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2021 (7) TMI 893 - AT - Income TaxNature of expenditure - abandoned sugar projects - revenue or capital expenditure - HELD THAT - Once the expenditure incurred for starting new business forms capital expenditure, the very analogy is to be adopted qua of the abandonment of a new project as well. We find no merit in the instant reasoning in light of the M/s. Binani Cement Ltd. Vs. CIT 2015 (3) TMI 849 - CALCUTTA HIGH COURT that the impugned claim indeed forms revenue and not capital expenditure. We thus reverse both the learner lower authorities' action declining the assessee's claim for this sole reason alone. - Decided in favour of assessee.
Issues Involved:
1. Whether the expenses of ?1,81,29,772/- incurred on an abandoned sugar project should be treated as capital expenditure or revenue expenditure. Detailed Analysis: 1. Treatment of Expenses on Abandoned Sugar Project: The primary issue in this case is the classification of expenses amounting to ?1,81,29,772/- incurred by the assessee on an abandoned sugar project. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated these expenses as capital in nature, which the assessee contested, claiming them as revenue expenses. Assessee's Argument: The assessee argued that the expenses were incurred for setting up a sugar factory, which was later abandoned due to a decline in sugar demand and banks' refusal to finance the project. The expenses included professional and consultancy charges, purchase of pipeline and other materials, bank charges, jungle clearance, travel allowances, rent, salaries, environmental and pollution clearance expenses, advertisement charges, and other site expenses. The assessee contended that these expenses were revenue in nature as they were managed by a unified Board of Directors, indicating a unity of control over all business activities. Assessing Officer's Findings: The AO disallowed the expenses, stating that they were capital in nature since they were incurred for setting up a new business that was not previously carried out by the assessee. The AO cited various court decisions, including the Delhi High Court's ruling in Triveni Engineering Works Ltd. v. CIT, which held that expenses incurred for new business ventures that do not materialize should still be treated as capital expenditure. CIT(A)'s Decision: The CIT(A) upheld the AO's decision, emphasizing that the expenses were for a new project and thus capital in nature. The CIT(A) referenced the Delhi High Court's judgment in CIT v. Priya Village Roadshows Ltd., which distinguished between expenses for starting a new business (capital) and expenses for expanding an existing business (revenue). Tribunal's Analysis: The Tribunal reviewed the case and the arguments presented by both parties. It noted that the expenses were indeed for a new business venture, which aligns with the principle that such expenses are capital in nature. However, the Tribunal found merit in the assessee's reliance on the Calcutta High Court's decision in M/s. Binani Cement Ltd. v. CIT, which treated similar expenses as revenue expenditure. Tribunal's Conclusion: The Tribunal concluded that the expenses incurred on the abandoned sugar project should be treated as revenue expenditure. It reversed the decisions of the lower authorities, allowing the assessee's claim. Final Order: The assessee's appeal was allowed, and the expenses of ?1,81,29,772/- were classified as revenue expenditure. Order Pronounced: The order was pronounced in the open court on 15th July, 2021.
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