TaxTMI 
TaxTMI 
2026 (8) TMI 1045
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....dmitted for consideration of following question of law by order dated 28.02.2011: "Whether the Appellate Tribunal is right in law and on facts in quashing the order passed by CIT u/s. 263 of the Act?" 4. The brief facts of the case are as under: 4.1 For the Assessment Year 2003-04, the assessee Company filed return of income on 29.10.2003 declaring total income of Rs. 39,72,59,199/-. The case of the assessee was taken up for scrutiny and the Assessing Officer passed an order dated 30.11.2005 under Section 143(3) of the Act determining the total income of Rs. 50.43 crores. Along with return of income, the assessee had filed the audited books of balance-sheet along with statutory reports of the auditors. The assessee also produced books of Accounts and various other relevant documents before the Assessing Officer during the course of assessment proceedings. The assessee had debited an amount of Rs.10.90 crores paid by way of contribution to Gujarat Electricity Board (for short 'GEB') for augmenting the transmission network and claimed the same as revenue expenditure. The Assessing Officer also raised a specific query at item Nos. 30 and 31 of the Notice under Section 1....
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.... purposes and no addition was made on that count. However, there is no discussion in the assessment order on this regard. 4.3 Thereafter, notice under Section 263 of the Act was issued by the Principal Commissioner of Income Tax (for short 'the PCIT') dated 12.02.2008 calling upon the assessee as to why the assessment order should not be revised as, the PCIT was of the opinion that the amount of Rs.10.90 crores of expenditure debited to Profit and Loss account towards contribution to GEB as one time payment, could be capital expenditure and at the same time could not have been allowed by the Assessing Officer under Section 37(1) of the Act. 4.4 After considering the submissions made by the assessee and perusal of the record, the PCIT was of the opinion that the assessment order is erroneous and prejudicial to the interest of the revenue. 5. Being aggrieved, the assessee preferred an appeal before the Tribunal contending, inter alia, that the amount of Rs.10.90 crores was paid by the assessee to the GEB as part of the profit making apparatus for the purpose of earning income and, therefore, the same cannot be considered as a capital expenditure in view of the correspondence....
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....ssessment to the file of the AO, on this issue, by stating that this expenditure is in the nature of capital and therefore cannot be allowed u/s. 37(1) of the Act. From the case records it is noticed that the assessee has claimed augmentation charges debited to P&L Account on account of Service Line Contribution to GEB as revenue. As per section 37(1) of the Act, expenditure is allowable not being expenditure in the nature described in sections 30 to 36 and not in the nature of capital expenditure or personal expenditure of the assessee but laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the total income chargeable under the head "Profits and gains of business or profession". We find that the assessee company was purchasing its We entire requirement of power from GEB and GEB was supplying power in bulk at 11 Nos. 66 KV sub stations of Torrent Power SEC Ltd. (TPSL) spread in 53 Sq. KM area of Surat. For meeting the load growth GEB had to augment their transmission network depending on the are in which such augmentation was required for power requirement of TPSL. As per the conditions of supply of power ....
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....se conditions, G.E.B. asked the assessee-company to pay the amount immediately so that the work can be commenced. It is clear that the assessee contributed the impugned sum of Rs.10.90 crores as one time payment by way of augmentation charges wholly and exclusively for business purposes with a view to run the business more efficiently. The assessee under the terms and conditions clearly prescribed by the G.E.B, never became the owner of the additional service lien and therefore, the assessee-company did not derive any enduring benefit. The sole purpose and intention to incur this expenditure was to augment the capacity of the existing business of supply of electricity power. In view of the above facts and the case laws of Hon'ble jurisdictional High Court of Sarabhai M. Chemicals Pvt. Ltd. (supra) and of Hon'ble Bombay High Court of Excel Industries Ltd. (supra), we are of the view that expenditure incurred by the assessee for service line was allowable as revenue expenditure and the revision order passed by CIT is without jurisdiction, reason being that there is no error in the order of the Assessing Officer so as to cause prejudice to the interest of revenue. Accordingly,....