TaxTMI 
TaxTMI 
2025 (5) TMI 5
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the intimation issued u/s 143(1) of the Act is Rs. 4,64,79,545/- and the amount disallowed in the assessment order passed u/s 143(3) of the Act is Rs. 4,65,77,133/ -. 3. The assessee is engaged in the business of Gas distribution. It operates in three geographical areas, viz., i). Mumbai and Greater Mumbai, ii). Thane and adjoining municipalities and iii). Raigad District. It receives Gas from cross country pipeline owners like Gail at its City Gate station. Thereafter, it supplies PNG to retail customers mostly through pipeline infrastructure network laid up to the doorstep of customers and CNG is manufactured and supplied to vehicles through CNG Stations. The infrastructure network of CGD company predominantly comprises of underground & above ground pipelines, compressors, dispensers, cascades, pressure regulating skids, service regulators, meters etc. Hence, creating new infrastructure facilities and maintaining the same will be an ongoing process for the assessee, since the assessee would be expanding its infrastructure year after year in order to increase more customers and CNG outlets. The pipelines used are either Steel pipeline or polyethylene pipeline. They are used to c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r before the Ld CIT(A) :- a. Delay in approval from Government authorities and in between the building has gone for redevelopment; b. Due to lack of permission and NOC from MMRDA in view of proposed Metro work; c. Due to redevelopment work and pipeline being at a very odd location in the redevelopment project it cannot be used; d. Initial discussion and interest shown by BEST for furtherance of pipes but now no interest from BEST regarding CNG set up; e. Initial discussion with the management of Company but the customer's business has been shut down. The assessee also furnished a tabular form explaining reasons for abandoning of majority of its projects during the year under consideration and the same is extracted in the order passed by the Ld.CIT(A). 8. An identical question on deduction of expenditure incurred on abandoned project came to be examined by the Hon'ble Madras High Court in the case of Tamilnadu Magnesite Ltd vs. ACIT (Appeals No. 907 and 908 of 2007). The facts prevailing in that case were that the assessee M/s Tamilnadu Magnesite Ltd was manufacturing, inter alia, "high quality sintered magnesia". The assessee took over a Chemical Beneficiation P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t brought any asset into existence, inasmuch as the expenses incurred on the said abandoned project would constitute deductible loss. 11. Further, it is submitted that the ITAT failed to appreciate that the venture undertaken was not a new one, but, in fact one in the same line of business already being carried on by the assessee company. The assessee had claimed that the expenses incurred for the implementation of the project was claimed as revenue expenses / business loss in the computation of total taxable income on the strength of the Government Order in G.O.No.140, directing closure of the project and cancellation of the allotment of the land. This aspect of the matter was not considered by the Tribunal and without reference to the factual position, the impugned order has been passed. 12. Further, it is submitted that the decisions, which were referred to by the assessee were not properly considered by the Tribunal and the factual position in those decisions were not appreciated. Thus, it is submitted that when there is no new business, which has been created and there is no creation of any new asset, nor there being any enduring benefit accrued to the assessee, the expend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issioner of Income Tax reported in [2002] 257 ITR 253 (Madras) (iii) Mascon Technical Services Ltd. vs. Commissioner of Income Tax reported in [2013] 37 Taxaman.com 253 (Madras) (iv) Malabar & Pioneer Hosiery (P) Ltd. vs. Commissioner of Income Tax reported in [2009] 178 Taxman 120 (Kerala), and (v) Commissioner of Income Tax vs. Idea Cellulura Ltd. reported in [2016] 76 Taxmann.com 77 (Bombay), against which the revenue has preferred appeal before the Hon'ble Supreme Court and the Special Leave Petition has been admitted as reported in [2017] 81 Taxmann.com 112 (SC) (Commissioner of Income Tax vs. Idea Cellular Ltd.). 18. We have heard the learned counsels for the parties and carefully perused the materials placed on record. 19. The common issue involved in both the appeals is whether the Tribunal was justified in reversing the decision of the CIT(A) deleting the addition made by the Assessing Officer on the ground that the expenditure incurred by the assessee was revenue in nature and not capital. 20. To decide the substantial questions of law framed for consideration, we would have to apply the proper test, which would distinguish capital and revenue expenditure.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e learned Law Lord drew the distinction between fixed capital and circulating capital by holding that fixed capital is what the owner turns to profit by keeping it in his own possession; circulating capital is what he makes profit of by parting with it and letting it change. 24. Bearing the above legal principles in mind, we proceed to examine the facts of the instant case. It is not in dispute that the Chemical Beneficiation Plant was already established by TIDCO and on account of their not being able to achieve the desired result, the assessee was invited to take over the project, as the assessee possessed expertise in the field. This is how the assessee stepped into the project and by turn of events, the Government granted approval during the year 1998. 25. As could be seen from the order passed by the CIT(A), the assessee had entered into an arrangement with TIDCO as well as with IDBI and fixed the project cost with a debt equity ratio, which was approved by the Government of Tamil Nadu and thereafter, steps were taken to acquire land, import machinery etc. In the meantime, 12 years had passed by and the project had not taken off. The IDBI had withdrawn from the project, as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no creation of new asset, then the expenditure incurred would be revenue in nature. However, if the new asset comes into existence, which is of enduring benefit, then such expenditure would be capital in nature. 29. The Hon'ble Delhi High Court took note of the decision of the Gauhati High Court in DCIT vs. Assam Asbestos Ltd. reported in (2003) 185 CTR (Gau.) : (2003) 263 ITR 357 (Gau.). The High Court of Calcutta in the case of Binani Cement Ltd. (supra), considered a case where the Tribunal disallowed the expenditure allegedly incurred by the assessee for preparing feasibility study report and capital work-in-progress in the earlier years but written off during the previous year, since the proposed project was abandoned. The Court affirmed the view taken by the CIT(A), where it was held that the company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business and it was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business and that stage having not reached and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and hence, has no application. The Division Bench held that the decision in the case of Brooke Bond India Ltd. (supra) would have no application to the facts of the case, as the expenditure incurred by the assessee were shown in the books of accounts as towards issue expenses incurred during the year and they found there was no justifiable ground to dissect one part of the expenditure as revenue expenditure and another part as capital expenditure. As pointed out by the Hon'ble Supreme Court in Empire Jute Co. Ltd. (supra), we cannot take a decision sans facts and the factual position as set out in the preceding paragraph would clearly show that the abandoned project was not a new one and it was a decision taken by the Government after about 12 years after the petitioner was invited to take over the project, which was already in existence, as they were an expert in the same line of business. Therefore, on facts, we find that the CIT(A) was perfectly right in deleting the addition and holding that the expenditure was revenue not capital expenditure. We may point out that the decision in the case of Ideal Cellulura Ltd. (supra) was also a case where the expenditure was incurred to....