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TMI Blog2014 (2) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... t u/s.234A, 234B and 234C is mandatory as held by CIT vs. Anzum M. H. Ghaswala Ors. [ 2001 (10) TMI 4 - SUPREME COURT] to the above finding. The A.O. has not charged any interest u/s. 234A only charged u/s. 234B 234C. - ITA Nos. 531 & 3214/Ahd/2011 - - - Dated:- 21-2-2014 - Shri Mukul Kr. Shrawat, Judicial Member AND Shri T.R. Meena, Accountant Member For the Appellant : Shri Shankarlal Meena Shri O. P. Batheja, Sr. D.R. For the Respondent : Shri S. N. Soparkar Shri Parin Shah, A.R. ORDER PER : Shri T.R. Meena, Accountant Member These two appeals filed by the assessee, which have emanated from the order of CIT(A)-VI, Ahmedabad, dated 16.12.2010 for assessment years 2007-2008 2008-09. Both appeals were heard together and are being disposed of by way of this common order for the sake of convenience. The effective grounds of both cross appeals are as under: ITA No. 531/Ahd/2011 (A.Y. 2007-08) 1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in refusing to adjudicate upon Ground No. 1 of the appellant's appeal challenging t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Ground No. 5 of the appellant's appeal before him on the ground that the appellant's challenge against initiation of penalty proceedings u/s. 271(1)(c) was premature. 2. Ground no.1 in A.Y. 07-08 08-09 of the assessee is against challenging the validity of the assessment order which was held by the ld. CIT(A) is general in nature. The first ground in both the years as per form no.35 for A.Y. 07-08, the first ground of appeal is as under: 1. In law and in the facts and circumstances of the appellant's case, the impugned order of the Ld. Assessing Officer is bad in law. The identical ground of appeal was made in A.Y. 08-09. During the course of hearing, the ld. Counsel had not pointed out any defect in the assessment order to prove the A.O s. order is bad in law. The A.O. passed order u/s. 143(3) on 21.11.2009 in A.Y. 07-08 and on 28.12.2010 in A.Y. 08-09. There is no reopening in this case. It is first scrutiny assessment in both the years. Therefore, this ground of appeal in both years is not maintainable. 3. Ground no.2 in A.Y. 07-08 is against upholding the disallowance of deduction of expenditure of ₹ 4,75,07,66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was availed by the assessee vide letter dated 14.11.2009, which is reproduced as under: 2. In this regard, it is submitted that all the aforesaid items are basically of revenue nature being legal and professional fees etc.- They pertained to 5 projects which are detailed under sub-heads (a) to (e) of the aforesaid item No. 14. It may kindly be appreciated that the aforesaid professional fees for all those 5 projects were incurred for obtaining and preparing relevant information arid data for considering the possibility of existence of the feasibility of the respective projects from technical and economical angles etc. It may be mentioned that none of those five projects had actually materialized during the previous year. 3. The assessee is engaged inter alia in the business of development of power projects and operations and maintenance of power projects. vide reply against side-head No. 8(a) of the statutory form No.3CD for the nature of assessee's business and vide reply to side-head No.8(b) of that Form 3CD there is no change in the nature of business of the assessee as compared to that prevalent in the immediately preceding previous year . It is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental studies for the project. Land parcels were identified and soil investigation, contour survey etc carried out. Consultancy support also sourced in area of Tax, Insurance and other related financial matters. Discussion with several banks held on feasibility of financing project and obtained term sheet. With full preparation; CLP put up bid for this project, however result of bid shown the CLP was not successful and project awarded to Essar Power. c. MP DISTRIBUTION (80 thousand) Started but decided not bid- Started work to explore this option with an extensive site visits and carried out to investigation to evaluate the opportunities. Consultants were used to provide support area of financial modeling etc. Discussions with banks were held for financing these projects. Interactions with Bid Process Coordinator were held on number of bid related issues and request for modification, Bid Process Coordinator did not agree for certain changes and was not willing to provide sufficient extension so that CLP could fully evaluate and prepare for bid, as a consequence of the same CLP decided not to pursue further. d. PROJECT PRAKRITI-MAHARASHTRA (8.20 Lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at High Court has held as under: Business expenditure Capital or revenue expenditure Assessee a cement manufacturer incurring expenditure on obtaining feasibility report for setting up a shipyard Shipyard not constructed as the report was not favourable Expenditure having been incurred with a view to bring into existence an advantage or asset of an almost permanent nature or of an enduring benefit, is capital expenditure The development of power projects was to facilitate the assessee's current business of operation and maintenance of power plants or was to enable the assessee to conduct or manage the assessee's business more efficiently. Accordingly, these expenses would not qualify for deduction as revenue expenses. iii. CIT Vs S.L.M. Maneklal Industries Ltd 107 ITR 133 (Guj), wherein the Hon'ble Gujarat High Court has held as under: Business expenditure-Capital or revenue expenditure-Amount paid to foreign company for obtaining expert opinion for erection of new unit-Same capital expenditure The A.O. observed that in the instance case, it is not relevant to consider whether the expenses were incurred on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for new projects, these expenses are capital In nature. Considering this, expenses like travelling, legal and professional services etc can be both revenue and capital depending on the purpose for which these were incurred. In the case of appellant, expenses on account of professional fees and consultation services were incurred for new project and therefore these expenses are in the nature of capital expenses. If the new projects would have materialized, these expenses would have been part of cost of new project. However the new project for which these expenses were incurred did not materialise. Therefore these expenses cannot be capitalised but the nature of these expenses will not change. It will still be capital in nature not allowable under section 37 (1) of IT act. Assessing officer relied upon several decisions including following decisions of jurisdictional High Court directly on the issue- (i) CIT vs. Ambica Mills Ltd. 236 ITR 921 (Guj) Expenditure -getting feasibility report for setting up a new mini steel plant- project did not eventually materialize- the fees paid to the consultants were held to be a capital expenditure. (ii) CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court)-head note in this decision is as under- Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Capital or revenue expenditure - Assesseecompany, which was engaged in business of manufacturing fertilizers, contemplated to set up a new unit of same kind of more refined fertilizer - Assessee obtained a project report and a market survey in connection with aforesaid project and incurred certain expenditure - Whether, as project report expenditure incurred by assessee was in order to decide whether to acquire some profitITA making asset for purpose of its business, which would be of enduring nature, it could be said that expenditure was capital in nature - Hold, yes From the above it is clear that even if assessee's new project is in the same line of business, expenses relating to new projects are capital in nature and not allowable as revenue. This decision clearly goes to show that appellant's claim is not justified. Apart from the decisions relied upon by the assessing officer, Gujarat High Court in the case of Mc graw Ravindra laboratories versus CIT, 207 ITR 239 held that foreign travelling expenses of the general mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant's case will not fall in this category. Appellant's facts are not similar to any of the case cited by the appellant in its favor. As against this, several Jurisdictional high court decisions are against the appellant's claim. The decision of Bombay High Court is categorical as even in the same line of business, the expenses relating to new projects are not allowable. Considering all these facts and Judicial decisions, I do not find merit in appellant's claim and therefore the addition made by the assessing officer is confirmed. Coming to the alternative claim of the appellant that depreciation should be allowed on capital expense, this claim of the appellant is without any basis. Since none of these projects came into existence and as such the expenses claimed by the appellant did not result in creation of business asset on which depreciation can be claimed, alternative claim of the appellant is rejected. Another argument of the appellant is that the expense should be allowed as business loss under section 28 since these projects were in the normal course of business. This is also not correct since what is allowable under section 28 is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on account of GUVNL and ₹ 8.06 lacs were incurred in travelling expenses. Out of the above said professional fees, the amount of ₹ 97.57 lacs was paid by the assessee company for the purpose of advisory on tax, exchange control legal, bid and corporate law matters. Further, payment of ₹ 37.23 lacs mde to Amarchand Mangaldas for the purpose of review of the bid documents and drafting power purchase agreements, identification of issues thereon, review and negotiation of EPC contracts. ₹ 8.20 lacs incurred on two projects i.e. Rajasthan and Maharashtra using biogases as fuel for power generation where also assessee was unsuccessful as professional fees. The assessee further incurred ₹ 88 lacs on 13 new transmission projects, which was announced by the Government for bidding. These expenses were also incurred on professional fees. But subsequently, Government did not progress and bring up this project for bidding. The assessee also has drawn our attention on various reports submitted by the professionals and bill issued by them. The ld. Counsel further relied in case of Hon ble ITAT C Bench, Ahmadabad in case of DCIT vs. M/s. Inox Leisure Ltd. in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projects were not expansion of existing business. Even if, the assessee s new projects are in the same line of business expenses relating to new projects are capital in nature and not allowable as revenue as held by the Hon ble Bomaby High Court in case of J. K. Chemical Ltd. (supra). The case law cited by the assessee is not squarely applicable on it because the assessee had incurred expenditure to expand the same business. Thus, we confirm the order of the CIT(A). The assessee s appeal on this ground is dismissed. 7. Ground no.3 in both years is on charging of interest u/s.234A, 234B and 234C of the IT Act is mandatory as held by Hon ble Supreme Court in case of CIT vs. Anzum M. H. Ghaswala Ors. to the above finding. The A.O. has not charged any interest u/s. 234A only charged u/s. 234B 234C. Therefore, the A.O. is directed to calculate the interest as per law. 8. Ground no.4 in both years are initiation of penalty proceeding u/s.271(1)(c) is pre-mature and are not required to adjudicate this issue at this stage. 9. In the combined result, the assessee s appeals in both years are dismissed. These Orders pronounced in open Court on 21.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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