TMI Blog2014 (2) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... enses are of revenue in nature - the assessee has capitalized all the exploration cost and the same have been reflected as “capital work for progress” in the balance-sheet - The assessee has only claimed deduction of the expenses which have been incurred for day to day operation of the business which are eligible for deduction u/s 37(1) of the Act – thus, there is no infirmity in the order of the CIT(A) – Decided against Revenue. Deletion made u/s 35D of the Act - Expenses incurred for increasing the authorized share capital – Held that:- The assessee company has commenced its business and already commenced exploration activities on the blocks awarded to it in the relevant Assessment Year – as in the preceding years too the said claim of the assessee company was allowed by the Assessing Officer - there is no material on record to suggest or support any change in the character or nature of the said expense incurred by the assessee company –there is no infirmity in the order of the CIT(A) directing the Assessing Officer to allow the deduction u/s 35D of the Act in respect of expenses incurred for increasing the authorized share capital – Decided against Revenue. - ITA No. 3224/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and depreciation of Rs. 1,42,56,511/-. 6. The ld DR took our attention to Annexure-I at Page 36 of the paper book which shows particulars of depreciation allowable as per the Act in which the following particulars were enumerated (i) Furniture Fixtures (ii) Computers (iii) Buildings (Temporary) (iv) Office Equipment (v) Vehicle to point out that there was no commencement of business and wondered as to what was on record of the assessee to show that business has commenced to claim the expenditure and depreciation. The ld DR submitted that the assessee company have not commenced its production for the purpose of commercial transaction and therefore, then only it can be said to have commenced its business. According to the ld DR, this company is still in its nascent state of business and by any stretch of imagination can it be said to have commenced its business. As per him, the company has only carried out preliminary exploration work therefore, Assessing Officer was right to hold that the business of the assessee company was not set up and therefore the expenses incurred prior to setting up of a business was not allowable. On the other hand, the ld AR submitted that for the prec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Similar view has been held by the Jurisdictional High Court in the case of CIT Vs. Rajeev Grinding Mills (2005) 279 ITR 86 (Delhi). Similar view was expressed by the Apex Court in Union of India Vs. Satish Pannalal Shah (2001) 249 ITR 221 (SC). We note that in the first year filing of the return of income of the assessee, in the assessment year 2005-06, the return was processed u/s 143)1) of the Act and no scrutiny assessment was done u/s 143(3) of the Act. The return of income was therefore accepted by the Assessing Officer. Thereafter, we find that the assessee s returned income was accepted by the Assessing Officer for the Assessment Years 2006-07 and 2007-08 while completing the assessment u/s 143(3) of the Act. In the said circumstances CIT(A) is correct to have found that the claim regarding the identical expenses was allowed by the Assessing Officer in the preceding year. These facts could not disputed by the ld DR for the revenue. 9. It was also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specting, bidding and assignment of rights to explore were granted to the assessee by the Govt. of India for different blocks. Hence, the expenditure incurred after commencement of business should be allowed as business expenditure irrespective of the fact that the actual commercial production has not been commenced. Considering the nature, duration and cost of the business of the appellant, the ld CIT(A) has rightly made a finding that the assessee have commenced its business, when the appellant has carried the first activity being assignment of the right to explore the block awarded in the New Exploration and Licensing Policy (NELP) and commencement of exploration activities thereafter incurred an expense of more than Rs. 258 crores. Thus the ld CIT(A) reasons that the expenditure incurred for carrying on any of these including the first activity is also deductible in computing the profits and gains of the assessee for the relevant Assessment Year when the activity is undertaken. 12. A perusal of the table depicting the expenses claimed by the assessee which is reflected in Page 12 of the ld CIT(A) order shows that none of the expenses mentioned therein are of personal in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession during the previous year of the Assessment Year. In the instance case, according to the ld DR, since, the Assessing Officer has categorically held that the assessee has not commenced its business, the said precondition is not satisfied and consequently the computation machinery fails in the instant case, and therefore the Assessing Officer has rightly disallowed Rs. 2,90,854/- and held that the said expense as capital in nature. On the other hand, the ld AR submitted that the return submitted by the assessee was accepted by the Assessing Officer for the Assessment Years 2006-07 and 2007-08 which was completed after scrutiny u/s 143(3) of the Act. So it can be concluded that the claim regarding preliminary expenses/ identical expenses were allowed by the Assessing Officer as revenue expense in the preceding Assessment Years; and since there is no change either in fact or in law, based on the principles of consistency the Assessing Officer should have upheld the claim of the assessee company. Moreover it is a fact that the assessee company has commenced its business and therefore the basis of disallowance by the Assessing Officer on the ground that it has not commenced its ..... X X X X Extracts X X X X X X X X Extracts X X X X
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