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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI BHAVNESH SAINI, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals] - 2, New Delhi dated 29.07.2016 pertaining to Assessment Year 2012-13.
The solitary grievance of the assessee is that the CIT(A) erred in upholding the addition of Rs. 47,19,047/- by disallowing and restricting the claim of expenditure debited to the P&L A/c to the extent of income by holding that the expenses were pre operative expenses.
Briefly stated, the facts of the case are that the appellant company was incorporated on 23.12.2011 and is a wholly owned subsidiary of “Bharat Light and Power Pvt. Ltd’. Return of income declaring loss of Rs. 47,19,047/- was filed on 29.09.2012. Return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee.
During the course of scrutiny assessment proceedings, the assessee was asked to show cause as to why expenses debited in the profit and loss account should not be capitalised as the operation of the company has commenced from April 2012 and not in the relevant F.Y.
In its reply, the assessee claimed that it had started its business operations immediately after its incorporation on 23.12.2011. The assessee strongly contended that business of the assessee was ready to commence and it is not necessary that the assessee should have actually commenced its business as assets were ready to use. In support, reliance was placed on various judicial decisions.
The submissions of the assessee did not find any favour with the Assessing Officer who added the expenses of Rs. 47,19,047/- and treated them as preoperative expenses. The observations of the Assessing Officer read as under:
(a) The Auditor had clearly provided in “Note 1” that the wind arms are in various stages of completion as on 31st March, 2012 and expected to start commercial operation by April, 2012. Thus, it is clear that the plants were not ready to be used to claim that business has commenced.
The assessee has submitted commissioning Certificate b) to justify that business had commenced. But on perusal of that certificate, it is found that the certificate was communicated to the assessee company vide letter dated 17/04/2012 which also clearly shows that the business was not commenced on or before 31st March. 2012. Further, it is only part of the plant which was commissioned and not complete project.
Further, in Balance Sheet for the year ending 2012, it c) is clearly reflected by the assessee itself that the Wind Turbines were not taken into fixed assets, but the expenses on the same were simply capitalized and shown as “capital Advance' in Asset side. This makes it very clear, that the assessee had itself considered that the business has not yet commenced”
The assessee carried the matter before the ld. CIT(A) but could not convince him.
While dismissing the appeal, the ld. CIT(A) observed as under:
3.2.3 In addition, the appellant also produced both before the A.O. as well as the undersigned, letter dated 17.04.2012 from the Superintendent Engineer, Sangli under Maharashtra State Electricity Distribution Company Ltd. to the effect that three Wind Electric Generators of the appellant company had been commissioned on 31.03.2012, besides metering equipment and that the quantum of energy pumped into MSEDCL’s grid by the Windmill, will be given by M/s. K.P. Power Pvt. Ltd. (Developing Agency). MSEDCL would only be concerned with the net energy recorded by the main meter at respective feeders at sub-stations, as per the certificate dated 17.04.2012. However, despite producing the four certificates regarding the appellant’s enrollment/registration under central and state sales tax, VAT, etc. as well as the certificate dated 17.04.2012 that three Wind Generators had been commissioned on 31.03.2012, the appellant has not provided any evidence/details regarding the energy recorded by the meters in respect of the commissioned Wind Generators or the bills raised on the MSEDCL. The appellant has also not been able to rebut the observations of the Assessing Officer that the auditor had clearly mentioned in note-1 to the final accounts that the wind farms were in various stages of completion on 31.03.2012. Not only this, it is significant that none of the Wind Turbines has been included in the fixed assets by the appellant in the balance sheet as on 31.03.2012 and rather the expenditure on the same has been shown as capital advance. If some of the Wind Turbines were ready to commence production of electricity, they should have been shown under the head ‘fixed assets’ instead of ‘advances’, as rightly pointed out by the Assessing Officer.
Even the judgements relied Upon by the appellant do not come to its rescue e.g. in the case of the assessee company had not only got itself registered under the Shop and Establishment Act, but had also rented out office premises, opened bank account, appointed employees, etc. Similarly, in the case of Stones & Mineral Associates Ltd., the court relied on the fact that the assessee had already paid certain amount for supply of goods, their polishing and cutting besides obtaining lease for excavation of material from mines and also getting registered as an exporter. The aforesaid instances establish that the business of an assessee cannot be said to (even if not commenced) merely by obtaining certificates of registration/enrollment/commissioning, etc. as in the case of the appellant without any other activity like opening of office premises, opening of bank account, appointment of employees, payment for supply of goods, etc. When the appellant itself has refrained from depicting any of the Wind Turbines as assets in its balance sheet at the end of the year under appeal, and has classified them under ‘advances’, the obvious inference is that its assets/business were not even set up by 31.03.2012. The question of commencement would arise only thereafter. Therefore, I uphold the action of the Assessing Officer in disallowing the claim of expenses made by the appellant by treating them as preoperative expenses and capitalizing them. With these observations, ground no. 1 of the appeal is dismissed.”
Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
Per contra, the ld. DR strongly supported the findings of the Assessing Officer.
We have given thoughtful consideration to the orders of the authorities below. The undisputed fact is that the auditor of the appellant company has specifically mentioned that the wind farms are in various stages of completion as on 31.03.2012 and expected to start commercial operations by April 2012. We also find that the auditor has given an adverse comment on the certificate of commissioning and has further pointed out that in the balance sheet for the year ending 2012, wind turbines were not taken into fixed assets, but the expenses of the same were simply capitalised and shown as ‘capital advance. Even before us, the ld. counsel for the assessee could not controvert to the observations of the auditor, nor could bring any evidence to support the claim that business has commenced during the year under consideration itself. On the facts of the case, we do not find any reason to interfere with the findings of the ld. CIT(A).
In the result, the appeal filed by the assessee in is dismissed.
The order is pronounced in the open court on .01.2020.