TMI Blog2013 (7) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... as replied that they have expanded the EOU during the financial year 2007-08 and as per the accepted Accounting Standards, the assessee capitalized all the expenses incurred for the expansion in the books of account and that for income tax purposes, the assessee claimed it as deduction since the assessee was existing in the business of manufacture of axles housing. The Assessing Officer did not accept the contention of the assessee and held that the expenditure incurred by the assessee was of enduring nature and therefore, was capital expenditure and disallowed the claim of deduction to the assessee. 4. On appeal, the DRP confirmed the order of the Assessing Officer by observing as under: 21. The main contention of the assessee was that the new unit that was set up was merely an expansion of the existing business of the appellant and both the units were situated at Sriperumbudur. The assessee stated that it was not setting up any new business, rather setting up new unit for manufacturing the same product which it was already manufacturing and control of the new unit was under common management in the same organization. The assessee's contention was that it was not a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 7. The ld. CIT/DR, by referring to page No.3 of the paper book filed by the assessee submitted that new products were developed for EOU Line II and drivehead and the prototypes were sent to US for testing purpose. He submitted that the assessee incurred ₹ 2,50,000/- towards testing charges to Indian Institute of Technology for fatigue test. The assessee also incurred freight charges for sending samples to USA amounting to ₹ 21,01,296/-. Hence, it was his submission that incurring this expenditure of the assessee shows that the assessee was manufacturing entirely a new product and therefore, the disallowance made by the Assessing Officer and confirmed by the DRP treating the expenditure as capital in nature was fully justified. 8. In the rejoinder, the ld. A.R of the assessee submitted that the assessee was in the business of manufacturing of axles housing and has made improved version of the axles and therefore, it had to incur the testing charges, therefore, it was in the same line of business and was under the same management and control and hence, the expenditure was rightly claimed as revenue expenditure. He relied on the decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and held that the expenditure incurred by the assessee gives benefit of enduring nature and therefore, was capital expenditure and disallowed deduction to the assessee which was confirmed in appeal by the DRP on the ground that the new unit was not in the same premises and therefore, it was not expansion of the existing unit but setting up of a new unit. 10. The ld. A.R relying on the decision of the Hon'ble Madras High Court in the case of CIT vs Sakthi Sugars Ltd., 339 ITR 400, submitted that in that case also the assessee set up another sugar factory in a different State and then also the Hon'ble High Court held that it was expansion of the existing business of the assessee. We find that the Hon'ble Madras High Court while dismissing the appeal of the Revenue, held that the expenditure incurred in setting up of a new unit in the expansion of its existing business by the assessee which was of a routine or revenue nature, was allowable deduction to the assessee as revenue expenditure while computing the income of the assessee. Whereas the expenditure incurred for construction of building, and acquiring of plant and machinery which are capital in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Thus, Ground Nos. 1 to 6 of the appeal are allowed for statistical purposes. 12. Ground Nos. 7 8 of the appeal relate to the confirmation of disallowance of ₹ 8,44,087/- by the DRP on account of lease rent paid of ₹ 12,42,820/-. 13. The brief facts of the case are that the assessee debited an amount of ₹ 3,98,733/- as lease rent in the books of account. However, in the statement of income filed alongwith the return of income the assessee claimed an increased amount of ₹ 12,42,820/- as lease rent expenditure. On being asked to clarify the same by the Assessing Officer, the assessee did not offer any explanation. In absence of details/clarification on the enhanced claim of lease rental expenditure the deduction was allowed at ₹ 3,98,733/- and the balance amount of ₹ 8,44,087/- was disallowed which was confirmed on appeal by the DRP. 14. The ld. A.R of the assessee submitted that lease rental amounting to ₹ 3,98,733/- was debited in the Profit Loss Account as it represented interest component of lease obligation whereas the principal component has been debited to depreciation and credited to fixed assets (leased assets). This t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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