TMI Blog2016 (8) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ole business would obviously have to be borne by the other unit on the closure of one unit. Having regard to all these circumstances, it was held that the factory at Bangalore did not constitute a new business but was only an establishment of a new unit of the existing business and that the amounts in question were allowable as revenue expenditure. Taking into consideration the fact that the expense was incurred by the assessee for trial run with regard to expansion of present unit, to increase its installed capacity of the tile manufacturing plant from 35000 MT to 42000 MT, we find merit in the submissions of Mr.Soparkar. We are of the opinion that the question posed for our consideration is required to be answered in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of this unit commenced w.e.f. 1.8.1993. Trial run before declaring the expansion took almost 45 days. During the period various raw materials (imported and indigenous) were utilized. The total cost of trial run was to the tune of ₹ 63.07 lacs, which were excluding revenue expenditure already charged to the P L Account. He, therefore, submi9tted that as the expenses are incurred only for the purpose of existing line of business where the production was in progress, therefore, the same is rightly claimed as revenue and the Tribunal has committed an error in passing the impugned order. He contended that the expenses which are incurred for the trial run are for expansion of manufacturing activity and the same ought to have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the Bangalore unit was not a branch of the assessee's factory and that it was, therefore, a new business and since that new business had not started production, the payment of interest on the borrowings made for incurring the expenditure for setting up the new unit could not be allowed as revenue expenditure. On the same ground, he also disallowed some miscellaneous expenditure and travelling expenditure referable to the establishment of the Bangalore unit. This decision was reversed on appeal by the AAC who held that the Bangalore unit did not become a distinct business undertaking although it was a new unit and the Income-tax Appellate Tribunal agreed with the AAC. On a reference, this court held that there was one company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s one to the conclusion that the expenditure was in the nature of revenue. The assessee-Corporation was carrying on numerous activities for about 10 years and the expenditure incurred was not in connection with the testing of the plant established for the manufacture of the scooters, but was an expenditure incurred in connection with the trial of the scooters. The trial revealed that the scooters had stood up the test satisfactorily and in subsequent years commercial production was commenced. Under the circumstances, the expenditure incurred in testing the scooters must be treated as expenditure of a revenue nature. It is difficult to conceive how it can be said to be an expenditure of a capital nature, for, it has not brought into existenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Cement Chemical industries Ltd., (Income-tax Reference No. 26 of 1973 decided on August 25, 1975-[1981] 127 ITR 47 (Guj)) will not, therefore, come to the rescue of the Revenue in the facts and circumstances of the present case. In that case, the expenditure was incurred before a new plant commenced production. It was in that context that the court took the view that it was an expenditure of a capital nature having regard to the fact that it was a part of the actual cost incurred in order to bring into existence the cement plant which was to produce the cement. It may be mentioned that the expenditure incurred was in connection with the electricity charges paid in the course of the trial run for the plant before the plant commenced c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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