2010 (9) TMI 1289 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenses on abandoned project.
2. Claim of deduction for subsidy received.
3. Claim of depreciation on plant and machinery.
4. Income from sale of ammonia.
5. Forfeiture of share capital.
6. Release of water expenditure.
7. Expenditure on fire fighting equipment.

Summary:

1. Disallowance of Expenses on Abandoned Project:
The assessee claimed Rs. 20,51,000/- as revenue expenditure for an abandoned Acrylon Nitric project. The AO disallowed it, stating it was for a new project not commenced. The CIT(A) upheld this, noting it was not linked to existing units. The Tribunal, referencing cases like CIT vs. Escorts Auto Components Ltd. and Jay Engineering Works Ltd., held that if no new asset is created, the expenditure is revenue. The issue was remanded to the AO to verify if the expenditure was genuinely incurred by the assessee or Gujarat Acrylic Ltd.

2. Claim of Deduction for Subsidy Received:
The assessee's claim for deduction of Rs. 60.22 crores subsidy repaid to the government was not pressed and thus rejected.

3. Claim of Depreciation on Plant and Machinery:
The Tribunal allowed the assessee's claim for depreciation on plant and machinery used for trial production, referencing its own decision in ITA No.3228/Ahd/2003 and cases like V. Ramakrishna and Sons Ltd. vs. CIT and CIT vs. Union Carbide (I) Ltd. It was held that machinery used in trial production qualifies for depreciation u/s 32.

4. Income from Sale of Ammonia:
The Tribunal dismissed the Revenue's appeal regarding income from the sale of ammonia, following its earlier decision in ITA No.3358/Ahd/2003, which held that income during trial production reduces capital work in progress and is not taxable.

5. Forfeiture of Share Capital:
The Tribunal rejected the Revenue's appeal on forfeiture of share capital of Rs. 4,13,000/-, following the decision in DCIT vs. Brijlaxmi Leasing & Finance Ltd., which held such forfeiture as a capital receipt not chargeable to tax.

6. Release of Water Expenditure:
The Tribunal upheld the assessee's claim for Rs. 1,07,43,000/- spent on water supply, referencing its decision in ITA No.341/Ahd/2003, which treated such expenditure as revenue, not capital.

7. Expenditure on Fire Fighting Equipment:
The Tribunal rejected the Revenue's appeal on Rs. 93,25,000/- spent on fire fighting equipment, noting that similar issues in earlier years were decided in favor of the assessee and no appeal was filed by the Revenue.

Conclusion:
The assessee's appeal was partly allowed and partly for statistical purposes, while the Revenue's appeal was dismissed.