USHDEV INTERNATIONAL LTD,MUMBAI vs. ADDL CIT RG 2(3), MUMBAI

PER SANDEEP GOSAIN,JM: These are two appeals i. e. ITA No. 3912/Mum/2013 by the Revenue and ITA No.3294/Mum/2013 by the assessee are filed against the common order of the learned CIT(A)-6, Mumbai dated 11-03-2013 passed in Appeal No.CIT(A)-6/IT-159/2011-12 for assessment year 2009- 10. The same are heard together and are now being disposed of through this consolidated order.

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was filed by the assessee on 25-09-2008 declaring total income at

Rs.10,56,45,522/- after claiming deduction u/s 80IA of the Act at

Rs.3,41,72,995/-. The return was duly processed u/s 143(1) of the Act on

15-02-2011. Later on, the case was selected for scrutiny under CASS.

Therefore, after issuing notices and seeking reply from the assessee

Order of Assessment was passed u/s 143(3) of the Act by the AO on 30-

12-2011. While passing the assessment order, the income from carbon

credits of Rs.69,55,343/- was added to the income of the assessee for

assessment year 2009-10. In addition, the assessee’s claim for write off of

expenditure incurred in relation to abandoned projects was also

disallowed as it was held by the AO that these expenses constitute capital

expenditure and not deductible from the income of the assessee as per

provisions of the Income Tax Act. Further, the AO also disallowed interest

of Rs.3,46,58,302/- treating the same as assessee’s income from “other

sources”. Aggrieved by the order of the AO, the assessee preferred

appeal before the learned CIT (A) and the learned CIT (A) after hearing

both the parties has partly allowed the appeal of the assessee. It was

held that the addition made on account of unsold carbon credits

amounting to Rs.69,54,343/- by the AO was found to be not valid and the

AO was directed to restrict the addition to the extent of the cost of carbon

credits while treating the same as stock-in-trade of the assessee.

Aggrieved by the order of the learned CIT (A), both the Revenue as well

as the assessee preferred the present appeals before us.

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Revenue’s appeal in ITA No.3912/Mum/2013 for AY-2009-10

Grounds No.1 and 4 of the Revenue’s appeal are general in nature and

hence require no specific adjudication. Effective grounds No.2 and 3 are

reproduced herein below:-

“2. On the facts and circumstances of t he case and in law, the Ld. CIT(A) has erred in deleting the addition on account of unsold carbon credit treating it as stock in trade of the assessee, overlooking the fact that according to mercantile system of accounting the assessee was duty bound to offer it for taxation.

relating to deletion of addition on account of unsold carbon credits treating

it as stock-in-trade of the assessee by the learned CIT (A).

the order of the AO and submitted that the learned CIT (A) has erred in

deleting the addition made by the AO on account of unsold carbon credits

treating it as stock-in-trade of the assessee, overlooking the fact that

according to Mercantile System of Accounting, the assessee was duty

bound to offer it for taxation. It was further submitted by the learned DR

that the AO had made the addition rejecting the change in the method of

accounting adopted by the assessee with regard to taxation of carbon

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credits. The learned DR further submitted that as per the provisions of

Section 145 of the Act every assessee having income chargeable under

the head profits & gains from business or other sources, has to compute

income in accordance with either in CASS or Mercantile System of

Accounting regularly employed by the assessee. It was further argued by

the learned DR that the assessee in the present case has been

maintaining books of account on Mercantile System and the stand of the

assessee that income from carbon credits alone would be maintained on

CASS basis is not acceptable as Mercantile System of Accounting is not

acceptable under the provisions of the Income Tax Act.

upon the order of the learned CIT (A).

necessary to analyze the order passed by the learned CIT (A) while

dealing with the aforementioned two grounds raised by the Revenue. The

learned CIT (A) has dealt with these two grounds in Para 2.3 of his order.

The same is reproduced herein below:-

“2.3 I have gone through the order of the AO, the detailed submission of the appellant and studied in detail through internet various aspects of carbon credit, accounting treatment and taxability of carbon credit.

2.3.1 What it carbon credit? This question is very well answered in the Wikipedia at ‘http://en.wikipedia.org/wiki/Carbon credit’ as under: “A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tone of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (ICO2e) equivalent to one tone of carbon dioxide.

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Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one metric tone of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emission trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.

The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction scheme between trading partners and around the world.

There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon off setters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. The quality of t he credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously validated Clean Development Mechanism.

2.3.2 Carbon credits are goods and commodities: Are Certified Emission Reduction (CERs) carbon credits “goods”?

(i) The Carbon Credit (CER) traded as commodity as the Forward Markets Commission has granted trading permission to carbon credits and carbon credit is included in the list of commodities granted trading permission in the ‘other’ category. The Multi Commodity Exchange of India (MCX) entered into an alliance with Chicago Climate Exchange in 2005 to introduce carbon trading in India, providing further liquidity and grater expanse to the market.

(ii) The recent notification issued by the Government of the National Capital Territory of Delhi, notifying the legal position with regard to the taxability of CER has raised several questions as to whether carbon credits are to be treated as “goods” and whether it is eligible to tax and that they cannot be considered as actionable

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claims or securities. The Notification explains that in substance CERs are tradable commodity. They have a market value, having a ready market, with willing buyers and sellers and are freely transferable as other marketable commodities. Thus carbon credits should be considered to be goods under the sales tax laws and any person/company/undertaking/entity engaged in the activity of sale or purchase of carbon credit is a “dealer” in terms of the definition of dealer as contained in Section 2 (1) of the DVAT Act, 2004. The notification further explains that under Section 2(1) (m) of the DVAT Act, 2004, “goods” has been defined as –

“goods” means every kind of moveable property (other than newspapers, actionable claims, stocks, shares and securities and includes-

(i) Livestock, all material, commodities, grass or things attached to or forming part of the earth which are agreed to be served before sale or under a contact of sale and

(ii) Property in goods (whether as goods or in some other form) involved in the execution of a works contract, lease or hire- purchase or those to be used in the fitting out, improvement or repair of movable property”. It is further pertinent to mention Entry No.3 of IIIrd Schedule, under which CERs are to be treated as goods. Entry No.3 of IIIrd Schedule reads as follows – Entry No.3 of IIIrd Schedule “01-04-2005 All tangible goods like copyright, patent, rep license, goodwill etc.”

To draw conclusion, reliance was placed on several judgments of the Hon’ble Supreme Court in t he mater of H. Anraj v. Government of Tamil Nadu, [1986] 1 SCC 414, Vikash Sales Corporation & Another vs. Commissioner of Commercial Taxes & Another JT 1996 (5) SC 482, Yash Overseas Vs. Govt. of NCT of Delhi & Ors. (Judgment dated 28.4.2006) and so on. The Notification No.256/CDVAT/2009/43 dated 13.01.2010 issued by the Government of National Capital Territory of Delhi, concluded that Certified Emission Rights (Carbon Credits) are taxable under DVAT Act, 2004 and the rate applicable is 4% as the said item is covered under Entry No.3 of IIIrd Schedule appended to the DVAT Act, 2004.

In the landmark case of Vikas Sales, the question for consideration before the Hon’ble Supreme Court was whether the transfer of an Import License called R. E. P. License/Exam Script by the holder thereof to another person constitutes a sale of goods within the meaning of and for the purposes of the Sales Tax enactments of

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Tamil Nadu, Karnataka and Kerala and whether it was exigible to tax or not. Replenishment License or REP licenses were issued by the Central Government to registered exporters facilitating import of essential inputs required for the manufacture of the products exported. These licenses were made freely transferable and lawful holder of the license could either import the goods permitted thereunder or sell it to another in turn. Thus several registered exporters started trading in these licenses and made profits out of the same. The tax authorities thus claimed that transfer of such licenses was subject to sales tax as these qualified to be goods as per the sales tax act. Several notable points were made which are relevant in case of carbon credits as well, which are as follows: • As REP license did not require any endorsement or permission from the licensing authority, and were governed by the ordinary law, REP could be transferred by the transferor by way of a formal letter to the transferee and conferred upon the transferee choate right that was exercisable immediately, these licenses had intrinsic value of their own which was independent of the value of the goods which could be imported. • REP licenses could not be contended to be actionable claims, as actionable claims are claims to any debt or beneficial interest in the movable property whether existent, accruing, conditional or contingent and these licenses conferred right to purchase material and were not claims to any debt.

• Lastly, these licenses were bought and sold freely in the market, i.e. they had a ready market for trade. Further, in case of Tata Consultancy Services vs. State of Andhra Pradesh it was, inter alia, held and was reiterated in case of BSNL vs UOI [2006] 152 Taxman 135/282 ITR 273/ 145 SC 1, that anything that had the following attributes would be regarded as goods (a) its utility; (b) capable of being bought and sold and (c) capable of being transmitted, transferred, delivered, stored and possessed. Therefore CER by virtue of fulfilling the above mentioned attributes qualifies to be considered as “goods”.

2.4 Creation of the carbon credit involves cost- (i) The process of setting up of carbon credit project (as also submitted by the appellant vide letter dated 10.01.2013) is as under: 1. Preparation and submission of Project Concept Note (PCN) and Project Design Document (PDD)

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The entire procedure requires involves input from experts in the fields of law, accountancy, engineering, and consultancy any obtaining their services involves cost. While undertaking a CDM project an entity has to go through a lot of research and development, documentation and approvals process and the same is recognized by ICAI as further, indicated below:-

2.5 Accounting treatment-

The Accounting Standard Board of the Institute of Chartered Accountants of India (ICAI) has also issued an Exposure Draft of the Guidance Note on Accounting for Self-generated Certified Emission Reductions in 2009 enumerating the accounting principles for CERs generated by an entity. The exposure draft provides for accounting principles relating to recognition, measurement and disclosures of CERs generated under the Clean Development Mechanism. Clean Development Mechanism being the relevant mechanism adopted in India for reduction of carbon emissions, it is pertinent to mention that in a CDM mechanism, a developed nation may invest in a project in developing nation, which would result in emission reduction. The emission reductions once certified by the CDM Executive Board, under the protocol are called certified Emission reductions (CERs) or carbon credits and are used to meet nation’s commitments under the Protocol. While undertaking a CDM project an entity has to go through a lot of research and development, documentation and approval process. Accounting treatment for CERs taking in consideration the exposure draft issued by ICAI should be done in the following manner:

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AS 26 for intangible assets. Cost incurred on receiving the CER is measured with certainty at the time of incurring those expenses whereas revenue recognition will happen only at t he time of sale of CERs. So there is mismatch of in accounting for expenses and revenue.

2.6 The Hyderabad ITAT in the case of My Home Power Ltd. v CIT [ITA No.1114/HYD.) of 2009 dtd 2.11.2012] held that carbon credits are capital receipts and are not taxable. The decision of the Hyderabad ITAT cannot be used as a precedence as the same is not applicable in the territorial jurisdiction of Mumbai as held by the Bombay High Court in case of CIT –vs- Thana Electricity Supply & Co. (206 ITR 727) (Mum) held, “The decision of one High Court is neither binding precedent for another High Court nor for Court or Tribunals outsides its own territorial jurisdiction. It is well settled that the decision of a High Court will have a force of binding precedent only in the State or Territories in which the Court has jurisdiction. In other States or outside territorial jurisdiction of that High Court it may, at best, have only persuasive effect because the decision suffers from factual and logical and legal errors as discussed below:

(i) The ITAT Hyderabad held that carbon credit is in the nature of “an entitlement” received to improve world atmosphere and

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environment reducing carbon, heat and gas emissions. The entitlement earned for carbon credits can, at best, be regarded as a capital receipt and cannot be taxed as a revenue receipt. It is not generated or created due to carrying on business but it is accrued due to “world concern”. It is pertinent to note that whether a receipt is capital or revenue does not depend on for what purpose the business is being carried and even if a receipt is generated “due to world concern”, the same does not automatically determine the nature of the receipt. If the argument of ITAT Hyderabad is followed, then receipts of all the companies involved in producing pollution control machines and equipments would have to be treated as capital receipt. Similarly a doctor or a hospital may be considered for working for improvement “world health” or an actor or entertainer may be considered as reducing the anxiety and stress level of the world therefore, treating their receipts as capital receipt would not be logical as most economic activities does contribute towards improvement of some or other aspect of t he world and therefore, the argument of the ITAT Hyderabad that since carbon credits are generated due to world concern therefore the same is capital receipt is found to be not very logical.

(ii) As a matter of fact carbon credits are being created by undertaking lot of costs as discussed at Para 2.4 above. Further, the generation and seller of carbon credits are involved in such activity because there is a market for carbon credit and carbon credit transactions lead to gain to the producers and traders of carbon credit. Producers and traders of carbon credits are not only motivated by “world concern” but also on account of the fact that carbon trading can be profitably undertaken. Thus, the ITAT Hyderabad is not correct in holding that the amount received for carbon credits has no element of profit or gain and it cannot be subjected to tax in any manner under any head of income.

(iii) Carbon credits are goods or commodities and are being sold in various commodity exchanges throughout the world including two commodity exchanges in India as pointed out above. The ITAT Hyderabad therefore is not correct in holding that the amount received for producing and/or selling any product, bi-product or for rendering any service for carrying on the business.

(iv) The ITAT Hyderabad at Para 25 of their order held as under:

“Further, as per guidance note on accounting for Self- generated Certified Emission Reductions (CERs) issued by the Instituted of Chartered Accountants of India (ICAI) in June, 2009 states that CERs should be recognized in books

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when those are created by UNFCCC and/or unconditionally available to the generating entity. CERs are inventories of the generating entities as they are generated and held for the purpose of sale in ordinary course. Even though CERs are intangible assets those should be accounted as per AS-2 (Valuation of inventories) at a cost or market price, whichever is lower? Since CERs are recognized as inventories, the generating assessee should apply AS-9 to recognize revenue in respect of sale of CERs.”

But the conclusion at Para 26 that the “sale of carbon credits is to be considered as capital receipt” is in contrast to the findings of Para 25 and not very logical as when the inventories are sold, the same would result in revenue receipt.

2.7 In view of the above it is held that:

(i) Carbon credits are goods or commodities,

(ii) Unsold carbon credits are stock in trade or inventory,

(iii) Receipts on sale of carbon credit are revenue receipts,

(iv) The addition of unsold carbon credits amounting to Rs.69,54,343/- by the AO is therefore, found to be not valid, however, the addition is to be restricted to the cost of carbon credits which is to be treated as stock-in-trade of the appellant. Ground No.1 is partly allowed.”

also perused the materials placed on record as well as the orders of the

Revenue authorities. After conjoint reading of the orders of the Revenue

authorities and analyzing the order of the learned CIT (A), we are of the

considered view that the learned CIT (A) has passed a well reasoned

detailed order taking into account the definition of carbon credits and has

also carried out elaborate research to find out as to whether carbon

credits are goods and commodities. The learned CIT (A) while considering

the involvement of cost has also taken into account the accounting

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treatment in respect of Exposure Draft of the Guidance Note of

Accounting of Self-generated Certified Emission Reduction in 2009 issued

by the Accounting Standard Board of the Institute of Chartered

Accountants of India (ICAI) and has also considered the orders passed by

the Co-ordinate Benches of this Tribunal. After carrying out detailed

discussions, the learned CIT (A) in Para 2.7 of his order has rightly come

to the conclusion that carbon credits are goods or commodities and

unsold carbon credits are stock-in-trade or inventories. It was further

rightly held by the learned CIT (A) that the receipts on sale of carbon

credits are revenue receipts and therefore, the addition made on account

of unsold carbon credits amounting to Rs.69,54,343/- by the AO was not

valid and, therefore, the learned CIT (A) has rightly held that the addition

made by the AO has to be restricted to the cost of carbon credits while

treating the same as stock-in-trade. No new materials or arguments have

been put forth before us in order to rebut or counter the well reasoned

findings recorded by the learned CIT (A). In view of the above, we find no

reason to deviate from or interfere with the findings of the learned CIT (A).

Accordingly, we uphold the same and dismissed both the aforementioned

grounds of the appeal of the Revenue.

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Assessee’s Appeal in ITA No.3294/Mum/2013(AY-2008-09)

requires no adjudication. The effective ground No.1 raised by the

assessee is as under:

“1. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the action of the learned Assessing Officer in disallowing the claim of expenditure amounting to Rs.1,12,41,111/- in relation to the abandoned projects by merely stating that the judicial precedents relied by the Appellant in the course of the CIT (A) proceedings relate to expansion of existing business and does not apply to the facts of the Appellant.

The appellate order passed by the learned CIT (A) without appreciating the facts of t he case being bad in law, the same needs to be quashed and the claim of the Appellant for the aforesaid expenditure needs to be allowed.”

application before the Bench through its Counsel dated 31-07-2014 for

filing of additional grounds stating that in the present appeal filed against

the order of the CIT (A) on the point decided against the assessee, a

ground challenging the treatment given carbon credit receipts was omitted

to be taken for want of proper advice and that it was therefore, necessary

and prudent to seek relief on the aforesaid count by raising additional

grounds of appeal. It was further submitted that the additional grounds of

appeal was raised on pure questions of law and for adjudication of the

same all the facts are very much available on record. Therefore, it was

prayed that the same may be admitted.

The assessee while raising the additional grounds further relied

upon the decisions of the Hon’ble Apex Court rendered in the case of (i)

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National Thermal Power Corporation v. CIT [229 ITR 383 (SC)], (ii) Jute

Corporation of India v. CIT [187 ITR 688 (SC)] and (iii) the decision of the

ITAT Mumbai Full Bench rendered in the case of Ahmedabad Electricity

Co. Ltd. vs. CIT [199 ITR 351 (Bom.) (FB).

appeal, additional ground No.3 is general in nature and requires no

specific adjudication. The effective interrelated & interconnected

additional grounds No.1 and 2 are reproduced herein below for

reference:-

“1. The CIT (A) ought to have held that the carbon credit entitlements earned by the appellant were capital receipts and, therefore, were not exigible to tax as revenue receipts.

opposed the application moved by the assessee.

and considering the context contained in the application, we are of the

considered view that the additional grounds raised by the present

application are based on pure questions of law and are emanating from

the facts already on record, therefore, we admit the additional grounds of

appeal for adjudication.

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disallowing the claim of expenditure amounting to Rs.1,12,41,111/- in relation to abandoned projects by merely stating that the judicial

precedents relied upon by the assessee in the course of appellate

proceedings relate to expansion of the existing business and do not apply to the facts of the assessee. The learned AR further argued that during the financial year ended on 31st March, 2008 the assessee had incurred certain expenses amounting to Rs.1,12,41,111/- for new Wind Mill

Projects in Maharastra, Karnataka and Gujarat. The expenditure in relation to the Wind Mill Projects was debited to capital work-in-progress

account. However, since these projects were not feasible the expenses were written off to the profit & loss account during the financial year ended on 31st March, 2009 and during the course of assessment proceedings filed the details of the expenses explaining the assessee’s inability to

complete the projects. He further submitted that the AO disregarded the submission of the assessee by stating that the main issue to be

considered was whether the expenses incurred were of capital or revenue

in nature or was incurred for the purpose of new line of business or for expansion of the existing business. The learned AR submitted that the claim

of deduction of expenditure is allowable in computing the total income of the assessee and he relied upon the judgments rendered in the case of (i)

Indorama Synthetics India Ltd. Vs. CIT (2011) (333 ITR 18) (Del) and (ii) CIT Vs Essar Oil Ltd. (2008) TIOL 530 HC – Bom. Apart from that, the

16 ITA No.3912 & 3294/Mum/20113

learned AR further relied upon the judgments rendered in the case of (i)

CIT Vs. Priya Village Road Shows Ltd. (2011) 332 ITR 594 (Delhi) (High

Court and Apollo Trading & Finance Pvt. Ltd. Vs. DCIT 2008 TIOL 379 –

Del.

Revenue authorities.

the order passed by the learned CIT (A). While dealing with the

aforementioned grounds, the findings recorded by the learned CIT (A)

are mentioned in Para 2.3 of his order and the same are reproduced

herein under:-

“2.3 I have through the order of the AO and the submission of the appellant. The deduction of capital expenditure is not allowable u/s 37 of the Income-tax Act and in fact no capital expenditure is allowable under the Income-tax Act unless specifically provided for example as in Sections 35A, 35B(both withdrawn after 01.04.1998), 35ABB, 35AD, 35DD, 35DDA, 35E etc.

2.3.1 Further, the expenditure of the appellant is capital expenditure of the appellant on setting up of the wind mill which is a new line of business being explored by the appellant company. It is pertinent to note that the case laws relied upon by t he appellant are pertaining to expenditure of some line of business not in new line of business as discussed hereunder:-

(i) In case of Indo Rama Synthetics India Ltd. Vs CIT (333 ITR 18 Del) the case is of “vertical expansion of t he present business”,

(ii) The case of CIT Vs Essar Oil Ltd. TIOL 530 SC-Bom is of expenditure on “tenders and bids in the field of oil exploration i.e. in the same line of business,

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(iii) The case of CIT Vs Priya Village Road Shows Ltd. (2011) 332 ITR 594 (Delhi) (High Court) is regarding feasible studies conducted by the assessee for the existing business,

(iv) In the case of Apollo Trading & Finance Pvt. Ltd. Vs DCIT 2008 TIOL 379 –DEL it was held that the AO did not look into the other objects in the memorandum of the Association of the Company and came to erroneous conclusion that it is engaged only in financing and investment business and it was held that the actual expenditure was in pursuant of its regular business. The Delhi High Court referred to the case of CIT VS Karnataka State Industrial Investment Corporation 163 ITR 657 in which the Karnataka High Court held that expenditure was incurred in the same line of business of promotion to promote and operate schemes for industrial growth of Karnataka. The case of CIT, Tamil Nadu- II Vs Seshasayee Bros P. Ltd. (1981) 127 ITR 218 (Mad) was also referred in which it was held the assessee’s business was the promotion of new venture and expenses incurred were incidental to same and could not be treated as preliminary and capital in nature.

(v) In the case of ONGC Videsh Ltd. Vs DCIT (2010) 127 TTJ 497 (Del) the Delhi High Court followed the order of Bombay High Court in the case of CIT Vs ESSAR Oil Ltd. As already discussed at Para 2 (ii) above the case of ESSAR Oil Ltd. was with respect to the expenditure in the same line of business and similarly, the ONGC decision was on account of “the assessee was continuously in the business of exploration and production of oil, the expenditure so incurred was in the normal course of business.

Thus it is obvious that the five case laws, the details of which are furnished by the appellant in its letter dated 11.12.2012 and the aforesaid at (i) to (ii) has been extracted out of appellant’s submission relates to the expenditure in the same line of business.

2.3.2 Appellant’s expenditure for setting up of windmills in Maharashtra, Gujarat and Karnataka was capital expenditure and was debited to capital work-in-progress account as submitted by Para 3.8 of the appellant’s submission dated 11.12.2012. The capital expenditure of the appellant is therefore, not allowable as the capital expenditure was to set up new line of business. Ground 2 is therefore, dismissed.”

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Revenue authorities. After analyzing the orders of the authorities below

and perusal of the documents placed on record before us, we are of the

considered view that the AO had recorded the factually incorrect findings

in Para 5.4 of his order wherein the AO has mentioned that “to install new

wind mills the assessee would have to acquire land for installing the plant

and machinery for setting up of its new wind mill”. On the contrary, the

AO has also mentioned that the assessee was already involved in

running the business of steel trading and power generation. The learned

CIT (A) has simply upheld the findings of the AO by again mentioning

factually incorrect facts to the effect that the expenditure incurred by the

assessee was capital expenditure of the assessee on setting up of the

wind mills which is a new line of business being explored by the

assessee company. The learned CIT (A) again fell in error while

noting that the case laws relied upon by the assessee pertain to incurring

of expenses on same line of the business and not for new line of

business. In this connection, it is pertinent to mention here that even in

Para 3 of the assessment order which is opening paragraph, it has been

categorically mentioned by the AO that the assessee company was

engaged in the steel trading and power generation business and even in

the column “Nature of Business” it has been clearly mentioned that the

assessee was in the business of “Steel trading & power generation”. The

learned AR drew our attention to page 10 and 11 of the paper book

wherein it has been categorically mentioned that the assessee was

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engaged in this business and has already established 24 nos. of wind

mills at different places including the State of Tamil Nadu, Gujarat,

Maharashtra and Karnataka and the total capital work-in-progress has

already been reflected in the documents. We have analyzed the

judgments referred to by the learned AIR in the case of (i) Indorama

Synthetics India Ltd. Vs. CIT (2011) (333 ITR 18) (Del), (ii) CIT Vs Essar

Oil Ltd. (2008) TIOL 530 HC – Bom and (iii) Apollo Trading & Finance

Pvt. Ltd. Vs. DCIT 2008 TIOL 379 – Del. From the conjoint reading of the

judgments and documents placed on record as well as the orders of the

Revenue authorities, we are of the considered view that no new asset

was accrued on account of the expenditure incurred and the project was

for vertical expansion of the present business and the expenditure

incurred was not for independent business but the assessee was already

into this business. Therefore, the principle laid down in the

aforementioned judgments and the facts contained therein are similar to

the facts of the assessee’s case. Therefore, considering the arguments

and the principles mentioned judgments we are of the considered view

that since the assessee satisfied all the conditions as mentioned above to

the effect that the wind mills were part of the business of the assessee

and the expenditure incurred was in relation to setting up of new wind

mills. Since the project was not feasible the same had to be abandoned

and the expenditure incurred was written off in the profit & loss account of

the assessee. Keeping in view the aforesaid facts, we hereby direct the

AO that the claim of the expenses amounting to Rs.1,12,41,111/- be

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allowed as deduction while computing the total income of the assessee.

Resultantly, these grounds of appeal of the assessee are allowed.

Revenue’s appeal, the additional grounds raised by the assessee have

become redundant and as such the findings recorded by us in the

Revenue’s appeal are applicable in this regard.

dismissed and the appeal filed by the assessee stands allowed. Order pronounced in the open court on 31/5/2016.

Sd/- Sd/-

(JASON P. BOAZ) (SANDEEP GOSAI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated 31/5/2016 Lakshmikanta Deka/Sr.PS Lakshmikanta Deka/Sr.PS Lakshmikanta Deka/Sr.PS Lakshmikanta Deka/Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT (A), Mumbai. 3. CIT 4. 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//

BY ORDER,

Assistant Registrar ITAT, MUMBAI