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Issues involved: Appeal against CIT(A) order for assessment year 2002-03.
Issue 1: Addition under sec.145A not pressed The appeal by the assessee against the addition of Rs. 47,78,745 under sec.145A was not pressed and hence dismissed. Issue 2: Disallowance of pre-operative/capital expenditure During assessment, the assessee explained that the pre-operative expenditure claimed as revenue pertains to an expansion project at Chakan, Pune, involving shifting of manufacturing facilities from Umbergaon, Gujarat. The AO rejected the claim, stating that if certain project expenses are capitalized, all related expenses should be treated likewise. The CIT(A) upheld this decision. Details for Issue 2: The assessee's counsel cited case laws and a Tribunal decision supporting the treatment of such expenses as revenue. The Tribunal noted that the project was an expansion of an existing unit, with significant sales in previous years. Expenses on plant and machinery were capitalized, while others like legal charges were claimed as revenue. Citing precedents, including the Supreme Court and various High Courts, the Tribunal held that expenses related to the expansion of the same business are allowable as revenue expenditure. Conclusion: The Tribunal found in favor of the assessee, noting the existing unit's expansion, common management, and substantial sales. It held that the expenses claimed as revenue were justified, overturning the lower authorities' decision. The appeal was allowed in part, directing the AO to accept the expenses as revenue in nature. Note: Separate judgment was not delivered by the judges.
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