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TMI Blog2019 (8) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... he designation of those employees who salary has been reimbursed to the holding company, the nature of the services rendered by them as shown in the designation. We reverse the finding of the lower authorities and allow ground number 1 and 2 of the appeal of the assessee holding that employs remuneration on legal and professional fees has been correctly debited in the profit and loss account and is allowable to the assessee as a deductible expenditure u/s 37 (1) of the income tax act. Interest income assessment - capital receipt OR revenue reciept - HELD THAT:- NTPC SAIL POWER COMPANY PVT. LTD. VERSUS CIT [ 2012 (10) TMI 524 - DELHI HIGH COURT] held that if the receipt is inextricably linked to the setting up of the project then it would be capital receipt not liable to tax but ultimately be used to reduce the cost of the project. In the present case, the assessee has given advances to fellow subsidiaries. Further, assessee also could not establish that how the above advance given to the subsidiary companies from womb the interest income has been earned are inextricably linked to the setting up of the project. Further assessee has also treated it as a regular income and offered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of employees remuneration amounting to ₹ 2,64,00,715/-. GROUND NO. 1.2: On basis of facts and in circumstances of case and in law, ld. Commissioner of Income Tax (Appeals) has erred in upholding action of AO regarding treatment of employees remuneration as capital expenditure. GROUND NO. 2.1: On facts and in circumstances of case and in law, Ld. Commissioner of Income Tax (Appeals) has erred in sustaining disallowance in respect of Legal and Professional expenses amounting to ₹ 4,69,00,663/-. GROUND NO. 2.2: On basis of facts and in circumstances of case and in law, ld. Commissioner of Income Tax (Appeals) has erred in upholding action of AO regarding treatment of Legal and Professional expenses as capital expenditure. GROUND NO. 3.1: ld. AO has erred in not treating Interest income amounting to ₹ 7,52,26,392/-, arising out of primary parking of funds arranged for setting up of plant, as capital receipt. Ground No. 3.2 ld AO has erred in not setting off above mentioned capital receipt (interest) against pre operative expenses incurred during setting up plant." 3. Assessee Company was incorporated on 19 May 2008. During AY, it was engaged in esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,500/- as expense for legal and professional fees. Vide questionnaire dated 23/12/2013, the assessee was asked that "It is seen from your profit and loss account filed that the only income earned during the year is of ₹ 7,52,26,392/- as interest income. Further from this, you have debited an expense of ₹ 2,64,00,715/- as salary and wages and ₹ 4,69,00,663/- as legal and professional fees. It is to be show caused that why these expenses, if found to be allowed, is not to be capitalized as they pertained to expenditure during construction period." In response to this, the assessee filed details vide letter dated 05/02/2014 on justification of allowability of salary and professional fees. The assessee has stated that in addition to setting up of the power project, the assessee to increase its operational area had also evaluated the viability of various other areas within its business objects and incurred salary cost and other administrative overheads for the same. It has argued that as these expenses have no correlation with the ongoing project and that they have been incurred for the purpose of its business, it is to be allowed as revenue expenses. In support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to act as distribution franchisee of the state electricity board. Such efforts were done in the normal course of the assessee's business and is quite routine in nature. It is, thus, claimed as revenue expense. " The ld AO asked on 17/02/2014 and 19/02/2014 assessee to file any agreement that were made for legal and professional expenses with the concerned parties. In response to this, the assessee has stated that as the parties who have given consultancy were known to the assessee, the execution of an agreement was not considered necessary. It is to be brought on record here that on the query of the nature of work performed by these entities the assessee has stated vide point no.3 in its letter 19/02/2014 that - with respect of your query regarding agreement with the parties, it is submitted that the conduct of the parties is evident from the invoices attached herewith. From the enclosed invoice of M/s Elena Power & Infrastructure Limited bearing No.EPIL/March/10-11/01 dated 03/03/2011 and EPIL/March/10-11/02 dated 30/03/2011, the particulars of work performed is given as consultancy in relation to Bhaiyathan Power Project. With regard to M/s Indiabulis Private Limited the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or revenue nature. 4. It has been held in the case of Arvind Mills Ltd. Vs CIT (SC) 197 ITR 422 that Capital Expenditure would not become revenue expenditure simply by reason that it was incurred in connection with business activities, which ultimately resulted in efficiently carrying on day-to-day business. Moreover, the expression 'enduring benefit' and 'rights of a permanent nature' are only descriptive and not definite and are relative in meaning not synonymous with 'permanent' or 'everlasting' as held in Devidas Vithaldas & Co. Vs. CIT (SC) 84 ITR 754. 5. It has been held in the following cases, which further clarifies that these expenses made by the assessee are of capital in nature: a. Commencement of business is relevant for allowance of expenditure u/s 37 and not setting up of the business- Expenditure incurred prior to commencement of business capital expenditure - Citi Financial Consumer Finance India Ltd. Vs. Addl.CIT (ITAT, Del) 33 SOT 414 b. Expenses incurred for the purpose of launching a new project or initiating a new line of business separate from the existing business cannot be held to be revenue expenditure incurred in connection with the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere done in the normal course of the assessee's business and is quite routine in nature. It is, .thus, claimed as revenue expense. 3 S. Khandelwal & Co. 1,103 Other Misc. 4 Envirotech Consultants Pvt. Ltd. 22,060 Other Misc. Total 46,900,663 5.3.2 In this regard, the Ld. AR filed detailed submissions is as under: "In the present case, the AO had treated ₹ 4.69 erores, being the legal and professional charges debited in the audited Profit and Loss Account of the assessee as capital expenditure. In the humble submission of the assessee, these expenses have no correlation with the ongoing project and the same have been incurred for the purpose of assessee's business, not related to the project. Thus, these expenses had been debited in the profit and loss account of the company. As per the standard accounting practice the expenses which were related to the ongoing project had been duly capitalized by the company and the expenses which were of revenue nature and incurred for the purpose of business had been booked in Profit and Loss Account. 2.2 In this regard it is humbly submitted that the nature of the expenses together with documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses in the nature of employee remuneration were duly capitalised as preconstruction period expenses. Keeping in view the above, the Ld. AO capitalized the salary expenses against the cost of the Power Plant, which is being set-up by the appellant company. 5.2.2 Before me, the Ld. Appellant counsel conceded that undoubtedly the appellant company is still in the process of settingup a Thermal Power of Project (Bhaiyathan Project) in the state of Chhattisgarh. It was informed that the aforesaid employees are already on the pay-roll of the holding company M/s India Bulls Power Ltd., whose salaries were reimbursed in the current year by the appellant company, as they had provided the services for exploring new opportunities for the company. It was submitted that the appellant was engaged in various form of Power business like establishing/commissioning/setting-up, operating and maintaining electrical power generating stations, which have a long gestation period. It was submitted that in addition to setting up the said power plant, the appellant wanted to increase its operational area, for which it had evaluated the viability of various other areas within its business objects and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al with or dispose of undertaking, property, assets, rights and all other effects which in the opinion of the Company is conducive to the attainment of any or all of its business objectives or to acquire and dispose of shares, securities and interest in such Businesses. (5) To carry on the business of design, engineering, construction and development of power projects Including hydroelectric projects, renewable energy, nuclear, gas and coal and fuel oil based projects. 6.2 The Ld. Counsel were asked to explain whether the said group companies namely M/s Elena Power & Infrastructure Ltd. and M/s India Bull Real Estate Ltd. had any expertise, skill set or any prior experience of executing such consultancy studies. The appellant was also asked to file the documentary evidence in this regard. It was seen that the appellant had assigned these consultancy services to the two group companies without any well defined terms and scope of such consultancy, therefore, the Ld. counsels were asked to file any communication in this regard, that may have been sent by email or through any other made of communication and asked to file a copy of agreement in this regard to prove bonafide of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diabulls to participate in bid." 6.5 The appellant was also asked to explain the exact nature of the services rendered by M/s Elena Power & Infrastructure ltd. and M/s India bulls Real Estate Ltd., in the light of the feet that the invoices raised by both the parties give the narration 'consultancy in relation to Bhaiyathan Power Project'. The Ld. Appellant counsel before me, submitted that the appellant intended to develop an advance strategy for backward and forward integration with the power plant, which was being set-up in Chhattisgarh. In view of this, it wanted to enter into bidding for coal mines in West Bengal in order to ensure supply to the Bhaiyathan Power Plant, when it is constructed. Further, with regard the participation in the distribution sector of electricity in the state of Maharashtra, it was submitted that the same was for the purpose of forward integration to ensure distribution of the power generated by the power plant. In view of this, it is evident that without prejudice to the bonafide of such professional fee paid to the two group companies, the intended business activity cannot be held as a new business activity, since the same are in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard. The appellant's plea that the narration on such invoices does not denote the nature of the services and that in its view since the company's name is "... Bhaiyathan Power", the narration in the invoices have to be read as "consultancy narration to Bhaiyathan Power's Project". However, on the facts of the case it is evident that the appellant's interpretation is not supported by facts and circumstances of the case. Evidently, the appellant intended to make backward and forward integration with respect to its power plant, which is yet to be set-up. The appellant has capitalised all expenses pertaining to the power project. Since the project for backward and forward integration were at bid stage only, which is much beyond the setting up of the power plant, and since the appellant had capitalised all expenses relating to power project, there is no reason not to capitalise such expenses being in the pre-construction stage. On the facts of the case, it is evident that the aforesaid activities were no independent business activities as was claimed by the appellant but were part of the bigger plan to make the power plant viable and profitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd payments pertain to the fixed structure of the company's business that was being set up, it would be inconsistent to hold that the expenditure incurred by the Assessee prior to the setting up would be of a capital nature but the receipts would be of a revenue nature. 3) It has been held in the following case laws that surplus money lying idle which has earned interest income during the period of construction is to be treated as a capital receipt and is to be set off against pre-operative expenses. 4) Further, the Assessee had taken the borrowed funds for the purpose of construction and since the construction activity was temporarily slowed due to various legal issues during the impugned A.Y, the Assessee as a commercial expediency measure, chose not to keep the funds idle and opted to earn interest income there from. These funds were lent to subsidiaries so that they were readily and easily available to the assessee-company for its business transactions at short notice. Besides there would be an accretion in funds available by way of interest which could be used for the construction process in the project. 5} Reliance has been placed on the following: i. NTPC Sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner fAppeals] categorically found that the funds were placed in fixed deposit so that liquidity was ensured and money would remain available when required for purchase of land and infrastructure development and, hence, the interest earned was 'inextricably linked' with the setting up of the power plant. He, therefore, applied the judgment of the Supreme Court in CIT v.Bokaro Steel Ltd. [1999] 236 ITR 315 / 102 Taxman 94 and allowed the claim of the assessee by directing the Assessing Officer to delete the addition and to consider the same for capitalization towards pre-operative expenses. On the revenue's appeal, the Tribunal, following decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 / 93 Taxman 502 (SC] reversed the order of the Commissioner (Appeals]. The Hon'ble High Court held as under: "In the instant case, it was clear upon a perusal of the facts as found by the authorities below that the junds in the form of share capital were in fused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as arising out of a source of income separate from the business which was being set up. Since the business had not been fully set up. the receipts and payments would be clearly on capital account and hence not liable to tax. In a case where these receipts and payments pertain to the fixed structure of the company's business that was being set up. it would be inconsistent to hold that the expenditure incurred bv the assessee prior to the setting up would be of a capital nature but the receipts would be of a revenue nature. Hence, the impugned receipts were of a capital nature and were not liable to tax." iv. Commissioner of Income-tax v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC): Facts of the judgment: The Company's object was to construct and own an integral iron and steel works. During the assessment years under consideration, the work of construction of the company's factory and installation of the plant was in the process of completion and the company had not started any business. The Company had entered into supplementary agreements with its contractors under which it had made certain advances to the contractors on interest to enable them to execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company during the construction period was not liable to be taxed as 1FOS as the said interest income was earned prior to commencement of operations of the company during the construction period and the same was eligible for deduction against public issue expenses incurred by company as it was on capital account. vii. Karnataka State Agricultural Produce Processing & Export Corporation Ltd. [2015] 377 ITR 496 (Karnataka) Facts of the judgment: The assessee was a company, fully owned by the Government of Karnataka, engaged in trading in agricultural produce and was an approved channelising agent for Bangalore in respect of rose, onion and niger seeds. The Government sanctioned ₹ 10 crores for improvement of infrastructure in order to encourage the farmers for development of horticultural sector and to promote export. The grant of ₹ 10 crores given by the Government was kept in fixed deposits by the assessee till utilisation for the desired projects. The interest earned on such fixed deposits was treated as income by the Assessing Officer and was brought to tax under the head 'income from other sources'. On appeal, the Commissioner(Appeals) affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals), after examining the matter in detail, allowed the assessee's claim. The Hon'ble Tribunal held as under: "In the instant case, the assessee's intention was a bona fide intention and the surplus money, which was earned from the business, was Ivina idle. Then the assessee made a fixed deposit with the bank and when the assessee succeeded in obtaining the licence from the Government of India for the new unit for the manufacturing of spun yarn from cotton in the existing factory premises, it encashed the FDRs and utilised the same for the purpose of expanding the business. From the activities of the assessee, it could be inferred easily that money Ivina idle which was deposited in the FDRs was for the purpose of doing the business and not for earning the interest income only. The finding of the Commissioner fAppeals1 was, therefore, to be confirmed and the department's appeal was to be dismissed." ix. Adani Power Ltd. v. Assistant Commissioner of Income-tax. Range-1. Ahmedabad [2015] 61 taxmann.com 355 fAhmedabad - Trib.l Facts of the judgment: The assessee company was engaged in the business of developing, operating, maintenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sional charges are revenue in nature: [A] Legal and Professional Charges: The Assessee had received services in the nature of consultancy for the preparation of bid documents for which payment was made. Legal and professional charges were paid to the following: * Indiabulls Real Estate Limited ("1BREAL"): Ultimate Holding Company- Amount charged ₹ 1.10.30.000 a. Maharashtra State Electricity Distribution Company Limited ("MSEDCL") is one of the largest public sector companies engaged in the business of electricity distribution. b. MSEDCL had sought bids from interested parties to serve the distribution urban divisions of Nagpur (Gandhibag, Civil Lines and Mahal) and urban divisions of Aurangabad (Division - I and Division - 11) as franchisee. c. The Assessee was willing to participate in the bid invited by MSEDCL. d. In this regard, the Assessee sought assistance from 1BREAL to develop bidding strategy for the Assessee to participate in the bid. 1BREAL provided consultancy in preparation of bid to act as distribution franchisee of the state electricity board. e. Work performed by IBREAL: (i) Conducted field visits at each of the distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, mining and supply of coal from east of Damagoria in Raniganj coal block allotted to WBPDCL. The Assessee sought assistance from EPIL to develop bidding strategy for the Assessee to participate in the bid. EPIL had been entrusted to prepare the Mining plan for the coal blocks. It provided consultancy and coordinated in preparation of the said bid though it did not fructify. It provided data on history of the coalfield, communication and accessibility, climate, physiography and drainage, production schedule, area of the block, exploration status, density of boreholes, coal analysis geology and structure, power supply, etc. The observations of EPIL are listed in the feasibility report. (B) Employee Cost ₹ 2.64.00.715 The employee remuneration expenses pertain to reimbursement in respect of salary for 14 high level officials of its holding company, India bulls Power Project Limited. These employees are on the payroll of the Holding Company and their salaries were reimbursed in the current year by the Assessee as they had provided the services for exploring new opportunities of the company. The salary cost debited to P&L account is for those employees that were not inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olly and exclusively for the purpose of the business of the assessee and to disallow it. But it is the function of the Assessee to determine the work for which the remuneration should be paid to an employee of the Assessee. If the Ld. AO and Ld. CIT(A) are satisfied that the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the Assessee, there was no reason why the amount expended should not have been allowed. Hence, it should be allowed as revenue expenditure. i) S.A. Builders Ltd. v. CIT fAl [2007] 288 ITR 1 fSCl "We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 2 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case." ii) The Assessee can claim deduction u/s 37(1), even though there is no compelling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between expenditure and purpose of business, revenue cannot justifiably claim to put itself in armchair of a businessman or in position of Board of Directors and assume said role to decide how much is reasonable expenditure having regard to circumstances of case vi) DCIT v. Manish Buildwell fP.l Ltd. [2012] 23 taxmann.com 362 IDelhi - Trib.I "the AO cannot step into the shoes of businessman and review the business expediency of the assessee's decision" vii) DCIT v. Sophisticated Marbles and Granite Industries [2010] 3 ITRfTl 220 (Delhi): "The business interest is well understood by the assessee and the Assessing Officer cannot step into the shoes of the businessman so as to determine how the business is to be conducted". 9) Conclusive evidence was provided to the Ld. AO i) The Assessee has submitted all invoices with respect to the legal and professional charges * Invoice of ₹ 1,10,30,000 raised by Indiabulls Real Estate Limited - Refer page 78A ofPB * Invoices of ₹ 2,34,38,750 and of ₹ 12,408,750 raised by Elena Power and Infrastructure Limited - Refer page 79 and page 80 ofPB ii) Form 16A with respect to service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not shown resultant income in the accounting year. It appears that Ld. AO has swayed away with an impression that whenever any expenses are incurred by the Assessee then resultant income should have arisen. However it is well settled that for the purpose of allowance of any expenses under section 37(1) of the Act as expenses it is not necessary that assessee should have earned income out of such activity. Whatever has required to be seen is that whether the expenses are incurred for the purpose of business or not and such expenses are of not capital nature and not expressly disallowable under the other provisions in the Act. 6) In the instant case, the expenditure incurred was in the nature of salary and consultancy fee. Indubitably, in normal course, these expenses would be treated as revenue expenditure. 7) Reliance has been placed on the following case laws: i) Commissioner of Income-tax v. Shri Rama Multi Tech Ltd.[2017] 393 ITR 371 (SCI 3. The respondent is a public limited company. For the assessment year 2000-01 it had incurred an expenditure of ₹ 3,37,84,348/- towards payment of interest on loans taken and other items for setting up the industry. Even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken any depreciation on the amount of interest and other items which has been allowed as revenue expenditure that much depreciation should be reversed by the assessing authority, 12. Subject to the aforesaid observations, the appeals fail and the same are dismissed." ii) K.M. Sugar Mills Ltd. v. Commissioner of Income-tax r2015] 373 ITR 42 (SC): "It is not disputed that these gas cylinders were purchased for business purpose. In fact, the plea of the assessee that since manufacturing unit had not started functioning and this necessitated the assessee to lease out these gas cylinders to the aforesaid two parties to enable it to earn some income, rather than keeping those cylinders idle, is also not in dispute. On the contrary, the income which is generated from leasing out those gas cylinders is treated as 'business income'. Once income from leasing those gas cylinders is accepted as the 'business income', which is taxed in the hands of the assessee as such, depreciation on these gas cylinders could not be disallowed on the ground that the cylinders were not purchased for 'leasing business'. [Para 4] The assessee has proved owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articipated in a tender floated bv the Official Liquidator of the High Court. The participation in the tender was starting of one activity which enabled the assessee to acquire the land for development. The actual development of the land is immaterial for construing that business of the assessee has been set up. The revenue authorities have erred in not appreciating these facts rather considering the concept whether the assessee has a surplus fund which has been invested by it and it had earned interest income on such funds. The investment of ₹ 186 crores was not as a deposit out of surplus fund rather it was earnest money paid by the assessee for the purchase of land. Thus, the assessee had demonstrated that its business was set up during the accounting period relevant for this assessment year. The observations of the auditor are with regard to commencement of business and not set up of the business. In the light of participation in the tender such observations would not be a decisive factor. Thus, considering the facts and circumstances, it is opined that income of the assessee has to be assessed under the head 'business income' and consequently loss computed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year for setting up refinery is to be allowed. Therefore, the order of the Commissioner (Appeals) is to be confirmed. [Para 4]" vi) NEIL AUTOMATION TECHNOLOGY LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX [2002) 120 Taxman 205 (Mumbai) (MAG) The business of the assessee-company was distribution of computer software and development and training of software personnel. To set up the business, the assessee-company started imparting training in software. For distribution of computer software, the company entered into correspondence with various parties. Therefore, some of the activities were started from the beginning of the previous year. In this line of business, it is most essential to enter into correspondence with the various parties to make them aware of the production in which the assessee is dealing with. Therefore, writing letters and giving quotations to various prospective customers in respect of various softwares which the assessee was ready to supply was an essential activity in the course of carrying on the business. Therefore, the expenditure incurred by the assessee during the year was for the purpose of business and the same would be allowable as the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome expenses like filing fees, audit fee, postage and telegram and legal expenses. However, the company could not secure any potential order during the accounting year in spite of the efforts made by the directors. It claimed that losses incurred after setting of such business should be allowed, "Held that what was needed for setting up of the said business was to secure a business place or an office, to provide it with furniture, etc.. to have a telephone, to maintain the office and make ready everything to start business. If no intended exporter approached the assessee and got his product exported through the assessee, it was not the fault of the assessee. Ultimately, it might be his bad luck but in legal terms it could not be said that he had not set up his business. Therefore, all the expenses incurred after the business was set up, were business expenditure." IV. Ground No. 1.1.2.1: No mention of section under which disallowance was made: The assessment order makes no mention of the provision under which the disallowance has been made. The provisions of the Act have to be examined to ascertain as to under which provision the addition or disallowance was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative vehemently stated that at each stage the attempt must be made to compute the correct total income of the assessee. He submitted that the funds were raised by the assessee for the project, which could not be deployed immediately for the purpose of the project, and therefore they have been utilized in intercorporate deposit which in turn earned interest and therefore such interest should be reduced from the total expenditure incurred during the construction. He referred to several decisions in his decision paper book, which were also incorporated, in his written submission. He extensively referred to the decision of the honourable Delhi High Court in 25 taxmann.com 401 (Delhi) in NTPC sale power company private limited vs Commissioner of income tax dated 17th July, 2012 wherein it has been held that interest on temporary deposits is not income from other sources and interest on was related to the setting up of the plant should not be held as a revenue receipt. He extensively referred to para number 10 and para number 11 of that order. He therefore submitted that the issue of interest income to be not au revenue expenditure is squarely covered in favour of the assessee. 11. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Bhayathain in the state of Chhattisgarh. The project is planned to have two supercritical units of 660 MW each with a combined capacity of 1320 MW. The Ministry of coal, government of India has allocated captive coal blocks located in certain villages in Korba district in the state of Chhattisgarh in for the project, subject to certain terms and conditions. Development work on the above project is currently progressing at the slow pace due to certain pending statutory clearances relating to the captive coal blocks allocated for the project. The company is hopeful of getting such clearances in the near future. According to note number X expenditure during construction, pending capitalization included the expenditure incurred during the year aggregating to ₹ 28365752/- relating to the setting up of the project was determined. Further according to note number Xii it is also disclosed that employees remuneration and benefit aggregating to INR 2 6400715 pertaining to the cost of employees and the petitioner apportioned by the holding company in the above is power Ltd on specific job basis. This amount has been debited into the profit and loss account as according to the auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the efforts were done in the normal course of the assessee's business and are quite routine in nature and it was never related to the project cost of the power plant. Similarly, the assessee incurred a sum of ₹ 11030000/- as assessee explored the opportunity for appointment of the distribution franchisee for not poor urban distribution division of Gandhi Bagh civil lines and Marvel. The above sum was paid for consultancy in preparation of bids to act as distribution franchisee of the State Electricity Board's which was also not related to the power plant. Therefore, on both issues the contention of the assessee is they are not related to the power project and therefore they cannot be capitalized. Admittedly, the assessee did not have any agreement of provision of services along with these entities as they were sister concerns. Further merely because the reference in the bill is in relation to the power project it cannot be said that same are related to the cost of the power project, when assessee has categorically submitted the details of the expenditure for which it has incurred. Even otherwise, it is apparent that the power project has been progressing at a very slow spa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee or is not related to the business of the assessee. Had the power project been not in place above expenditure would have been otherwise allowable to the assessee under section 37 (1) of the income tax act. In the present case, also, the learned assessing officer has also not stated that whether any asset has been created by the assessee or there is a reasonable certainty of the creation of the above project. Further with respect to the salaries paid by the assessee to its head office/holding company were with respect to the salary of precedent and advisor, director human resources, president legal, head of finance and accounts, chief information officer, vice president indirect taxation, vice president illegal, Asst VP coordination and monitoring, assistant general manager finance and accounts, deputy general manager business development and administrative expenditure. The total salary paid of these employees is ₹ 26400715/-. It is not the case of the revenue that these expenditure are not as such allowable to the assessee u/s 37 (1) of the act. None of this expenditure has also been shown by the learned AO to be incurred for the purposes of the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that field study report and feasibility report expenditure incurred by the assessee under the head legal and professional expenditure is any way connected to the power project. Further, with respect to the salary of employees the assessee has given the designation of those employees who salary has been reimbursed to the holding company, the nature of the services rendered by them as shown in the designation. In view of this, we reverse the finding of the lower authorities and allow ground number 1 and 2 of the appeal of the assessee holding that employs remuneration amounting to INR 2 6400715/- on legal and professional fees amounting to INR 4 6900663/- has been correctly debited in the profit and loss account and is allowable to the assessee as a deductible expenditure u/s 37 (1) of the income tax act. 12. Ground number 3 of the appeal of the assessee is with respect to the interest income of INR 7 5226392/- which is shown by the assessee itself as income chargeable to income tax in the computation of the total income as well as in the return of income. Further, the above amount has also been recognized as other income in schedule J of profit and loss account. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT (A) has erred in relying the circular of CBDT dated 6/10/2015, which is related to rule 9A of abundant feature films. 16. The assessee company filed its return of income on 18/9/2012 showing total loss at INR 1 0899459/-. The assessment u/s 143 (3) of the act was passed on 16/1/2015 wherein the total income of the assessee was assessed at rupees nil. 17. The only issue in this appeal is with respect to the fact that assessee company has claimed expenses for the aggregate amount of INR 1 1079481/- under the various heads. The learned AO enquired from the assessee as to why the above expenses claimed in the profit and loss account are allowable as such as during the year no business activities were carried out and why such expenditure should not be capitalized to the work in progress. The assessee submitted his reply dated 23/12/2014 wherein it has been stated that that assessee is engaged in the process of setting up a thermal power plant in the state of Chuck this regard however after lot of efforts the assessee has incurred a massive amount of loss is the cost of the above project amounting to ₹ 26.97 crores till the assessment year 2012 - 13 has been capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- "4. In this case there is only one disallowance of ₹ 1,08,99,459/- which amounts to nullify the returned loss of ₹ 1,08,99,459/-, and the income was assessed at NIL The appellant was setting up a thermal power plant at Bhaiyathan in Chattisgarh. The expenses of ₹ 26.97 crores till the end of AY 2011- 12 were capitalized in the balance sheet. Since the appellant did not get the clearance from the Forest Department, they debited the expenses to the profit and loss account and abandoned the project in AY 2013-14. The Assessing Officer has concluded that no business activities were carried out during the year and therefore expenses incurred during the year have to be capitalized. The appellant has quoted Circular No. 16/2015 of CBDT dated 06/10/2015 regarding the deductibility of cost of abandoned feature film. In CBDT has clarified that Rule 9A does not apply to abandoned feature films and the expenditure incurred is not to be treated as capital expenditure and such a cost is to be treated as revenue expenditure. I find a close parallel between the abandoned feature films and the abandoned industrial projects like the one of the appellant. The appellant has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the business could be as distinct as a jewellery business and a business of cinematographic films; it could be as different as manufacture of metal alloys and manufacture of rubber products. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity - it could be as far apart as Baroda and Bangalore. However, the funds utilised for the management of both the concerns must be common as reflected in the balance sheet of the company. In other words, there may be several permutations and combinations that may arise for determining whether the expenditure is revenue or capital and each case must, of course, be dealt with on the broad principles that have been accepted by the Courts as are mentioned above." Thereafter, the honourable High Court held that Where assessee company set up a new project which was subsequently abandoned, since new project was managed from common funds, control over all business units was in hands of assessee and there ..... 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