TaxTMI 
TaxTMI 
2014 (2) TMI 1365
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....n the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance of deduction for expenditure of Rs. 4,75,07,667 in the computation of the appellant's income under the head "Profits and gains of business or profession" on the ground that it was capital 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 Ground 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 Ground No. 4 of the appellant's appeal before him on the ground that 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 the appellant's case, the learned CIT(A) has grossly erred in refusing to adjudicate upon Ground No. 1 of the appellant's appeal challe....
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.... and maintenance of Power Project. Perusal of the p&l account reveals that the income shown in only in respect of operation and maintenance fees received from M/s. Gujarat Paguathan Energy Corporation Pvt. Ltd. (GPEC) and other income comprising of interest on deposits. The expenditure debited to p&l account comprised of expenses pertaining to the current business being carried on by the assessee of 'operating and maintaining the power plant' of GPEC as well as expenditure incurred in respect of proposed business of 'development of new power plants'. The assessee had debited expenditure pertaining to the proposed new power project under the expense heads (a) professional fees (b) travelling expenses (c) tender expenses. The details of amounts debited under these heads pertaining to the new projects are as under: Project Name Professional Fees Travelling Expenses Tender Expenses Total ULTRA MEGAGUJARAT/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 PRAKRITIMAHARASHTRA 7,79,239 40,651 - 8,19,890 PROJECT COBRAMAHARASHTRA/GUJA 48,58,926 8,28,707 5,00,0....
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....A MEGA-GUJARAT/MP (1.34 Crores) The project was 4000 MW coal project. The company was 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 participate in bid. Further these being imported coal Project the option to source the coal and enter into long term contract on firm price of imported coal was also investigated. Due to stiff time line and bid conditions, CLP in the interim thought it will not been in a position to move further and able to offer 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, CLP was qualified for Gujarat Imported coal bid and planned to bid based on project to develop at Tuna in Kutch district. Technology ties up with Doosan Heavy Engineering, Korea was made and offer received and scrutinized. Technical consultant DCPL appointed to prepare DPR (Detailed Project Report) and provide other technical consultancy services. NIO (National Institute of Oceanography) have carried out Marine biological studies. TCE (Tata Co....
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....uential Income in the hands of the assesses would have been on revenue account." The A.O. held that the assessee is carrying business 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 current year or in earlier years. It is clear from the assessee's 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 capital expenditure. The A.O. relied upon following decisions: i. CIT vs. Ambica Mills Ltd. 236 ITR 921 (Guj), wherein Hon'ble Court has held as under: "Business expenditure - Capital or revenue expenditure - Expenditure on preparing a feasibility report for a new project - New project different from existing business - Expenditure was, therefore, a capital expenditure" The assessee incurred expenditure for preparing various feasibility report for new project which was different from existing business. Hence, the expenditure was capital in nature. ii. CIT vs. Shri Digvijay Cement Co. Ltd. 153 ITR 253 (Guj), wherein Hon'ble Gujarat High Court has held as under: "Business....
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....sessment order and appellant's submission. The undisputed facts are- appellant is the business of operating and maintaining power plants in the country. Appellant incurred expenditure for developing or acquiring new power and coal projects in the form of feasibility study, due diligence and other expenses. These new projects are different than existing business of operating and maintaining power plants. It is admitted by the appellant that if these new projects would have materialized, it would have resulted in creation of new capital assets. In the light of these facts it is quite clear that these expenses are capital in nature and not revenue for running the existing business. The nomenclature of expense is not decisive of its nature whether revenue or capital. The purposes for which these expenses were incurred decide the nature as revenue or capital. If the expenses are incurred for running the business and are not creating any capital asset, the same Is revenue in nature but If the same expense is not for running the business but for creating new asset or for new projects, these expenses are capital In nature. Considering this, expenses like travelling, legal and professional ....
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....s allowable is revenue expense incurred wholly and exclusively for the purpose of business. Capital expenses are specifically not allowable under section 37 (1). For 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 for new business is allowable only after new business is set up. But capital expenditure is not at all allowable. The appellant's claim that expenditure 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 High Court)-head note in this decision is as under- "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Capital or revenue expenditure - Assesseecompany, which was eng....
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....roduct but the expense was held 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 case different then present line of business. Setting up of power plant cannot be equated with operating and maintaining the same. Assessee's existing business is not of setting up of new power plants. The object clause in memorandum is not relevant since all prospective and possible businesses are included in such memorandum of association. What is material is the existing business and not proposed businesses. Since the expenditures were incurred for new projects which are not for operation 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 revenue is considered, still appellant's case will not fall in this category. Appellant's facts are not similar to any of the case cited by the appellant in its favor. As against this, several Jurisdictional high court decisions are against the appellant&#....
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....dvisory services for bidding aforesaid project. The assessee company had qualified to participate in the bid process based on the financial strength of its parent company CLP Holdings Ltd., Hong Kong. The assessee company had proposed to set up this Power Project under the 'build, own and operate' basis. Pursuant to this bid, the assessee company had entered into an exclusive Agreement with the Korean Power Equipments Supplier to supply 2 units of 700 MWs imported coal based generating equipments on EPC itself near Kandla Port in Gujarat. The Consultancy Report in the area of Tax Insurance and other financial matters were obtained. Feasibility Report was compiled. However, the said project was awarded to Essar Power, the assessee company was not successful in getting the rights to set up, operate and maintain this power plant. The professional expenses were incurred at Rs. 2.62 crore on account of GUVNL and Rs. 8.06 lacs were incurred in travelling expenses. 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, exchange control legal, bid and corporate law matters. Further, payment of Rs. 37.23 lac....