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Income Tax Appellate Tribunal, “I” BENCH,
Before: SHRI D.T. GARASIA, JM & SHRI MANOJ KUMAR
O R D E R
PER D. T. GARASIA, JM:
This appeal is filed by the Assessee against the order of CIT(A)-2 Mumbai, dated 22/11/2013 arising out of order of ACIT-1(2) Mumbai dated 26/12/2011 passed u/s 143(3) of the Income Tax Act, 1961 for the Assessment Year 2008-09.
L&T Transco Pvt. Ltd. 2
The following grounds read as under:-
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the disallowance of entire revenue expenditure of Rs.5,22,91,642/- claimed under provisions of the Income-tax Act by holding that appellant has not commenced its business activity.
2. The CIT(A) has ignored the settled legal position with regards to the commencement of business activity and treated the entire revenue expenditure as capital expenditure.
3. The CIT(A) has failed to distinguish between the nature of business activity of the appellant company and its subsidiaries.
4. The CIT(A) has erred in upholding the action of the Assessing Officer of ignoring the adjustments made by the appellant to arrive at loss in the return of income. A.O. has computed income with reference to the loss as returned by the appellant and added back the entire revenue expenditure of Rs.5,22,91,642/- as per P&L A/c. This has resulted in double taxation of expenses amounting to Rs.3,25,810/-.
5. The CIT(A) has erred in considering income under the head Capital gains (Rs.988) and income from other sources (Rs.1,83,677/-) as business income.
6. The appellant company craves leave to add to, amend, alter or modify any or all the aforesaid grounds of appeal.
3. The short facts of the case are as under:- The assessee company is engaged in business of promoting infrastructure related projects viz., roads, highway, railways ports, metro railways etc. During L&T Transco Pvt. Ltd. 3 the course of assessment proceedings it was observed from P&L account and balance sheet that no income was offered for taxation whereas the assessee claimed various expenses under the head “Revenue Expense” viz. operating expenses of Rs.4,65,49,847/-, administration and other expenses of Rs.57,38,384/- and also claimed depreciation of Rs.3,411/-. The Assessing Officer has given show cause notice as to why the expenses should be treated as revenue expenses when there were no business activities. The assessee contended that the Infrastructure Development Projects of the Company were largely undertaken as per the unique Build Operate Transfer (BOT) model which, as per government policies, require incorporation of separate entities i.e. Special Purpose Vehicles (SPV) to undertake each such infrastructure development project. It was further submitted that in order to achieve its business objective of developing projects, the assessee formed SPV to promote infrastructure projects and made investments and therefore, commenced its business activities. The matter carried to CIT(A) and CIT(A) has confirmed.
During the course of hearing the Ld. DR was asked to explain why it should be treated as capital expenditure. He submitted that issue in controversy is covered by the decision of Hon’ble Supreme Court in the case of Challapalli Sugars Ltd. Vs. CIT[(1975) 98 ITR 167] where the court held that the expenditure necessary to bring into existence and to put the cases in working conditions would be capital in nature. 5. Having heard the Ld. DR, we are of the view that the CIT(A) has held that the assessee company has not brought on any material to demonstrate that commercial operations of the business of promoting infrastructure related projects have commenced in the projects in which it has made investment. Therefore, the CIT(A) has verified the Audited Accounts of the assessee L&T Transco Pvt. Ltd. 4 ITA No. 2190/M/2014 company and found that commercial activity were not commenced during the relevant previous year. Therefore, it is a capital expenditure incurred and entire expenditure incurred during the implementation of the projects has to be capitalized. The issue in controversy is covered by the decision of Supreme Court in case of Challapalli Sugars Ltd. vs. CIT [(1975)] 98 ITR 167. Therefore, our interference is not required. In the result appeal of the assessee is dismissed. Judgment pronounced in the open court on 21st April 2017. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER