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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of the ld. CIT(A)-3, New Delhi dated 18.07.2019
The assessee filed return of income on 29.09.2015 declaring and income of Rs. NIL. The assessee company is engaged in the business of energy generation by establishing wind power project during the year under consideration. The AO disallowed the claim of the assessee with regard to adjustment of business loss against the interest income on the grounds that the production, operations have not been commenced during the Financial Year. The ld. CIT(A) held that the revenue expenses cannot be disallowed simply on the basis that the appellant has 2 DJ Energy Pvt. Ltd. not shown any revenue income in a particular year as it has not been held that the assessee has closed that business.
On perusal of the record, the following facts emerge:
Period Activities involved 14-7-2008 Company got incorporated 2-5-2012 Company received land use permission for setting up the windfarm 1st Oct 2013 Bank account of the Company was opened 13 t h December Mandate letter received from International Finance Corporation 2013 in respect of loan sanctioning 5th June 2014 Supply contract was entered into with the Supplier of WTG i.e. Inox 5th June 2014 Errection and Commissioning contract with Inox Wind Infrastructure Services Limited for installation of WTG 6 t h August, 2014 Company had negotiated and entered into Power Purchase agreement with Madhya Pradesh Govt. 8 t h August 2014 Site development and construction contract with Green World Buildcon & Infra Pvt. Ltd. for 47 WTGs and crane platforms for wind power projects 8 t h August 2014 Agreement with Green World Buildcon & Infra Pvt. Ltd. for Construction of 33KV electricity transmission lines and laying of SCADA cables for wind power project 8 t h August 2014 Agreement with Green World Buildcon & Infra Pvt. Ltd. for Construction of internal and external roads for the project • FY 2014-15 Company infused substantial amount in the project, resulting in CWIP increased from Rs 10.86 cr to Rs 105.62 cr. • Infact, closing advances (for supplying equipments) also stand at Rs 116.26 cr.
The company and the project are separate as there are certain expenses which needs to be incurred for the functioning of the company irrespective the project been undertaken or not.
The other Fixed Assets i.e. Office and Business Premises, were put to Use of the Company Staff is appointed and Salaries are paid in the conduct of Business and Operations of the Company. The expenditure is incurred in the Ordinary Course of its Business.
3 DJ Energy Pvt. Ltd.
The assessee company has capitalized the wages of employees dedicated for the project like civil engineers, electrical engineers, project development, power evacuation engineers etc. These are the employees which are directly related to the project and their salary is capitalized under CWIP as salary of these employees would not be incurred if the project is not undertaken. Salary capitalized under CWIP as on march 2015 is Rs.1.46 cr. The salary debited to the P&L account are those of corporate employees like CFO, CEO, VP Finance, controller etc. This portion of salary is paid for operation of the company.
Travelling lodging and boarding expenses relate to the project have been capitalized under CWIP amounting to Rs.15.02 lakhs as these have direct correlation to the project. Travelling expenses which were debited to P&L account pertains to various consultants, corporate employees travel. Professional fees which are having direct nexus to the project are capitalized under CWIP amounting to Rs.44.69 lakhs.
The administrative expenses like Printing & Stationery, telephone expenses, Food expenses etc which are necessary for the running of the company and have no direct nexus to the project. As these expenses needs to be incurred for the running of the company and not the project are duly debited to P&L account.
The company and the project are separate as there are certain expenses which needs to be incurred for the functioning of the company irrespective the project been undertaken or not. Expenses related to the project, capitalized in CWIP.
4 DJ Energy Pvt. Ltd. 10. In nutshell, a. The wages of employees dedicated for the project like civil engineers, electrical engineers, project development, power evacuation engineers, land & legal. These are the employees which are directly related to the project b. Travelling lodging and boarding expenses relate to the project c. Professional fees which are having direct nexus to the project are capitalized under CWIP amounting to Rs 44.69 lakhs d. Interest on loan raised for the project Expenses claimed as allowable a. salary expensed out in the P&L are of those corporate employees CFO, CEO, VP Finance, controller etc, This portion of salary is paid for operation of the company. b. Travelling expenses which are debited to P&L are those like Lenders and lenders engineers, various consultant, corporate employees travel along for due diligence. c. Professional fees which are expensed out of Rs.24.74 lac are of routine and onetime expenses the nature d. administrative expenses like Printing & Stationery, telephone expenses, Food expenses etc which are necessary for the running of the company and have no direct nexus to the project
The assessee can be said to have set up its Business from the date when one of the essential categories of its Business Activities is started and it is not necessary that all categories of 5 DJ Energy Pvt. Ltd. its Business Activities must start either simultaneously or that the last stage must start before it can be said that the Business was set up.
12. Hence, keeping in view the capitalization of the expenses and also the details of expenses claimed as revenue expenditure, we decline to interfere with the order of the ld. CIT(A) in deleting the addition made on account of revenue expenses.
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 15/03/2022.