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TMI Blog2016 (4) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Profit and Loss Account. This is the mandate of the Income Tax Act,1961 which has to be followed as the taxes can only be collected by the authority of law. In our considered view based on our above discussions and reasoning, the addition made by the A.O. and confirmed by the CIT(A) is ordered to be deleted. - Decided in favour of assessee - I.T.A. No. 4587/Mum/2013 - - - Dated:- 11-4-2016 - Shri Amit Shukla, Judicial Member And Shri Ramit Kochar, Accountant Member For the Petitioner : Ms. Aarti Sathe For the Petitioner : Shri B.S. Bist (Sr. DR) ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee company, being ITA No. 4587/Mum/2013, is directed against the order dated 04-03-2013 passed by learned Commissioner of Income Tax (Appeals)- 12, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2009-10, the appellate proceedings before the CIT(A) arising from the assessment order dated 29-12- 2011 passed by the learned assessing officer(hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961(Hereinafter called the Act ). 2. The grounds raised by the assessee company in the memo of appeal filed with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as per section 36(1)(ii) of the Act. The assessee company submitted that the same be added back to the total income of the assessee company. The A.O. observed that the assessee company has not debited the amount of ₹ 3,43,28,180/- to the profit and loss account although the expenditure was incurred , but the same was capitalized in the books of accounts as per the Companies Act and hence the amount which has not been debited to Profit and Loss Account cannot be allowed as deduction while computing income chargeable to tax under the Act . The assessee company has , however, stated that the said expenditure was revenue expenditure under the Act but the assessee company has not been able to explain under which provisions of the Companies Act and the Act this expenditure gets a different treatment and in absence of such explanation, the A.O. held that these expenditure are to be capitalized and the benefit of depreciation is to be granted to the assessee company as under: Amount to be capitalized : Rs.3,43,28,180/- less: depreciation@ 15% : ₹ 51.49,227/- &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rig number 8 and 10 are clearly revenue in nature as these rigs started working in the assessment year 2008-09. It was further submitted that the expenses incurred on the others are mainly revenue expenses and allowable as revenue expenditure. It was further submitted that interest paid on convertible debenture which were raised by the company for the purpose of business in financial year 2007-08 is fully allowable expenditure for the assessment year 2009-10 as business expenditure. It was further submitted by the assessee company that the A.O. has not considered the fact that during the year under consideration, the assessee company has earned a sum of ₹ 20,45,82,130/- towards mobilization charges. Out of the above sum, a sum of ₹ 3,07,00,820/- was received for the 1st mobilization of rig number 11 on 17/5/2008 and a sum of ₹ 6,13,20,000/- was received on rig number 9 on 23/6/2008 and accordingly, if the mobilization expenses are to be capitalized the receipts cannot be treated as income. The assessee company further submitted that during the course of survey held on 11.2.2010, the AO has not taken into account that the assessee company had declared an additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts rigs have been commissioned in the assessment year and therefore it cannot be held that the expenses incurred on them are capital in nature in spite of the fact that they were capitalized in the books of accounts. The assessee company submitted copies of invoices for usage of the concerned rigs. It was observed by the CIT(A) that no documentary evidence with respect to the inspection report, trial run report etc. was submitted by the assessee company.The CIT(A) also observed that no documentary evidences was submitted by the assessee company before the AO to establish the allotment of total expenditure capitalized to various rigs. The statement of the assessee company before the A.O. was that the interest amount of ₹ 52,25,592/- is to be capitalized as it relates to the period before the rigs were put in use. However, in the classification done by the assessee company to claim revenue expenses , the CIT(A) observed that the interest expenditure has been allocated to rig number 9 and 11 wherein the assessee company has claimed receipt of mobilization charges and has stated that expenditure on the same should be allowed as revenue expenses as the rigs had started functioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, the CIT(A) confirmed the order of the AO and held that there is no infirmity in the order of the AO treating the entire expenditure incurred for mobilization of rigs amounting to ₹ 3,43,28,180/- as capital in nature and adding the same to the income of the assessee company and allowing depreciation thereof , vide orders dated 04-03-2013. The CIT(A) rejected the alternate plea of the assessee company with respect to not adjusting by the AO of the amount declared as additional income of ₹ 1,25,00,000/- during course of survey proceedings against the assessee company u/s 133A of the Act on 11-2-2010 to cover the discrepancies in the books of accounts pertaining to the assessment year 2009-10, against the addition of ₹ 2,91,78,953/- made by the AO as the order of the AO did not contained any discussions on this issue as also the AO has made addition regarding capitalization of expenses and not disallowance of expenses. The AO has allowed the capitalization of expenses against which benefit will be available to the assessee company spread over different years by grant of depreciation. The CIT(A) held that the additional income offered for taxation by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the judicial decisions (i) CIT v. Triveni Engineering and Industries Limited (2009) 19 DTR 274(Del HC), (ii) India Cements Limited v. CIT 60 ITR 52(SC), (iii) CIT v. Lotte India Corporation Limited (2007) 290 ITR 248(Mad. HC.) (iv) Grasim Industries Ltd v. DCIT (1999) 64 TTJ (Mumbai-trib.) 357 (v) CIT v. Havells India Limited (2012) 352 ITR 376 (Delhi HC), and (vi) CIT v. Relaxo Footwears Limited 293 ITR 0231 (Del. HC). The assessee company also took an alternative plea that an amount of ₹ 1,25,00,000/- which was offered as an additional income as per declaration during survey proceedings on 11-02- 2010 u/s 133A of the Act, the benefit / credit should be allowed for the same. The assessee company submitted that the assessee company is in the business of hiring machines for drilling purposes which is a continuous business activity. 9. The ld. D.R., on the other hand, supported the orders of lower authorities and drew our attention to the submission made by the assessee company before the A.O. (copy placed at paper book filed with Tribunal) wherein the assessee company stated that expansion expenses were entirely funded by loan and hence there was huge liability on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en stated by the assessee company that rig no. 8 and 10 were working since preceding assessment year 2008-09 . Thus, it is stated that mobilization expenses incurred with respect to rig no 8 and 10 are clearly revenue in nature and are allowable as revenue expenditure as rig no. 8 and 10 are working since preceding assessment year. It is also stated that mobilization expenditure incurred on the other new rigs being 9 and 11 is also revenue in nature and allowable as revenue expenditure. It is further stated that debentures were issued and funds were raised in financial year 2007-08 for the business purposes for acquiring these additional new rigs and interest of ₹ 1,04,71,234/- is an allowable revenue expenditure. The assessee company has contended that rig number 8 and 10 were working since assessment year 2008-09 , while with respect to rig no 9 and 11 the first mobilization advance was received of ₹ 6,13,20,000/- with respect to rig number 9 on 23-06-2008 and ₹ 3,07,00,820/- was received for 1st mobilization of rig number 11 on 17-05-2008 i.e. both these first mobilization advances were received from GSPC during the impugned assessment, and these mobilization a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans the financial year immediately preceding the assessment year : Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year.] Charge of income-tax. 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year [* * *] of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness in the language of Section 2(11) and not expenses connected with the commencement of the business. Mr. Palkhiwalla says that if that be the correct approach, then the Tribunal has misdirected itself in considering the commencement of the business and not the setting up of the business. Let us try and understand whether there is any difference between the two expressions setting up and commenced and if so, what is the difference. It has often been said that the English language does not contain synonyms and every English expression must mean something different, however slight the difference, from any other expression. English language is full of nuances and if possible we must give a different meaning to the expression setting up from the expression commenced . Mr. Joshi very strongly relied on a judgment of Mr. Justice Rowlatt reported in Birmingham and District Cattle By-products Co. Ltd. v. Commissioners of Inland Revenue [1919] 12 Tax Cas 92. In that case the assessee company was incorporated on the 20th of June, 1913, and between that date and the 6th of October, 1913, the directors arranged for the erection of works and the purchase of plant and machinery, and ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression setting up means, as is defined in the Oxford English Dictionary, to place on foot or to establish, and in contradistinction to commence . The distinction is this that when a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to 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). Now applying that test to the facts here, the company actually commenced business only on the 1st of November 1946, when it purchased a ground-nut oil mill and was in a position to crush ground-nuts and produce oil. But prior to this there was a period when the business could be said to have been set up and the company was ready to commence business, and in the view of the Tribunal one of the main factors was the purchase of raw materials from which an inference could be drawn that the company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any admittedly since earlier year s. The business and source of income of the assessee company is same and continuing i.e. charter hiring of these rigs and in expansion thereof of the same existing and continuing business of chartered hiring of rigs, these additional rigs are acquired by the assessee company and installed at clients site for oil drilling where it is commissioned with completion of mobilization and made operational by commencing the work of drilling oil for the client. Thus, the mobilization expenditure are incurred in connection with newly acquired rigs prior to the completion of mobilization of rigs , commissioning of rigs and rigs becoming operational at client s site. The said mobilization expenditure so disallowed by the authorities below even in the interregnum period before mobilization being completed and the rigs getting commissioned and operational at client site cannot be held to be capital expenditure rather these mobilization expenses with respect to new rigs imported by the assessee company by way of expansion of existing and continuing business of charter hiring of rigs are revenue expenditure in nature keeping in view that the said new rigs are avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be allowed as revenue expenditure. The interest paid by the assessee company on the borrowings for acquisition of the rigs is toward the business of the assessee company as these new rigs are available for being given on hire and ready to be put to use immediately on their acquisition by the assessee company as per the charter hiring business of the assessee company and is to be allowed as revenue expenditure towards the interest which was paid by the assessee company on borrowings in connection with acquisition of these new rigs and provisions of Section 36(1)(iii) of the Act stood complied with. The decision of Hon ble Apex Court in the case of India Cements Ltd. (supra) and Hon ble Madras High Court in the case of Lotte India Corporation Limited(supra) supports the case of the assessee company. The benefit of interest as revenue expenditure which was paid on the borrowings raised by the assessee company in connection with the acquisition of these new rigs cannot be denied to the assessee company as the same was incurred for acquiring the new rigs for giving on hire and these rigs are ready to be put to use from the time these rigs are acquired by the assessee company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. Circular No. 14(XL-35) of 1955, dated 11.4.1955, issued by the Central Board of Direct Taxes reads as under: Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a tax payer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assesses on whom it is imposed by law, officers should (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law.Circular No. 14(XL-35) of 1955, dated 11.4.1955, issued by the Central Board of Direct Taxes reads as under: Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a tax payer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assesses on whom it is imposed by law, officers should (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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