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TMI Blog2017 (5) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... as completed under section 143(3) of the Act by making various additions / disallowances. 3. The first ground of appeal raised by the assessee is general in nature, hence, no adjudication is required. 4. The second ground of appeal relating to leave encashment of Rs.9,61,000/-. In the assessment order, the Assessing Officer has observed that the assessee has shown an amount of Rs. 45,41,000/- as provision for compensated absence for the financial year 2009-10, as against the amount shown of Rs. 35,80,000/- for the financial year 2008-09. During the course of assessment proceedings, the assessee has explained that the amount represent leave encashment payment to the employees, when the leaves are surrendered to the employer. The Assessing Officer felt that it is a contingent and unpaid liability and by considering the provisions of section 43B(f), difference amount of Rs.9,51,000/- was disallowed. 5. Before the ld. CIT(A), he reiterated the submissions made before the Assessing Officer. The ld. CIT(A) after considering the explanation of the assessee and also by following the decision of the Hon'ble Calcutta High Court in the case of Exide Industries Vs. Union of India (292 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed written submissions and submitted that all expenses incurred by the assessee are in connection with the business of assessee and incurred exclusively for the purpose of business and he also submitted Clause No.3 of objects clause of Memorandum of Association. The ld. CIT(A) after considering the submissions made by the assessee confirmed the order of the Assessing Officer by observing as under:- "11.3 I have considered the submissions. I have gone through the details of expenditure provided in the Arinexure-2 to the written submission. I find that the expenditure incurred are payment to consultants and professional for carrying out certain technical studies, surveys, analysis of project, site, feasibility of project, pre-bid traffic services, pre-bid engineering services, pre-tender technical advising services etc It is seen that these are essentially pre-bid expenses incurred prior to participation in the bid and allotment of projects, The assessee incurs these expenditure to enable its subsidiaries / associate companies to bid in the projects. The assessee do not bid for the projects. It was claimed that such activity is part of its business activity as per its memorandum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Corporation Ltd. [182 ITR 62 (Ker.)] b) CIT Vs. Tamilnadu Industrial Development Corporation Ltd., [215 CTR 90 (Mad.)] c) CIT Vs. Tata Robins Fraser Ltd., [253 CTR 227 (Jharkand)] d) Indo Rama Synthetics India Ltd. Vs. CIT [(333 ITR 18 (Del)] 12. On the other hand, Learned Departmental Representative strongly supported the orders passed by the authorities below and also submitted that the expenses incurred by the assessee on behalf of subsidiary companies and not for the business of the assessee. The Departmental Representative further pointed out that the expenses incurred by the assessee for the feasibility of the project in the process of bid, assessee may succeed or may not succeed. Therefore, these expenses incurred by the assessee cannot be said that exclusively for the purpose of business of the assessee and, therefore, order of the ld.CIT(A) may be upheld. 13. We have heard both sides, perused the material available on record and orders of the authorities below. 14. The assessee is a company engaged in the business of operation and maintenance of power plants. From the objects of the Memorandum of Association, we find that the assessee is carrying on various activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred by the assessee cannot be allowed for following reasons. The business of the assessee is that to identify the project and to study the feasibility of the project by obtaining various reports from the technical experts and to participate in the bid. If assessee is successful in the bid, it may keep project or may allocate it to subsidiaries or others. But it is not sure that all the time bid is successful, whether bid is successful or not, the assessee has to incur the expenditure in respect of legal and professional fee. The assessee undertakes project studies through various technical experts and has to decide whether project is feasible or not? The assessee has come to a conclusion that the project is feasible, it participates in bid/tender. Therefore, the expenditure incurred by the assessee is very much necessary for the purpose of carrying out the business, therefore, it has to be allowed. The ld.CIT(A) also observed that the expenses incurred by the assessee is not relating to deriving income admitted in the profit & loss account. As it already mentioned above, the assessee is rendering services to the subsidiaries and incurring various expenses and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ihalli-Hassan Section of NH-48, payment to NHAI, Delhi, PPP-India Infrastructure Publishing Pvt. Ltd., and so on. All these are the bidding process, however, Assessing Officer observed that these are early procurement stage or preliminary stage of tender, or submission of documents in the study stage of any service or feasibility of any service. This stage is very much important in project management. It determines the initial measure of profit in the project one of the functions of the assessee is working in infrastructure space by making bid/tender and promotes the subsidiaries as SPV for each types of work, as per the requirements. Hence, as per the functional test to determine the capital or revenue expenditure, this is the very important stage and success and profit of the assessee depends on this stage. So, this is the capital expenditure and becomes the part of the project. These expenses and payments are the preliminary expenses of the service/project/tender and by nature of such expenses; these expenses are capital in nature. Till the commencement of services/project, all expenses are disallowed as revenue expenses and capitalized. These expenses are not related to income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses cannot he said to be incurred in relation to or for deriving the income admitted in its P&L account and do not partake the character of revenue expenditure, in view of the above discussion, these expenditure are held to be not allowed u/s.37(1). I find that the disal lowance made by the AD is justified. The impugned addition made is confirmed. This ground of appeal is dismissed." 21. On being aggrieved, assessee carried the matter in appeal before the Tribunal. 22. Learned counsel for the assessee submitted that the business of the assessee is to identify the project and study the feasibility of the project and participate in the bid/tender. Unless and until, assessee participates in bidding/tender, he cannot carry on its business. Therefore, submitted that the expenditure incurred by the assessee is wholly and exclusively for the purpose of business. 23. On the other hand, Departmental Representative supported the orders of the authorities below. 24. We have heard both the sides, perused the material available on record and orders of the authorities below. 25. The Assessing Officer and ld. CIT(A) are of the opinion that the expenses incurred by the assessee are pre-b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a finding that the assessee has not filed any details in respect of expenses incurred and also not able to substantiate its claim, therefore, scaled down the disallowance made by the Assessing Officer to the extent of 10% and accordingly appeal filed by the assessee was partly allowed. 28. On appeal before us, the assessee is not able to file any details and it is not able to substantiate its claim to prove that impugned expenditure comes under the purview of section 37 of the Act. In view of the above, we find that the estimation made by the ld. CIT(A) scaling down the disallowance from 25% to 10%, is fair and reasonable, hence, no interference is called for. Thus, this ground of appeal raised by the assessee is dismissed. 29. In the result, appeal filed by the assessee is partly allowed. ITA No. 323/VIZ/2014 30. The Revenue has raised the following grounds of appeal:- "1. The CIT(A) erred both on facts and in law 2. The CIT(A) ought not to have admitted 'h additional evidence furnished by the assessee during the appellate proceedings in violation of rule 46-A of the I.T. Rules. 3. The CIT(A) ought to have remanded the additional evidence submitted during the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount voluntarily disallowed by the assessee of Rs. 2,64,13,699/- is an amount to be disallowed under section 36(1)(iii) and not under section 14-A. The Assessing Officer also noted that considering the cash flow statement, it is evident that an interest bearing fund has been utilized for non-business purpose. The Assessing Officer also noted that there is no business nexus in regard to the amount advanced to the trust. Since the total interest paid was Rs. 86,42,000/-, the balance interest of Rs. 18,69,740/- was disallowed and added back to the total income of the assessee. 33. Before the ld. CIT(A), the assessee filed a detailed written submissions, which is reproduced as under:- "Ground No.4 is against disallowance of Rs. 18,69,740/- out of interest stating that the appellant had given interest free loan of Rs. 10 crores to GVK Employee Welfare Trust and further stating that "it is evident that it is the interest bearing fund, which was diverted for non business purpose". In this regard, the appellant submits that it had given interest free loan of Rs. 10 crores to GVIK Employees Welfare Trust on 06-08-2009 out of redemption of certain mutual funds which were earlier made out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT(A), hence, this ground of appeal raised by the Revenue is dismissed. 35. The next ground of appeal relating to business loss of Rs.11,75,000/-. In the assessment order, the Assessing Officer has noted that the assessee has claimed an amount of Rs. 11,75,000/- and called upon the assessee to provide necessary details. It was submitted before the Assessing Officer that the said amount was advanced to M/s.Pluto Software Pvt. Ltd. for relocation of liaison office. It was further submitted that as this transaction did not materialize, the assessee had to forfeit the money advanced as per agreement. The Assessing Officer after considering the above explanation of the assessee, he has observed that the amount forfeited by the customer is not a trade debt and hence, it is not allowable under section 37 of the Act and disallowed the same. 36. On appeal ld. CIT(A) gave a finding that the assessee has claimed the above amount as per agreement entered with M/s. Pluto Software Pvt. Ltd. and the transaction does not pass through as agreed. Therefore, the amount forfeited would take the character of business loss and is allowable under section 37 of the Act and directed the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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