2005 (6) TMI 553 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,46,980 made by the Assessing Officer for expenditure incurred for the issue of ISO-9002 certificate.
2. Deletion of addition of Rs. 4,50,000 made by the Assessing Officer in respect of expenses incurred for a new project.

Issue-wise Detailed Analysis:

1. Deletion of Addition for ISO-9002 Certificate Expenditure:

The Assessing Officer disallowed Rs. 1,46,980 claimed by the assessee for obtaining an ISO-9002 certificate, categorizing it as capital expenditure. The CIT(A) deleted this addition, referencing the Supreme Court decision in CIT v. Madras Auto Services (P.) Ltd. [1998] 233 ITR 468, stating that the expenditure facilitated the business by ensuring product quality and boosting sales. The Tribunal upheld the CIT(A)'s decision, noting a similar ruling in the assessee's favor for the previous assessment year (1997-98) by the ITAT, Chandigarh Bench. Consequently, ground No. 1 of the revenue's appeal was rejected.

2. Deletion of Addition for New Project Expenses:

The assessee debited Rs. 4,50,000 for new project expenses linked to the establishment of M/s Ludhiana Industrial Power Ltd. for a 65 MW Captive Power Plant. The Assessing Officer disallowed this expenditure, viewing it as preoperative expenses for an independent entity, unrelated to the assessee's existing business. The CIT(A) deleted this addition, considering the expenses necessary for ensuring regular power supply to the assessee's business, thus facilitating business operations.

The Tribunal reviewed the case, noting that the expenditure was intended for a new project and not directly linked to the existing business. The Tribunal found no evidence supporting the assessee's claim that the expenditure would benefit the existing business. Consequently, the CIT(A)'s decision to allow the expenditure as revenue expenditure was overturned, and the Assessing Officer's disallowance was restored. Ground No. 2 of the revenue's appeal was allowed.

Conclusion:

The appeal by the revenue was partly allowed, with the Tribunal upholding the deletion of the addition for the ISO-9002 certificate expenditure and restoring the disallowance for the new project expenses.