VISAKHAPATNAM PORT AUTHORITY,VISAKHAPATNAM vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), VISAKHAPATNAM
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आयकरअपीलीयअधिकरण, धिशाखापटणमपीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM श्दुव्वआरएलरेडी, नाधयकसदसएिंशीएसबालाकृष्, लेखासदसकेसमक BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं. / I.T.A. No. 194/VIZ/2023 (धििाधरणिरध/ Assessment Year: 2014-15) VISAKHAPATNAM PORT AUTHORITY v. ASST. COMMISSIONER OF INCOME TAX CIRCLE-1(1) Administrative Office Building 4th Floor, Pratyakshakar Bhavan Port Area, Visakhapatnam 530001 MVP Road, Beside Post Office Andhra Pradesh Sector-8, MVP Colony Visakhapatnam – 530017 [PAN: AAALV0035C] Andhra Pradesh (अपीलार्/ Appellant) (प्र्/ Respondent) करदाताकाप्त्््िध/ Assessee Represented by Shri GVN Hari, AR : राजसकाप्त्््िध/ Department Represented by Dr. Satyasai Rath, CIT(DR) : 29.07.2024 सु्वाईसमापहो्ेक््त्ि/ Date of Conclusion of Hearing : घोषणाक्तार्ख/Date of Pronouncement 05.09.2024 : आदेश/O R D E R PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER: 1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), [Ld.CIT(A)], National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No. ITBA/NFAC/S/250/2023- 24/1052850996(1) dated 15.05.2023 arising out of order passed under
I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 31.12.2016 for the A.Y. 2014-15.
The Tribunal while adjudicating the case inadvertently erred in not adjudicating Ground No. 5 raised by the assessee in the original grounds of appeal. Thereafter the assessee filed a Miscellaneous Application seeking recall of the order since Ground No. 5 of the original grounds of appeal relating to disallowance of amount paid to M/s. RITES for the purpose of feasibility report of Rs.5,56,18,200/- was not adjudicated. This Tribunal vide its order dated 24.06.2024 recalled the order dated 25.03.2024 for the limited purpose of adjudicating Ground No. 5 of the original grounds of appeal which reads as follows: -
“5. The Assessing Officer is not justified in disallowing the amount paid to M/s. RITES for the purpose of feasibility report of Rs.5,56,18,200/- U/s. 37 of the Income Tax Act, 1961.”
At the outset, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that the assessee has paid an amount of Rs.5,56,18,200/- to M/s. RITES for preparation of Techno Economic Feasibility Report for development of another new major Port at Duggarajapatnam in Andhra Pradesh and the same was considered as revenue expenditure since the project has been abandoned. He further submitted that no new asset of
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I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY enduring nature has been created by the assessee and hence expenditure incurred for the Techno Economic Feasibility Report should be considered as revenue in nature. Further he submitted that this Techno Economic Feasibility Report was incurred for the same line of business carried on by the assessee. He therefore pleaded that the addition may be deleted. Ld.AR placed reliance on the following case laws:
i. Decision of the Hon’ble Kolkata High Court in the case of Binani Cement Ltd., v. CIT dated 23.03.2015 [(2016) 380 ITR 0116 (Cal)]. ii. Decision of the Co-ordinate Bench of Visakhapatnam in the case of SAR Chandra Environ Solution (P.) Ltd., v. ITO dated 10.08.2015.
Per contra, Ld. Departmental Representative [hereinafter in short “Ld. DR”] submitted that the expenditure incurred for the Techno Economic Feasibility Report is capital in nature and should be considered as a capital expenditure. Ld. DR further submitted that assessee was planning to setting up of a new Port and therefore it constitutes setting up of a new project and hence it has to be treated as a capital expenditure. Ld. DR placed reliance on the decision of the Hon’ble Delhi High Court in the case of ICS Systems (P.) Ltd., v. CIT [(2019) 102 taxmann.com 131 (Delhi)].
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I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY 5. Countering the argument of the Ld. DR, Ld.AR submitted that the reliance placed by the Ld. DR in the case of the ICS Systems (P.) Ltd., v. CIT (supra) is distinguishable on the fact that in that case advance for acquisition of a capital asset has been forfeited and hence it would amount to capital loss. However, in the instant case, assessee has incurred expenditure for conducting the feasibility of setting up of a new Port at Duggarajapatnam in Andhra Pradesh and hence distinguishable. He pleaded once again that the addition may be deleted.
We have heard both the sides and perused the material available on record and the orders of the Lower Authorities. Admittedly the assessee has incurred an expenditure of Rs.5,56,18,200/- for the preparation of Techno Economic Feasibility Report and made payments to M/s. RITES. It is also undisputed fact that the assessee was analysing the economic feasibility for setting up of another new major Port at Duggarajapatnam in Andhra Pradesh. However, as submitted by the Ld.AR since there is no progress in the new setting up of new major Port at Duggarajapatnam in Andhra Pradesh even after completion of three years, the assessee abandoned the project and treated the expenditure as revenue in nature and charged to the Profit & Loss Account of the assessee under the General Administrative expenditure during the
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I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY Financial Year 2013-14 relevant to Assessment year 2014-15. The point of contention of the Ld.AR is that no new asset has been created with enduring benefit and hence it cannot be treated as a capital expenditure deserves consideration. Further the assessee being an entity which was brought into existence by the Major Port Trust Act, 1963 and engaged in providing various facilities at Visakhapatnam Port. It is also undisputed fact that the expenditure for the Techno Economic Feasibility Report amounting to Rs.5,56,18,200/- was for creation of another new major Port where the assessee is also in the same line of business. In this connection, the Hon’ble Madras High Court in the case of Tamilnadu Magnesite Ltd., v. ACIT [(2018) 95 taxmann.com 239 (Madras)] in Paragraph Nos. 25 and 26 held as follows: -
“25. 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
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I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY land, import of machineries, etc., no 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. 26. 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.
Further in Paragraph Nos. 27 & 28, the Hon’ble Madras High Court in the case of Tamilnadu Magnesite Ltd., v. ACIT (supra) held as follows:-
“27. 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 28. asset, then the expenditure incurred would be revenue in nature. However, if the new asset comes into existence,
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I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY which is of enduring benefit, then such expenditure would be capital in nature.”
In the instant case, we also find that no new capital asset of enduring nature has been brought into existence and the assessee has incurred the expenditure for Techno Economic Feasibility Report study for setting up of a new Port which is in the same line of business of the assessee. Since, facts and circumstances are identical and similar to the case of Tamilnadu Magnesite Ltd., v. ACIT (supra) by judiciously following the decision of the Hon’ble Madras High Court we have no hesitation to delete the addition made by the Revenue Authorities and allow Ground No. 5 raised by the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 05th September, 2024.
Sd/- Sd/- (दुव्वआर.एलरेडी) (एसबालाकृष्) (DUVVURU RL REDDY) (S. BALAKRISHNAN) नाधयकसदस/JUDICIAL MEMBER लेखासदस/ACCOUNTANT MEMBER Dated :.05.09.2024 Giridhar, Sr.PS
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I.T.A. No. 194/VIZ/2023 VISAKHAPATNAM PORT AUTHORITY आदेशक्प्त्ल्िअगे्षत/ Copy of the order forwarded to :- ््िाधारत्/ The Assessee 1. : VISAKHAPATNAM PORT AUTHORITY Administrative Office Building Port Area, Visakhapatnam 530001 Andhra Pradesh राजस/ The Revenue 2. : ASST. COMMISSIONER OF INCOME TAX CIRCLE-1(1) 4th Floor, Pratyakshakar Bhavan MVP Road, Beside Post Office Sector-8, MVP Colony Visakhapatnam – 530017 Andhra Pradesh 3. The Principal Commissioner of Income Tax 4. ्वभाग्यप्त्््ि, आयकरअपीलीयअधिकरण, धिशाखापटणम/ DR, ITAT, Visakhapatnam 5. The Commissioner of Income Tax 6. गारधफ़ाईल/ Guard file
//True Copy// आदेशा्ुसार/ BY ORDER Sr. Private Secretary ITAT, Visakhapatnam
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