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TMI Blog2013 (10) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme for setting up or expanding the sugar unit. The benefit was given to the sugar mills to meet the capital outlay in setting up or expanding the sugar mills – Decided against the Revenue. Pre-operative trial run expenses, a revenue expense of capital expenditure – Held that:- Reliance has been placed upon the judgment in the case of CIT vs Kanoria General Dealers P. Ltd [1986 (1) TMI 86 - CALCUTTA High Court] – In the present case, pre-operation expenses have been detailed in the material produced before the AO, in respect to Co-Generation Plant, Rauzagaon; Oxalic Acid, Dhampur and thus the pre-operational expenses, were revenue expenses and not capital expenses. These expenses were actually claimed as revenue expenses in the computation with the return and were to be allowed as revenue expenses – Decided against the Revenue. Disallowance on account of convertible premium notes - Expenditure on Convertible Premium Notes (CPM) was spread over the period of life on CPM for six years. The year of payment was six years and on which the expenditure was incurred by paying maturity value – Held that:- Expenditure in this case spread over the period for which the discount ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany vide ITAT order dated 17.2.2003 in I.T.A. No.4125/Del/93 for the assessment year 1990-91 vide paras 3-6 on pages 4-7. Similarly, decided in favour of the company in I.T.A. No.7779/Del/92 vide paras 15-18 on pages 6-12 of the order for the assessment year 1989-90. Similarly, decided in favour of the company in I.T.A. No.6662/Del/94 vide para 7 on pages 203 of the order for the assessment year 1991-92. Similarly, decided in favour of the company in I.T.A. No.57/Del/96 - departmental appeal - for the assessment year 1992-93 vide paras 5 5.1 on pages 5-7 of the order. 6. We have carefully gone through the order of the ITAT for the assessment year 1992-93 wherein at para 5.1, the issue has been dealt with as follows and the additions were deleted: "The brief history relevant for adjudication of this ground of appeal is as follows: In assessment year 1998-89, the assessee was valuing the closing stock by including certain items of expenditure like interest on borrowings, administrative expenses, legal expenses, bank charges, director's travelling, insurance etc. In assessment year 1989-90 the assessee changed the method of accounting and excluded certain items of expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit, then the receipt of the subsidy would be on capital account. 10. In the present case, from the orders of AO, CIT (A) and ITAT we find that the assesee was allowed additional free sale of sugar quota under the scheme for setting up or expanding the sugar unit. The benefit was given to the sugar mills to meet the capital outlay in setting up or expanding the sugar mills. 11. The Tribunal has relied on the judgment of this Court in CIT vs. Kisan Sahkari Chini Mills Ltd. 284 ITR 418, which was also followed by Uttrakhand High Court in case of CIT vs. M/s Kishan Sahkari Chini Mills Ltd in ITA NO.101 of 2006 vide its order dated 26.3.2007. 12. The question is thus decided in favour of the assessee and against the revenue. 13. Question no.4 "(4) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in confirming the order of the CIT (A) who deleted the addition of Rs.3,00,18,969/- on account of pre-operative trial run expenses treating it as revenue expenditure instead of capital expenditure.? 14. Shri Shambhu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount claimed by itself could not be allowed as revenue expenses and had to be given treatment as capital expenses. 18. In the present case, the pre-operation expenses have been detailed in the material produced before the AO and which has been referred to in the paper book at pages 14, 15 and 17 in respect to Co-Generation Plant, Rauzagaon; Oxalic Acid, Dhampur and thus the pre-operational expenses, were revenue expenses and not capital expenses. These expenses were actually claimed as revenue expenses in the computation with the return and were to be allowed as revenue expenses. 19. The question of law is thus decided in favour of the assessee and against the revenue. 20. Question no. 5 "(5) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in confirming the order of the CIT (A) who deleted Rs.2,58,78,987/- disallowed by the A.O on account of interest paid against loan which were utilized for setting up new units treating the same as revenue expenditure instead of capital expenditure?" 21. The Tribunal has relied on previous years orders in respect of the assessee in holding that the interest paid against loans, which were utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the principles of commercial trading. Ordinarily, revenue expenditure, which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. 29. In the present case from the facts discussed by the Tribunal we find that the expenditure on Convertible Premium Notes (CPM) was spread over the period of life on CPM for six years. The year of payment was six years and on which the expenditure was incurred by paying maturity value. In this regard the Tribunal recorded the findings in para-26 as follows:- "26. Next grievance in revenue's appeal relates to deletion of disallowance of expenses on issue of convertible premium notes which was charged to the P L account under loan raising expenses, disallowed under Sec. 35-D as being capital expenses. Facts relating to these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, as may be incorporated in the CPN certificate letter of allotment and/or other documents in respect of these Convertible Premium Notes and the terms and conditions, as may be desired by any Government agency." 30. The expenditure in this case spread over the period for which the discount has been paid. From the order of the AO we find that the entire amount was claimed in two years namely in the year 1997-98 and 1998-99. 31. On the aforesaid facts and circumstances brought before us, we are of the view that the reasoning in the judgment in Madras Industrial Investment Corpn. Ltd v. Commissioner of Income Tax (supra) is applicable and that the expenditure had to be spread out for a period of six years, and was not allowable in the years 1997-98 and 1998-99 alone. The issue is decided in favour of revenue and against the assessee. 32. Question no.7 (7) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in confirming the order of the CIT (A) who deleted Rs.58,40,390/- disallowed by the A.O on account loan raising expenses for technical know-how as revenue expenditure instead of capital expenditure" 33. Shri Shambhu Chopra, appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is to manufacture straw-board. The straw board factory was set up by the assessee by utilising its existing surplus funds and borrowing. The assessee controlled both the ventures of spinning and weaving mill as well as straw board factory. The management, trading organisation, administration, funds, and the place of business were identical. It could not, therefore, be said that the setting up of the straw board factory was initiation of a different business by the assessee and on that ground the expenditure could not be disallowed. The decisive test was unity of control and not the nature of the business. 36. In the present case the assessee is engaged in manufacture and sale of sugar. The Barabanki unit was set up in the same line of business from the funds borrowed by the company. There is no material to contend that the new unit was under different management or that there is no unity of control between the assessee in respect of business of manufacture and selling sugar and the business of manufacture and sale of sugar in the new unit at Barabanki. 37. The Tribunal is the final Court of facts. We may not go into the question to record any finding or to remand the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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