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TMI Blog2013 (9) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... themselves in this regard by laying emphasis on flow of revenue as a condition precedent for coming to a conclusion that business of the Assessee has been set up as the flow of revenue from supply of water is not relevant as has been laid down in the case of CIT v. Sarabhai Management Corpn. Ltd. (1991 (8) TMI 6 - SUPREME COURT ). - In fact in the past the revenue has been taking a stand that flow of water through the canal would be the point of time when the business of the Assessee can be said to be set up. When that happened, the revenue is taking a stand that there should be flow of revenue on supply of water and only then it can be said that the business of the Assessee has been set up. This apparent contradiction in the stand taken by the Revenue is not acceptable, thus the stand taken by the revenue regarding absence of flow of revenue would be irrelevant. As the business of the Assessee was set up on 21.2.2001 when water was supplied through the main canals and all revenue expenditure after that date have to be allowed as deduction. As on pursuing the details of Schedule-I to the Balance Sheet as on 31.3.2001 which gives the break of the incidental expenditure pending c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried the matter before CIT(A). CIT(A) vide order dated 29.10.2008 granted partial relief to the assessee. Aggrieved by the aforesaid order of CIT(A), Revenue is now in appeal before us and the Assessee has also filed Cross objections (CO). The effective grounds raised by the Revenue read as under: 1. The learned CIT(Appeals) has erred in law and on facts in directing the A.O. to allow the claim of the assessee under the head "incident expenditure pending capitalization" holding that the assessee Corporation was already set up and commenced business. 2. The learned CIT(Appeals) has erred in law and on facts of the case in directing the A.O. to treat the income from other sources cr Rs.26.35 Crores as business income and allow expenditure being incidental expenditure pending capitalization in computing income/loss under the head business. 3. The learned CIT(Appeals) has erred in law and on facts of the case in directing the A.O. not to apply the cost sharing formula as determined by the Narmada Wafer Tribunal for determining the cost of assets owned by the assessee for the purpose of depreciation. 4. The learned CIT(Appeals) has erred in law and on facts of the case in direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily is concerning the Assessing Officer not even allowing this amount. The action of the Assessing Officer in refusing the set off of these expenses on the ground that assessee may. in future, capitalize some of them and may claim depreciation thereof, may not be a very sound logic. If a claim is valid and legal, the Department is duty bound to allow it and it is for the Department to develop its system in terms of proper recording in the assessment order or in internal notes that if there is a duplicate claim in the subsequent year, the same can be checked and counter acted. Further, the Assessing Officer's action in theoretically reducing the claim to the extent of the Government of Gujarat's share in the overall cost of the project vis-a-vis the other participating States is also not upheld in view of having held earlier that the appellant-company is a distinct entity from the Government of Gujarat. - Therefore, considering all the facts, I think, the assessee is entitled for the claim of expenses to the extent of Rs.48.69 Cr; against its business income. 8. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 9. Before us, the Ld.D.R. relied on the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in assessee's own case (supra). Hence, this ground of Revenue's appeal is dismissed. 11. Before us, the Revenue could not bring any material on record to controvert the finding of CIT(A). In view of the aforesaid facts, and respectfully following the decision of co-ordinate bench, we find no reason to interfere with the order of CIT(A) and thus uphold the order of CIT(A). Thus this ground of Revenue is dismissed for both the years. 12. 2nd ground is with respect to treating income of Rs 26.35 crore as business income: 13. During the course of assessment proceedings AO noticed that the canal has been built for the purpose of irrigation. He was of the view that there should be proof that the distributaries and branch canals which have been built are in operation to carry the water of the main canal for irrigation. He was of the view that the income earned from sale of water by pumping out the water from the dam or canal to water resource water supply and Kapsar Department was only an incidental income from the sale of water and cannot be termed as proof of use of main canal for the purpose of business of irrigation. He was further of the view that main canal, branch canal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Special Bench in Assessee's own case (ITA No. 2654/Ahd/2004 order dated 7.09.2012 has held that the business of Assessee was set up on 21.02.2001 when water was supplied through the main canals. He thus supported the order of CIT(A) 15. We have heard the rival submissions and perused the material on record. We find that CIT(A) while granting relief has noted that his predecessor after relying on the order of tribunal in Assessee's own case has decided the appeal in Assessee's favour. Further the Special Bench of Tribunal ITA No. 2654/Ahd/2004 order dated 7.09.2012 has held that the business of Assessee was set up on 21.02.2001 when water was supplied through the main canals. Before us, the Ld. D.R. could not bring order of High Court where the decision on the aforesaid issue has been reversed. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A). Thus this ground of Revenue is dismissed. 16. 3r ground is with respect to non application of cost sharing formula for the purpose of depreciation: 17. This ground is identical to that of ground no 2 3 of ITA No 838/Ahd/2010. 18. AO noted that "Sardar Sarovar Narmada Project" was in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer's action of holding that cost of assets in the hands of the appellant has to be restricted as per cost-sharing formula determined by the Tribunal. 3.3.1 As far as the issue of "Indira Sagar Dam" is concerned , obviously the accounting treatment given by the appellant is incorrect on the basis of appellant's own logic. Hence while giving appeal effect, the Assessing Officer is directed not to treat whose assets as belonging to the appellant, with its due follow up consequences like withdrawal of depreciation. 19. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. Before us, Id.D.R. relied on the order of AO. On the other hand Id.A.R. reiterated the submissions made before CIT(A) and supported his order. 20. We have heard the rival submissions and perused the material on record. CIT(A) while granting the relief to Assessee has noted that the Assessee is a separate company for implementation of the project and its share capital was subscribed by Govt of Gujarat. He has further noted that the costs are met by the Assessee which is independent of the arrangement among the participating states and the transfer of funds between one of the states to Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved and see whether these deals involved buildings and the land appurtenant or the land was sold separately. In case of the former position, appellant's stand shall be correct. In case of latter, capital gains shall be chargeable for the transaction concerned. 23. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. Before us, Ld.D.R. relied on the order of AO and on the other hand Ld.A.R. submitted that CIT(A) has directed the Assessing Officer to make certain verification and then decide the issue and therefore no prejudice was caused to Revenue. He thus supported the order of CIT(A). 24. We have heard the rival submissions and perused the material on record. We find that CIT(A) has directed the AO to scrutinize the details of sale of land and verify as to whether the sale was of land alone or it included building and whether the land and building were sold separately. CIT(A) has thus directed to decide the issue after verification of facts. Before us Id D.R. could not point out any shortcoming/error in the order of CIT(A). We therefore find no reason to interefere with his order. Thus this ground of Revenue is dismissed. 25. 5th Ground Is with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts are to be assessed as income from other sources and not as income from Business Profession of the Nigam. 3. The learned CIT(A) has also erred in holding that interest u/s. 234B 234Dare mandatory inspite of the fact that the appellant has submitted that interest is not chargeable. 4. The learned CIT(A) has also erred in not considering an alternative ground of appeal that Profit arising on account of business of power generation has to be held as exempt u/s. 80IA(4) of the Income Tax Act, 1961 30. Gr. No 1 is inter-connected with ground no 3 of ITA No 166/Ahd/2009. Since the ground of Revenue has been decided against Revenue and in favour of the Assessee the present ground of Assessee becomes infructuous and therefore dismissed. 31. Gr. No 2 is with respect to holding rent of residential bldg and other misc. Receipts as income from other sources. 32. CIT(A) decided the issue by holding as under:- 6.2 It is seen that the appellant has shown its entire income as business income. As per the statement of computation of income, the sources of business income have been claimed to be the following: Particulars Amount Rs. (Cr.) Sale of water ..... X X X X Extracts X X X X X X X X Extracts X X X X
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