TMI Blog2018 (1) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that to claim the benefit of expenditure, it must concern business carried on by the assessee, and the profits to be computed and assessed to tax should be earned after the business is set up. It has concluded on facts that, by the time the assessee claimed the tax benefit, it had not set up the business or made it operational; so the question of interest concession under section 36 (1) (iii) of the Act does not arise. Indisputably, the assessee could not demonstrate to AO’s satisfaction that it actually invested its own funds rather than those it borrowed. Thus, we find it difficult to upset the concurrent findings. Indeed, the assessee did enter a new line of business, unconnected to its existing business, and it had not by then commenced that new business - uphold the Tribunal’s findings on the AO’s disallowing interest on investment expenditure the assessee incurred on its new the line of business. - ITA.No. 27 of 2015 - - - Dated:- 11-1-2018 - MR. ANTONY DOMINIC MR. DAMA SESHADRI NAIDU JJ. Appellant: By Advs. Sri. P. Balakrishnan (E) SRI. Mohan Pulikkal Sri. P.P. Narayanan Sri. K.S. Menon (K) Respondent: R. By Adv. Sri. Jose Joseph, SC, For Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Wind-Mills: 7. To be more specific, during 2005-06, the assessee purchased three windmills or Wind Turbine Generators. The assessee erected them at Kavalakurichi, Kadanganeri, and Kaduvettin in Tamil Nadu. They cost it ₹ 18,05,98,860. Out of this amount, the assessee paid ₹ 1,41,90,000 to M/s. Shubh Realty (South) Pvt. Ltd. 8. The breakup of ₹ 1,41,90,000 paid to Shubh Realty runs thus: ₹ 45,00,000 towards land purchase for erecting the three windmills; and ₹ 96,90,000 towards Infrastructure Development Charges (IDC) paid to Tamil Nadu Electricity Board ( TNEB ). The assessee added all this expenditure to the cost of wind mills and claimed depreciation. 9. The AO treated ₹ 96,90,000 paid to TNEB for infrastructure development charges also towards the cost of land and disallowed depreciation on ₹ 38,76,000 (50% for second half additions). (b) New-Line of Business: 10. During the same assessment year, the assessee entered a new line of business: He obtained a licence for operating an FM Radio, by paying ₹ 8,32,16,000 towards licence fee to the Ministry of Information Broadcasting and Bharati. The assessee had it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the AO and the other adjudicatory authorities. He has submitted that both the issues-the nature of expenditure and the source of investment- primarily turn on factual findings. Therefore, concurrent findings of fact do not call for any interference. 18. Heard Sri Mohan Pulickkal, the learned counsel for the appellant-assessee and Sri P. K. Ravindranatha Menon, the learned Senior Counsel for the Revenue, besides perusing the record. Substantial Questions of Law: 1. Has the Tribunal justified in confirming the disallowance of ₹ 38,76,000 out of the total depreciation claimed on the Wind Turbine Generators? 2. Has not the assessee established that its spending ₹ 96,90,000 was part of the capital cost to establish and operate the Wind Turbine Generators and that it is entitled to claim depreciation? 3. Has the Tribunal erred in confirming the disallowance of interest on investment expenditure the assessee incurred for establishing its new line of business, without examining the assessee s claim that it had sufficient interest-free funds and had no necessity to borrow? 4. Has not the assessee entitled to an allowance of interest-free ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng those conditions or clauses 12 and 13, which read as follows: 12. The cost of electrical interfacing work, including the cost of infrastructure facility charges, will have to be borne by you. The interfacing lines will become Board s property on commissioning. 13. The difference in infrastructure facility charges, if any, in force at the time of commissioning of Wind Electric Generators is to be borne by the Developer. Equally pertinent is condition 26, which reads thus: 27. Since the amount towards infrastructure development charges of ₹ 32.19 lakhs (at ₹ 25.75 lakh/MW) paid with the application of M/s. Shubh Reality (South) Pvt. Ltd., Valliyoor, is taken into your account and the same is not eligible for refund in future to Shubh Reality (South) Pvt. Ltd., Valiyoor. 27. From the debit notes and the TNEB s communication, one cannot help concluding that the amount was spent on developing the infrastructure of the Wind Turbine Generators. In these documents, the red herring that led the authorities seems to be the expressions such as registration , processing , supervision . So they concluded that the entire expenditure was towards land development. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate authorities have misread and misapplied the evidence, and that has led to the perversity of findings. We reckon it to be a judicially reviewable error and accordingly set aside the Tribunal s finding on the depreciation. As a result, the depreciation of ₹ 38,76,000 (50% for second half addition) claimed on the windmills was allowed. New Line of Business And Source of Capital: 34. The assessee assails the AO s disallowing ₹ 83.21 lakhs towards interest on investment expenditure the assessee incurred on its new the line of business. 35. To dilate, the assessee secured a licence to operate an FM Radio, investing ₹ 8,32,16,000, though it had not yet started the broadcast. In response to an AO s notice, the assessee maintained that it invested in the new line of business from its own funds and that it had no occasion to capitalize the interest. In other words, it had borrowed no capital. The AO disbelieved the assessee s assertions. 36. While rejecting the assessee s claim, the AO has found that that the company s balance sheet as on 31.3.2006 showed borrowed funds at ₹ 805.87 crore. Against this, the assessee s own funds, excluding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommenced. 42. The Tribunal, while concurring with the primary and appellate authorities, has observed that to claim the benefit of expenditure, it must concern business carried on by the assessee, and the profits to be computed and assessed to tax should be earned after the business is set up. It has concluded on facts that, by the time the assessee claimed the tax benefit, it had not set up the business or made it operational; so the question of interest concession under section 36 (1) (iii) of the Act does not arise. 43. Indisputably, the assessee could not demonstrate to AO s satisfaction that it actually invested its own funds rather than those it borrowed. Thus, we find it difficult to upset the concurrent findings. Indeed, the assessee did enter a new line of business, unconnected to its existing business, and it had not by then commenced that new business. 44. So, we uphold the Tribunal s findings on the AO s disallowing ₹ 83.21 lac towards interest on investment expenditure the assessee incurred on its new the line of business. 45. To sum up, we answer the substantial questions of law one and two in assessee s favour; three and four in the Revenue s favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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