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TMI Blog2011 (6) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... ldia Petrochemical Ltd. (HPL) in connection with setting up of a petrochemical plant in West Bengal . The return of income was filed declaring total income of ₹ 13,02,55,470/ -. However, the assessment was completed at an income of ₹ 15,35,19,800/ - vide order dated 21.2.2006 passed under section 143(3) of the Income Tax Act, 1961 (the Act ) . On appeal , the learned Commissioner of Income Tax (A) partly allowed the appeal . 3. Being aggrieved by the order of the learned Commissioner of Income Tax (A), the assessee is in appeal before us. 4. Ground No.1 is against the sustenance of disallowance of expenses of Dabhol Power Project of ₹ 1,52,87,952/ - . 5. The brief facts of the issue are that during the course of assessment proceedings, the AO interalia observed that the contract with DPC was terminated with effect from 17.6.2001 for the default in payment by DPC. The Petrochemical Project at Haldia had been completed in past . During the year the project of f ice was actively pursuing i ts claim made against the DPC at the same time exploring the possibility of reviving the project. Also during the year the project of f ice was engaged in regulatory compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after considering the assessee's submissions observed that i t is a fact that the PetroChemical Project in West Bengal has been completed and the contract with DPC has been terminated effective 17 June 2001. Also there is no business income in both the project during the year . It is only other income shown by the assessee in both the projects. Therefore, any expenditure is not allowable against these unearned income shown by the assessee under the head "other income" in both the project and the case laws relied upon by the assessee-company are enti rely different than the facts of the assessee's case. The AO after relying on certain decisions appearing at page 5 of the assessment order held that the expendi ture claimed by the assessee against the income from both the projects shown by the assessee is not allowable as there was no business activity carried on by the assessee during the year. Besides the above, the AO further observed that in the absence of any details furnished by the assessee, deduction under section 44C of the Income Tax Act, 1961 (the Act) is also not allowable. The AO further observed that the assessee has claimed a deduction of ₹ 2,11,581/ - being dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laces outside India where they could be used. Besides demobi l izing i ts equipment, material and manpower , assessee was also engaged in pursuing i ts dispute with DPC for the amounts receivable f rom DPC towards the cont ract. The learned Commissioner of Income Tax (A) af ter relying the ratio of certain decisions appearing at pages 8 to 10 of his order has held that the assessee had no business during Financial Year 2002-03 and was not entitled to deduct ion of any business expenditure. Claim of expenses of ₹ 1,52,87,952/- made in the return of income is therefore not in order . The AO has rightly disallowed. Income of the Dabhol Project shall be taken at ₹ 59,90,915/ - as shown in the books. The learned Commissioner of Income Tax (A) on the issue of disallowance of payment of ₹ 2,11,581/ - to the Sales Tax Authorities after examining the nature of payment held that in the event of business expenditure being allowable to the assessee, the disallowance to the extent of two payments of ₹ 1,13,840/ - and ₹ 5,000/ - is confirmed and deleted the disallowance of payment of ₹ 92,741/ -. 7. At the time of hearing, the learned counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 ITO V/s Mokul Finance (P) Ltd. (2007) 110 TTJ (Del ) 445 6 ITO V/s Mrs.Vanishree Karunakaran (2003) 86 ITD 273 (Chennai ) 7 Commentary by Chaturvedi & Pithisaria (Fifth edition, Vol-1 page (1369-70) In the light of the above, he submits since the assessee has filed complete details of expenses, break up of which is appearing at pages No.13,18 and 35 of the assessee's paper book, the learned Commissioner of Income Tax (A) was not justified in sustaining the disallowance of expenses of ₹ 1,52,87,952/ - made by the AO and therefore the disallowance made by the AO be deleted. 8. On the other hand, the learned D.R. while relying on the order of the AO and the learned Commissioner of Income Tax (A) submits that since the complete facts of revival of DPC project was not before the AO, therefore, in the interest of justice the issue may be set aside to the file of the AO. 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. We further find that it is also not in dispute that the DPC project was not completed but was temporarily terminated with effect from 17,6,2001. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. 15. In Mrs.Vanishree Karunakaran (supra) i t has been held that the assessee having incur red expenditure towards interest on borrowals taken for business i t cannot be said that there was no business loss simply because there was nothing on credit side of the P&L account owing to temporary lul l in the business; cur rent year's loss from business can be set of f against the cur rent year's profit from the profession carried on by the assessee in view of section 70 of the Act. 16. Applying the ratio of the above decisions to the facts of the present case and in absence of any contrary decision ci ted by the learned D.R. and keeping in view the documentary evidence f i led by the assessee to show that the assessee got extension of project office from the RBI till 3.09.2006 and in March 2006 i t entered into an agreement with Bharat Heavy Electricals Limited in relation to the revival of the DPC Project and also keeping in view that in the subsequent assessment years 2006-07 and 2007-08 the AO has also accepted the same, we are of the view that the assessee has proved that the assessee has revived i ts business. Mere inactivi ty for a l imi ted period does not mean th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NGC Network Asia LLC, (supra) i t has been held that when the duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be imposed on the payee assessee under section 234B of the Act. Respectfully following the decision of the Hon'ble Jurisdictional High Court in M/s NGC Network Asia LLC, (supra), and consistent view we are of the view that there is no defaul t on the part of the assessee and hence no interest can be charged under sections 234B and 234C of the Act and the same is deleted. The ground taken by the assessee is therefore al lowed. 25. Ground No.5.1 to 5.4 read as under : "Settlement of claims 5.1 The appel lant submi t that no demand can be raised upon them by vi rtue of the duly executed and legal ly binding Deed of Release signed on July 12,2005 by the Government of the Republ ic of India (hereinaf ter refer red to as "GOI ") (Minist ry of Finance). In accordance wi th the GOI Deed of release, no claims/demands for taxes or tax assessments, relating to the Dabhol Power Project, in excess of US$3mi l l ion, including amounts al ready paid, can any longer be made upon the appel lant , as described ful ly in the terms of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i ty on the set tlement payments [as def ined in settlement agreement] the transactions contemplated and claim being compromised thereby would in the event i t exceeds 3 mi l l ion US $ be paid by Maharashtra Power Development Corporation Ltd. and no claim shal l be made against Bechtel par ties for any such addi tional amounts. Copies of the Set tlement Deed and Government of India's Deed of Release have been placed on record. It has been contended that the assessee has paid more than 3 mi l l ion US $ by way of tax and therefore, no further tax is payable by the assessee in respect of the transactions. 5. The parties before us agreed that the issues raised in the grounds of appeal deserve to be restored to the f i le of the Assessing Officer for the purpose of examining the claim of the assessee that in the light of the Deed of Release by the Government of India and the Settlement Agreement, the additions made by the Assessing Officer are rendered inconsequential , in so far as no tax would be payable by the assessee in excess of 3 million US $. We accordingly restore the grounds of appeal raised before us to the f i le of the Assessing Officer for the purpose of examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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