TMI Blog2015 (9) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of interlacing of the above. Under the factual matrix of the case, we find the claim of the assessee is allowable. Accordingly, the AO is directed to delete the addition. The order of the CIT (A) is thus, affirmed. - Decided in favour of assessee. - I.T.A. No. 1051/M/2013 - - - Dated:- 28-8-2015 - SHRI D. KARUNAKARA RAO AND SHRI AMIT SHUKLA, JJ. For The Appellant Shri L.K.S. Dehiya and Mr. Rakesh K. Agarwal, DRs For The Respondent Shri A.V. Sonde, AR ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by the Revenue on 6.2.2013 is against the order of the CIT (A)-12, Mumbai dated 14.11.2012 for the assessment year 2009-2010. In this appeal, Revenue raised the following grounds which read as under: 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the disallowance of ₹ 1,27,20,969/- held as pre-operating expense for a Mawa Project - a new project unconnected with existing business as capital in nature and not deductible u/s 37(1) of the Act. 2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in considering the expenditure of ₹ 1,27,20,969/- incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities relating to the ice-cream manufacturing as well as Khoa manufacturing constitutes a product differentiation under the common fund, common control and common management of the assessee company. Assessee also submitted that the project was aborted and never earned any enduring benefit out of the expenditure and therefore, the above said expenditure is neither for any capital investment nor it is a pre-operative expenditure. Since, the assessee is in the ice-cream business for a long time, so the launching of a new business constitutes expansion of and extension of existing business of the assessee, which is already commenced then. For this proposition, assessee relied on the judgment of the Hon‟ble Supreme Court in the case of Empire Jute Company Ltd vs. CIT [124 ITR 1]. Assessing Officer did not consider the above argument of the assessee and rejected the same. The reasons given by the AO for such rejection are narrated in para 5.4 of the impugned order. The summary of the AO‟s reasoning for rejection includes that the Mawa a new product of the assessee and the manufacturing of a new product constitutes a new business. Further, AO relies on the reply letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorized as pre-operative expenditure, merely relying on the expressions used by the assessee in the correspondence with the AO. Assessee also explained the applicability of the provisions of section 37(1) of the Act and reasoned the expenditure in question falls within the meaning of the said provisions of section 37(1) and therefore, the claim is fully allowable. He also relied on the fact that there is a complete unity of control and interlacing, interdependence and interconnection of all the business activities of the assessee with that of the Mawa project. There is common fund, common control and common management in launching the Mawa project, which falls in the same line of business of the assessee ie food business dairy product. Assessee relied on the judgment of the Hon‟ble Supreme Court in the case of Prithvi Insurance Co (63 ITR 632), which is relevant for the propositions relating to the above proviso. The said judgment has laid down the principle to decide whether two businesses are separate or a part and parcel of the same business. The guidelines also helps to come to the conclusion that if there was common management, common business organization administr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred on diversification and expansion of new product range including acquisition of plant and machinery to aid such expansion, such expenditure is allowable. Further, CIT (A) relied on the judgment of the Hon‟ble Bombay High Court in the case of Sterlite Industries (India) Ltd vs. Addl. CIT (102 TTJ 53) (Mumbai), wherein it was held that the interest expenditure incurred on the borrowed loans for acquiring a new plant and machinery, which is for expansion of the existing business constitutes an allowable revenue expenditure. There is also a reference to the decision of ITAT, Chandigarh Bench in the case of Glaxo Smithklline Consumer Health Care Ltd vs. ACIT (1121 TTJ 94) (Chandigarh) as well as the ITAT, Delhi Bench decision in the case of CIT vs. Usha Iron Ferro Metal Corp. Ltd [2007] 163 Taxman 256 (Delhi) for an identical proposition. Eventually, vide para 5.3 of his order, CIT (A) gave relief to the assessee and the said para of the CIT (A) is reproduced as under: 5.3. In the case of CIT vs. Escort Auto Component Ltd (323 ITR 11), the Hon‟ble Punjab Haryana High Court clearly stated that if an appellant incurs expenditure on diversification and expansi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of Hon‟ble Delhi High Court in the case of Triveni Engineering Works Ltd vs. CIT (232 ITR 639) which is relevant for the proposition that the nature of expenditure would not change to revenue merely because the project did not materialize. The said case was delivered on the facts that the assessee incurred expenditure to bring into existence an asset or an advantage of enduring benefit of trade utilizing the by-products of the sugar units, which is certainly in the capital field. In that case, the expenditure was written-off as aborted expenditure since, the project did not materialize. Otherwise, Ld DR heavily relied on the order of the AO. 5. Per contra, Shri A.V. Sonde, ld Counsel for the assessee relied heavily on the order of the CIT (A) and the detailed written submissions containing the series of case laws furnished before the CIT (A) vide written submission letter dated 23.10.2012. These are extracted and form part of the impugned order at para 3.2. In summary, the case of the Ld Counsel for the assessee is that the expenditure incurred by the assessee and debited to the P L Account relating to the Mawa project relates to the general overheads, market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim. Therefore, we have no doubt to treat the impugned expenditure as allowable revenue but for the allegation of the AO. No expenditure incurred on acquisition of the capital assets such as plant machinery, land and building, technical know-how etc., is included in the expenditure claimed by the assessee. 9. New product vs New business: Memorandum of Association of the assessee provides for the following main object of the business of the assessee and the same reads as under: ...........to produce or cause to be produced, buy, process, grade, pack, store and sell milk, milk products and ice-cream 9.1. From the above it is evident that the assessee is engaged in the manufacture of the dairy/milk products, ice creams etc. Accordingly, the manufacture of product of the assessee does not stop with the ice-creams only. Assessee manufactures the ice-creams for the Baskin Robbins for making and marketing in India. The milk is an important raw material for the manufacture of the ice-creams. The expression milk product‟ is a generic expression and in our opinion, the said expression covers all kinds of milk products. Ice creams are made up of the milk or the crea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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