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TMI Blog2018 (11) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... capital. We are unable to appreciate the action of the AO in adding the receipts of ₹ 3,16,68,000/- as income, because if the expenses before the commencement of the business are added to the cost of assets and allowed to be capitalised then how the corresponding income from the commercial production is treated as revenue. It is also capital in nature which has to be reduced accordingly. This principle has been reiterated by the Supreme Court in the case of CIT vs. Bokaro Steel Limited [1998 (12) TMI 4 - SUPREME COURT] wherein held that if the assessee receives any amount which are inextricably linked with the process of setting up its plant and machinery, then such receipts will go to reduce the cost of its assets and would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding on the veracity of the expenses particularly when supporting evidences ij support of the expenses were not filed before the AO. 2. The facts in brief are that Assessee Company is engaged implementation of 192MW Allian Duhangan Hydroelectric Project on the river Allian and Duhangan in Kullu District of Himachal Pradesh and is mainly in the business of generation and sale of electricity. The assessee company started the commercial generation of electricity w.e.f. 29th July, 2010 and certificate regarding commercial production of SED, HPSEB was submitted. 3. During the course of assessment proceedings, the AO on perusal of the balance sheet noted that assessee has shown income of ₹ 3,16,68,000/- pertaining to income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Turnover 401,151 31,668 Other income 15 2,960 - TOTAL 404,111 31,668 EXPENDITURE Bulk power transmission charges 118,541 - Personnel expenses 16 85,759 3,864 Operating and other Expenses 17 202,082 9,885 Depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and loss account for the trial period run from 17.7.2010 to 28.7.2010. In absence of proper details the expenses claimed at ₹ 4,90,42,000/- against the said income according to him could not be adjusted against revenue of ₹ 3,16,68,000/-. The AO while coming to this conclusion has relied upon the decision of ITAT Bangalore in the case of DCIT vs. Karnataka Power Corpn. reported in 67 ITD 391. 6. Ld. CIT (A) held that, since the commercial production started on 29.7.2010 and income of ₹ 3,16,68,000/- was earned during the trial run period, hence this income was reduced from the capital expenditure and only net affected cost was ultimately capitalised. The actual expenses incurred during the trial run period wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of CIT vs. Bokaro Steel Limited 236 ITR 315, wherein it has been held that if the assessee receives any amount which are inextricably linked with the process of setting up its plant and machinery, then such receipts will go to reduce the cost of its assets and would be receipts of a capital nature and cannot be taxed. We are of the view that, if income of ₹ 3.16 crore earned during the trial period is treated as income then corresponding expenses of ₹ 4.90 crore incurred during the trial period should also be allowed as revenue expenditure by applying the matching concept, which as discussed above will result in net loss of ₹ 1.74 crores. Thus, the addition made by the AO is unsustainable in law and o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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