2024 (9) TMI 367 - AT - Income Tax

Nature of expenses - Disallowing the amount paid for the purpose of feasibility report u/s. 37 - new asset has been created with enduring benefit ot not? - HELD THAT - As no new capital asset of enduring nature has been brought into existence and the assessee has incurred the expenditure for Techno Economic Feasibility Report study for setting up of a new Port which is in the same line of business of the assessee. Since facts and circumstances are identical and similar to the case of Tamilnadu Magnesite Ltd 2018 (6) TMI 1236 - MADRAS HIGH COURT by judiciously following the decision of the Hon ble Madras High Court we have no hesitation to delete the addition made by the Revenue Authorities and allow Ground raised by the assessee.

Summary

Issues:
1. Recalling of the order for adjudicating Ground No. 5 related to disallowance of expenditure.
2. Nature of expenditure for Techno Economic Feasibility Report - revenue or capital.
3. Interpretation of case laws and their applicability.
4. Decision on the appeal filed by the assessee.

Analysis:

Issue 1:
The appeal was filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) regarding the non-adjudication of Ground No. 5 raised by the assessee. The Tribunal recalled the order to specifically address the disallowance of the amount paid to M/s. RITES for the feasibility report.

Issue 2:
The main contention was whether the expenditure incurred for the Techno Economic Feasibility Report should be treated as revenue or capital in nature. The assessee argued that since no new enduring asset was created and the project was abandoned, the expenditure should be considered revenue. The Department argued that setting up a new port constitutes a capital project. The Tribunal analyzed the facts and applicable case laws to make a determination.

Issue 3:
The Authorized Representative cited relevant case laws, including a decision of the Hon'ble Kolkata High Court and a Co-ordinate Bench of Visakhapatnam, to support the contention that the expenditure should be treated as revenue. The Departmental Representative relied on a decision of the Hon'ble Delhi High Court to argue for capital treatment. The Tribunal distinguished the cases and applied the principles established in the judgments to the current scenario.

Issue 4:
After considering the arguments and examining the facts, the Tribunal found that no new enduring asset was created, and the expenditure was incurred for a project in the same line of business as the assessee. Citing a judgment of the Hon'ble Madras High Court, the Tribunal concluded that the expenditure should be treated as revenue. Consequently, the Tribunal allowed the appeal of the assessee and deleted the addition made by the Revenue Authorities.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that no new enduring asset was created, and the expenditure was revenue in nature. The decision was based on the interpretation of relevant case laws and the specific circumstances of the case.