2019 (2) TMI 320 - HC - Income Tax

Nature of expenditure - revenue or capital - submitting a tender for the purpose of construction, equipping, operation and maintenance of two berths on Build, Operate and Transport (BOT) basis in the Vaizag Port - expenditure being 'once for all' - test of 'enduring benefit' - Held that - Assessee as engaged in Port related activities and had also carried out constructions in Ports and the submission of tender for a BOT project for the Vaizag Port was a related activity. The project did not take off and as held by the Supreme Court in ALEMBIC CHEMICAL WORKS COMPANY LIMITED 1989 (3) TMI 5 - SUPREME COURT on the facts in this case there was no enduring benefit obtained by the assessee. It broke down when the Government of India cancelled the tender. We do not find any question of law arising, since the facts have been gone into by the Tribunal and held in favour of the assessee.

Summary

Issues:
Whether preliminary expenditure incurred by the assessee for submitting a tender for construction, equipping, and maintenance of two berths on BOT basis can be allowed as a revenue expenditure, especially when venturing into a new line of business.

Analysis:
The case involved the question of whether the preliminary expenditure incurred by the assessee for submitting a tender for the construction, equipping, operation, and maintenance of two berths on a Build, Operate, and Transport (BOT) basis in the Vaizag Port could be treated as a revenue expenditure. The assessee, engaged in various businesses, submitted a tender incurring an expenditure of ?16,26,731, which was claimed as a business expenditure after the project was abandoned by the Government of India. The Assessing Officer considered this as a new line of business and treated the expenditure as capital, not connected to the existing businesses of the assessee.

The learned Standing Counsel for the Revenue argued that the Tribunal erred in setting aside the Assessing Officer's order, emphasizing that the expenditure, even if not resulting in an asset, should be considered capital when venturing into a new business line. However, the respondent's counsel relied on a Supreme Court judgment to argue that the assessee's attempt to expand its activities did not result in an enduring benefit, as the project was abandoned. The Tribunal found that the assessee was already engaged in construction activities related to ports, including the Chennai Container Private Limited, indicating that the tender submission for Vaizag Port was not venturing into a new line of business.

Citing the Supreme Court's judgment in a similar case, the High Court reiterated the Tribunal's findings that the assessee's activities were related to port constructions and that no enduring benefit was obtained from the abandoned project. The Court concluded that no question of law arose, as the Tribunal had already considered the facts and ruled in favor of the assessee. Therefore, the Revenue's appeal was rejected, upholding the Tribunal's decision on the facts without awarding any costs.