHD/2011

• Counselvise Citation: 321420514 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA SRDR; SHANKARLAL MEENA
• Keywords: Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 37(1); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMADABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' # ' # ' # ' # ITA NOS. 531 & 3214/AHD/2011 ASSESSMENT YEAR :2007-08 & 2008-09 CLP POWER INDIA PVT. LTD. 6 TH FLOOR, CHANAKYA BUILDING, OFF. ASHRAM ROAD, AHMADABAD-380009 CLP POWER INDIA PVT. LTD. 6 TH FLOOR, CHANAKYA BUILDING, OFF. ASHRAM ROAD, AHMADABAD-380009 V/S . ADD CIT, RANGE 1 AHMEDABAD DCIT (OSD), RANGE-1, AHMEDABAD. PAN NO. AAAC P6900B (APPELLANT) .. (RESPONDENT) $ % & / BY REVENUE SHRI SHANKARLAL MEENA & SHRI O. P. BATHEJA, SR. D.R. % & /BY ASSESSEE SHRI S. N. SOPARKAR & SHRI PARIN SHAH, A.R. '( % ! /DATE OF HEARING 20.12.2013 )*+ % ! /DATE OF PRONOUNCEMENT 21.02.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS FILED BY THE ASSESSEE, WHICH HAVE EMANATED FROM THE ORDER OF CIT(A)-VI, AHMEDABAD, DATED 16.12.2010 FOR ASSESSMENT YEARS 2007-2008 & 2008-09. BOTH APPEALS WERE HEARD TOGET HER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. THE EFFECTIVE GROUNDS OF BOTH CROSS APPEALS ARE AS UNDE R: ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 2 ITA NO. 531/AHD/2011 (A.Y. 2007-08) 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E 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 GR OUND 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 IN UPHOLDING T HE DISALLOWANCE OF DEDUCTION FOR EXPENDITURE OF RS.4,75,07,667 IN T HE COMPUTATION OF THE APPELLANT'S INCOME UNDER THE HEAD 'PROFITS A ND GAINS OF BUSINESS OR PROFESSION' ON THE GROUND THAT IT WAS C APITAL 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 G ROUND NO. 3 OF THE APPELLANT'S APPEAL BEFORE HIM BY OBSERVING THAT LEVY OF INTEREST UNDER SECTIONS 234A, 234B AND 234C HAD BEEN HELD BY THE SUPREME COURT AS MANDATORY IN ANJUM GHASWALA'S CASE . 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN REJECTING G ROUND NO. 4 OF THE APPELLANT'S APPEAL BEFORE HIM ON THE GROUND THA T THE APPELLANT'S CHALLENGE AGAINST INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) WAS PREMATURE. ITA NO. 3214/AHD/2011 (A.Y. 2008-09) 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E 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 GR OUND 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 IN UPHOLDING T HE DISALLOWANCE ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 3 OF DEDUCTION FOR EXPENDITURE (MADE BY THE LEARNED A SSESSING OFFICER BY FOLLOWING THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING A. Y. 2007-08) OF RS. 1,63,76,957 IN THE COMPUTATION OF THE APPELLANT'S INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION ON THE GROUND THAT IT WAS CA PITAL 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 G ROUND NO. 4 OF THE APPELLANT'S APPEAL BEFORE HIM BY OBSERVING THAT LEVY OF INTEREST UNDER SECTIONS 234A, 234B AND 234C 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 G ROUND NO. 5 OF THE APPELLANT'S APPEAL BEFORE HIM ON THE GROUND THA T THE APPELLANT'S CHALLENGE AGAINST INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) WAS PREMATURE. 2. GROUND NO.1 IN A.Y. 07-08 & 08-09 OF THE ASSESSE E IS AGAINST CHALLENGING THE VALIDITY OF THE ASSESSMENT ORDER WH ICH WAS HELD BY THE LD. CIT(A) IS GENERAL IN NATURE. THE FIRST GROUND IN B OTH THE YEARS AS PER FORM NO.35 FOR A.Y. 07-08, THE FIRST GROUND OF APPEAL IS AS UNDER: 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE IMPUGNED ORDER OF THE LD. ASSESSING OFFICER IS BAD IN LAW. THE IDENTICAL GROUND OF APPEAL WAS MADE IN A.Y. 08- 09. DURING THE COURSE OF HEARING, THE LD. COUNSEL HAD NOT POINTED OUT ANY DE FECT IN THE ASSESSMENT ORDER TO PROVE THE A.OS. ORDER IS BAD IN LAW. THE A.O. PASSED ORDER U/S. 143(3) ON 21.11.2009 IN A.Y. 07-08 AND ON 28.12.201 0 IN A.Y. 08-09. THERE IS NO REOPENING IN THIS CASE. IT IS FIRST SCRUTINY ASSESSMENT IN BOTH THE YEARS. THEREFORE, THIS GROUND OF APPEAL IN BOTH YEARS IS N OT MAINTAINABLE. ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 4 3. GROUND NO.2 IN A.Y. 07-08 IS AGAINST UPHOLDING T HE DISALLOWANCE OF DEDUCTION OF EXPENDITURE OF RS.4,75,07,667/- AND IN A.Y. 08-09 RS. 1,63,76,957/- ON THE GROUND THAT IT WAS CAPITAL EXP ENDITURE. THE A.O. OBSERVED IN A.Y. 07-08 THAT THE ASSESSEE IS ENGAGED IN INTER ALIA IN BUSINESS OF DEVELOPMENT OF POWER PROJECT AND OPERATION AND M AINTENANCE OF POWER PROJECT. PERUSAL OF THE P&L ACCOUNT REVEALS THAT T HE INCOME SHOWN IN ONLY IN RESPECT OF OPERATION AND MAINTENANCE FEES RECEIVED FROM M/S. GUJARAT PAGUATHAN ENERGY CORPORATION PVT. LTD. (GPEC) AND O THER INCOME COMPRISING OF INTEREST ON DEPOSITS. THE EXPENDITURE DEBITED TO P&L ACCOUNT COMPRISED OF EXPENSES PERTAINING TO THE CURRENT BUS INESS BEING CARRIED ON BY THE ASSESSEE OF OPERATING AND MAINTAINING THE POWE R PLANT OF GPEC AS WELL AS EXPENDITURE INCURRED IN RESPECT OF PROPOSED BUSI NESS OF DEVELOPMENT OF NEW POWER PLANTS. THE ASSESSEE HAD DEBITED EXPEND ITURE PERTAINING TO THE PROPOSED NEW POWER PROJECT UNDER THE EXPENSE HEADS (A) PROFESSIONAL FEES (B) TRAVELLING EXPENSES (C) TENDER EXPENSES. THE D ETAILS OF AMOUNTS DEBITED UNDER THESE HEADS PERTAINING TO THE NEW PROJECTS AR E AS UNDER: PROJECT NAME PROFESSIONAL FEES TRAVELLING EXPENSES TENDER EXPENSES TOTAL ULTRA MEGA- GUJARAT/MP 1,04,73,120 19,19,238 10,00,000 1,33,92,358 GUJARAT IMPORTED COAL 2,62,22,141 8,05,599 - 2,70,27,740 MP DISTRIBUTION - 80,045 - 80,045 PROJECT PRAKRITI- MAHARASHTRA 7,79,239 40,651 - 8,19,890 PROJECT COBRA- MAHARASHTRA/GUJA 48,58,926 8,28,707 5,00,000 61,87,633 TOTALS 4,23,33,427 36,74,240 15,00,000 4,75,07,667 ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 5 THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD , WHICH WAS AVAILED BY THE ASSESSEE VIDE LETTER DATED 14.11.2009, WHICH IS REPRODUCED AS UNDER: 2. IN THIS REGARD, IT IS SUBMITTED THAT ALL THE AF ORESAID ITEMS ARE BASICALLY OF REVENUE NATURE BEING LEGAL AND PROFESS IONAL FEES ETC.- THEY PERTAINED TO 5 PROJECTS WHICH ARE DETAILED UNDER SU B-HEADS (A) TO (E) OF THE AFORESAID ITEM NO. 14. IT MAY KINDLY BE APPRECIATED THAT THE AFORESAID PROFESSIONAL FEES FOR ALL THOSE 5 PROJECTS WERE INC URRED FOR OBTAINING AND PREPARING RELEVANT INFORMATION ARID DATA FOR CONSID ERING THE POSSIBILITY OF EXISTENCE OF THE FEASIBILITY OF THE RESPECTIVE PROJ ECTS FROM TECHNICAL AND ECONOMICAL ANGLES ETC. IT MAY BE MENTIONED THAT NON E OF THOSE FIVE PROJECTS HAD ACTUALLY MATERIALIZED DURING THE PREV IOUS YEAR. 3. THE 'ASSESSEE IS ENGAGED INTER ALIA IN THE BUSIN ESS OF DEVELOPMENT OF POWER PROJECTS AND OPERATIONS AND MAINTENANCE OF POWER PROJECTS.' VIDE REPLY AGAINST SIDE-HEAD NO. 8(A) OF THE STATUT ORY FORM NO.3CD FOR THE NATURE OF ASSESSEE'S BUSINESS AND VIDE REPLY TO SID E-HEAD NO.8(B) OF THAT FORM 3CD 'THERE IS NO CHANGE IN THE NATURE OF BUSIN ESS OF THE ASSESSEE AS COMPARED TO THAT PREVALENT IN THE IMMEDIATELY PR ECEDING PREVIOUS YEAR'. IT IS FURTHER SUBMITTED THAT AS PER THE MEMO RANDUM OF ASSOCIATION, ALREADY SUBMITTED, THE DEVELOPMENT OF POWER PROJECT S IS AMONG THE MAIN OBJECTS OF THE COMPANY. 4. OBVIOUSLY DEVELOPMENT OF POWER PROJECTS WAS ONE CF THE BUSINESSES OF THE ASSESSEE. IT IS SUBMITTED THAT SU CH POWER PROJECTS ARE HIGHLY CAPITAL INTENSIVE AND INVOLVE SOPHISTICATED TECHNOLOGY FOR WHICH GLOBAL TENDERS ARE GENERALLY FLOATED. CONSEQUENTLY STAKES INVOLVED ARE HIGH IN THE SENSE THAT ON SOME BID ETC. BEING SUCCE SSFUL THE CONSEQUENTIAL RECEIPTS WOULD BE HIGH AND CONVERSELY THE OUTLAY OF EXPENSES OF PROFESSIONAL FEES ETC. ARE ALSO HIGH. 5. THERE ARE SEVERAL DECISIONS IN FAVOR OF THE ASS ESSEE WHICH INCLUDES ONE RECENT GUJARAT HIGH COURT DECISION. A) CIT VS. GUJARAT MINERAL DEVELOPMENT CORPORATION TD. 314 ITR 322 (GUJ)] B) DCIT V. ASSAM ASBESTOS LTD 263 ITR 357 (GAUHATI) ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 6 6. EVEN AT THE COST OF REPETITION IT IS SUBMITTED THAT DURING THE YEAR THE COMPANY HAS INITIATED SEVERAL PROJECTS. THE DETAILE D NOTE ON EACH PROJECT AND ITS STATUS AND REASONS FOR SCRAPPING THE PROJEC T ARE AS FOLLOWS: A. ULTRA MEGA-GUJARAT/MP (1.34 CRORES) THE PROJECT WAS 4000 MW COAL PROJECT. THE COMPANY W AS QUALIFIED. FURTHER TO QUALIFICATION CLP WORKED FOR IDENTIFYING THE TECHNOLOGY PROVIDER SO THAT THE TECHNOLOGY TIE- UP PROJECT TO BE DONE AND THE PROJECT COST WAS ESTIMATED TO PA RTICIPATE IN BID. FURTHER THESE BEING IMPORTED COAL PROJECT T HE OPTION TO SOURCE THE COAL AND ENTER INTO LONG TERM CONTRAC T ON FIRM PRICE OF IMPORTED COAL WAS ALSO INVESTIGATED. DUE T O STIFF TIME LINE AND BID CONDITIONS, CLP IN THE INTERIM THOUGHT IT WILL NOT BEEN IN A POSITION TO MOVE FURTHER AND ABLE TO OFFE R BID PRICE AS PER SCHEDULE. HENCE IF WAS DECIDED NOT TO PURSUE FURTHER ON PROJECT. B. GUJARAT IMPORTED COAL (2.70CRORE) 1,400 MW COAL PROJECT. THE COMPANY WAS QUALIFIED, C LP WAS QUALIFIED FOR GUJARAT IMPORTED COAL BID AND PLA NNED TO BID BASED ON PROJECT TO DEVELOP AT TUNA IN KUTCH DI STRICT. TECHNOLOGY TIES UP WITH DOOSAN HEAVY ENGINEERING, K OREA WAS MADE AND OFFER RECEIVED AND SCRUTINIZED. TECHNI CAL CONSULTANT DCPL APPOINTED TO PREPARE DPR (DETAILED PROJECT REPORT) AND PROVIDE OTHER TECHNICAL CONSULT ANCY SERVICES. NIO (NATIONAL INSTITUTE OF OCEANOGRAPHY) HAVE CARRIED OUT MARINE BIOLOGICAL STUDIES. TCE (TATA CONSULTANCY ENGINEERING) HAS CARRIED OUT ENVIRONMENTAL STUDIES FOR THE PROJECT. LAND PARCELS WERE IDENTIFIED AND SOIL INVE STIGATION, CONTOUR SURVEY ETC CARRIED OUT. CONSULTANCY SUPPORT ALSO SOURCED IN AREA OF TAX, INSURANCE AND OTHER RELATED FINANCIAL MATTERS. DISCUSSION WITH SEVERAL BANKS HELD ON FEAS IBILITY OF FINANCING PROJECT AND OBTAINED TERM SHEET. WITH FUL L PREPARATION; CLP PUT UP BID FOR THIS PROJECT, HOWEV ER RESULT OF ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 7 BID SHOWN THE CLP WAS NOT SUCCESSFUL AND PROJECT AW ARDED TO ESSAR POWER. C. MP DISTRIBUTION (80 THOUSAND) STARTED BUT DECIDED NOT BID- STARTED WORK TO EXPLOR E THIS OPTION WITH AN EXTENSIVE SITE VISITS AND CARRIED OU T TO INVESTIGATION TO EVALUATE THE OPPORTUNITIES. CONSUL TANTS WERE USED TO PROVIDE SUPPORT AREA OF FINANCIAL MODELING ETC. DISCUSSIONS WITH BANKS WERE HELD FOR FINANCING THES E PROJECTS. INTERACTIONS WITH BID PROCESS COORDINATOR WERE HELD ON NUMBER OF BID RELATED ISSUES AND REQUEST FO R MODIFICATION, BID PROCESS COORDINATOR DID NOT AGREE FOR CERTAIN CHANGES AND WAS NOT WILLING TO PROVIDE SUFF ICIENT EXTENSION SO THAT CLP COULD FULLY EVALUATE AND PREP ARE FOR BID, AS A CONSEQUENCE OF THE SAME CLP DECIDED NOT T O PURSUE FURTHER. D. PROJECT PRAKRITI-MAHARASHTRA (8.20 LACS) IN THIS; THERE ARE 2 KINDS OF PROJECTS - TWO PROJEC TS IN RAJASTHAN USING BIOMASS AS FUEL AND ONE IN MAHARASH TRA USING BIOGASES AS FUEL FOR POWER GENERATION. IN CAS E OF RAJASTHAN PROJECTS EFFORT TO GET TO LAND THAT WILL HAVE SUFFICIENT WAFER ARRANGEMENT WAS UNSUCCESSFUL. EVEN WHEN WE GOT A SITE WITH WATER SOURCE THE LAND WAS FINALL Y NOT TRANSFERABLE TO INDUSTRY. HENCE IT IS DECIDED NOT T O PURSUE FURTHER, IN CASE OF MAHARASHTRA PROJECTS; COUNTER P ARTY (SUGAR MILL) WENT BACK ON DEVELOPMENT AGREEMENT SIG NED WHICH WAS CRUCIAL FOR THE PROJECT TO MOVE AHEAD, HE NCE DECIDED NOT TO PURSUE FURTHER. E. PROJECT COBRA-MAHARASHTRA/GUJARAT (61.88 LACS) THERE ARE 13 NEW TRANSMISSION PROJECTS WHICH WAS ANNOUNCED BY THE GOVERNMENT FOR BIDDING. SOME INITI AL PREPARATION WAS DONE BY US, HOWEVER GOVERNMENT ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 8 SUBSEQUENTLY DID NOT PROGRESS AND BROUGHT UP THIS P ROJECT FOR BIDDING. IT IS THUS OBVIOUS THAT ALL THESE EXPENSES ARE BASI CALLY OF REVENUE NATURE (BEING PROFESSIONAL FEES ETC.) ON THE TOP OF IT IS FURTHER OBVIOUS THAT NONE OF THOSE PROJECTS HAS MATERIALIZED IN THE PREVIOUS YEAR. IT IS FURTHER SUBMITTED THAT EVEN IF SOME PROJECT(S) HAD REALLY M ATERIALIZED, THE CONSEQUENTIAL INCOME IN THE HANDS OF THE ASSESSES W OULD HAVE BEEN ON REVENUE ACCOUNT. THE A.O. HELD THAT THE ASSESSEE IS CARRYING BUSINES S OF OPERATION AND MAINTENANCE OF POWER PLANT. IT HAS NOT CARRIED THE BUSINESS OF DEVELOPMENT OF POWER PROJECT AS CLAIMED BY IT EITHER IN THE CUR RENT YEAR OR IN EARLIER YEARS. IT IS CLEAR FROM THE ASSESSEES OWN REPLY THAT THE EXPENDITURE WAS INCURRED IN CONNECTION WITH PURPOSE OF SETTING OF NEW PROJECT. THUS, THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN THE NATURE OF CAPIT AL EXPENDITURE. THE A.O. RELIED UPON FOLLOWING DECISIONS: I. CIT VS. AMBICA MILLS LTD. 236 ITR 921 (GUJ), WHE REIN HONBLE COURT HAS HELD AS UNDER: BUSINESS EXPENDITURE CAPITAL OR REVENUE EXPENDIT URE EXPENDITURE ON PREPARING A FEASIBILITY REPORT FOR A NEW PROJECT NEW PROJECT DIFFERENT FROM EXISTING BUSINESS EXPE NDITURE WAS, THEREFORE, A CAPITAL EXPENDITURE THE ASSESSEE INCURRED EXPENDITURE FOR PREPARING VAR IOUS FEASIBILITY REPORT FOR NEW PROJECT WHICH WAS DIFFERENT FROM EXISTING BUSIN ESS. HENCE, THE EXPENDITURE WAS CAPITAL IN NATURE. II. CIT VS. SHRI DIGVIJAY CEMENT CO. LTD. 153 ITR 2 53 (GUJ), WHEREIN HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER: ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 9 BUSINESS EXPENDITURE CAPITAL OR REVENUE EXPENDIT URE ASSESSEE A CEMENT MANUFACTURER INCURRING EXPENDITUR E ON OBTAINING FEASIBILITY REPORT FOR SETTING UP A SHIPY ARD SHIPYARD NOT CONSTRUCTED AS THE REPORT WAS NOT FAVOURABLE EXPENDITURE HAVING BEEN INCURRED WITH A VIEW TO BRING INTO EXIS TENCE AN ADVANTAGE OR ASSET OF AN ALMOST PERMANENT NATURE OR OF AN ENDURING BENEFIT, IS CAPITAL EXPENDITURE THE DEVELOPMENT OF POWER PROJECTS WAS TO FACILITATE THE ASSESSEE'S CURRENT BUSINESS OF OPERATION AND MAINTENANCE OF POWER PLAN TS OR WAS TO ENABLE THE ASSESSEE TO CONDUCT OR MANAGE THE ASSESSEE'S BUSINE SS MORE EFFICIENTLY. ACCORDINGLY, THESE EXPENSES WOULD NOT QUALIFY FOR D EDUCTION AS REVENUE EXPENSES. III. CIT VS S.L.M. MANEKLAL INDUSTRIES LTD 107 ITR 133 ( GUJ), WHEREIN THE HON'BLE GUJARAT HIGH COURT HAS HELD AS UNDER: BUSINESS EXPENDITURECAPITAL OR REVENUE EXPENDITUR EAMOUNT PAID TO FOREIGN COMPANY FOR OBTAINING EXPERT OPINIO N FOR ERECTION OF NEW UNITSAME CAPITAL EXPENDITURE THE A.O. OBSERVED THAT IN THE INSTANCE CASE, IT IS NOT RELEVANT TO CONSIDER WHETHER THE EXPENSES WERE INCURRED ON PROJECT WHICH HAD NOT ULTIMATELY MATERIALIZED. SUCH EXPENSES ARE CLEARLY NOT ALLOWA BLE U/S.37 BEING CAPITAL IN NATURE. IV. E. I . D. PARRY (INDIA) LTD. V. CIT, 257 ITR 253 (MAD.), T HE HON'BLE COURT HAS HELD AS UNDER: BUSINESS EXPENDITURECAPITAL OR REVENUE EXPENDITUR E EXPENDITURE ON SETTING UP A NEW PROJECTINCURRED IN THE YEARS PRIOR TO THE RELEVANT ASSESSMENT YEARSAME CAPITAL EXPEND ITUREFACT ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 10 THAT THE ASSESSES SUBSEQUENTLY ABANDONED THE PROJEC T DOES NOT ON THAT SCORE CONVERT THE EXPENDITURE INTO A REVENUE E XPENDITUREFACT THAT THE ASSESSEE CONTINUED TO CARRY ON ITS OLD BUS INESS DID NOT RENDER THE EXPENDITURE INCURRED BY IT ON THE SETTIN G UP OF THE NEW PROJECT, A REVENUE EXPENDITURE IN THE INSTANCE CASE ALSO, THE EXPENSES WERE INCURR ED BY THE ASSESSEE IN CONNECTION WITH THE ESTABLISHMENT OF NEW PROJECTS A ND HENCE WAS CAPITAL IN NATURE. AFTER CONSIDERING THE ASSESSEES REPLY AN D CASE LAWS CITED BY IT, THE LD. A.O. HELD THAT EXPENSES INCURRED BY THE ASSESSE E TOWARDS THE NEW PROJECT OF RS.4,75,07,667/-. HENCE, SAME WERE DISALLOWED B Y THE A.O. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAS DISMISSED THE ASSE SSEES APPEAL BY OBSERVING AS UNDER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANTS SUBMISSION. THE UNDISPUTED FACTS ARE- APPELLANT IS THE BUSINESS OF OPERATING AND MAINTAINING POWER PLANTS IN THE COUNTRY . APPELLANT INCURRED EXPENDITURE FOR DEVELOPING OR AC QUIRING NEW POWER AND COAL PROJECTS IN THE FORM OF FEASIBILITY STUDY, DUE DILIGENCE AND OTHER EXPENSES. THESE NEW PROJECTS ARE DIFFERENT THAN EXISTING BUSI NESS OF OPERATING AND MAINTAINING POWER PLANTS. IT IS ADMI TTED BY THE APPELLANT THAT IF THESE NEW PROJECTS WOULD HAVE MAT ERIALIZED, IT WOULD HAVE RESULTED IN CREATION OF NEW CAPITAL ASSETS. IN THE LIGHT OF THESE FACTS IT IS QUITE CLEAR THAT THESE EXPENSES ARE CAP ITAL IN NATURE AND NOT REVENUE FOR RUNNING THE EXISTING BUSINESS. THE NOMENCLATURE OF EXPENSE IS NOT DECISIVE OF ITS NATURE WHETHER REVEN UE OR CAPITAL. THE PURPOSES FOR WHICH THESE EXPENSES WERE INCURRED DEC IDE THE NATURE AS REVENUE OR CAPITAL. IF THE EXPENSES ARE INCURRED FOR RUNNING THE BUSINESS AND ARE NOT CREATING ANY CAPITAL ASSET, TH E SAME IS REVENUE IN NATURE BUT IF THE SAME EXPENSE IS NOT FOR RUNNIN G THE BUSINESS BUT ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 11 FOR CREATING NEW ASSET OR FOR NEW PROJECTS, THESE E XPENSES ARE CAPITAL IN NATURE. CONSIDERING THIS, EXPENSES LIKE TRAVELLING, LEGAL A ND PROFESSIONAL SERVICES ETC CAN BE BOTH REVENUE AND C APITAL DEPENDING ON THE PURPOSE FOR WHICH THESE WERE INCURRED. IN THE C ASE OF APPELLANT, EXPENSES ON ACCOUNT OF PROFESSIONAL FEES AND CONSUL TATION SERVICES WERE INCURRED FOR NEW PROJECT AND THEREFORE THESE EXPENS ES ARE IN THE NATURE OF CAPITAL EXPENSES. IF THE NEW PROJECTS WOULD HAVE MA TERIALIZED, THESE EXPENSES WOULD HAVE BEEN PART OF COST OF NEW PROJEC T. 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 37 (1) OF IT ACT. ASSESSING OFFICER RELIED UPON SEVERAL DECISIONS INC LUDING FOLLOWING DECISIONS OF JURISDICTIONAL HIGH COURT DIRECTLY ON THE ISSUE- (I) CIT VS. AMBICA MILLS LTD. 236 ITR 921 (GU J) 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 DE VELOPING A SHIP BUILDING YARD- EXPENSES NOT ELIGIBLE AS REVENUE EXP ENDITURE. (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 -H ELD THAT THE SAID EXPENDITURE WOULD BE CAPITAL IN NATURE - NOT ELIGIB LE U/S. 37 OF THE INCOME TAX ACT, 1961. THE ABOVE DECISIONS JURISDICTIONAL HIGH COURT ARE V ERY CLEAR THAT EXPENSES INCURRED FOR NEW PROJECT ARE CAPITAL IN NA TURE AND NOT ALLOWABLE AS REVENUE. APPELLANT TRIED TO DISTINGUISH THESE DECIS IONS BY SUBMITTING THAT IN ALL THESE CASES, THE NEW PROJECT WAS IN NEW LINE OF BUS INESS AND HENCE EXPENSES ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 12 WERE TREATED AS CAPITAL BY GUJARAT HIGH COURT. THIS IS WRONG ON THE PART OF APPELLANT FOR MAKING SUCH CLAIM BECAUSE IN ALL THES E DECISIONS, THE NEW PROJECTS WERE IN THE SIMILAR LINE OF BUSINESS OR FO R SUPPORTING THE EXISTING BUSINESS BUT STILL SUCH EXPENSES WERE HELD TO BE CA PITAL IN NATURE BECAUSE THESE WERE RELATING TO NEW CAPITAL ASSET TO BE CREA TED IN NEW PROJECT. THE DISTINCTION OF EXISTING LINE OF BUSINESS IS NOT THE RE IN SECTION 37 (1). ANY TYPE OF CAPITAL EXPENSE INCURRED FOR EXISTING BUSIN ESS OR NEW BUSINESS ARE NOT ALLOWABLE UNDER THIS SECTION. WHAT IS ALLOWABLE IS REVENUE EXPENSE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. CAPITAL EXPENSES ARE SPECIFICALLY NOT ALLOWABLE UNDER SECTION 37 (1). FO R 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 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 OR NEW BUSINESS IS NOT RELEVANT. REVENUE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS ARE ALLOWABLE THEREFORE ANY REVENUE EXPENSE INCURRED FO R NEW BUSINESS IS ALLOWABLE ONLY AFTER NEW BUSINESS IS SET UP. BUT CA PITAL EXPENDITURE IS NOT AT ALL ALLOWABLE. THE APPELLANT'S CLAIM THAT EXPENDITU RE 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 H IGH COURT) -HEAD NOTE IN THIS DECISION IS AS UNDER- 'SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINE SS EXPENDITURE - CAPITAL OR REVENUE EXPENDITURE - ASSE SSEE- 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 CO NNECTION WITH AFORESAID PROJECT AND INCURRED CERTAIN EXPENDI TURE - WHETHER, AS PROJECT REPORT EXPENDITURE INCURRED BY ASSESSEE WAS IN ORDER TO DECIDE WHETHER TO ACQUIRE SOME PROF IT- ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 13 MAKING ASSET FOR PURPOSE OF ITS BUSINESS, WHICH WOU LD BE OF ENDURING NATURE, IT COULD BE SAID THAT EXPENDITURE WAS CAPITAL IN NATURE - HOLD, 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 PROJECTS ARE CAPITAL IN NATURE AND NOT ALLOWABLE AS REVENUE. THI S DECISION CLEARLY GOES TO SHOW THAT APPELLANT'S CLAIM IS NOT JUSTIFIE D. APART FROM THE DECISIONS RELIED UPON BY THE ASSESSI NG OFFICER, GUJARAT HIGH COURT IN THE CASE OF MC GRAW RAVINDRA LABORATORIES VERSUS CIT, 207 ITR 239 HELD THAT FOREIGN TRAVELLING EXPEN SES OF THE GENERAL MANAGER IN CONNECTION WITH THE ESTABLISHMENT OF THE UNIT IN THE SAME LINE OF BUSINESS FOR NEW PRODUCT IS CAPITAL IN NATURE AND NOT ALLOWABLE AS REVENUE. JUST BECAUSE APPELLANT'S PROJECTS ON WHICH EXPENSES WERE INCURRED DID NOT MATERIALISE, DOES NOT MEAN THAT NA TURE OF EXPENSE WILL CHANGE. THIS VIEW IS CONFIRMED BY HONORABLE DELHI HIGH COUR T IN THE CASE OF TRIVENI ENGINEERING WORKS LTD VERSUS CIT, 1 00 TAXMAN 19. THE RELEVANT HEAD NOTE IS QUOTED BELOW- 'SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINE SS EXPENDITURE - ALLOWABLE AS - ASSESSMENT YEAR 1971-72 - ASSESSEE S PENT SOME AMOUNT ON PROJECT REPORTS ON MANUFACTURING INSECTIC IDE FORMULATION AND FOR SURVEY REPORT ON EXTRA MELKRAL ALCOHOL - AS SESSEE'S CLAIM AS REVENUE EXPENDITURE WAS DISALLOWED AS PROJECT RE PORTS DID NOT MATERIALISE AND AS THE EXPENDITURE WAS INCURRED WIT H A VIEW TO MANUFACTURING NEW PRODUCTS -WHETHER EXPENDITURE WAS ATTRIBUTABLE TO CAPITAL HAVING BEEN INCURRED WITH A VIEW TO BRIN GING AN ASSET OR ADVANTAGE INTO EXISTENCE AND HAVING ENDURING BENEFI T - 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 M ATERIALIZED WILL NOT BE ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 14 ALLOWABLE AS REVENUE. IN THIS CASE ALSO, NEW PROJEC T WAS IN THE SAME LINE OF BUSINESS WITH NEW PRODUCT BUT THE EXPENSE WAS HE LD 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 CAS E DIFFERENT THEN PRESENT LINE OF BUSINESS. SETTING UP OF POWER PLANT CANNOT BE EQUATED WITH OPERATING AND MAINTAINING THE SAME. ASSESSEE'S EXIS TING BUSINESS IS NOT OF SETTING UP OF NEW POWER PLANTS. THE OBJECT CLAUS E IN MEMORANDUM IS NOT RELEVANT SINCE ALL PROSPECTIVE AND POSSIBLE BUS INESSES ARE INCLUDED IN SUCH MEMORANDUM OF ASSOCIATION. WHAT IS MATERIAL IS THE EXISTING BUSINESS AND NOT PROPOSED BUSINESSES. SINCE THE EXP ENDITURES WERE INCURRED FOR NEW PROJECTS WHICH ARE NOT FOR OPERATI ON 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 RE VENUE IS CONSIDERED, STILL APPELLANT'S CASE WILL NOT FALL IN THIS CATEGO RY. APPELLANT'S FACTS ARE NOT SIMILAR TO ANY OF THE CASE CITED BY THE APPELLANT I N ITS FAVOR. AS AGAINST THIS, SEVERAL JURISDICTIONAL HIGH COURT DECISIONS ARE AGA INST THE APPELLANT'S CLAIM. THE DECISION OF BOMBAY HIGH COUR T IS CATEGORICAL AS EVEN IN THE SAME LINE OF BUSINESS, THE EXPENSES RELATING TO NEW PROJECTS ARE NOT ALLOWABLE. CONSIDERING ALL THESE F ACTS AND JUDICIAL DECISIONS, I DO NOT FIND MERIT IN APPELLANT'S CLAIM AND THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED . COMING TO THE ALTERNATIVE CLAIM OF THE APPELLANT TH AT DEPRECIATION SHOULD BE ALLOWED ON CAPITAL EXPENSE, THIS CLAIM OF THE APPELLANT IS WITHOUT ANY BASIS. SINCE NONE OF THESE PROJECTS CAME INTO E XISTENCE AND AS SUCH THE EXPENSES CLAIMED BY THE APPELLANT DID NOT RESUL T IN CREATION OF BUSINESS ASSET ON WHICH DEPRECIATION CAN BE CLAIMED , ALTERNATIVE CLAIM OF THE APPELLANT IS REJECTED. ANOTHER ARGUMENT OF THE APPELLANT IS THAT THE EXPEN SE SHOULD BE ALLOWED AS BUSINESS LOSS UNDER SECTION 28 SINCE THE SE PROJECTS WERE IN THE ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 15 NORMAL COURSE OF BUSINESS. THIS IS ALSO NOT CORRECT SINCE WHAT IS ALLOWABLE UNDER SECTION 28 IS LOSS INCIDENTAL TO TH E RUNNING OF EXISTING BUSINESS. ANY EXPENSES INCURRED FOR SETTIN G UP OF NEW PROJECT FALL OUTSIDE THE NORMAL BUSINESS CARRIED ON BY THE APPELLANT AND THEREFORE THE SAME IS NOT ALLOWABLE UNDER SECTI ON 28 AS BUSINESS LOSS. THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF G MDC IS THEREFORE NOT APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE . IN VIEW OF THIS, THIS ARGUMENT IS ALSO REJECTED. 5. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT ASSESSEE IS IN THE BUSINESS OF OPERA TION AND MAINTENANCE OF THE POWER PLANT. RS.1.34 CRORE INCURRED BY THE ASS ESSEE FOR IDENTIFYING THE TECHNOLOGY PROVIDED SO THAT THE TECHNOLOGY TIED UP PROJECT TO BE DONE AND THE PROJECT COST WAS ESTIMATED TO PARTICIPATE IN BID FR OM ULTRA MEGA GUJARAT/MP. BASICALLY, ASSESSEE COMPANY HAS INCURRED FOLLOWING NATURE OF EXPENSES: (A) PROFESSIONAL FEES RS.1.04 CRORE (B) TRAVELLING EXPENSES 19.19 LACS (C) TENDER EXPENSES 10 LACS. THE SUBSTANTIAL PART OF THE EXPENSES WAS INCURRED F OR THE NATURE OF PROFESSIONAL FEES ONLY. OUT OF TOTAL PROFESSIONAL FEES PAID, THE AMOUNT OF RS.22,48,263/- WAS PAID BY THE ASSESSEE TO M/S. PRI CE WATERHOUSE COOPERS (PWC) WHO HAS ASSISTED THE ASSESSEE COMPANY ON TAX, EXCHANGE, CONTROL AND CORPORATE LAW MATTERS IN CONNECTION WITH THE 40 00 MW COAL FIRED PIT HEAD POWER PLANT. THE PAYMENT WORTH RS.73.85 LACS WAS M ADE BY THE ASSESSEE COMPANY TO VARIOUS PARTIES FOR OTHER ADVISORY SERVI CES FOR BIDDING AFORESAID PROJECT. THE ASSESSEE COMPANY HAD QUALIFIED TO PAR TICIPATE IN THE BID PROCESS ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 16 BASED ON THE FINANCIAL STRENGTH OF ITS PARENT COMPA NY CLP HOLDINGS LTD., HONG KONG. THE ASSESSEE COMPANY HAD PROPOSED TO SE T UP THIS POWER PROJECT UNDER THE BUILD, OWN AND OPERATE BASIS. PURSUANT TO THIS BID, THE ASSESSEE COMPANY HAD ENTERED INTO AN EXCLUSIVE AGRE EMENT WITH THE KOREAN POWER EQUIPMENTS SUPPLIER TO SUPPLY 2 UNITS OF 700 MWS IMPORTED COAL BASED GENERATING EQUIPMENTS ON EPC ITSELF NEAR KAND LA PORT IN GUJARAT. THE CONSULTANCY REPORT IN THE AREA OF TAX INSURANCE AND OTHER FINANCIAL MATTERS WERE OBTAINED. FEASIBILITY REPORT WAS COMPILED. H OWEVER, THE SAID PROJECT WAS AWARDED TO ESSAR POWER, THE ASSESSEE COMPANY WA S NOT SUCCESSFUL IN GETTING THE RIGHTS TO SET UP, OPERATE AND MAINTAIN THIS POWER PLANT. THE PROFESSIONAL EXPENSES WERE INCURRED AT RS.2.62 CROR E ON ACCOUNT OF GUVNL AND RS.8.06 LACS WERE INCURRED IN TRAVELLING EXPENS ES. OUT OF THE ABOVE SAID PROFESSIONAL FEES, THE AMOUNT OF RS.97.57 LACS WAS PAID BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ADVISORY ON TAX, EXCHANG E CONTROL LEGAL, BID AND CORPORATE LAW MATTERS. FURTHER, PAYMENT OF RS.37.2 3 LACS MDE TO AMARCHAND MANGALDAS FOR THE PURPOSE OF REVIEW OF THE BID DOCU MENTS AND DRAFTING POWER PURCHASE AGREEMENTS, IDENTIFICATION OF ISSUES THERE ON, REVIEW AND NEGOTIATION OF EPC CONTRACTS. RS.8.20 LACS INCURRED ON TWO PRO JECTS I.E. RAJASTHAN AND MAHARASHTRA USING BIOGASES AS FUEL FOR POWER GENERA TION WHERE ALSO ASSESSEE WAS UNSUCCESSFUL AS PROFESSIONAL FEES. TH E ASSESSEE FURTHER INCURRED RS.88 LACS ON 13 NEW TRANSMISSION PROJECTS , WHICH WAS ANNOUNCED BY THE GOVERNMENT FOR BIDDING. THESE EXPENSES WERE ALSO INCURRED ON PROFESSIONAL FEES. BUT SUBSEQUENTLY, GOVERNMENT DI D NOT PROGRESS AND BRING ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 17 UP THIS PROJECT FOR BIDDING. THE ASSESSEE ALSO HAS DRAWN OUR ATTENTION ON VARIOUS REPORTS SUBMITTED BY THE PROFESSIONALS AND BILL ISSUED BY THEM. THE LD. COUNSEL FURTHER RELIED IN CASE OF HONBLE ITAT C BENCH, AHMADABAD IN CASE OF DCIT VS. M/S. INOX LEISURE LTD. IN ITA NO. 1984, 19 91, 2299, 1992 & 2300/AHD/2009, ORDER DATED 09/09/2011 FOR A.Y. 2003 -04, 04-05 & 2005-06, WHEREIN ASSESSEE WAS RUNNING MULTIPLEX AND EXHIBITI ON OF CINEMATIC FILM INCURRED EXPENDITURE ON NEW PROJECT AT GURGAON ON P ROJECT REPORT OF CONSULTATION AND COST OF TRAVEL ETC. IT WAS HELD T HAT EXPENDITURE INCURRED IN RESPECT OF NEW PROJECT FOR THE SAME LINE OF BUSINES S OF RUNNING OF MULTIPLEX AND CINEMA, THEATRE BY FOLLOWING THE HONBLE DELHI HIGH COURT DECISION IN CASE OF CIT VS. PRIYA VILLAGE ROADSHOWS LTD. 332 ITR 594 (D ELHI). THEREFORE, HE REQUESTED TO ALLOW THE EXPENSES FULLY. AT THE O UTSET, LD. SR. D.R. VEHEMENTLY RELIED UPON THE ORDER OF THE CIT(A) AND ARGUED THAT THESE EXPENSES WERE INCURRED ON NEW PROJECT AND ARE CAPIT AL IN NATURE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS PER AUDIT REPORT, THE ASSESSEE IS ENGAG ED INTER ALIA IN THE BUSINESS OF DEVELOPMENT OF POWER PROJECT AND OPERAT ION AND MAINTENANCE OF POWER PROJECT, WHEREAS LD. A.O. HAD OBSERVED THAT A SSESSEE HAD SHOWN INCOME FROM OPERATION AND MAINTENANCE FEES RECEIVED FROM M/S. GUJARAT PAGUATHAN ENERGY CORPORATION PVT. LTD., OTHER INCOM E 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 ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 18 THE VARIOUS HEADS ON NEW PROJECT. AS PER MEMORANDU M OF ASSOCIATION AND ARTICLE OF ASSOCIATION, THE ASSESSEE HAS VARIOUS MA IN OBJECTS BUT AS PER STATEMENT OF FACTS, THE ASSESSEE HAD PROVIDED SERVI CES TO POWER PLANT ON MOBILIZATION PHASE AND OPERATIONAL PHASE. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD SUBMITTED B IDS 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 ULTR A MEGA POWER PROJECT, GUJARAT, GUJARAT IMPORTED COAL, MP DISTRIBUTION, PR OJECT PRAKRITI MAHARASHTRA, PROJECT COBRA MAHARASHTRA, RAINBOW, SHIKARPUR WIND PROJECT, GUJARAT, PROJECT BLACKSTONE, HARYANA/MP, PROJECT NAGPUR DIST RIBUTION & RATAN WIND 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. THE NEW PROJECTS WERE NOT EXPANSI ON OF EXISTING BUSINESS. EVEN IF, THE ASSESSEES NEW PROJECTS ARE IN THE SAM E LINE OF BUSINESS EXPENSES RELATING TO NEW PROJECTS ARE CAPITAL IN NA TURE AND NOT ALLOWABLE AS REVENUE AS HELD BY THE HONBLE BOMABY HIGH COURT IN CASE OF J. K. CHEMICAL LTD. (SUPRA). THE CASE LAW CITED BY THE ASSESSEE I S 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 ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. 7. GROUND NO.3 IN BOTH YEARS IS ON CHARGING OF INTE REST U/S.234A, 234B AND 234C OF THE IT ACT IS MANDATORY AS HELD BY HONBLE SUPREME COURT IN CASE OF ITA NOS. 531 & 3214/AHD/2011 A.Y. 07-08 & 08-09 PAGE 19 CIT VS. ANZUM M. H. GHASWALA & ORS. TO THE ABOVE FINDING. THE A.O. HAS NOT CHARGED ANY INTEREST U/S. 234A ONLY CHARGED U/S. 23 4B & 234C. THEREFORE, THE A.O. IS DIRECTED TO CALCULATE THE INTEREST AS P ER LAW. 8. GROUND NO.4 IN BOTH YEARS ARE INITIATION OF PENA LTY PROCEEDING U/S.271(1)(C) IS PRE-MATURE AND ARE NOT REQUIRED TO ADJUDICATE THIS ISSUE AT THIS STAGE. 9. IN THE COMBINED RESULT, THE ASSESSEES APPEALS I N BOTH YEARS ARE DISMISSED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 21.02.2014 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA , , , , % %% % -. -. -. -. / .+ / .+ / .+ / .+ / COPY OF ORDER FORWARDED TO:- 1. $ / REVENUE 2. / ASSESSEE 3. 3 / CONCERNED CIT 4. 3- / CIT (A) 5. .78 -' , , / DR, ITAT, AHMEDABAD 6. 8:; <= / GUARD FILE. BY ORDER/ , , >/ $ , #