M/S. ADITYA BIRLA POWER CO. LTD (FORMERLY BIRLA PROJECT DEVELOPENT CO. LTD), MUMBAI v. THE ITO 8(1)(2), MUMBAI

ITA 7058/MUM/2007 | 2003-2004
Pronouncement Date: 08-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 705819914 RSA 2007
Assessee PAN AABCB7067H
Bench Mumbai
Appeal Number ITA 7058/MUM/2007
Duration Of Justice 2 year(s) 2 month(s) 10 day(s)
Appellant M/S. ADITYA BIRLA POWER CO. LTD (FORMERLY BIRLA PROJECT DEVELOPENT CO. LTD), MUMBAI
Respondent THE ITO 8(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 08-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 08-02-2010
Date Of Final Hearing 11-11-2009
Next Hearing Date 11-11-2009
Assessment Year 2003-2004
Appeal Filed On 28-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE SHRI N.V. VASUDEVAN JM & SHRI R.K. PANDA AM I.T.A. NO. 7058/MUM/2007 (ASSESSMENT YEAR 2003-04) M/S. ADITYA BIRLA POWER CO. LTD. C-1 ADITYA BIRLA CENTRE S.K. AHIRE MARG WORLI MUMBAI-400 030 PAN: AABCB7067H VS. I.T.O. 8(1)(2) MUMBAI APPELLANT RESPONDENT APPELLANT BY: MR. YOGESH A. THAR RESPONDENT BY: MR. A.P. SINGH O R D E R DATE OF HEARING: 11.11.2009 DATE OF ORDER: 08.02.2010 PER R.K. PANDA AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 6 TH SEPTEMBER 2007 OF THE CIT(A)-VIII MUMBAI RELATING TO ASSESSMENT YEAR 2003-04. 2. IN GROUNDS OF APPEAL NO. 1 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING TH E ORDER OF THE ASSESSING OFFICER IN DISALLOWING INTEREST PA ID AMOUNTING TO RS.20 28 413. IN GROUNDS OF APPEAL NO . 3 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ASSESSING OFFICERS ACTION IN DISALLO WING THE AMOUNT OF RS.2 67 80 989 CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE ALTHOUGH THE SAME IS SHOWN AS EXPENSES RECOVERABLE FROM VARIOUS COMPANIES. SIMIL ARLY IN GROUNDS OF APPEAL NO. 5 THE ASSESSEE HAS CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE PROFESSIONAL F EE AMOUNTING TO RS.85 00 500. IN GROUNDS OF APPEAL NO . 6 I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 2 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE PROFESSIONAL FEE AMOUNTING TO RS.38 60 542. IN GROUNDS OF APPEAL NO. 8 THE ASSE SSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN CONSIDERING THE TOTAL EXPENSES INCURRED IN CONNECTION WITH DEVELOPMENT OF VARIOUS PROJECTS AS COST OF WORK-IN-PROGRESS. SINC E ALL THE ABOVE GROUNDS ARE INTERCONNECTED THEREFORE ALL TH ESE GROUNDS ARE BEING DISPOSED OF SIMULTANEOUSLY IN THE FOLLOWING PARAGRAPHS. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF POWER PRO JECTS. SOME COMPANIES OF ADITYA BIRLA GROUP HAD DONE SOME WORK IN CONNECTION WITH ROSA POWER PROJECT BINA PO WER PROJECT AND LNG POWER PROJECT. THEIR RIGHTS TITLE AND INTEREST IN THESE PROJECTS WERE TRANSFERRED TO THE COMPANY EFFECTIVE FROM 1.4.001. THE ASSESSING OFFICER OBSE RVED FROM THE SUBMISSION MADE BY THE ASSESSEE THAT THE COMPANY WAS ORIGINALLY REGISTERED IN THE NAME OF HO TGI FIBRES LTD. AND ITS OBJECTS WERE CHANGED AS PER SPE CIAL RESOLUTION OF 6.11.2000. THEREAFTER THE NAME OF TH E COMPANY WAS ALSO CHANGED FROM HOTGI FIBRES LTD. TO BIRLA PROJECT DEVELOPMENT COMPANY LTD. THE COMPANY HAS TAKEN OVER THE RIGHTS AND OBLIGATIONS IN VARIOUS AGREEMENTS ENTERED INTO BY THE GROUP COMPANIES TO DEVELOP THE POWER PROJECTS. 4. FROM THE VARIOUS DETAILS FILED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CL AIMED INTEREST ON LOAN AMOUNTING TO RS.72 49 582. THE ASSESSING OFFICER OBSERVED FROM THE BALANCE SHEET T HAT THERE ARE UNSECURED LOANS AMOUNTING TO RS.15 64 07 000 I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 3 AND THE ASSESSEE HAS CLAIMED INTEREST OF THE ABOVE MENTIONED AMOUNT ON THESE LOANS. HE OBSERVED THAT THE ASSESSEE HAD ALSO ADVANCED LOANS TO THE FOLLOWING P ARTIES ON WHICH NO INTEREST HAS BEEN CHARGED: S. NO. NAME OPENING BALANCE (RS.) CLOSING BALANCE (RS.) A. BINA POWER SUPPLYT CO. LTD. 40 19 935 98 05 935 B. ROSA POWER SUPPLY CO. LTD. 39 24 685 75 86 955 C. TN LNG POWER CO. P. LTD. 1 44 66 652 3 13 69 371 D. INDIAN RAYON & IND. LTD. NIL 9 77 16 580 5. ON BEING QUESTIONED BY THE ASSESSING OFFICER IT WAS EXPLAINED THAT THE TRANSACTIONS WITH ITEM NOS. A B AND C CANNOT BE TREATED AS LOAN AS THESE WERE EXPENSES RECOVERABLE FROM THE AFORESAID COMPANIES AND THERE FORE HAD BEEN SHOWN AS ADVANCES RECOVERABLE. THEREFORE IT CANNOT BE SAID THAT INTEREST BEARING LOANS HAD BEEN DIVERTED FOR INTEREST FREE LOANS. AS REGARDS THE OUTSTANDING AMOUNT WITH M/S. INDIAN RAYON & INDUSTR IES LTD. IT WAS SUBMITTED THAT THIS AMOUNT REPRESENTS THE EXPENSES INCURRED BY THE ASSESSEE COMPANY ON BEHALF OF M/S. INDIAN RAYON INDUSTRIES REGARDING THEIR BPO PR OJECT. 6. HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE CON CLUDED THAT THE ASSESSEE HAS ERRED IN NOT LOADING THE INTE REST ATTRIBUTABLE FOR THE ADVANCES GIVEN TO THE PROJECT COMPANIES AND THAT SUCH INTEREST CANNOT BE DEBITED TO THE COMPANYS OWN EXPENDITURE ACCOUNT. THE ASSESSI NG OFFICER THEREFORE DISALLOWED A SUM OF RS.20 28 41 3 ON PRO-RATA BASIS IN THE HANDS OF THE ASSESSEE COMPANY AND LOADED THE SAME TO THE THIRD PARTY EXPENSES. I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 4 7. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.267.81 LAKHS AS PROJECT EXPENSES. THIS AMOUNT IS NOT PART OF THE PROFIT AN D LOSS A/C. BUT HAS BEEN CLAIMED IN THE STATEMENT OF INCOM E. HOWEVER THE SAME AMOUNT HAS BEEN SHOWN IN THE BALANCE SHEET AS ADVANCES RECEIVABLE. ON BEING QUESTIONED BY THE ASSESSING OFFICER IT WAS STATED T HAT THE EXPENSES WHICH WERE BEING INCURRED FOR THE VARIOUS THIRD PARTIES WERE TO BE RECOVERED FROM THEM ONLY WHEN FINANCIAL CLOSURE HAS BEEN ACHIEVED AND TILL THEN THE ASSESSEE HAD A RIGHT TO CLAIM THE EXPENDITURE U /S. 37(1) OF THE ACT. HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED WITH SUCH EXPLANATION GIVEN BY THE ASSESS EE. HE OBSERVED THAT THE ASSESSEE CANNOT CLAIM EXPENDITURE FOR DETERMINING THE PROFIT OF THE YEAR WHEN THE EXPENDI TURE ITSELF HAS BEEN TREATED IN THE BOOKS AS ADVANCE REC EIVABLE IN CASH OR IN KIND AND THAT THE EXPENSES DESERVE TO BE TREATED AS WORK-IN-PROGRESS BE CARRIED FORWARD TO SUBSEQUENT YEARS. THE CLAIM OF THE ASSESSEE THAT T HE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS AND THE CLAIM WAS MADE REGARDING THIS EXPENDITURE IN VI EW OF THE UNCERTAINTY AND CONTINGENCY ATTACHED WITH THE ACHIEVEMENT OF FINANCIAL CLOSURE WAS REJECTED BY TH E ASSESSING OFFICER. HE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE TREATMENT IN THE BOOKS OF ACCOUNT IS NEITHER DECISIVE NOR CONCLUSIVE FOR DETERMINING OF ALLOWABILITY OF EXPENSES. 8. THE ASSESSING OFFICER SIMILARLY REJECTED THE CLAIM OF LEGAL AND PROFESSIONAL FEE AMOUNTING TO RS.85 00 50 0 AND RS.38 60 542 RESPECTIVELY AND TOOK THE SAME AS WORK -IN- PROGRESS SINCE THESE EXPENSES ARE DIRECTLY RELATED TO THE POWER PROJECTS AND BPO PROJECT RESPECTIVELY. ACCO RDING TO THE ASSESSING OFFICER THE AMOUNT OF RS.85 00 500 I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 5 DIRECTLY RELATED TO THE POWER PROJECT AND NOT THE COMPANYS EXPENDITURE AND THEREFORE IS REQUIRED T O BE THE PART OF THE THIRD PARTY EXPENDITURE. SIMILARLY THE AMOUNT OF RS.38 60 542 IS THE AMOUNT OF FEE PAID FO R CONSULTANCY FOR THE BPO PROJECT AND THEREFORE IS NOT ADMISSIBLE AS ASSESSEES EXPENSES. THEREFORE HE DISALLOWED THE SAME FROM ASSESSEES EXPENSES AND ATTRIBUTED TO THE BPO ACCOUNT. 9. IN APPEAL THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. HE OBSERVED THAT THE ASSESSEE I S IN THE BUSINESS OF DEVELOPING BUSINESS FOR ITS CLIENTS WHI CH ARE ASSOCIATE CONCERNS AND THAT TILL THE TIME FINANCIA L CLOSURES OF SUCH BUSINESSES ARE ACHIEVED THE ASSES SEE KEEPS INCURRING THE EXPENDITURE AND TREATS THE SAME AS ADVANCES RECOVERABLE. SUCH EXPENDITURE COULD BE IN THE NATURE OF LEGAL AND PROFESSIONAL FEES OR CONSOLIDAT ED THIRD PARTY EXPENDITURE OR IN THE NATURE OF INTEREST ATTR IBUTABLE TO THE THIRD PARTY CONCERN ON WHOSE BEHALF THE EXPENDITURE IS BEING INCURRED. HE FURTHER OBSERVED THAT IT IS NOT AT ALL NECESSARY THAT FINANCIAL CLOSURE OF S UCH PROJECTS ARE CERTAIN AND THEREFORE AT THE END OF THE DAY THERE MAY ALSO BE A SITUATION WHEN SUCH EXPENDITURE INCURRED AND TREATED AS ADVANCE RECOVERABLE MAY N OT RESULT IN ANY BUSINESS AND THIRD PARTY WOULD THERE FORE NOT BE LIABLE FOR MEETING OUT SUCH LIABILITY. HE O BSERVED THAT WHEN THE ENTIRE BUSINESS IS BASED ON UNCERTAIN TY AND SPECULATION THERE DOES NOT ARISE ANY DEBATE TH AT THE EXPENDITURE SO INCURRED HAS TO BE TREATED AS WORK-I N- PROGRESS. HE OBSERVED THAT IT IS NOT IN DISPUTE TH AT NOT ONLY ARE THE REVENUES NOT ARISING AT THE END OF THE YEAR IT IS ALSO NOT KNOWN WHETHER THERE WOULD BE REVENUES A T ALL AT THE END OF THE DAY. ACCORDING TO HIM WHEN THE E NTIRE CREDIT SIDE IS PROVISIONAL THERE CANNOT BE ANY CER TAINTY OF I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 6 THE PROFITS ARISING OUT OF THE INCURRING OF SUCH EX PENDITURE AGAINST THE HYPOTHETICAL REVENUE. THEREFORE THE E NTIRE EXPENDITURE CLAIMED INCLUSIVE OF THE EXPENDITURE WH ICH HAS BEEN SUBJECTED TO DISALLOWANCE WOULD HAVE TO BE TREATED AS WORK-IN-PROGRESS AND AS AND WHEN AND IF A PROJECT DOES COME TO FINANCIAL CLOSURE AND THE RE VENUE IS REALISED BY THE ASSESSEE THE NECESSARY EXPENDITURE WILL BE ALLOCATED ON A PRO-RATA BASIS DEPENDING ON THE V OLUME OF REVENUE AND OTHER FINANCIAL PARAMETERS. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESS EE IS IN APPEAL BEFORE US. 10. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRING TO PAPER BOOK PAGE 1 WHICH IS THE ORIGINAL COMPUTATION OF TOTAL INCOME SUBMITTED THAT THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.4 87 62 261.01 AS THIRD PARTY EXPENSES SHOWN AS ADVANCES RECOVERABLE IN CASH OR IN KIND IN BALANCE SHEET BUT CLAIMED THE SAME AS REVENUE EXPENDITURE. REFERRING TO THE NOTE TO THE COMPUTAT ION OF TOTAL INCOME HE SUBMITTED THAT THE THIRD PARTY DEVELOPMENT COST INCURRED BY THE COMPANY WHICH WAS SHOWN AS ADVANCES RECOVERABLE IN THE BOOKS OF ACCOU NT ARE REVENUE EXPENSES INCURRED BY THE COMPANY AND AR E ALLOWABLE EXPENDITURE IN COMPUTING THE TOTAL INCOME OF THE COMPANY. REIMBURSEMENT OF SUCH EXPENSES IF AND WHEN THE PROJECT ATTAINED FINANCIAL CLOSURE WOULD B E OFFERED AS THE INCOME OF THE COMPANY IN THAT YEAR. REFERRING TO PAGE 8 OF THE PAPER BOOK WHICH IS THE REVISED COMPUTATION OF TOTAL INCOME HE SUBMITTED THAT SUCH THIRD PARTY EXPENSES SHOWN AS ADVANCES RECOVERABLE IN CAS H OR IN KIND IN BALANCE SHEET BUT CLAIMED AS REVENUE EXPENDITURE HAS BEEN SHOWN AT RS.2 67 80 989. REFERRING TO A COUPLE OF DECISIONS HE SUBMITTED TH AT THE I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 7 ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE EXPENDITURE AS WORK-IN-PROGRESS WHICH HAS BEEN UPHE LD BY THE CIT(A) BUT THE CORRECT PRINCIPLE IS THAT THE SAME SHOULD BE ALLOWED AS EXPENDITURE. 11. THE LEARNED DR ON THE OTHER HAND STRONGLY RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT( A). HE SUBMITTED THAT THE LOSS CAN BE BOOKED IN THE ACCOUN TS ONLY WHEN IT ACCRUES. HOWEVER IN THE INSTANT CASE ALTHOUGH THE ASSESSEE HAS SHOWN EXPENSES AS ADVANCE S RECOVERABLE HOWEVER IT HAS CLAIMED THE SAME AS RE VENUE EXPENDITURE IN THE COMPUTATION. THE ASSESSEE HAS N OT BROUGHT ANYTHING ON RECORD TO SUBSTANTIATE THAT THE SE ARE LOSSES. THEREFORE ACCOUNTING STANDARD-7 IS CLEARL Y APPLICABLE. REFERRING TO THE ORDER OF THE CIT(A) HE SUBMITTED THAT THE CIT(A) HAS GIVEN A CLEAR CUT FIN DING THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING BUSINESS FOR ITS CLIENTS WHICH ARE ASSOCIATED CONCE RNS AND TILL THE TIME OF FINANCIAL CLOSURE OF SUCH BUSINESS IS ACHIEVED THE ASSESSEE GOES ON INCURRING THE EXPENDI TURE AND TREATS THE SAME AS ADVANCES RECOVERABLE. FURTH ER HE HAS ALSO GIVEN A FINDING THAT FINANCIAL CLOSURE OF SUCH PROJECTS IS UNCERTAIN AND THERE MAY ALSO BE A SITUA TION THAT SUCH EXPENSES INCURRED AND TREATED AS ADVANCES RECOVERABLE MAY NOT RESULT IN ANY BUSINESS AND THE THIRD PARTY WOULD NOT BE LIABLE FOR MEETING OUT SUCH LIAB ILITY. IN OTHER WORDS THE ENTIRE BUSINESS IS BASED ON UNCERT AINTY AND SPECULATION. RELYING ON A COUPLE OF DECISIONS HE SUPPORTED THE ORDER OF THE CIT(A) IN HOLDING THAT T HE ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE EXP ENDITURE AS WORK-IN-PROGRESS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 8 AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF O F THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT T HAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING BUSINESS FOR ITS CLIENTS WHICH ARE ITS ASSOCIATE CONCERNS. THERE IS ALSO NO DISPUTE TO THE FACT THAT TILL THE FINANCIAL CLOSURE OF SUCH BUSINESSES THE ASSESSEE IS INCURRING EXPENDITURE AN D THE SAME HAS BEEN SHOWN IN THE BALANCE SHEET AS ADVANCE S RECOVERABLE. THERE IS ALSO NO DISPUTE TO THE FACT THAT IN RESPECT OF SUCH EXPENDITURE SHOWN AS ADVANCES RECOVERABLE IN THE BALANCE SHEET THE ASSESSEE IN I TS COMPUTATION OF INCOME HAS CLAIMED THE SAME AS REVEN UE EXPENDITURE. WE FIND THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN TREATING SUCH EXPENSES SHOWN U NDER THE HEAD ADVANCES RECOVERABLE AND CLAIMED AS REVE NUE EXPENDITURE AS WORK-IN-PROGRESS. IT IS THE SUBMISS ION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAME SHOULD BE ALLOWED AS A LOSS DURING THE YEAR IN VIEW OF UNC ERTAINTY AND CONTINGENT NATURE OF POSSIBILITY TO RECOVER THI S EXPENDITURE DEPENDING UPON THE SUCCESSFUL ACHIEVEME NT OF FINANCIAL CLOSURE. HOWEVER WE DO NOT FIND AN Y MERIT IN THE ARGUMENTS ADVANCED BY THE LEARNED COUNSEL FO R THE ASSESSEE. WE FIND THE ASSESSEE HAS ALSO TAKEN A PL EA BEFORE THE ASSESSING OFFICER THAT IT HAS CLAIMED TH E EXPENSES TOWARDS PROJECT WHICH ARE SHOWN AS ADVANCE S RECOVERABLE ON THE GROUND THAT THE IF THE FINANCIAL CLOSURE OF THE PROJECT IS NOT ACHIEVED OR IF IT IS DECIDED TO ABANDON A PROJECT THIS EXPENDITURE WILL BE WRITTEN OFF IN T HAT YEAR. WHEN ACCORDING TO THE ASSESSEE ITSELF THERE IS LOT OF UNCERTAINTY AND CONTINGENT NATURE OF POSSIBILITY OF RECOVERY OF THESE EXPENSES FROM THE VERY BEGINNING AND THE ASSESSEE ITSELF IS TREATING THE EXPENSES AS ADV ANCES RECOVERABLE AND SHOWING THE SAME IN THE BALANCE SHE ET I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 9 AND SINCE THERE IS NO MATCHING PRINCIPLE FOR GENERA TION OF REVENUE EITHER IN THIS YEAR OR IN THE NEAR FUTURE O N ACCOUNT OF SUCH EXPENDITURE THEREFORE WE ARE OF T HE CONSIDERED OPINION THAT THE SAME WAS RIGHTLY TREATE D AS WORK-IN-PROGRESS BY THE ASSESSING OFFICER AND UPHEL D BY THE CIT(A). WE THEREFORE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE CIT(A) IN HOLDING THAT THE ENTIRE EXPE NDITURE CLAIMED INCLUSIVE OF THE EXPENDITURE WHICH HAS BEEN SUBJECTED TO DISALLOWANCE WOULD HAVE TO BE TREATED AS WORK-IN-PROGRESS AND AS AND WHEN IF A PROJECT DOES COME TO A FINANCIAL CLOSURE AND THE REVENUE IS REALISED BY THE ASSESSEE THE NECESSARY EXPENDITURE WILL BE ALLOCAT ED ON A PRO-RATA BASIS DEPENDING ON THE VOLUME OF REVENUE A ND OTHER FINANCIAL PARAMETERS. THE DECISION RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE CASE OF LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (SUPRA) FO R CLAIMING OF INTEREST IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE ASSESSEE IS NEITHER A CONTR ACTOR NOR DOING ANY SERVICE. IN THIS VIEW OF THE MATTER WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) A ND ACCORDINGLY UPHOLD THE SAME. THE GROUNDS OF APPEAL NOS.1 2 3 5 6 AND 8 ARE ACCORDINGLY DISMISSED. 13. IN GROUNDS OF APPEAL NO. 2 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ASSESSING OFFICERS ACTION IN DISALLOWING PROPORTIO NATE INTEREST PAID AMOUNTING TO RS.45 29 236. 13.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS EXAMINED THE BPO PROJECT UNDERTAKEN BY THE ASSESSEE FOR M/S. INDIAN RAYON INDUSTRIES CO. LTD. HE OBSERVED THAT THERE WAS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND M/S. INDIAN RAYON INDUSTRIES CO. LTD. THE ASSESSEE I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 10 INCURRED AN EXPENDITURE OF RS.9 77 16 580 DURING TH E YEAR UNDER CONSIDERATION FOR THE BPO PROJECT AND IN THE FOLLOWING YEAR M/S. INDIAN RAYON INDUSTRIES CO. LTD . RETURNED THE ENTIRE AMOUNT TO THE ASSESSEE WITHOUT ANY PROFIT ACCRUING TO THE ASSESSEE. THE ASSESSING OFF ICER THEREFORE HELD THAT THE ASSESSEE HAD INCURRED INTE REST EXPENSES FOR THE FUNDS BORROWED AND APPLIED FOR THE DEVELOPMENT OF BPO PROJECT AND THAT THE ASSESSEE DI D NOT HAVE ANY INTENTION OF EARNING PROFIT. ACCORDING TO THE ASSESSING OFFICER THE INTEREST PAID BY THE ASSESSEE WAS ACTUALLY REQUIRED TO BE DEBITED TO THE BPO PROJECT ACCOUNT AND NOT TO THE PROFIT AND LOSS A/C. OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER ACCORDINGLY DISALLO WED THE SUM OF RS.45 29 236 ON A PRO-RATA BASIS IN THE HANDS OF THE COMPANY AND LOADED THE SAME TO THE BPO PROJE CT. 13.2 BEFORE THE CIT(A) IT WAS ARGUED THAT M/S. INDIAN RAYON INDUSTRIES CO. LTD. AFTER HAVING EVALUATED TH E PROJECT AGREED TO TAKE OVER THE ENTIRE PROJECT AT C OST OUT OF COMMERCIAL EXPEDIENCY AND THE PROJECT WAS THUS HAND ED OVER TO M/S. INDIAN RAYON INDUSTRIES CO. LTD. AT CO ST. IT WAS FURTHER ARGUED THAT THE INTEREST WAS PAID ON LO ANS BORROWED FOR DEVELOPING THE PROJECT WAS PERIOD COS T DEDUCTIBLE U/S. 36(1)(III) OF THE ACT. HOWEVER TH E CIT(A) WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY TH E ASSESSEE. ACCORDING TO HIM THE CORRECT TREATMENT WOULD BE TO TREAT THE ENTIRE EXPENDITURE AS WORK-IN-PROGR ESS AND THE PRO-RATA DISALLOWANCES MADE DURING THE YEAR HAV E TO BE ACTUALLY MADE FOR THE FOLLOWING YEAR. HE DIRECT ED THE ASSESSING OFFICER TO LOAD THE ENTIRE INTEREST EXPEN DITURE AS A PROJECT EXPENDITURE IN THE FORM OF WORK-IN-PROGRE SS AND TAKE NECESSARY ACTION IN THE FOLLOWING YEAR FOR MAK ING THE PRO-RATA DISALLOWANCES ON ACCOUNT OF INTEREST EXPEN DITURE I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 11 NOT BEING FOR BUSINESS PURPOSES. THE RELEVANT FIND ING OF THE CIT(A) READS AS UNDER: THE ISSUE HAS BEEN EXAMINED AND THE PLEA OF THE APPELLANT IS REJECTED. THE STORY WHICH UNFOLDS IS THAT THE APPELLANT WITHOUT ANY FIRM COMMITMENT FROM ANY PARTY WENT AHEAD PUMPING ITS BORROWED FUNDS IN A BPO PROJECT WHEN M/S. INDIAN RAYON STEPPED IN TO TAKE OVER THE ENTIRE PROJECT AT COST. FIRST AND FOREMOST THE COST WHICH HAS BEEN INCURRED BY THE APPELLANT ON THE PROJECT FOR THE YEAR UNDER CONSIDERATION WAS NOTHING ELSE BUT THE WORK- IN-PROGRESS OF THE PROJECT INASMUCH AS AT LEAST DURING THE YEAR UNDER CONSIDERATION THERE WERE NOT EVEN A CONFIRMED PARTY FOR WHICH THE PROJECT WAS BEING CARRIED OUT. THUS THE CORRECT TREATMENT WOULD HAVE BEEN TO TREAT THE ENTIRE INTEREST EXPENDITURE AS WORK-IN- PROGRESS AND PRO-RATA DISALLOWANCES MADE DURING THE YEAR HAS TO BE ACTUALLY MADE FOR THE FOLLOWING YEAR. IN EFFECT THE AO SHALL LOAD THE ENTIRE INTEREST EXPENDITURE AS A PART OF THE PROJECT EXPENSES IN THE FORM OF WORK-IN- PROGRESS AND TAKE NECESSARY ACTION IN THE FOLLOWING YEAR FOR MAKING THE PRO-RATA DISALLOWANCES ON ACCOUNT OF THE INTEREST EXPENDITURE NOT BEING FOR BUSINESS PURPOSES. THE GROUND IS DECIDED ACCORDINGLY. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 13.3 THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. REPORT ED IN 260 ITR 579 AND SUBMITTED THAT THE ASSESSEE IS ENTI TLED TO CLAIM THE INTEREST AS DEDUCTION U/S. 36(1)(III) OF THE ACT. 13.4 THE LEARNED DR ON THE OTHER HAND REFERRING TO THE ASSESSMENT ORDER FOR 2004-05 HE SUBMITTED THAT THE ASSESSING OFFICER IN THE SAID ORDER SAYS THAT THERE IS NO BUSINESS. REFERRING TO THE MOU BETWEEN THE ASSESSE E I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 12 AND GRASIM INDUSTRIES LTD. & OTHERS HE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING CLAUSES: 3. AT FINANCIAL CLOSE OF EACH PROJECT BPDCL SHALL BE REIMBURSED BY THE RESPECTIVE PROJECT COMPANY AN AMOUNT EQUIVALENT TO THIRD PARTY EXPENSES INCURRED BY BPDCL. FOR THE THIRD PARTY EXPENSES INCURRED BY THE GROUP COMPANIES UP TO 31 ST MARCH 2001 EACH OF THE GROUP COMPANIES SHALL AT FINANCIAL CLOSE SUBSCRIBE TO EQUITY SHARES OF THE PROJECT COMPANY OR OBTAIN REIMBURSEMENT FROM THE PROJECT COMPANY FOR AN EQUIVALENT AMOUNT AS MAY BE MUTUALLY AGREED UPON. ADDITIONALLY IN CONSIDERATION OF THE EXPERTISE AND EFFORTS OF BPDCL IN DEVELOPING THE PROJECT TILL FINANCIAL CLOSE BPDCL SHALL BE ENTITLED TO CHARGE A DEVELOPMENT FEE FROM THE PROJECT COMPANY. SUCH DEVELOPMENT FEE SHALL BE PAYABLE BY EACH PROJECT COMPANY ONLY UPON ACHIEVING FINANCIAL CLOSURE OF THE PROJECT AND THE AMOUNT WILL BE DECIDED ON A MUTUALLY AGREED BASIS. 4. BPDCL SPECIFICALLY UNDERSTANDS AND AGREES THAT IT IS ENTITLED TO REIMBURSEMENT OF THIRD PARTY EXPENSES INCURRED BY IT ON AND AFTER 01/04/01 AND DEVELOPMENT FEE ONLY IN THE EVENT OF THE PROJECT ACHIEVING FINANCIAL CLOSE. 13.5 REFERRING TO THE ABOVE HE SUBMITTED THAT INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO THE PROJECT HAS T O BE CAPITALISED. THEREFORE THE DECISION RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE CASE OF LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 13.6 AFTER HEARING BOTH THE SIDES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). WE FIND THE ASSESSEE WITHOUT ANY FIRM COMMITMENT FROM ANY PARTY PUMPED I TS BORROWED FUNDS IN A BPO PROJECT WHICH HAS SUBSEQUEN TLY BEEN TAKEN OVER BY ANOTHER GROUP COMPANY AT COST. IN OUR OPINION THE COST WHICH HAS BEEN INCURRED BY TH E I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 13 ASSESSEE ON THE PROJECT IN THE YEAR UNDER CONSIDERA TION IS NOTHING ELSE BUT THE WORK-IN-PROGRESS OF THE PROJEC T SINCE DURING THE YEAR UNDER CONSIDERATION THERE WAS NOT E VEN A CONFIRMED PARTY FOR WHICH THE PROJECT WAS BEING CAR RIED OUT. THEREFORE WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT THE CORRECT TREATMENT WOULD HAVE BEEN TO TREAT THE ENTIRE INTEREST EXPENSES AS WORK-IN-PROGRESS AND TH E PRO- RATA DISALLOWANCES MADE DURING THE YEAR HAVE TO BE ACTUALLY BE MADE FOR THE FOLLOWING YEAR. THE DECIS ION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. REPORTED IN 260 ITR 579 RELIED ON BY THE ASSESSEE TO CLAIM THE INTEREST AS DEDUCTION U/S. 36(1)(III) OF THE ACT IS IN OUR OPINION NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE ASSESSEE IS NEITHER A CONTRACTOR NOR DOIN G ANY SERVICE. IN THIS VIEW OF THE MATTER WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGL Y UPHOLD THE SAME. THIS GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 14. IN GROUNDS OF APPEAL NO. 4 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN DISALLOWING A N AMOUNT OF RS.32 46 000 ON ACCOUNT OF SALARY AND OTH ER EXPENSES DISALLOWED BY THE ASSESSING OFFICER. 15. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IN ITS ORIGINAL RETURN HAS CLAIMED EXPENSES TO THE EXT ENT OF RS.7 63 72 808 WHICH HAS GONE UP TO RS.7 96 18 808 IN THE REVISED RETURN. IT WAS EXPLAINED BY THE ASSESS EE THAT THE INCREASE IS ON ACCOUNT OF INCREASE IN SALARY AN D OTHER EXPENSES. ACCORDING TO THE ASSESSING OFFICER THE O RIGINAL RETURN WAS FILED AFTER ENCLOSING AUDITED ACCOUNTS. THEREFORE THE PLEA THAT CERTAIN CHANGES WERE MADE DURING I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 14 THE COURSE OF AUDIT WAS NOT ACCEPTABLE. ACCORDINGL Y HE MADE AN ADDITION OF RS.32 46 000. 16. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ORIGINA L RETURN WAS FILED ENCLOSING UN AUDITED ACCOUNTS WHER EAS THE REVISED RETURN WAS FILED ENCLOSING THE AUDITED ACCOUNTS AFTER MAKING FULL AND CORRECT AUDIT. 17. HOWEVER THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE. HE OBSERVED T HAT IT IS A POSSIBILITY THAT THERE COULD BE A DIFFERENCE IN T HE UNAUDITED ACCOUNTS AND THE AUDITED ACCOUNTS AND THEREFORE THERE COULD BE DIFFERENCE IN EXPENSES OR THE REVENUE OR UNDER ANY OTHER HEAD. HOWEVER IT IS ES SENTIAL THAT TO CONSIDER THE ABOVE DISCREPANCIES THE ASSES SEE MUST BE ABLE TO ADDUCE EVIDENCE TO SUPPORT THE INCR EASE IN EXPENSES. NEITHER THE ASSESSEE PRODUCED ANY EVI DENCE BEFORE THE ASSESSING OFFICER NOR BEFORE HIM. HE ACCORDINGLY REJECTED THE GROUND RAISED BY THE ASSES SEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER. AG GRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN AP PEAL BEFORE US. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF O F THE ASSESSEE. WE FIND THERE IS NO DISPUTE TO THE FACT THAT THERE IS A DIFFERENCE OF RS.32 46 000 ON ACCOUNT OF EXPENSES IN THE ORIGINAL RETURN AS WELL AS IN THE R EVISED RETURN. IN ABSENCE OF ANY EVIDENCE TO SUBSTANTIATE SUCH DIFFERENCE THE CIT(A) UPHELD THE ACTION OF THE ASS ESSING OFFICER IN DISALLOWING THE INCREASE IN EXPENSES OF RS.32 46 000 ON ACCOUNT OF INCREASE IN SALARY AND O THER EXPENSES. BEFORE US ALSO NO EVIDENCE COULD BE PROD UCED I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 15 BY THE LEARNED COUNSEL FOR THE ASSESSEE TO SUBSTANT IATE THE GENUINENESS OF SUCH INCREASE IN THE EXPENSES ESPECIALLY WHEN THE ASSESSEE IS A REPUTED LIMITED COMPANY. WE ALSO DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSING OFFICER HAS NEVER ASKED THE ASS ESSEE IT HAS NOT PRODUCED THE SAME. SINCE THE ASSESSEE H AS NOT PRODUCED ANY EVIDENCE EITHER BEFORE THE CIT(A) OR E VEN BEFORE US THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGLY UPHOLD THE SAME . THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMIS SED. 19. IN GROUNDS OF APPEAL NO. 7 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONSIDERING T HE AMOUNT OF RS.6 77 250 AS INCOME FROM OTHER SOURCES RECEIVED FROM M/S. GRASIM INDUSTRIES LTD. 19.1 BOTH THE PARTIES SUBMITTED THAT THIS MATTER HAS TO GO BACK TO THE ASSESSING OFFICER SINCE NEITHER THE ORDER OF THE ASSESSING OFFICER NOR THE ORDER OF THE CIT(A) I S VERY CLEAR ON FACTS. UNDER THESE CIRCUMSTANCES WE DEEM IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE IS SUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 20. IN GROUNDS OF APPEAL NO. 9 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN CHARGING OF INTEREST U/ S. 234B OF THE ACT. 20.1 AFTER HEARING BOTH THE SIDES WE FIND CHARGING OF INTEREST U/S. 234B IS MANDATORY AND CONSEQUENTIAL I N I.T.A. NO. 7058/MUM/2007 M/S. ADITYA BIRLA POWER CO. LTD. ========================= 16 NATURE. THEREFORE THIS GROUND BY THE ASSESSEE IS DISMISSED. 21. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 8 TH FEBRUARY 2010. SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED 8 TH FEBRUARY 2010 COPY TO: (1) THE APPELLANT (2) THE RESPONDENT (3) THE CIT(A)-VIII MUMBAI (4) THE CIT MC-VIII MUMBAI (5) THE DR A BENCH ITAT MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO