Chiranjeevi Wind Energy Ltd., CHENNAI V. ACIT, Coimbatore

ITA 342/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4515 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 25-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 342/MDS/2013 ASSESSMENT YEAR : 2009-10 M/S. CHIRANJEEVI WIND ENERGY LTD., NO. 45/3A, ARTS COLLEGE ROAD LANE, OPP: BALA LODGE, COIMBATORE-641 018 [PAN: AAACC 8761 H] (APPELLANT) VS THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), COIMBATORE (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY : SHRI T.N. BETGERI, JCIT DATE OF HEARING : 22-08-2013 DATE OF PRONOUNCEMENT : 21-10-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, COIMBATORE DATED 04-12-2012 RELEVANT TO THE ASSESSMENT YEAR ( AY) 2009-10. I.T.A. NO. 342/MDS/2013 2 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY CARRYIN G ON THE BUSINESS OF MANUFACTURING AND SALE OF WINDMILLS. T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY. 2009-10 ON 2 5-09-2009 DECLARING ITS TOTAL INCOME AS `2 4,67,613/- UNDER NORMAL PROVISIONS AND BOOK PROFIT OF ` 1,45,64,342/- U/S. 115JB. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE ON 30-08-2010. THE ASSESSIN G OFFICER VIDE ASSESSMENT ORDER DATED 08-12-2011, MADE ADDITI ONS/DIS- ALLOWANCES INTER-ALIA TOWARDS PRELIMINARY AND PRE-O PERATIVE EXPENSES WRITTEN OFF U/S. 35D INCURRED ON ACCOUNT O F EXPANSION OF BUSINESS ACTIVITIES. THE ASSESSING OFFICER ALSO RE STRICTED THE DIS- ALLOWANCE U/S. 80IB. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE C IT(APPEALS) VIDE IMPUGNED ORDER DATED 04-12-2012, PARTLY ALLOWE D THE APPEAL OF THE ASSESSEE. THE CIT(APPEALS) WHILE DECIDING T HE APPEAL REJECTED THE SUBMISSIONS OF THE ASSESSEE WITH REGAR D TO DIS- ALLOWANCES MADE BY THE ASSESSING OFFICER U/S. 35D A ND RESTRICTING THE CLAIM OF THE ASSESSEE U/S. 80IB. AGGRIEVED BY THE ORDER THE CIT(APPEALS), THE ASSES SEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL. I.T.A. NO. 342/MDS/2013 3 3. DURING THE RELEVANT AY, THE ASSESSEE HAD ISSUED EQUITY SHARES TO THE TUNE OF ` 61,95,99,594/- BY PRIVATE PLACEMENTS FOR EXPANSION OF PROJECT. FOR ARRANGING THE PRIVATE PL ACEMENT OF EQUITY SHARES, THE ASSESSEE HAD PAID COMMISSIONS TO THE TUNE OF ` 6,10,00,000/- AND ` 1,20,000/- TOWARDS LEGAL AND CONSULTANCY CHARGES. THE ASSESSEE HAD CLAIMED THE AFORESAID EX PENDITURE AS MISCELLANEOUS EXPENDITURE IN THE BALANCE SHEET AND HAD WRITTEN OFF 1/5 TH I.E., 1,22,00,000/- AS PRELIMINARY AND PRE-OPERATI VE EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THE ASSES SING OFFICER OBSERVED THAT THOUGH INCREASE IN CAPITAL RESULTS IN EXPANSION OF CAPITAL BASE OF THE COMPANY AND WOULD HELP IN EXPAN SION FOR ITS BUSINESS ACTIVITIES, HOWEVER, THE EXPENSES INCURRED IN THAT CONNECTION ARE CAPITAL IN NATURE AS THE EXPENDITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. THE ASSESSING OFFICER HELD THAT THE EXPENDITURE IS NEIT HER PRELIMINARY EXPENDITURE AS ENVISAGED IN SECTION 35D NOR REVENUE EXPENDITURE ALLOWABLE U/S.37 OF THE ACT. THE ASSESSING OFFICER ADDED BACK THE PRELIMINARY AND PRE-OPERATIVE EXPENSES WRITTEN OFF AND THE LEGAL AND CONSULTANCY FEE IN THE TOTAL INCOME RETURNED BY THE ASSESSEE. ON APPEAL, THE CIT(APPEALS) HELD THAT THE EXPENDITU RE INCURRED IS FOR ARRANGING THE FUNDS REQUIRED FOR WO RKING CAPITAL. THEREFORE, PRELIMINARY AND PRE-OPERATIVE EXPENSES C LAIMED BY THE I.T.A. NO. 342/MDS/2013 4 ASSESSEE CANNOT BE ALLOWED WITHOUT STARTING ANY NEW UNIT OR EXTENDING THE EXISTING UNIT. 4. SHRI R. VIJAYARAGHAVAN, ADVOCATE, APPEARING ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE COMMISSION AND LEGA L FEES HAS BEEN PAID TO RAISE THE FUNDS BY PRIVATE PLACEMENT O F EQUITY SHARES FOR THE PURPOSE OF EXTENSION/EXPANSION OF THE UNDER TAKING. THE LD. COUNSEL FOR THE ASSESSEE PLACED ON RECORD A NOTE GI VING DETAILS OF EXPENDITURE INCURRED FOR EXTENSION/EXPANSION OF THE PROJECT WHICH ARE AS UNDER: 1. PURCHASE OF MACHINERIES ITEMS ` 4.89 CRORES 2. ADVANCE PAYMENT FOR SUPPLY OF MACHINERY/SPARES `8.93 CRORES 3. PURCHASE OF WINDMILL RAW MATERIALS `15.00 CRORES 4. INVESTMENT TOWARDS KARNATAKA PROJECT `7.50 CRORES 5. PROJECT ADVANCES `15.52 CRORES THE LD. COUNSEL FURTHER SUBMITTED THAT BUSINESS ACT IVITIES OF THE ASSESSEE-COMPANY HAVE INCREASED IN SUBSEQUENT YEARS AS IS EVIDENT FROM THE DETAILS OF SALE TURNOVER AND NUMBE R OF WINDMILLS: FIN.YEAR SALES TURNOVER NO. OF WINDMILLS 2008-2009 ` 25.78 CRORES 23 WINDMILLS 2009-2010 ` 52.00 CRORES 44 WINDMILLS 2010-2011 ` 73.13 CRORES 57 WINDMILLS I.T.A. NO. 342/MDS/2013 5 THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT SIN CE THE EXPENDITURE ON ACCOUNT OF PRIVATE PLACEMENT OF SHAR ES HAS BEEN INCURRED FOR THE EXPANSION OF EXISTING UNDERTAKING THE COMMISSION/BROKERAGE PAID FOR THE PLACEMENT OF SHAR ES IS ALLOWABLE UNDER THE PROVISIONS OF SECTION 35D OF TH E ACT. IN ORDER TO SUPPORT HIS CONTENTIONS, THE LD. COUNSEL RELIED ON THE JUDGMENTS OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF EID PARRY (INDIA) LTD., VS. DCIT REPORTED AS 209 TAXMAN 214 AND CIT VS. ASHOK LEYLAND LTD REPORTED AS 349 ITR 663 (MAD) . 5. ON THE OTHER HAND, SHRI T.N. BETGERI, APPEARING ON BEHALF OF THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE AUT HORITIES BELOW AND PRAYED FOR DISMISSAL OF THE APPEAL OF THE ASSES SEE. THE LD. DR SUBMITTED THAT THE DETAILS OF THE ALLEGED EXPANS ION WERE NOT MADE AVAILABLE BEFORE THE CIT(APPEALS) OR THE ASSES SING OFFICER. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDG MENTS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THE PROVISION S OF SECTION 35D PROVIDES FOR AMORTIZATION OF CERTAIN PRELIMINARY EX PENSES WHICH ARE INCURRED BEFORE COMMENCEMENT OF THE BUSINESS OR INC URRED AFTER I.T.A. NO. 342/MDS/2013 6 THE COMMENCEMENT OF BUSINESS IN CONNECTION WITH THE EXTENSION OF UNDERTAKING OR IN CONNECTION WITH SETTING UP OF NEW UNIT. THE LD. COUNSEL FOR THE ASSESSEE HAS GIVEN THE DETAILS OF T HE EXPENDITURE INCURRED AFTER RAISING OF THE FUNDS THROUGH PRIVATE PLACEMENT OF EQUITY SHARES. THE COUNSEL HAS ALSO GIVEN THE DETA ILS OF THE INCREASE IN BUSINESS ACTIVITIES OF THE ASSESSEE-COM PANY IN THE SUBSEQUENT YEARS TO SHOW THAT THERE HAS BEEN INCREA SE IN BUSINESS OF WINDMILLS AND CONSEQUENT INCREASE IN HI GHER SALES TURNOVER. WE ARE OF THE CONSIDERED OPINION THAT WITH THE INCR EASE IN CAPITAL BASE AFTER ISSUE OF ADDITIONAL EQUITY SHARE S BY PRIVATE PLACEMENT, THE ASSESSEE-COMPANY INTENDS TO EXPAND I TS EXISTING PROJECT. THIS VIEW IS STRENGTHENED BY THE FACT THA T THE ASSESSEE HAS INVESTED SUBSTANTIAL AMOUNT IN PURCHASE OF MACH INERIES ETC., FURTHER, WITH THE INCREASE IN NUMBER OF WINDMILLS, THE SALES TURNOVER OF THE ASSESSEE HAS INCREASED ALMOST THREE FOLD FROM FINANCIAL YEAR 2008-09 TO FINANCIAL YEAR 2010-11. THEREFORE, THE EXPENDITURE INCURRED TOWARDS RAISING OF ADDITIONAL EQUITY SHARES BY PRIVATE PLACEMENT CAN BE ATTRIBUTED TO EXTENSION OF UNDERTAKING AND IS THUS ELIGIBLE FOR AMORTIZATION UNDER THE PRO VISIONS OF SECTION 35D. THE HONBLE MADRAS HIGH COURT IN THE CASE OF EID PARRY (INDIA) LTD., VS. DCIT (SUPRA) HAS HELD THAT WHERE EXPENDITURE HAS I.T.A. NO. 342/MDS/2013 7 BEEN INCURRED IN CONNECTION WITH ISSUE OF SHARES WH ICH ARE DIRECTLY RELATABLE TO EXPANSION TO CAPITAL BASE OF THE COMPA NY FOR RAISING OF NEW PROJECTS, IT WOULD BE ALLOWABLE U/S. 35D. SIMI LAR VIEW HAS BEEN TAKEN BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ASHOK LEYLAND LTD (SUPRA). 7. IN VIEW OF OUR ABOVE FINDINGS, THIS GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED. THE ASSESSEE IS ENTITLED TO A MORTIZATION OF PRELIMINARY AND PRE-OPERATIVE EXPENSES AS WELL AS C ONSULTANCY AND LEGAL CHARGES INCURRED TOWARDS PRIVATE PLACEMEN T OF SHARES. 8. AS REGARDS THE SECOND ISSUE IN APPEAL RELATING T O RESTRICTION OF DIS-ALLOWANCE U/S.80IB IS CONCERNED, THE LD. COU NSEL CONTENDED THAT THE ASSESSING OFFICER HAS MADE CERTAIN ADDITIO NS IN INCOME RETURNED BY THE ASSESSEE, THEREFORE, THE TOTAL INCO ME ELIGIBLE FOR DEDUCTION U/S.80IB SHALL VARY. THE LD. COUNSEL FUR THER SUBMITTED THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS IN RESPECT OF MANUFACTURING ACTIVITY ELIGIBLE FOR DEDUCTION U/S.8 0IB ACCORDING TO WHICH THE PROFIT ELIGIBLE FOR DEDUCTION IS ` 1,68,70,746/- AND THE AMOUNT OF DEDUCTION ON SAME WOULD BE ` 50,61,142/-. WE FIND THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF ` 10,78,976/- U/S.80IB, THE SAME WAS ALLOWED BY THE A SSESSING I.T.A. NO. 342/MDS/2013 8 OFFICER. THE ASSESSEE FOR THE FIRST TIME RAISED TH E ISSUE OF ADDITIONAL/HIGHER DEDUCTION AMOUNTING TO ` 50,61,142/- U/S.80IB BEFORE THE CIT(APPEALS). THIS CLAIM WAS NEVER MADE BEFORE ASSESSING OFFICER. WE DO NOT FIND ANY FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR ALLOWING HIGHER DEDUCTION U/S.8 0IB. THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON MONDAY, THE 21 ST OCTOBER, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 21 ST OCTOBER, 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR