ACIT, New Delhi V. M/s. A.D. Hydro Power Ltd., New Delhi

ITA 5007/DEL/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4051 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 05-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST IMPUGNED DATED PASSED
• Keywords: Depreciation; Corroborative evidences; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.:-5007/DEL/2015 ASSESSMENT YEAR: 2011-12 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 21.5.2015, PASSED BY LD. CIT(A), NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2011-12. THE REVENUE HAS RAISED FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 3,16,68,000/- MADE BY ACIT CIRCLE-1(2) NEW DELHI. VS. M/S. A.D. HYDR O POWER LTD. 40-41, COMMUNITY CENTRE, BHILWARA BHAWAN, NEW FRIENDS COLONY, NEW DELHI 110 065 PAN AAECA6200D (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI RAVI KANT GUPTA, SR. DR ASSESSEE BY : SHRI P.K. JAIN, CA DATE OF HEARING 02/08 /20 1 8 DATE OF PRONOUNCEMENT 10 /10 /2018 2 THE AO ON ACCOUNT OF DISALLOWANCE OF NETTING OFF OF INCOME DURING TRIAL RUN WITH TRIAL RUN EXPENSES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN ALLOWING CAPITALIZATION OF EXPENSES WITHOUT GIVING A FINDING ON THE VERACITY OF THE EXPENSES PARTICULARLY WHEN SUPPORTING EVIDENCES IJ SUPPORT OF THE EXPENSES WERE NOT FILED BEFORE THE AO. 2. THE FACTS IN BRIEF ARE THAT ASSESSEE COMPANY IS ENGAGED IMPLEMENTATION OF 192MW ALLIAN DUHANGAN HYDROELECTRIC PROJECT ON THE RIVER ALLIAN AND DUHANGAN IN KULLU DISTRICT OF HIMACHAL PRADESH AND IS MAINLY IN THE BUSINESS OF GENERATION AND SALE OF ELECTRICITY. THE ASSESSEE COMPANY STARTED THE COMMERCIAL GENERATION OF ELECTRICITY W.E.F. 29 TH JULY, 2010 AND CERTIFICATE REGARDING COMMERCIAL PRODUCTION OF SED, HPSEB WAS SUBMITTED. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ON PERUSAL OF THE BALANCE SHEET NOTED THAT ASSESSEE HAS SHOWN INCOME OF RS. 3,16,68,000/- PERTAINING TO INCOME FROM SALE OF POWER DURING TRIAL RUN PERIOD AND HAS ADJUSTED THE INCOME FROM THE EXPENDITURE INCURRED DURING CONSTRUCTION/TRIAL PERIOD PENDING CAPITALISATION. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE COMPANY SUBMITTED THAT THE TRIAL RUN OF ITS PROJECT WAS BETWEEN, 17 TH JULY 2010 TO 28 TH JULY 2010. THE EXPENDITURE RELATED TO THE SAID TRIAL RUN PERIOD WAS ADDED RESPECTIVELY TO THE 'EXPENDITURE DURING THE CONSTRUCTION PERIOD (PENDING CAPITALIZATION) AND CORRESPONDING INCOME OF RS 3.1668 CRORES ON SALE OF POWER WAS REDUCED FROM SUCH CAPITAL EXPENDITURE. THE ELECTRICITY GENERATED DURING TRIAL RUN WAS TRANSFERRED TO HIMACHAL PRADESH STATE ELECTRICITY BOARD (HPSEB) AND CLAIM WAS LODGED FOR RS 3.1668 CRORES. THE INCOME (ACCRUED BUT NOT RECEIVED) ON THIS ACCOUNT WERE TREATED AS CAPITAL RECEIPTS, AS THE COST OF GENERATION DURING THIS 3 PERIOD WAS TREATED AS CAPITAL EXPENSE. THUS, ONLY THE NET EFFECTIVE COST IS ULTIMATELY CAPITALIZED. ACTUAL EXPENSES INCURRED DURING THE TRIAL RUN PERIOD FROM 17.07.2010 TO 28.07.2010 WERE RS.4.9042 CRORES. A DETAILED STATEMENT FOR THE SAME ARE ANNEXED WHICH WAS VERIFIABLE FROM THE BOOKS OF ACCOUNTS, WHICH WAS AS UNDER:- 4. IT WAS FURTHER SUBMITTED THAT, IT WOULD BE INCONSISTENT TO HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE PRIOR TO THE SETTING UP WOULD BE OF A CAPITAL NATURE BUT THAT THE RECEIPTS WOULD BE OF A REVENUE NATURE. THE ASSESSEE COMPANY FOLLOWS THE MATCHING CONCEPT OF ACCOUNTANCY, HENCE THE EXPENSES BEFORE COMMENCEMENT OF BUSINESS ARE ADDED TO THE COST OF ASSETS AND THE CORRESPONDING INCOME BEFORE THE COMMERCIAL PRODUCTION IS ALSO CAPITAL IN NATURE AND THE SCH. FOR THE YEAR ENDED MARCH 31, 2011 DURING TRIAL RUN PERIOD FROM 17.7.2010-28.07.2010 (RS. 000) (RS. 000) INCOME TURNOVER 401,151 31,668 OTHER INCOME 15 2,960 - TOTAL 404,111 31,668 EXPENDITURE BULK POWER TRANSMISSION CHARGES 118,541 - PERSONNEL EXPENSES 16 85,759 3,864 OPERATING AND OTHER EXPENSES 17 202,082 9,885 DEPRECIATION 4 556,230 - FINANCIAL EXPENSES 18 568,032 35,293 TOTAL 1,530,645 49,042 LOSS BEFORE TAX (1,126,534) (17,374) 4 SAME WAS REDUCED ACCORDINGLY. ACCORDINGLY, IT WAS CONTENDED THAT EITHER THE INCOME OF RS. 3.16 CRORES EARNED DURING THE TRIAL RUN PERIOD BE CONSIDERED AS CAPITAL RECEIPT WHICH HAS BEEN PROPERLY ADJUSTED FROM THE CWIP/ PREOPERATIVE EXPENSES; OR IF THE SAME INCOME IS TREATED AS REVENUE INCOME THAN THE CORRESPONDING EXPENSES OF RS. 4.90 CRORES INCURRED DURING TRIAL RUN PERIOD SHOULD ALSO BE ALLOWED AS REVENUE EXPENDITURE BY APPLYING MATCHING CONCEPT WHICH RESULTS INTO A REVENUE LOSS OF RS. 1.74 CRORES. 5. HOWEVER, LD. AO HELD THAT ASSESSEE HAS FAILED TO SUBSTANTIATE CORRESPONDING EXPENDITURE AS CLAIMED AGAINST THE REVENUE EARNED BUT NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE TRIAL PERIOD RUN FROM 17.7.2010 TO 28.7.2010. IN ABSENCE OF PROPER DETAILS THE EXPENSES CLAIMED AT RS. 4,90,42,000/- AGAINST THE SAID INCOME ACCORDING TO HIM COULD NOT BE ADJUSTED AGAINST REVENUE OF RS. 3,16,68,000/-. THE AO WHILE COMING TO THIS CONCLUSION HAS RELIED UPON THE DECISION OF ITAT BANGALORE IN THE CASE OF DCIT VS. KARNATAKA POWER CORPN. REPORTED IN 67 ITD 391. 6. LD. CIT (A) HELD THAT, SINCE THE COMMERCIAL PRODUCTION STARTED ON 29.7.2010 AND INCOME OF RS. 3,16,68,000/- WAS EARNED DURING THE TRIAL RUN PERIOD, HENCE THIS INCOME WAS REDUCED FROM THE CAPITAL EXPENDITURE AND ONLY NET AFFECTED COST WAS ULTIMATELY CAPITALISED. THE ACTUAL EXPENSES INCURRED DURING THE TRIAL RUN PERIOD WAS IN FACT RS. 4,90,42,000/-. HE HELD THAT, IT IS VERY DIFFICULT TO APPRECIATE THE STAND OF THE LD. AO, BECAUSE IF EXPENDITURE INCURRED BY THE ASSESSEE DURING THE TRIAL PERIOD HAS TREATED TO BE CAPITAL IN NATURE THEN FOR THE SAME PERIOD, RECEIPTS FOR THE SAME PERIOD CAN BE HELD TO BE REVENUE IN NATURE. HE THUS, UPHELD THE CONTENTION OF THE ASSESSEE THAT NEITHER UNDER THE LAW NOR UNDER ACCOUNTING PRINCIPLE SUCH AN INCOME CAPITALISED CAN BE TREATED AS REVENUE INCOME AND DELETED THE ADDITION. 5 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT, IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS SHOWN INCOME OF RS. 3,16,68,000/- PERTAINING TO INCOME FROM SALE OF POWER DURING TRIAL RUN PERIOD HAS BEEN ADJUSTED FROM THE EXPENDITURE INCURRED DURING CONSTRUCTION/TRIAL PERIOD FROM 17.7.2010 TO 28.7.2010 AMOUNTING TO RS.4,90,42,000/-PENDING CAPITALISATION. AO ON ONE HAND HAS ADDED THE INCOME AND ON THE OTHER HAND TREATED THE CORRESPONDING EXPENDITURE AS CAPITAL. WE ARE UNABLE TO APPRECIATE THE ACTION OF THE AO IN ADDING THE RECEIPTS OF RS. 3,16,68,000/- AS INCOME, BECAUSE IF THE EXPENSES BEFORE THE COMMENCEMENT OF THE BUSINESS ARE ADDED TO THE COST OF ASSETS AND ALLOWED TO BE CAPITALISED THEN HOW THE CORRESPONDING INCOME FROM THE COMMERCIAL PRODUCTION IS TREATED AS REVENUE. IT IS ALSO CAPITAL IN NATURE WHICH HAS TO BE REDUCED ACCORDINGLY. THIS PRINCIPLE HAS BEEN REITERATED BY THE SUPREME COURT IN THE CASE OF CIT VS. BOKARO STEEL LIMITED 236 ITR 315 , WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE RECEIVES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED WITH THE PROCESS OF SETTING UP ITS PLANT AND MACHINERY, THEN SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ITS ASSETS AND WOULD BE RECEIPTS OF A CAPITAL NATURE AND CANNOT BE TAXED. WE ARE OF THE VIEW THAT, IF INCOME OF RS. 3.16 CRORE EARNED DURING THE TRIAL PERIOD IS TREATED AS INCOME THEN CORRESPONDING EXPENSES OF RS. 4.90 CRORE INCURRED DURING THE TRIAL PERIOD SHOULD ALSO BE ALLOWED AS REVENUE EXPENDITURE BY APPLYING THE MATCHING CONCEPT, WHICH AS DISCUSSED ABOVE WILL RESULT IN NET LOSS OF RS.1.74 CRORES. THUS, THE ADDITION MADE BY THE AO IS UNSUSTAINABLE IN LAW AND ON FACTS AND HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN DELETING THE ADDITION AND THE SAME IS AFFIRMED. 8. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 6 ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2018. SD/- SD/- (O.P. KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 /10 /2018 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI