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Issues involved: Whether expenditure incurred for a shelved project is allowable u/s 37 of the Income Tax Act, 1961.
Summary: The appeal by the revenue challenges the CIT(A)'s decision to allow expenditure of Rs. 35,42,821 incurred for a shelved project. The revenue argued that the expenditure, being capital in nature, was not allowable under section 37. However, the CIT(A) differentiated between the expenditure related to the steel plant project and another project, allowing the former but disallowing the latter. The revenue contended that since the expenditure was incurred in earlier years and not during the relevant assessment year, it should not be allowed. They argued that the expenditure, being for an abandoned project, was capital in nature and should be matched with income. On the other hand, the assessee claimed the expenditure as revenue, citing it was for salaries, wages, and not for asset creation. They relied on precedents to support their case. After considering the contentions and records, it was noted that the expenditure was for the development of a project in the existing business line, not for new business. Citing a Delhi High Court case, it was concluded that if the expenditure is for the same business, even for expansion, and no new enduring asset is created, it should be treated as revenue expenditure. Following this precedent, the issue was decided in favor of the assessee, upholding the CIT(A)'s decision. In conclusion, the revenue's appeal was dismissed, and the decision was pronounced in open court on 25.06.2010.
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