TMI Blog2016 (11) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... flected in the balance sheet of the company. The control over the two units is in the hands of the same management and administration.” Also see Maharaja Shri Umaid Mills (1987 (9) TMI 6 - RAJASTHAN High Court ) which also supports the case of the assessee. In light of above and given the facts that the decision to abandon the project was taken during the year due to the change in govt. Policy, the expenses relating to the resort which have been written off in the books of accounts have been rightly been claimed by the assessee as revenue expenditure. - Decided in favour of assessee Addition u/s 40A(3) - Held that:- The genuineness of the transaction as well as the identity of the payee are not disputed. Further, the appellant has explained the business expediency of making the cash payments to both the parties which has not been controverted by the Revenue. Following the decision of Gujarat High Court in case of Anupam Tele Services (2014 (2) TMI 30 - GUJARAT HIGH COURT ) and Harshila Chordia (2006 (11) TMI 117 - RAJASTHAN HIGH COURT ), the addition under section 40A(3) is deleted.- Decided in favour of assessee - ITA No. 625/JP/14 - - - Dated:- 28-9-2016 - Shri Kul Bhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to scrap the earlier project and applied for the change of land use as per the new rule i.e. 90A. However, it is apparent that the expenses incurred were shown and accepted all along as capital expenses by the assessee and in none of the years they were claimed as revenue expenses. The nature of expenses cannot change in the year when the said project was scraped. The nature of expenses remains the same as earlier claimed by the assessee from A.Y. 2007-08 to 2011-12. As such, this is the capital loss incurred by the assessee and said loss is not allowable to set off against the income from job work business of the assessee. Also, it is not the case of assessee that assessee has incurred the above expenses as revenue expenses for the current business of manufacturing of biscuits of Parle biscuits on job work basis. Accordingly, the claim of the assessee is not liable to be set off as revenue expenses against above business. 2.2 The Ld. AR argued the matter at length and has submitted through its written submissions as under: 1. Firstly, we strongly rely upon the written submissions filed before the ld. CIT (A) as under: Your honour here I would like to submit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below and available at (PB 93), was clearly of revenue nature. The basic consideration of deciding whether a particular expenditure was capital expenditure, the test is that by incurring such expenditure a new asset must came into existence or it should result into an advantage of enduring nature. However, the authorities below have not applied their mind on this aspect. The bifurcation of the subjected expenditure clearly show that all the expenditures like design fees, travelling, garden exp., and misc. exp. were of revenue nature and they did not at all brought any asset into existence nor any advantage of enduring nature. Even the civil construction exp. related to the construction of a boundary wall and some other minor civil construction, which ultimately had to be demolished. Hence, the labor wages incurred were a revenue expenditure. This is because of the peculiar facts that ultimately because of the changed rules and regulations/building bye laws, more particularly relating to the resort stood changed which fact has not been denied. The assessee feeling compelled had to demolish the earlier construction which was no use. 2.2 Under these circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Graphite India Ltd. (1996) 221 ITR 420) (Cal) (DPB 7-11), when the dispute was that whether the Tribunal was justified in holding that the expenditure incurred for the assessee s proposed petro-chemical project was revenue expenditure and to be allowed as a deduction, it was held that: So far as question no.4 is concerned, the Tribunal recorded the finding that the assessee spent an amount of ₹ 56,665 as project expenditure. The expenditure represented fees paid to Engineering India Ltd. in connection with the petro- chemical project report. The amount was paid by the assessee in order to explore the possibility of setting up of a petro-chemical project which could provide a captive plant for manufacture of raw material at the assessee s own factory which would help the assessee in getting continuous supply of raw material even during periods of acute shortage. In fact, the project did not materialize. The Income-tax Officer as well as the Commissioner of Income-tax (Appeals), therefore, held that the expenditure was capital in nature. However, the Tribunal found that the expenditure did not result in bringing into existence any capital asset of enduring in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was claimed, is nothing but was a misconception on their part. On the completion, when a new asset could be brought in to existence, all these expenses would have been allocated under the proper heads. Otherwise also, there is no estoppel against statue. 4.2 Case law which support that there is no estoppels, are as under: 4.2.1 In CIT vs. Escorts Auto Components Ltd. (2010) 323 ITR 0011/34 DTR 0280 (P H) wherein it was held that Business expenditure-Capital or revenue expenditure-Expenditure on expansion of existing business-Assessee had incurred expenditure on diversification and expansion of new product range including acquisition of machinery to aid such expansion-Merely because the assessee has declared by giving a note in its original return that it was an expenditure pertaining to new project and is of capital in nature, the AO could not have treated the same as the capital expenditure-Moreover, the finding of the Tribunal that the expenditure incurred was revenue expenditure and/or for business purpose, has not been challenged, nor there is any challenge to the finding that no capital asset has come into existence-Expenditure was therefore allowable as revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avis Foods Pvt. Ltd. (2015) 44 CCH 0560 (Mum Trib) in para 12 it was held Interlacing of the accounts, management and control: It was a settled proposition in law that so long as there exists the interlacing of the control management, interlacing of the accounts etc, no new business is said to have been set up. In the instant case, none of these tests are cleared. AO has not made out that the Mawa division was entirely separate from the points of the above and it is unconnected to the ice-cream divisions. Actually, both these divisions are under the same management-control and are financially interconnected. In that sense, the CIT(A) had not applied his mind to the said settled legal propositions. 5.2.3 In CIT vs. Monnet Industries Ltd. (2011) 332 ITR 0627/(2008) 16 DTR 0307 it was held that: Business expenditure-Interest on borrowed capital-Amount borrowed for setting up a new plant-Tribunal found as a fact that there was a common board of directors of the assessee company controlling the ferro alloys plant as well as the newly set up sugar plant, funds for the two plants were common and marketing of the final products of both divisions was carried out under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual report of the assessee makes a reference to the project at Hyderabad. There can be no dispute from the facts that have been placed on record that the new venture was managed from common funds and there is the necessary unity of control leading to an interconnection, interdependence and interlacing of the two ventures such that it can be said that the fuel injection equipment project is only an extension of the existing business of the assessee and, therefore, the expenditure incurred by the assessee on this project is a revenue expenditure. 5.2.5 In Indo Rama Synthetics (I) Ltd. vs. CIT (2011) 333 ITR 0018/(2009) 32 DTR 0322 (Del), wherein exactly on similar facts and circumstances it was held that The expenditure incurred was in the nature of salary, wages, repairs, maintenance, design and engineering fee, travelling and other expenses of administrative nature. Indubitably, in normal course, these expenses would be treated as revenue expenditure. The unit, which the appellant proposed to set up, had inextricable linkage with the existing business of the appellant. The proposed business was not an individual business but vertical expansion of the present business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account. The expenses relates to development of a resort on a piece of land taken on lease at village Ganera, Pushkar. The work of constructing the resort was started in the year 2007 after seeking necessary change in land use and other approvals by Municipal Council Pushkar and by the Senior Town Planner, Ajmer. During the year under consideration, there were policy changes introduced by the Govt. authorities in terms of change of land use and the width of the road etc. Consequent to such changes in the govt. Policy, the appellant had to abandoned the existing project. Therefore, the decision was taken during the year to write off the expenses of ₹ 45,12,111/- which have been incurred right from the year 2007 onwards and reflected in the books of accounts under the head work in progress . The said expenditure relates to lease rent, design fees, travelling expenses, garden expenses as well as expenses relating to construction of boundary wall and some other minor civil construction works. In the above factual matrix, the question that arises for consideration is whether the assessee is eligible to claim the said expenditure in respect of a resort being developed whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndon the project was taken during the year due to the change in govt. Policy, the expenses relating to the resort which have been written off in the books of accounts have been rightly been claimed by the assessee as revenue expenditure. In light of above, the ground taken by the assessee is allowed. 4. Now, coming to ground no 2, the AO observed that the assessee had made cash payment of ₹ 25,328/- to shri Dattar Singh on account of wrapper cutting charges and ₹ 20,410 for purchase of spare parts to Techmech Electricals and disallowed the same u/s 40A (3) of the Act. 4.1 In the first appeal, the ld. CIT(A) confirmed the addition holding that assessee has made the payment of ₹ 25,328/- and ₹ 20,410/- on 15.11.2010 and 18.05.2010 in cash in violation of provisions of S. 40A (3) of the I.T. Act. The assessee has not shown how the assessee s case is covered under Rule 6DD as per which in excess of 20,000/- can be allowed. The circumstances cited by the assessee do not fall under the exceptions mentioned in rule 6DD I.T. Rules. Accordingly, the addition made by the AO is confirmed. 4.2 The ld AR submitted that he strongly rely upon the written submis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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