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The Tax Publishers Dewanchand Ramsaran Industries (P) Ltd. v. ACIT [IT Appeal No. 4587 (Mum.) of 2013, dt. 11-4-2016] : 2016 TaxPub(DT) 1846 (Mum-Trib) Allowability of expenditure before commissioning of rig but after commencement of business *Facts:* Assessee was in the business of importing and hiring rigs to ONGC and other customers. 4 new rigs were imported which were deployed at customers place. Expenditure in relation to the same was capitalized in the books but were claimed in the return as revenue expenditure. Assessing officer and Commissioner (Appeals) disallowed the same as being prior to deployment of rigs and thus held them as capital work in progress. On appeal: Held in favour of the assessee that once the rigs were imported they were available for usage and since being a continuing business the mobilization expenses of the rigs were business expenditure allowable irrespective of the treatment accorded in the books of accounts. Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151(Bom.) Applied and CWT v. Ramaraju Surgical Cotton Mills Ltd., (1967) 63 ITR 478(SC) quoted--distinguishing setting up and commencement of business - Thus, it can be said that when the assessee company acquired these new rigs, these rigs became available for hire from the time these rigs were acquired by the assessee company as the assessee-company is in a position to charter hire these newly acquired rigs and these rigs are available and ready to be put to use from the time these rigs are acquired by the assessee company in its continuing and existing business of chartered hiring of rigs, the said existing business of chartered hiring is admittedly already set-up in the earlier years. With the import of these new rigs it cannot be said that the new business is set up or new source of income has come into existence rather it is the same old business of chartered hiring of rigs which is existing and continuing, rather there is an expansion or capacity addition through these newly acquired four rigs in the same business of charter hiring of rigs which was carried on the assessee company admittedly since earlier year's. The business and source of income of the assessee company is same and continuing i.e. charter hiring of these rigs and in expansion thereof of the same existing and continuing business of chartered hiring of rigs, these additional rigs are acquired by the assessee company and installed at clients site for oil drilling where it is commissioned with completion of mobilization and made operational by commencing the work of drilling oil for the client. Thus, the mobilization expenditure are incurred in connection with newly acquired rigs prior to the completion of mobilization of rigs, commissioning of rigs and rigs becoming operational at client's site. The said mobilization expenditure so disallowed by the authorities below even in the interregnum period before mobilization being completed and the rigs getting commissioned and operational at client site cannot be held to be capital expenditure rather these mobilization expenses with respect to new rigs imported by the assessee company by way of expansion of existing and continuing business of charter hiring of rigs are revenue expenditure in nature keeping in view that the said new rigs are available for charter hire and ready to be put to use once the said rigs are acquired by the assessee company and that the same business of charter hiring of rigs is continuing and no new source of business having been come into existence, as the business or the source of income being charter hiring of the rigs is already set-up by the assessee company admittedly in the preceding year's and is in existence which is a continuous and existing business of the assessee company to import these rigs and to give them on hire to companies for oil drilling purposes, and these mobilization expenses are to be treated as revenue expenditure as these expenses are incurred after the business is being set-up and is not a capital expenditure as the rigs after acquisition are available for hire and ready to be put to use i.e. giving them on charter hire.

The Tax Publishers

Dewanchand Ramsaran Industries (P) Ltd. v. ACIT [IT Appeal No. 4587 (Mum.) of 2013, dt. 11-4-2016] : 2016 TaxPub(DT) 1846 (Mum-Trib)

Allowability of expenditure before commissioning of rig but after commencement of business

Facts:

Assessee was in the business of importing and hiring rigs to ONGC and other customers. 4 new rigs were imported which were deployed at customers place. Expenditure in relation to the same was capitalized in the books but were claimed in the return as revenue expenditure. Assessing officer and Commissioner (Appeals) disallowed the same as being prior to deployment of rigs and thus held them as capital work in progress.

On appeal:

Held in favour of the assessee that once the rigs were imported they were available for usage and since being a continuing business the mobilization expenses of the rigs were business expenditure allowable irrespective of the treatment accorded in the books of accounts.

Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151(Bom.) Applied and CWT v. Ramaraju Surgical Cotton Mills Ltd., (1967) 63 ITR 478(SC) quoted--distinguishing setting up and commencement of business -

Thus, it can be said that when the assessee company acquired these new rigs, these rigs became available for hire from the time these rigs were acquired by the assessee company as the assessee-company is in a position to charter hire these newly acquired rigs and these rigs are available and ready to be put to use from the time these rigs are acquired by the assessee company in its continuing and existing business of chartered hiring of rigs, the said existing business of chartered hiring is admittedly already set-up in the earlier years. With the import of these new rigs it cannot be said that the new business is set up or new source of income has come into existence rather it is the same old business of chartered hiring of rigs which is existing and continuing, rather there is an expansion or capacity addition through these newly acquired four rigs in the same business of charter hiring of rigs which was carried on the assessee company admittedly since earlier year's. The business and source of income of the assessee company is same and continuing i.e. charter hiring of these rigs and in expansion thereof of the same existing and continuing business of chartered hiring of rigs, these additional rigs are acquired by the assessee company and installed at clients site for oil drilling where it is commissioned with completion of mobilization and made operational by commencing the work of drilling oil for the client. Thus, the mobilization expenditure are incurred in connection with newly acquired rigs prior to the completion of mobilization of rigs, commissioning of rigs and rigs becoming operational at client's site. The said mobilization expenditure so disallowed by the authorities below even in the interregnum period before mobilization being completed and the rigs getting commissioned and operational at client site cannot be held to be capital expenditure rather these mobilization expenses with respect to new rigs imported by the assessee company by way of expansion of existing and continuing business of charter hiring of rigs are revenue expenditure in nature keeping in view that the said new rigs are available for charter hire and ready to be put to use once the said rigs are acquired by the assessee company and that the same business of charter hiring of rigs is continuing and no new source of business having been come into existence, as the business or the source of income being charter hiring of the rigs is already set-up by the assessee company admittedly in the preceding year's and is in existence which is a continuous and existing business of the assessee company to import these rigs and to give them on hire to companies for oil drilling purposes, and these mobilization expenses are to be treated as revenue expenditure as these expenses are incurred after the business is being set-up and is not a capital expenditure as the rigs after acquisition are available for hire and ready to be put to use i.e. giving them on charter hire.