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TMI Blog2018 (9) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax-8(1), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 10/11/2009 wherein the income of the assessee was assessed at Rs. 'Nil' after set-off of brought forward losses of Rs. 10.11 Crores as against 'Nil' return e-filed by the assessee on 31/10/2007. The assessee, being resident corporate assessee was engaged in the business of project development activities during the impugned AY. The assessee has suffered disallowance of Rs. 324.99 Lacs on account of advances/investment written off, which are the sole subject matter of this appeal. The material on record suggests that the name of the assessee has been changed from Birla Project Development Co. Ltd. to Aditya Birla Power Co. Ltd. 2. During assessment proceedings, it was noted that the assessee had debited an amount of Rs. 324.63 Lacs on account of advances written-off and Rs. 0.36 Lacs as investments written-off in the Profit & Loss Account. The assessee defended the same vide letter dated 30/10/2009 and submitted that it was pursuing LNG power project in consortium with certain other entities as selected by Tamil Nadu Industrial Development Corporation Ltd [TIDCO]. The joint venture was being carried in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Year Amount Purpose 1 Upto 2002 3,07,09,371 TIDCO Bidding cost, document fees, processing fees, legal/professional fees for company set up/bidding expenses, office set up expenses. 2 2002-03 6,60,000 Success Fees 3 2003-04 9,92,610 Advance payment made for office maintenance 4 2004-05 5,06,460 Advance payment made for office maintenance 5 2005-06 4,43,000 Advance payment made for office maintenance 6 2006-07 (8,47,658) Recovery of amount from TNLNG Total 3,24,63,783 3.3.2. A perusal of the same revealed that the appellant had incurred capital expenditure. The detail of these payments and the persons to whom the payment has been made was not given. Moreover, the write off u/s.36(vii) r.w.s. 36(2) is not permissible for the reason that the conditions of both the sections are not fulfilled. It is a settled position of the law that all expenditure and losses incidental to business and allowable as per commercial accounting principles have to be deducted to arrive at profits chargeable to tax. However, if specific prohibitions to allowance of expenditure have been imposed under the Act, then such expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 37(1). It therefore appears that the appellant having failed in its claim under a specific section is now trying to seek its claim under other omnibus sections which in my opinion is not permissible as stated supra. 3.3.5. Without prejudice to the forgoing it is observed that debt denotes not only the obligation of the debtor to pay but also the right of creditors to receive and enforce payment as observed by the High Court of Punjab in CIT vs. Basumal Jagat Narain (38 ITR 447). But on the bad debts, the Calcutta High Court in Hongkong & Shanghai Banking Corporation vs. CIT (28 ITR 199) has observed that the bad debts will always mean debt of which the chance of recovery is nil or slender. The basic conditions which need to be satisfied for claiming deduction for bad debts are as under: 1. There has to be a debt which has become bad in respect of the business carried on by assessee or the loan is granted by the assessee in the course of the business of banking or money lending. 2. I has been taken into account in computing the income of the assessee in the year in which such debt is written off or in the earlier years. 3. It is written off in the accounts of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up concerns to obtain financial assistance to carry out the projects being perused by the respective project companies. In terms of clause (3) of the said MOU, the assessee was entitled for reimbursement of third party expenses incurred by him upon financial closure of the project. Besides this, the assessee was also entitled for certain development fees upon financial closure of the project. 5.2 The Ld. AR, on the strength of documents placed in the paper-book, submitted that the said project could not be successful and therefore, the management decided to abort the same and accordingly the project expenditure, which was hitherto, being reflected as advances recoverable in the Balance Sheet was written-off in the Books of Accounts during impugned AY and therefore, the same was allowable to the assessee. Upon perusal of the financial statements for impugned AY, we find that the assessee has written-off an amount of Rs. 324.63 Lacs as advances writtenoff & an amount of Rs. 0.36 Lacs as investments written-off under the head administrative and other expense, the explanation of which has been furnished in Schedule-9, Note No. 3B which read as under:- During the year, the promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, was allowable to him in terms of Section 37(1) read with Section 28(1) provided the same was ascertained liability. Our view is duly fortified by the judgment of Hon'ble Karnataka High Court rendered in Asia Power Projects Private Ltd. Vs DCIT [49 Taxmann.com 428]. This decision of the Hon'ble Court along with catena of other decision has duly been considered by Hon'ble Madras High Court in recent judgment titled as Tamilnadu Magnesite Ltd. Vs. ACIT [95 Taxmann.com 239 dated 05/06/2018] wherein the matter has been concluded in the following manner:- 9. The above tax case appeals have been admitted on the following substantial questions of law. "(a) Whether the Tribunal is correct in rejecting the claim of deduction/loss relating to the 'project expenses' in the computation of taxable total income relating to the assessment year(s) under consideration? (b) Whether the Tribunal is correct in concluding that the expenses were capital in nature even though such expenses were incurred for 'possible expansion' of the existing business? (c) Whether the Tribunal is correct in law in concluding that the expenses claimed were in the nature of capital field even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 taxmann.com 428/226 Taxman 136 (Mag.) (Kar.), and (v) Thiruvengadam Investments (P.) Ltd. v. Asstt. CIT [T.C.(A) No. 583 of 2007, dated 5-1-2016], which was followed by a Division Bench of this Court in CIT v. Prasad Productions [T.C. (A) No. 905 of 2008, dated 4-4-2018]. 15. Mr. S. Rajesh, learned Standing Counsel for the Revenue sought to sustain the order passed by the ITAT by referring to the factual position as stated in the assessment order dated 15.09.2000. It is submitted that the expenditure is capital in nature, as the money was drawn from the capital account and it is an aid extended by the Government of Tamil Nadu termed as "capital work-in-progress" and merely because the project was abandoned on account of cancellation of the approvals granted by the Government of Tamil Nadu, that will not change the character of the expenditure to that of the revenue, as the expenditure was incurred for acquisition of tangible assets. 16. Further, the learned Standing Counsel referred to the order passed by the CIT (A) more particularly paragraph 5 of the order, which referred to the Government Order and the decision taken by the Government to abandon the project and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It was pointed out that it is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. 22. Further, it was pointed out that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Thus, it was held that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. 23. Further, it was held that anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature. 26. The Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there should be an enduring benefit, which should accrue to the assessee and there should be a creation of a new asset. In the instant case, both these parameters remain unfulfilled. 27. The High Court of Delhi in Indo Rama Synthetics Ltd. (supra) held that if the expenditure is incurred for starting a new business, which was not carried out by the assessee earlier, then such expenditure was held to be capital in nature. However, if the expenditure incurred is in respect of the same business, which is already carried on by the assessee, even if it is for the expansion of the business, viz., to start a new unit, which is same as earlier business and there is unity of control and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue strenuously contended that a new project had emerged and it is immaterial whether machinery was reduced to scrap and ordered to be sold and what is required to be seen is that the expenditure was incurred from the capital account. 33. In our considered view, reliance placed on the decision of this Court in the case of E.I.D. Parry (India) Ltd. (supra) and the Kerala High Court in the case of Malabar & Pioneer Hosiery (P.) Ltd. (supra) is of little avail, as in both cases, it was for a new project, in contra distinction with the factual position in the case on hand. Therefore, those decisions are factually distinguishable. Heavy reliance was placed on the decision of this Court in the case of Mascon Technical Services Ltd. (supra). 34. At the first blush it appears that the decision would help the case of the revenue, but on a closer reading it proves otherwise. The question was whether the assessee was justified in seeking for bifurcation of the expenses incurred into capital and revenue. The Division Bench referred to the decision in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC). In the case of Brooke Bond India Ltd. (supra), it was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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