TMI Blog2021 (7) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act, 1961 [in short, 'the Act']. Heard both the parties. Case file perused. 2. Coming to the assessee's sole substantive grievance that both the lower authorities have erred in law and on facts in treating its claim of ₹ 1,81,29,772/- incurred on abandoned sugar projects as 'capital in nature'. The CIT(A)'s detailed discussion to this effect reads as under: 5. Addition on account of disallowance of Capital expenditure of ₹ 1,81,29,772/-: 5.1 The Assessing Officer made the addition stating as under:- 3. During assessment proceedings it-was noticed that assessee had written off expenses of ₹ 1,81,29,722/- in P L related to abandoned sugar project. Vide this office notice u/s. 142(1), assessee was asked to explain why these expenses should not be added to computation of income as these expenditure is capital in nature. In response, assessee vide its letter dated 7.10.2016 and 21.10.2016 has furnished the details of sugar project expenses incurred from 2007 to 2013. 3.1 The facts are that the assessee has planned to install 3500TPD integrated sugar mill, 50 KLPD ethanol plant and 20MW co-generation power plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case the capital work in progress, claimed as written off is not in nature of preliminary or preoperative expenses. Further the expenditure incurred is not Wholly and exclusively for the present business of the assessee but it is capital expenditure incurred to set up another business. 3.3 The issue of write off of capital expenditure incurred on abandoned projects has been subject of discussion of various court decisions. The Delhi High Court in the case of Triveni engineering works Ltd. v. CIT 100 taxman 19 has held the same as capital expenses. The relevant head note is quoted below- Section 37(1) of the Income-tax Act, 1961 - Business expenditure-Allowable as Assessment year 1971-72 Assessee spent some amount on project reports on manufacturing insecticide formulation and for survey report on extra melkral alcohol - Assessee's claim as revenue expenditure was disallowed as project reports did not materialize and as the expenditure was incurred with a view to manufacturing new products - Whether expenditure was attributable to capital having been incurred with a view to bringing an asset or advantage into existence and having enduring benefit-Held, yes - Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as revenue expenditure. 3.4 In view of above discussion and facts of the case, it is held that amount of ₹ 1,81,29,772/- is a capital expenditure and cannot be allowed as revenue expenditure . 5.2 During the course of appellate proceedings, the appellant's AR filed written submissions, contesting the said disallowances as under: The Appellant is a company engaged in the business of manufacture and sale of cement, printed circuit boards and generation sale of Wind Power. In the year 2007, when the Appellant was earning profits, it wanted to diversify into other businesses and decided to set up a sugar factory as per the decision of its Board in Board Meeting held on 30-01-2007. Accordingly appellant filed Industrial Entrepreneur Memorandum (IEM) and obtained acknowledgement from Ministry of Commerce and Industry, Government of India which is a pre requisite for setting up an Industry. Thereafter the Appellant started taking various steps required for setting up sugar factory. Appellant also filed application with various banks viz., Andhra Bank, SCF Branch, Somajiguda, State Bank of India, Industrial Finance Branch, Somajguda, Canara Bank, Somajiguda B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Salaries 23,57,241 Environmental Pollution Clearance Expenses 11,47,991 Advertisement Charges 41,920 Others-Site Expenses 1,13,302 Total 1,81,29,772 Hence the Appellant submits that the Assessing Officer is not justified in disallowing ₹ 1,81,29,772/- on the ground that such expenditure is capital expenditure. In this regard, kind attention of learned Commissioner of income tax is invited to a decision of Hon'ble High Court of Madras in the case of Chemplast Sanmar Ltd. vs. Asst. Commissioner of Income Tax, Chennai (258 Taxman 297 - copy enclosed herewith), wherein it is held that preoperative expenditure incurred by an assessee on new line of business is allowable as revenue expenditure since new project was managed from common funds and control Over all the business units was in the hands of the Board of the assessee and there was unity of control. The Appellant therefore submits that the facts in the above case being similar to its case, preoperative expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly laid down by the High court that if the expenditure is incurred for staring new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. The case of the appellant here squarely falls in this category. The expenses incurred, therefore, being capital in nature, have been rightly disallowed by the Assessing Officer. The addition made is therefore confirmed, and all grounds related to this issue are DISMISSED . 3. We have given our thoughtful consideration to rival pleadings. It has come on record that both the learned lower authorities have held that once the expenditure incurred for starting new business forms capital expenditure, the very analogy is to be adopted qua of the abandonment of a new project as well. We find no merit in the instant reasoning in light of the M/s. Binani Cement Ltd. Vs. CIT [ (2016) 380 ITR 116] (Cal) that the impugned claim indeed forms revenue and not capital expenditure. We thus reverse both the learner lower authorities' action declining the assessee's claim for this sole reason alone. 4. This assessee's appeal is allowed in above terms. Order pronounced in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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