2016 (3) TMI 544 - AT - Income Tax

Disallowance of pre-operating expense for a Mawa project a new project - expenditure admissible u/s 37 - expenditure incurred for expansion of the existing business of the assessee or a new business unconnected with the existing business - Held that - As decided in assessee s own case A.Y.2009-2010 the ice-cream and the Mawa fall in the genus of the dairy/milk products and they are covered by the nature of declared business of the assessee. As such, the impugned expenditure claimed by the assessee does not include any expenditure of capital nature. The control and management, accounts, CEOs for both the dairy/milk products is one and the same. AD has not made out the absence of interlacing of the above. Under the factual matrix of the case, we find the claim of the assessee is allowable - Decided in favour of assessee

Summary

Issues:
Deletion of disallowance of Rs. 1,87,16,047/- on account of pre-operating expense for a "Mawa Project."

Analysis:
1. The appellant, a manufacturer and marketer of ice creams, filed its return of income for assessment year 2010-11, declaring a loss which was revised later. During assessment, the Assessing Officer (AO) disallowed Rs. 1,87,16,047/- as pre-operating expense for a new project called the "Mawa Project." The AO considered this expense as capital in nature and not deductible under section 37(1) of the Income Tax Act. The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee, holding that the expenditure was not for the expansion of existing business but for a new business. The CIT(A) relied on a similar decision from the previous assessment year.

2. The main issue raised was whether the expenses incurred for the "Mawa Project" were admissible under section 37 of the Act. The Tribunal referred to a similar case from the previous year where the expenditure was held to be pre-operating expenses. The Tribunal analyzed the nature of the expenditure, emphasizing that it was revenue in nature and not related to capital assets acquisition. The Tribunal also examined the nature of the new product "Mawa" and concluded that it fell within the scope of the assessee's existing business of dairy/milk products. The Tribunal highlighted the interlacing of accounts, management, and control, indicating that the new project was not entirely separate from the existing business divisions. Additionally, the Tribunal discussed the concept of aborted expenditure and affirmed that the expenses claimed were allowable under revenue expenditure.

3. Based on the detailed analysis and precedent set by the co-ordinate bench in the previous case, the Tribunal dismissed the revenue's appeal, upholding the decision of the CIT(A) to allow the expenditure related to the "Mawa Project." The Tribunal concluded that the expenses were revenue in nature, fell within the scope of the assessee's business, and did not constitute a new business. The interconnection between the different business divisions and the nature of the product supported the allowance of the claimed expenditure.

This comprehensive analysis of the judgment highlights the key legal arguments, precedents, and conclusions drawn by the Tribunal regarding the deletion of the disallowance of the pre-operating expense for the "Mawa Project."