TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1316
X X X X Extracts X X X X
X X X X Extracts X X X X
....penses incurred as pre-operative expenses is erroneous and unwarranted. 4. The learned NFAC has erred in treating income of Rs. 12,34,61,000/- as "Income from Other Sources" as against "Income from Business and Profession". 5. The Appellant prays that the income of Rs. 12,34,61,000/- be treated as "Income from Business or Profession" instead "Income from Other Sources". 6. The learned NFAC has erred in treating the amount of Rs. 15,47,000/- being exchange fluctuation in respect of foreign currency loan given to overseas party and hence, not in nature of taxable income. 7. The Appellant prays that the addition of Rs. 15,47,000/- to total income should be deleted. 8. The learned NFAC has erred in restricting the brought forward business loss to Rs. 1,50,64,225/-. 9. The Appellant prays that the set off of brought forward business losses to be granted for Rs. 10,59,57,718/-. 10. Each one of the above grounds of appeal is without prejudice to any of the others." 3. Ground no.1 is general and therefore the same needs no separate adjudication. 4. Grounds no.2 and 3 raised in assessee's appeal pertain to disallowance of expenditure incurred by the assessee, which are debit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ogress and claimed part of the expenditure totalling Rs. 23,19,15,000 as revenue expenditure. The AO, by referring to the submission of the assessee that the power project normally takes 4 to 6 years for completion, held that there is no question of generating any revenue and therefore, the entire expenditure incurred till the completion of the project is required to be treated as pre-operative expenditure. 7. The learned CIT(A), vide impugned order, upheld the findings of the AO in treating the expenditure debited to the profit and loss account as pre- operative expenditure. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorized Representative ("learned AR") submitted that the assessee was incorporated in the year 2008 with the object setting up of Thermal Power Project, and in this regard, had undertaken various activities such as applying for procurement of power for long term from Gujarat Urja Vikas Nigam Ltd. ("GUVNL"), entering in Power Purchase Agreement with GUVNL, acquisition of plots of land aggregating to 198.82 hectare, availing permission/clearances from various authorities, acquisition of equipment and other assets for ru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re-operative expenditure and rejected the claim of the assessee. The primary contention of the assessee is that the allowability of expenditure is not dependent on earning of income during the year, and for allowability of the same, the expenditure must be incurred "for the purpose of business". Thus, as per the assessee, so long as the expenditure is incurred for the purpose of business, it is to be allowed as a deduction, irrespective of the fact that the assessee had any income from its business operations during the year under consideration. It is further the plea of the assessee that the expenditure incurred by the assessee after setting up of the business and before the commencement of the business is allowable and since in the present case, the assessee after its incorporation on 28.05.2008 had undertaken various steps for setting up of the Thermal Power Project in the state of Gujarat, therefore, the expenditure debited to the profit and loss account, during the year under consideration cannot be considered as pre-operative in nature. 11. In this regard, during the hearing, reference was made to the Power Purchase Agreement entered into by the assessee with GUVNL on 15.05.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions under section 10(2)." 13. Therefore, in case of a business, the date of setting up of business is relevant and only the expenditure incurred after the business is set up can be claimed as permissible deduction, and all the expenditure till the time of business is set up, even if revenue in nature, would have to be capitalised. 14. We find that while deciding the similar issue in case of a taxpayer who was engaged in establishing captive power plant, the Co-ordinate bench of the Tribunal in Orient Green Power Company Ltd. vs. ACIT, reported in (2022) 138 taxmann.com 303 (Chennai-Trib), after considering various steps taken by the taxpayer for setting up the business held that the business has already been set up as the assessee undertook of preliminary steps to commence the business. The relevant findings of the Co-ordinate bench of the Tribunal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the project site along with details of water availability. Pursuant to the same, the assessee had submitted detailed project report (page nos. 142 to 245 of the paper-book) as early as during October, 2008 giving all the vital details including technological framework and plant configuration, construction & layout including operations and maintenance. The list of the Equipments, cost of project, means of finance, profit projections etc. were also detailed in the report. 12. Proceeding further, the assessee has issued letter of intent to a vendor namely M/s Shriram EPC Limited to carry out Engineering, procurement and construction (EPC) work for 10MW Bio-Mass Power Plant on 23-5-2009 wherein the vendor was to undertake EPC work after placing orders for necessary equipment (253-254 of the paper- book). The assessee had also made an application for environment clearance certificate from state level expert appraisal committee to carry out the project. The assessee also entered into memorandum of agreement with M/s D.Y. Patil Sahakari Sakhar Karkhana Ltd. to set-up 20MW cogeneration plant utilizing the bagasse generated from the Sugar Plant on Built, Operate and Transfer basis at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....011. Therefore, the assessee was not ready to produce the power till 4-7-2011 and hence, the business was not set-up. However, the said reasoning stresses the proposition that expenditure could not be allowed till the generation of income. The said reasoning overlooks the various vital documentary evidences furnished by the assessee in support of the fact that the business had already been set- up. We are of the considered opinion that the generation of actual business income was not an essential element to allow the business expenditure. What was required to be seen was whether the business had been set-up or not. In view of our observations in the preceding paragraphs as well as keeping in view the ratio of various judicial pronouncements as cited before us by Ld. AR during the course of hearing (preceding para-2), it could safely be said that the assessee's business had set-up during AY 2009-10 itself and therefore, the expenditure as claimed by the assessee would be allowable deductions." 15. It is also pertinent to note that in the aforesaid decision, the Co- ordinate Bench of the Tribunal also emphasised the aspect that the generation of actual business income is not an ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenditure for earning this income. 20. The learned CIT(A), vide impugned order, upheld the conclusion of the AO on this issue and treated the income of Rs. 12,34,61,000 as income from other sources. Being aggrieved, the assessee is in appeal before us. 21. We have considered the submissions of both sides and perused the material available on record. During the year under consideration, the assessee received interest on bank deposits, interest from related parties and miscellaneous income, totalling Rs. 12,34,61,000, which was considered as business income by the assessee. It is an undisputed fact that this interest income was earned by the assessee from deposits maintained with the bank and loans/advances given to the sister concerns. According to the assessee, the advances given to the sister concerns were made from the funds generated by the issuance of non-convertible debentures, on which the assessee incurred finance costs. In the present case, it is pertinent to note that during the year under consideration, the assessee did not earn any revenue from operations, and as stated elsewhere, the same was the basis for disallowing the expenditure as pre-operative expenditure. It ....