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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2007-08 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-16 [CIT(A)], Mumbai, Appeal No.CIT(A)-16/AC-8(1)/IT-266/2009-10 dated 02/12/2011 by raising following sole ground of appeal:-
Aditya Birla Power Company Limited Assessment Year-2007-08 On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals)-16 Mumbai [“CIT (A)”] erred in upholding the action of the Assistant Commissioner of Income Tax -8(1), Mumbai (“the AO”) in disallowing claim for deduction u/s 37(1)/28 of the Income-Tax Act,1961 advances written off amounting to Rs.3,24,63,783/- and investments written off amounting to Rs.36,040/-.
The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax-8(1), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 10/11/2009 wherein the income of the assessee was assessed at Rs. ‘Nil’ after set-off of brought forward losses of Rs.10.11 Crores as against ‘Nil’ return e-filed by the assessee on 31/10/2007. The assessee, being resident corporate assessee was engaged in the business of project development activities during the impugned AY. The assessee has suffered disallowance of Rs.324.99 Lacs on account of advances/investment written off, which are the sole subject matter of this appeal. The material on record suggests that the name of the assessee has been changed from Birla Project Development Co. Ltd. to Aditya Birla Power Co. Ltd.
During assessment proceedings, it was noted that the assessee had debited an amount of Rs.324.63 Lacs on account of advances written-off and Rs.0.36 Lacs as investments written-off in the Profit & Loss Account. The assessee defended the same vide letter dated 30/10/2009 and submitted that it was pursuing LNG power project in consortium with certain other entities as selected by Tamil Nadu Industrial Development Corporation Ltd [TIDCO]. The joint venture was being carried in the name of Aditya Birla Power Company Limited Assessment Year-2007-08 TN LNG Power Company Private Limited [TNLNG] in consortium with following participants:- (i) Dakshin Bharat Energy Consortium (ii) Grasim Industries Limited (iii) CMS Energy of USA (iv) Unocal of USA (v) Woodside Energy Ltd. of Australia (vi) Siemens Project Venture GmBH of Germany The assessee acquired the right, title, interest and obligations in the said project from one of the consortium partner namely Grasim industries Ltd. vide Memorandum of Understanding [MOU] dated 10/04/2002. The project envisaged setting up of 2.4 MT/annum LNG receiving and r-gas terminal and an 1850 MW gas turbine power plant project at Ennor in Tamil Nadu and the State of Tamil Nadu was to be the sole power off-taker. Since no progress could take place in the project, it was decided to abandon the project during the impugned AY. Therefore, the assessee decided to write- off the project expenditure during impugned AY, which was hitherto been reflected as amount recoverable in the books of accounts. However, not convinced, Ld. AO opined that the assessee incurred its share of expenses towards LNG power project and the assessee was not in the business of advancing loan. Therefore the claim of the assessee u/s 36(i)(vii) read with Section 36(2) was not maintainable. The Ld. AO further opined that the aforesaid claim was not allowable even u/s 28 or u/s 37(1), since the said expenditure was nothing but assessee’s share of expenses in the joint venture, the income where-from would not form part of taxable income.
Aditya Birla Power Company Limited Assessment Year-2007-08 Finally, the aforesaid amount was disallowed and added to the income of the assessee.
3. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 02/12/2011 wherein the matter was concluded in the following manner :- 3.3. Decision 3.3.1. I have carefully considered the contention of the appellant company as well as carefully gone through the available documents on record. The appellant was a part of consortium which was pursuing LNG power project at Ennor and were selected by Tamil Nadu Industrial Corporation, a Government of Tamil Nadu Undertaking. Due to various reasons as stated supra, the project did not see the light of the day. The appellant while pursuing the implementation of the project had given a payment of Rs.3,24,00,000/- approximately. The nature of the payment made are as under: - Sr.No. Year Amount Purpose Upto 2002 3,07,09,371 TIDCO Bidding cost, 1 document fees, processing fees, legal/professional fees for company set up/bidding expenses, office set up expenses. 2002-03 6,60,000 Success Fees 2 2003-04 9,92,610 Advance payment made for 3 office maintenance 4 2004-05 5,06,460 Advance payment made for office maintenance 2005-06 4,43,000 Advance payment made for 5 office maintenance 6 2006-07 (8,47,658) Recovery of amount from TNLNG Total 3,24,63,783 3.3.2. A perusal of the same revealed that the appellant had incurred capital expenditure. The detail of these payments and the persons to whom the payment has been made was not given. Moreover, the write off u/s.36(vii) r.w.s. 36(2) is not permissible for the reason that the conditions of both the sections are not fulfilled. It is a settled position of the law that all expenditure and losses incidental to business and allowable as per commercial accounting principles have to be deducted to arrive at profits chargeable to tax. However, if specific prohibitions to allowance of expenditure have been imposed under the Act, then such expenses Aditya Birla Power Company Limited Assessment Year-2007-08 cannot be allowed as deduction. Lord Herschell has observed in Gresham Life Assce Society vs. Style 3 TC 185 (HL), “However, the Act has laid down certain rules to be applied in determining how the tax is to be assessed, and even if the result should be to tax as profits and gains what cannot properly be so called, the requirements of the Act must nevertheless be complied with.” 3.3.3. It is a matter of common practice that an expenditure or claim for allowance of loss may fall under more than one of the category i.e. it may be covered by a specific provision of a more general or omnibus provision. The settled position of the law in this regard is that if an expense or allowance can be considered under more than one category, than specific provision would prevail and conditions prescribed under the specific provisions would have to be satisfied. Otherwise if the expenditure or allowance, though similar in nature but does not fall within the scope of the specific allowance then the same can be considered under general rule. It is also a settled positions of law that if nature of expense is the same as prescribed under specific provisions and conditions prescribed under the said provisions are not satisfied, then the same cannot be claimed under the general rule or the omnibus provision of section 37(1). 3.3.4. The appellant has claimed the advances written off under the same section as bad debts i.e u/s 36(1)(vii) read with section 36(2) of the Act. Having considered the claim of the appellant Ld. AO allowed the claim of the appellant of the bad debts as according to him all conditions required to claim the bad debts has been fulfilled and thus claim is admissible. There is no dispute to that effect. However, with regard to the advances written off the appellant claim was rejected by the Ld. AO as he found that it is not on the same footing as bad debts, therefore, the appellant claim of 61.53 lakhs was not accepted by the Ld. AO. The appellant submitted that in many cases the amounts of advances made are very small as compared to their cost of recovery and thus written off. It was further submitted that the aforesaid advances were given for the purpose of business and are of the revenue in nature. There is no element of capital investment and hence written off of such advances ought to be allowed as a business expenditure under section 28 or under section 37(1). It therefore appears that the appellant having failed in its claim under a specific section is now trying to seek its claim under other omnibus sections which in my opinion is not permissible as stated supra. 3.3.5. Without prejudice to the forgoing it is observed that debt denotes not only the obligation of the debtor to pay but also the right of creditors to receive and enforce payment as observed by the High Court of Punjab in CIT vs. Basumal Jagat Narain (38 ITR 447). But on the bad debts, the Calcutta High Court in Hongkong & Shanghai Banking Corporation vs. CIT (28 ITR 199) has observed that the bad debts will always mean debt of which the chance of recovery is nil or slender. The basic conditions which need to be satisfied for claiming deduction for bad debts are as under:
Aditya Birla Power Company Limited Assessment Year-2007-08 1. There has to be a debt which has become bad in respect of the business carried on by assessee or the loan is granted by the assessee in the course of the business of banking or money lending.
2. I has been taken into account in computing the income of the assessee in the year in which such debt is written off or in the earlier years.
It is written off in the accounts of the assessee in the year in which deduction is claimed. 3.3.6. Therefore, the claim of the appellant for write off of advance is not maintainable under the facts and circumstances of the appellant’s case. Even the claim of the appellant with respect to the losses incidental to the business are not maintainable for the reason that this was a joint venture project and the appellant had paid its part of share to the joint venture. The income of the joint venture has not come into being as project got terminated in the middle. It is not the business of the appellant to enter into the joint venture and therefore the claim as such is not maintainable as it is not for the purpose of the business of the appellant though apparently appellant its own doing the same business. Therefore, this ground of appeal
is dismissed. 4. In the result, the appeal of the appellant is partly allowed. Aggrieved as aforesaid, the assessee is in further appeal before us.
The Ld. Authorized Representative for assessee [AR], Shri Yogesh Thar, drawing our attention to the documents placed in the paper-book contested the additions and submitted that the claim was allowable u/s 28 / 37(1). Reliance has been placed on several judicial pronouncements, in this regard. Per Contra, Ld. Departmental Representative [DR], Rajesh Kumar Yadav supported the stand taken by the local authorities. 5.1 We have carefully heard the rival contentions, perused relevant material on record including cited judicial pronouncements. It is noted that the assessee, during impugned AY was engaged in project development activities. It acquired the right in the stated project by way of Memorandum of understanding [MOU] dated 10/04/2002 from Grasim industries Ltd, a copy of which has been placed on record. In terms of the MOU, the Aditya Birla Power Company Limited Assessment Year-2007-08 assessee agreed to develop the project till its financial closure and was responsible to bear project, administrative and other costs and expenses. In terms of Clause (5), the expenses contributed by other group concerns after 01/04/2001 were to be reimbursed by the assessee to those concerns. For third party expenses incurred by the group concerns prior to 31/03/2001, each of the group companies, at the financial closure, was either to subscribe the equity shares of TNLNG or obtain reimbursement of the same from TNLNG. The assessee also entered into another MOU dated 10/04/2002 with group concerns to obtain financial assistance to carry out the projects being perused by the respective project companies. In terms of clause (3) of the said MOU, the assessee was entitled for reimbursement of third party expenses incurred by him upon financial closure of the project. Besides this, the assessee was also entitled for certain development fees upon financial closure of the project. 5.2 The Ld. AR, on the strength of documents placed in the paper-book, submitted that the said project could not be successful and therefore, the management decided to abort the same and accordingly the project expenditure, which was hitherto, being reflected as advances recoverable in the Balance Sheet was written-off in the Books of Accounts during impugned AY and therefore, the same was allowable to the assessee. Upon perusal of the financial statements for impugned AY, we find that the assessee has written-off an amount of Rs.324.63 Lacs as advances written- off & an amount of Rs.0.36 Lacs as investments written-off under the head Aditya Birla Power Company Limited Assessment Year-2007-08 administrative and other expense, the explanation of which has been furnished in Schedule-9, Note No. 3B which read as under:- During the year, the promoters of TN LNG Power Company Limited (TN LNG) decided not to pursue the power project and liquidate the TN LNG voluntarily. Consequent to this decision, the development expenses aggregating to Rs.32,463,783 incurred on this project till the date of abandonment has been written off and charged to profit and loss account.
The fact that the project was finally been abandoned is corroborated by the letter of TNLNG dated 03/03/2007 written to The Director (Projects), Tamil Nadu Industrial Development Corporation Limited communicating its decision to disband the project. Consequently, the entity TNLNG has been dissolved vide Company Application No. 401 of 2009, order of Hon’ble Bombay High Court dated 01/04/2009. The above facts are further fortified by the financial statements of the entity TNLNG for AY 2006-07 as placed on record. 5.3 The undisputed position that emerges out of the above discussion is that the assessee undertook a project and incurred certain expenditure which was reimbursable to him along with development fees upon financial closure of the project. However, the project was ultimately aborted by the assessee and the management decided to write-off the stated expenditure in the books of account during the impugned AY. The said claim, in our opinion, is clearly not available to assessee in terms of Section 36(i)(vii) read with Section 36(2) since the amount written-off is in not in the nature of bad debts for the assessee, the income of which has been taken into Aditya Birla Power Company Limited Assessment Year-2007-08 account by the assessee. The stand of lower authority, to that extent, in our opinion, was correct. 5.4 Regarding assessee’s claim u/s 37(1) / 28, the assessee has placed reliance on certain judicial pronouncements to submit that the same was allowable as Business Loss. Our attention has also been drawn to the order of this Tribunal in assessee’s own case for AY 2003-04 wherein the aforesaid expenditure as claimed by the assessee in that year has been disallowed for want of matching principle and on the premise that the same could be allowed only upon financial closure of the project. We find out that the assessee was engaged in developing various projects and the project activities was the business of the assessee. Therefore, any loss incurred by the assessee on this count, being Business Loss for the assessee and part and parcel of the business activities being carried out by the assessee, was allowable to him in terms of Section 37(1) read with Section 28(1) provided the same was ascertained liability. Our view is duly fortified by the judgment of Hon’ble Karnataka High Court rendered in Asia Power Projects Private Ltd. Vs DCIT [49 Taxmann.com 428]. This decision of the Hon’ble Court along with catena of other decision has duly been considered by Hon’ble Madras High Court in recent judgment titled as Tamilnadu Magnesite Ltd. Vs. ACIT [95 Taxmann.com 239 dated 05/06/2018] wherein the matter has been concluded in the following manner:- 9. The above tax case appeals have been admitted on the following substantial questions of law. "(a) Whether the Tribunal is correct in rejecting the claim of deduction/loss relating to the 'project expenses' in the computation of taxable total income Aditya Birla Power Company Limited Assessment Year-2007-08 relating to the assessment year(s) under consideration? (b) Whether the Tribunal is correct in concluding that the expenses were capital in nature even though such expenses were incurred for 'possible expansion' of the existing business? (c) Whether the Tribunal is correct in law in concluding that the expenses claimed were in the nature of capital field even though the incurring of expenses did not result in creation of any asset of enduring in nature?"
Mr. A.S. Sriraman, learned counsel for the appellant submitted that the Tribunal has not assigned any reason to reverse the well considered order of the CIT (A), as it failed to appreciate that the expenses incurred in the implementation of the abandoned project under consideration have not brought any asset into existence, inasmuch as the expenses incurred on the said abandoned project would constitute deductible loss.
Further, it is submitted that the ITAT failed to appreciate that the venture undertaken was not a new one, but, in fact one in the same line of business already being carried on by the assessee company. The assessee had claimed that the expenses incurred for the implementation of the project was claimed as revenue expenses/business loss in the computation of total taxable income on the strength of the Government Order in G.O.No.140, directing closure of the project and cancellation of the allotment of the land. This aspect of the matter was not considered by the Tribunal and without reference to the factual position, the impugned order has been passed.
Further, it is submitted that the decisions, which were referred to by the assessee were not properly considered by the Tribunal and the factual position in those decisions were not appreciated. Thus, it is submitted that when there is no new business, which has been created and there is no creation of any new asset, nor there being any enduring benefit accrued to the assessee, the expenditure should be treated as revenue and not as capital.
Further, it is pointed out that, though it may be true that the expenditure was incurred from the capital account, that would not be the proper test to determine the nature of expenditure for the reasons not attributable to the assessee, when the existing unit ought to be closed.
In support of his contention, the learned counsel placed reliance on the following decisions:— (i) Indo Rama Synthetics (I) Ltd. v. CIT [2011] 333 ITR 18/[2009] 185 Taxman 277 (Delhi) (ii) Binani Cement Ltd. v. CIT [2016] 380 ITR 116/[2015] 233 Taxman 340/60 taxmann.com 384 (Cal.) (iii) CIT v. Tata Robins Fraser Ltd. [2012] 211 Taxman 257/26 taxmann.com 15 (Jharkhand) (iv) Asia Power Projects (P.) Ltd. v. Dy. CIT [2015] 370 ITR 257/[2014] 49 taxmann.com 428/226 Taxman 136 (Mag.) (Kar.), and (v) Thiruvengadam Investments (P.) Ltd. v. Asstt. CIT [T.C.(A) No. 583 of 2007, Aditya Birla Power Company Limited Assessment Year-2007-08 dated 5-1-2016], which was followed by a Division Bench of this Court in CIT v. Prasad Productions [T.C. (A) No. 905 of 2008, dated 4-4-2018].
Mr. S. Rajesh, learned Standing Counsel for the Revenue sought to sustain the order passed by the ITAT by referring to the factual position as stated in the assessment order dated 15.09.2000. It is submitted that the expenditure is capital in nature, as the money was drawn from the capital account and it is an aid extended by the Government of Tamil Nadu termed as "capital work-in-progress" and merely because the project was abandoned on account of cancellation of the approvals granted by the Government of Tamil Nadu, that will not change the character of the expenditure to that of the revenue, as the expenditure was incurred for acquisition of tangible assets.
Further, the learned Standing Counsel referred to the order passed by the CIT (A) more particularly paragraph 5 of the order, which referred to the Government Order and the decision taken by the Government to abandon the project and submitted that merely because the project was abandoned, that will not be a reason to treat the expenditure as revenue.
In support of his contentions, the learned Standing Counsel placed reliance on the following decisions:— (i) Empire Jute Co. Ltd. v. CIT [1980] 3 Taxman 69 (SC) (ii) E.I.D. Parry (India) Ltd. v. CIT [2002] 257 ITR 253 (Mad.) (iii) Mascon Technical Services Ltd. v. CIT [2013] 358 ITR 545/218 Taxman 108/37 taxmann.com 253 (Mad.) (iv) Malabar & Pioneer Hosiery (P.) Ltd. v. CIT [2008] 302 ITR 72/[2009] 178 Taxman 120 (Ker.), and (v) CIT v. Idea Cellular Ltd. [2016] 76 taxmann.com 77 (Bom.), against which the revenue has preferred appeal before the Hon'ble Supreme Court and the Special Leave Petition has been admitted as CIT v. Idea Cellular Ltd. [2017] 81 taxmann.com 112/247 Taxman 313.
We have heard the learned counsels for the parties and carefully perused the materials placed on record.
The common issue involved in both the appeals is whether the Tribunal was justified in reversing the decision of the CIT (A) deleting the addition made by the Assessing Officer on the ground that the expenditure incurred by the assessee was revenue in nature and not capital.
To decide the substantial questions of law framed for consideration, we would have to apply the proper test, which would distinguish capital and revenue expenditure. This question came up for consideration before the Hon'ble Supreme Court in Empire Jute Co. Ltd. (referred supra). It was pointed out that from time to time cases have evolved various tests for distinguishing between capital and revenue expenditure, but, no test is paramount or conclusive. Further, there is no all-embracing formula, which can provide a ready solution to the problem; no touchstone has been devised. It was pointed out that every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. After Aditya Birla Power Company Limited Assessment Year-2007-08 referring to the decision of Lord Radcliffe in CIT v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), it was held that it would be misleading to suppose that, in all cases, securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so transitory as to have no endurance at all".
Further, it was held that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It was pointed out that it is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test.
Further, it was pointed out that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Thus, it was held that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.
Further, it was held that another test, which is often applied is the one based on distinction between fixed and circulating capital. This test was applied by Lord Haldane in the case of John Smith & Son v. Moore 12 TC 266, where the learned Law Lord drew the distinction between fixed capital and circulating capital by holding that fixed capital is what the owner turns to profit by keeping it in his own possession; circulating capital is what he makes profit of by parting with it and letting it change.
Bearing the above legal principles in mind, we proceed to examine the facts of the instant case. It is not in dispute that the Chemical Beneficiation Plant was already established by TIDCO and on account of their not being able to achieve the desired result, the assessee was invited to take over the project, as the assessee possessed expertise in the field. This is how the assessee stepped into the project and by turn of events, the Government granted approval during the year 1998.
As could be seen from the order passed by the CIT (A), the assessee had entered into an arrangement with TIDCO as well as with IDBI and fixed the project cost with a debt equity ratio, which was approved by the Government of Tamil Nadu and thereafter, steps were taken to acquire land, import machinery etc. In the meantime, 12 years had passed by and the project had not taken off. The IDBI had withdrawn from the project, as it was found to be unviable and another co-promoter viz., M/s. Khaltan Supermag Limited was brought in and a joint sector company was formed with the assessee subject to certain conditions. However, the said co-promoter, M/s. Khaltan Supermag Limited expressed inability to be a part of the project and after 12 years, the Government took a decision to sell the project and consequently, cancelled the allotment of 47 acres of land in favour of the assessee. The above facts clearly demonstrate that the assessee though had entered into arrangement with the banks and co-promoters and took action for acquisition of land, import of machineries, etc., no Aditya Birla Power Company Limited Assessment Year-2007-08 new venture was established by the assessee. The venture, which was to be taken over by the assessee and operated did not fructify, not on account of the conduct of the assessee, but on account of the decision of the Government of Tamil Nadu. In our considered view, the decision of the Government of Tamil Nadu to sell the project is a very important fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature.
The Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there should be an enduring benefit, which should accrue to the assessee and there should be a creation of a new asset. In the instant case, both these parameters remain unfulfilled.
The High Court of Delhi in Indo Rama Synthetics Ltd. (supra) held that if the expenditure is incurred for starting a new business, which was not carried out by the assessee earlier, then such expenditure was held to be capital in nature. However, if the expenditure incurred is in respect of the same business, which is already carried on by the assessee, even if it is for the expansion of the business, viz., to start a new unit, which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure and in such a case whether it is a new business/asset would become a relevant factor.
It is further held that if there is no creation of new asset, then the expenditure incurred would be revenue in nature. However, if the new asset comes into existence, which is of enduring benefit, then such expenditure would be capital in nature.
The Hon'ble Delhi High Court took note of the decision of the Gauhati High Court in Dy. CIT v. Assam Asbestos Ltd. [2003] 263 ITR 357/132 Taxman 808. The High Court of Calcutta in the case of Binani Cement Ltd. (supra), considered a case where the Tribunal disallowed the expenditure allegedly incurred by the assessee for preparing feasibility study report and capital work-in-progress in the earlier years but written off during the previous year, since the proposed project was abandoned. The Court affirmed the view taken by the CIT (A), where it was held that the company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business and it was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business and that stage having not reached and no asset having come into existence, the capital work-in-progress had to be written off as such.
In the case of Asia Power Projects (P.) Ltd. (supra), the High Court of Karnataka held that, if the assessee incurs a liability and when the contract under which that liability was incurred was terminated and when no amounts under the or in pursuance of a claim is receivable, he is entitled to claim the said amount incurred as expenditure in implementing the contract as a set off under Section 37(1) read with 28 of the Income Tax Act, 1961.
Aditya Birla Power Company Limited Assessment Year-2007-08 31. Insofar as the abandoned feature films are considered, a Division Bench of this Court in the case of Tiruvengadam Investments (P.) Ltd. v. Asstt. CIT [2016] 95 CCH 0024, referring to a circular issued by the CBDT in Circular No.16/2015 dated 06.10.2015, held that film production expenses of abandoned films should be treated as revenue expenditure. This decision was followed in the case of Asia Power Projects P. Ltd. (supra).
The learned counsel for the Revenue strenuously contended that a new project had emerged and it is immaterial whether machinery was reduced to scrap and ordered to be sold and what is required to be seen is that the expenditure was incurred from the capital account.
In our considered view, reliance placed on the decision of this Court in the case of E.I.D. Parry (India) Ltd. (supra) and the Kerala High Court in the case of Malabar & Pioneer Hosiery (P.) Ltd. (supra) is of little avail, as in both cases, it was for a new project, in contra distinction with the factual position in the case on hand. Therefore, those decisions are factually distinguishable. Heavy reliance was placed on the decision of this Court in the case of Mascon Technical Services Ltd. (supra).
At the first blush it appears that the decision would help the case of the revenue, but on a closer reading it proves otherwise. The question was whether the assessee was justified in seeking for bifurcation of the expenses incurred into capital and revenue. The Division Bench referred to the decision in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC). In the case of Brooke Bond India Ltd. (supra), it was held that expenditure, in connection with the additional issue of shares, paid to the Registrar of Companies by way of filing fee and hence, has no application. The Division Bench held that the decision in the case of Brooke Bond India Ltd. (supra) would have no application to the facts of the case, as the expenditure incurred by the assessee were shown in the books of accounts as towards issue expenses incurred during the year and they found there was no justifiable ground to dissect one part of the expenditure as revenue expenditure and another part as capital expenditure. As pointed out by the Hon'ble Supreme Court in Empire Jute Co. Ltd. (supra), we cannot take a decision sans facts and the factual position as set out in the preceding paragraph would clearly show that the abandoned project was not a new one and it was a decision taken by the Government after about 12 years after the petitioner was invited to take over the project, which was already in existence, as they were an expert in the same line of business. Therefore, on facts, we find that the CIT (A) was perfectly right in deleting the addition and holding that the expenditure was revenue not capital expenditure. We may point out that the decision in the case of Ideal Cellular Ltd. (supra) was also a case where the expenditure was incurred to bring into existence a new asset, which is not so in the case on hand. Therefore, the said decision is also distinguishable on facts.
In the result, both the tax case appeals are allowed, the order passed by the Tribunal is set aside and the substantial questions of law framed for consideration are answered in favour of the assessee and against the revenue.
Aditya Birla Power Company Limited Assessment Year-2007-08 We find the facts of the cite case law quite identical to the facts of the present case. Therefore, in principle, we agree with the submissions of Ld. AR that the aforesaid expenditure, being business loss for the assessee, was allowable to him once it was established that the project could not take- off and the management considered it prudent to wrote-off the same in the books of accounts. 5.5 At the same time, while going through paper book page numbers 25 & 54, we find that the assessee has placed two identical Board Resolutions stated to be passed in two different Board Meetings i.e. 19/02/2007 & 02/07/2007 wherein the Board of Directors of the assessee company has decided to write-off the stated advances in the books of account. The dates of the two Board meetings fall in two different years and it becomes important to ascertain the true factual matrix since the claim of the assessee could be admissible only in the year in which the management finally took a decision to write-off the same in the books of accounts. As a logical consequence, it also become imperative to find out that the aforesaid claim has not been claimed /allowed to the assessee in any of the other years. Secondly, Ld. CIT(A) has noted that complete details of expenditure could not be filed by the assessee. Keeping in view the aforesaid factors, while agreeing with the claim of the assessee in principle, the matter stand remitted back to the file of Ld. AO for verification of aforesaid facts.
The appeal stand allowed for statistical purposes.