TMI Blog2021 (3) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... ars Ltd.[ 1974 (10) TMI 3 - SUPREME COURT] , had held, that as per the accepted rule of accountancy all expenditure that is incurred to bring a fixed asset into existence and put it in a working condition shall be included for determining its cost. It was further observed, that in case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed asset which had been created as a result of such expenditure. As regards the observation of the PCIT that the A.O had failed to consider as to whether the forfaiting charges incurred by the assessee were in the nature of a capital expenditure or a revenue expenditure, we are unable to find favour with the same. In our considered view, as the forfaiting expenditure incurred by the assessee had not resulted in any enduring benefit to the assessee company, therefore, the same could not have been considered as capital in nature. In our considered view, as the forfaiting charges borne by the assessee had not brought any capital asset into existence and were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned PCIT has erred in holding that the order dated 9 March 2016 passed under section 143(3) of the Act ('Order') by the Deputy Commissioner of Income-tax - 2(3)(2) ['Learned AO] was erroneous and prejudicial to the interests of revenue. 3. The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the Order passed by the Learned AO was neither erroneous nor prejudicial to the interest of the revenue and the order dated 26 November 2018 passed by the Learned PCIT under section 263 of the Act is erroneous and bad in law. 4. The Appellant craves leave to add, amend, alter, modify or withdraw any of the above grounds of appeal. 2. Briefly stated, the assessee company which is engaged in the business of generation of solar power had e-filed its return of income for A.Y. 2014-15 on 28.11.2014, declaring a total income of ₹ 8,83,36,467/-. The return of income was initially processed as such under Sec.143(1) of the Act. Subsequently, assessment was framed by the A.O vide his order passed under Sec. 143(3), dated 23.12.2016 and the income of the assessee was determined at ₹ 9,48,50,070/- under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8223; notice (SCN) to the assessee and called upon it to put forth an explanation as to why the assessment order passed by the A.O under Sec. 143(3), dated 23.12.2016 may not be revised under Sec. 263 of the Act. In reply, the assessee objected to the exercise of jurisdiction by the PCIT under Sec. 263 of the Act. It was inter alia submitted by the assessee that as the assessee‟s claim for deduction of forfaiting charges of ₹ 3,85,56,552/- was allowed by the A.O after examining all the relevant documents and satisfying himself as regards the assessee‟s entitlement towards claim of the said deduction, therefore, the jurisdiction of the PCIT to revise the assessment order under Sec. 263 was clearly ousted. To sum up, it was the claim of the assessee that the order passed by the A.O was neither erroneous nor prejudicial to the interest of the revenue since the same was passed after due examination of the facts in detail. On merits, it was submitted by the assessee that the forfaiting charges of ₹ 3,85,56,552/- incurred by the assessee during the year under consideration had not been capitalised to the solar power plant. Elaborating on its aforesaid claim, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, dated 26.11.2018 in appeal before us. As observed by us hereinabove, the PCIT had exercised his revisional jurisdiction, for the reason, that he held a conviction that the allowing of the assessee‟s claim for deduction of forfeiting charges of ₹ 3,85,55,552/- by the A.O had therein rendered the assessment order as erroneous insofar it was prejudicial to the interest of the revenue within the meaning of Sec.263 of the Act. Also, we find, that the PCIT was of the view that the forfaiting charges incurred by the assessee post commencement of its business operations being in the nature of a capital expenditure could not have been allowed as a deduction to the assessee. 6. For a fair appreciation of the issue under consideration we shall briefly cull out the facts therein involved. As can be gathered from the records, the assessee is a wholly owned subsidiary company of Kiran Energy Solar Power Private Limited (for short KESPPL‟). KESPPL had signed a power project agreement with Gujarat Urja Vikas Nigam Limited for developing and operating 20 MW Solar Power Plant. KESPPL had for the purpose of developing a 20 MW Solar Photovoltaic Power Plant entered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of which the assessment framed by the A.O under Sec. 143(3), dated 23.12.2016 had been revised by treating the same as erroneous and prejudicial to the interest of the revenue within the meaning of Sec.263 of the Act. On a perusal of the order passed by the PCIT under Sec. 263 of the Act, we find that he was of the view that the assessee company had capitalised the forfaiting charges of ₹ 3,85,56,552/- to the solar power plant account. Backed by his aforesaid conviction, the PCIT was of the view that now when the forfaiting charges had been capitalised by the assessee company, the allowance of the same as a deduction as claimed by the assessee in its profit and loss account under the head forfaiting charges had resulted in a double deduction to the assessee. On a perusal of the records to which our attention was drawn by the ld. A.R in the course of hearing of the appeal, we find that the aforesaid observation of the PCIT is absolutely misconceived. As observed by us hereinabove, the assessee company had commenced its commercial operations from 9th July, 2012. We find that the forfaiting charges of ₹ 2,77,81,845/- [₹ 1,72,18,406/- relatable to the F.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 3,85,56,552/- had allowed the same while framing the assessment, therefore, the PCIT had exceeded his jurisdiction and revised the assessment order only for the purpose of substituting his view as against that arrived at by the A.O. In order to buttress his aforesaid claim the ld. A.R had taken us through the relevant pages of the assessee‟s Paper book‟ (for short APB ). On a perusal of the records, we find that the assessee had debited forfaiting charges of ₹ 3,85,56,552/- in his profit and loss account for the year under consideration. As per the records, the assessee vide letters dated 24.10.2016 and 10.11.2016 had furnished with the A.O the complete details of the forfaiting charges of ₹ 3.85 cores which were debited by it in its profit and loss account for the year under consideration. In fact, a reference of the aforesaid letters is found in the letter dated 22.12.2016 that was filed by the assessee with the A.O. Apart from that, the assessee had also furnished a photocopy of the Support Services Agreement , dated 31.03.2012 that was entered into between the assessee company and its holding company, viz. M/s Kiran Energy Solar Power Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amortisation of Forfaiting Charges for F.Y.2013-14 3,85,56,552 Refer Note 22 Balance unamortized (Prepaid Forfaiting Charges)- As at 31 Mar 14 96,12,731 Refer Note 17 On a perusal of the aforesaid details, we find, that the assessee had not only furnished with the A.O the details as regards the forfaiting charges of ₹ 3,85,56,552/- that were debited in its profit and loss account for the year under consideration, but in fact, had even provided the very basis as per which the aforesaid amount for the year under consideration had been worked out. On a query by the bench that as to what was meant by the term Amortization of forfaiting charges for F.Y. 2013-14 as was mentioned against the aforesaid amount of ₹ 3,85,56,552/-, it was clarified by the ld. A.R that considering the abovementioned working in toto it could safely or rather inescapably be gathered that the said amount pertained/related to the year under consideration. On a perusal of the notice issued by the A.O under Sec. 142(1), dated 19.07.2016, we find that the assessee was as per Query ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were furnished by the assessee in the course of the assessment proceedings in compliance to the queries which were from time to time raised by the A.O as regards the assessee‟s claim for deduction of forfaiting charges of ₹ 3.85 crores, we are unable to subscribe to the view of the PCIT that the A.O had summarily accepted the assessee‟s claim for deduction of forfaiting charges without making any verifications and inquiries as regards the same. 9. On the basis of the aforesaid facts, we concur with the contentions advanced by the ld. A.R that as the A.O in context of the allowability of the assessee‟s claim for deduction of forfaiting charges had in the course of the assessment proceedings arrived at a plausible view, the PCIT thereafter could not for the purpose of substituting his view as against that arrived at by the A.O validly taken recourse to proceedings u/s 263 of the Act. Our aforesaid observation is fortified by the judgement of a coordinate bench of the Tribunal, i.e ITAT, Mumbai in the case of Narayan Tatu Rane Vs. ITO, Ward 27(1)(1), Mumbai (2016) 70 taxmann.com 227 (Mum). 10. As regards the contention of the ld. D.R that the A.O had f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t into existence and put it in a working condition shall be included for determining its cost. It was further observed, that in case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed asset which had been created as a result of such expenditure. In fact, the Explanation 8‟ to Sec. 43 of the Act‟ clearly provides that interest expenditure in connection with acquisition of an asset can no more be capitalised and therein be allowed to form part of the actual cost of such asset after the same had been put to use. Accordingly, besides the price of the plant and machinery, all other items of expenditure incurred in connection with its acquisition including interest incurred before the commencement of production on capital borrowed to acquire such asset would together constitute the cost of asset. As such, by way of an analogy it can safely be concluded that now when the assessee in the case before us had commenced its commercial operations on 09.07.2012, thereafter, no part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. Our aforesaid view is supported by the judgment of the Hon ble High Court of Bombay in the case of CIT, Central-III Vs. Nirav Modi (2017) 390 ITR 292 (Bom) . As regards the reliance placed by the ld. D.R on the judgment of the Hon ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT (2000) 243 ITR 83 (SC) , the same being distinguishable on facts would not assist the case of the revenue before us. Unlike the facts involved in the case before the Hon‟ble Apex Court, as the A.O in the case before us had while framing the assessment carried out exhaustive verifications in context of the issue in question, therefore, the support drawn by the ld. D.R from the aforesaid judicial pronouncement would not assist the case of the revenue. 12. In the backdrop of our aforesaid deliberations, we are of the considered view that as the A.O while framing the assessment had after making exhaustive verifications arrived at a plausible view as regards the assessee‟s entitlement towards claim of deduction of the forfaiting charges of ₹ 3.85 crores, therefore, the PCIT could not have invoked his revisional jurisdiction under Sec. 263 of the Act. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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