TaxTMI 
TaxTMI 
2014 (2) TMI 1365
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.... 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 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 r....
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....08 that the assessee is engaged in inter alia in business of Development of Power Project and operation 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 ....
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.... at the cost of repetition it is submitted that during the year the company has initiated several projects. The detailed note on each project and its status and reasons for scrapping the project are as follows: a. ULTRA 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 recei....
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.... obvious that all these expenses are basically 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 materialized, the consequential 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 assess....
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....eld that expenses incurred by the assessee towards the new project of Rs. 4,75,07,667/-. Hence, same were disallowed by the A.O. 4. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who has dismissed the assessee's appeal by observing as under: "3.3 I have considered the facts of the case, assessment 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 revenu....
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....ilar line of business or for supporting the existing business but still such expenses were held to be capital in nature because these were relating to new capital asset to be created in new project. The distinction of existing line of business is not there in Section 37 (1). Any type of capital expense incurred for existing business 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). 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 appe....
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....an asset or advantage into existence and having enduring benefit - 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 materialized will not be allowable as revenue. In this case also, new project was in the same line of business with new product 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....
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.... The substantial part of the expenses was incurred for 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. Price Waterhouse Coopers (PWC) who has assisted the assessee company on tax, exchange, control and corporate law matters in connection with the 4000 MW coal fired pit head power plant. The payment worth Rs. 73.85 lacs was made by the assessee company to various parties for other advisory 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....
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....ration and maintenance fees received from M/s. Gujarat Paguathan Energy Corporation Pvt. Ltd., other income 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 the various heads on new project. As per memorandum of association and article of association, the assessee has various main objects but as per statement of facts, the assessee had provided services to Power Plant on mobilization phase and operational phase. During the year under consideration, the assessee company had submitted bids 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 Ultra Mega Power Project, Gujarat, Gujarat Imported Coal, MP Distribution, Project Prakriti Maharashtra, Project Cobra Maharashtra, Rainbow, Shikarpur Wind Project, Gujarat, Project Blackstone, Haryana/MP, Project Nagpur Distribution & Ratan Wind Project Rajasthan, which were abandoned and had not materialized. Thus, it is clear from the facts that assessee was rende....