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Shah Nandkishor Motilal Versus The Dy. Commissioner of Income Tax, Circle – 3, Pune

2016 (1) TMI 216 - ITAT PUNE

Payment of advance made for acquisition of existing windmill power project - expenditure in the nature of capital expenditure or to be regarded as revenue expenditure - Held that:- The assessee had generated revenue from the said windmills pending completion of the payment terms and also incurred expenses which resulted in a net income of ₹ 2.54 lakhs. Further, it is also evident that the assessee had sought to foray into a new business line by proposing to acquire the impugned windmill pr .....

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ed by the assessee to the seller for acquisition of capital asset.

The MOU clearly shows that the assessee was venturing on a new business and the amount was put as the capital expenditure to acquire capital asset. It is therefore clear that the loss arose from the investment and not given in the course of business being carried on by the assessee. Thus, it is capital loss and not a loss incidental to the business. Deprivation from benefit as a result of such capital expenditure is o .....

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therefore clearly is in a capital field. Our aforesaid view is supported by the decision of the Hon’ble Delhi High Court in the case of Narang Industries Ltd. vs. CIT (1967 (8) TMI 1 - DELHI High Court ) - Decided against the assessee. - ITA No.867/PN/2013 - Dated:- 16-10-2015 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri M. K. Kulkarni For The Respondent : Shri B. C. Malakar ORDER PER PRADIP KUMAR KEDIA, AM : The present appeal preferred by the assessee is ag .....

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009-10 came to close which renunciation of agreement relates back to the date of the execution of the contract meaning thereby the contract so executed was not in existence. In view of this legal position the contract to purchase Wind Mill for ₹ 5.71 crores got abruptly aborted and the expenditure in between incurred was also abortive and was total loss to the assessee when the original asset was not resultantly acquired by the assessee. The loss be allowed to the assessee. 2) On the facts .....

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7; 5.29 crores in respect of which an amount of ₹ 90 lakhs was paid. In view of renunciation the amount paid of ₹ 90 lakhs was lost without any positive asset in the hands of the assessee. Such loss is to be allowed as 'business loss' of the assessee. The Ld. CIT(A) was not justified in not appreciating this legal position. It be held accordingly. 4) On the facts and circumstances of the case and in law the Ld. CIT(A), therefore, was not justified in confirming the expenditur .....

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sed in the Wind-Mill was handed over to the owner of the said Mill without any compensation. This leads to only conclusion that there was no any beneficial capital expenditure. The addition confirmed by Ld. CIT(A) on this account is unwarranted and the addition be quashed. 6) On the facts and circumstances of the case and in law the disallowance confirmed by Ld. CIT(A) of ₹ 90 lakhs be deleted. 7) On the facts and circumstances of the case and in law the levy of interest u/s 234A, 234B and .....

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see ventured into a new business activity of generation and distribution of energy by taking over existing windmill business of another individual concern, namely, M/s Sunshine Enterprises, Mumbai by executing a Memorandum of Understanding (MOU) dated 27th August, 2008. During the assessment proceedings, the Assessing Officer observed that the assessee had debited ₹ 97,91,624/- to the Profit & Loss Account under the head windmill expenses , treating the same as revenue expenditure. Bef .....

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8377; 30,00,000/- on execution of the MOU. During the year under assessment, the assessee states to have incurred of ₹ 97,91,624/- towards windmill expenses. 3.1 The assessee claimed to have earned revenue of ₹ 10,46,083/- from the impugned takeover of new business of generation and distribution of power and spent of ₹ 7,91,624/- to run the aforesaid business of windmill. The income was shown separately on income side and expenditure was shown separately under the head direct e .....

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contract as per clause 10 of the agreement. As the assessee could not fulfill the obligation as stipulated in the MOU, a cancellation deed of the aforesaid MOU was entered into on 28th February, 2009 whereby the seller of the existing windmill project shall be entitled to forfeit an amount of ₹ 90,00,000/-. The forfeited amount has been debited to the windmill expenses and claimed as revenue expenses. 4. The Assessing Officer controverted the aforesaid claim of the assessee as revenue exp .....

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of advances made pursuant to MOU arose in the ordinary course of business and is allowable under section 28/29 of the Act. The CIT(A), however, granted partial relief towards expenses incurred towards running windmill and sustained the order of the Assessing Officer to the extent of ₹ 90 lakhs treating the expenditure attributable to the windmill project as capital expenditure quantified at ₹ 90 lakhs. 6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 7. A .....

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nd other taxes on ownership basis. As per the stipulation in clause 7 of the MOU, the entire payments were to be made to the seller by 30th September, 2008. He, thereafter, adverted our attention to clause 10 of the MOU whereby payment terms are the essence of the contract. The formal possession of the project was to be given to the assessee by the seller on receipt of final payment as per clause 17 of the MOU. The Ld. Authorized Representative for the assessee submitted that in the meanwhile on .....

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nded that the losses arose due to forfeiture of advanced money on cancellation of contract debited to windmill expenses in the Profit & Loss Account is in the nature of revenue expenditure as claimed. He next submitted that since the possession of the asset was not handed-over to the assessee, the ownership of the asset was never transferred to him and the capital asset was never acquired at any point of time, the payment is in the nature of advance for acquisition of capital asset and not a .....

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TR 13 (Del); (iii) CIT vs. Sohanlal Kunwar & Sons, (1987) 164 ITR 129 (Raj); (iv) Daulatram Rawatmall vs. CIT, (1970) 78 ITR 503 (Cal); and, (v) Asia Power Projects (P.) Ltd. vs. DCIT, (2014) 49 taxmann.com 428 (Karnataka). 8. In the light of above, the Ld. Authorized Representative for the assessee urged that the action of the authorities below requires to be set-aside and vacated. 9. The Ld. Departmental Representative for the Revenue, on the other hand, submitted that the order of the CIT .....

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yment has been made in pursuance of the MOU, which has been cancelled within a short period of six months in the same financial year. It is admitted position from the MOU dated 27th August, 2008 that assessee has given impugned advance for acquisition of windmill project for a consideration of ₹ 5.71 crores on ownership basis which failed due to breach of payment terms. The assessee had generated revenue from the said windmills pending completion of the payment terms and also incurred expe .....

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