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TMI Blog2013 (12) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... SMS project not put to use. 1(ii) The CIT(A) failed to appreciate that any loss related to purchase of capital asset/new plant cannot be termed as revenue expenditure. 3. The appellant craves to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal The order of the CIT(A) on the above issues be set aside and that of the Assessing Officer be restored. 2. Briefly stated facts are that the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 28/10/2009 determining total income at Rs.NIL. Therefore, the CIT-III, Baroda has passed an order u/s.263 of the IT Act on 26/03/2009. The CIT after considering the submissions of the assessee, restored two issues; i.e. advance written off of Rs. 13,29,789/- and write off of advance on purchase of capital goods amounting to Rs. 1,19,86,344/- to the file of AO for fresh decision. The AO passed an order u/s.143(3) r.w.s.263 of the Act, thereby he made disallowances of advances written off of Rs. 13,29,989/- and Assets written off of Rs. 1,19,86,344/-. Against this, the assessee filed an appeal before the ld.CIT(A), who after considering the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mar Co.Ltd. reported at (2003) 259 ITR 114 (Raj). The contention of the assessee is that the expenditure was relating to the SMS project of the assessee. The SMS project was started in F.Y. 1993-94 as part of expansion of its existing business. However, due to recessionary market and financial crunches faced by the Company the said project was suspended. In the said project assessee incurred lot of expenditure before commissioning the project and as part of the said project assessee had advanced certain amount to various parties for purchase of various items. As those purchases never materialized, the said advances amounting to Rs. 13,29,989/- were written off from the books of account as nonrecoverable. Since those advances were given as a part of expansion of business project and same are not recoverable deserves to be allowed as genuine business loss/expenditure. On the contrary, the contention of the Revenue is that the expenditure incurred for purchase of goods, therefore it is clearly of capital in nature and it is related to acquisition of capital assets. Therefore, such expenditure cannot be allowed as business expenditure u/s.37 of the IT Act. The CIT(A) has deleted the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial year 1996-97 and related payment to the foreign party was done in financial year 1996-97. However, due to losses and financial crises, we could not clear those parts from the Port authority within the prescribed time. Thereafter the Port authority started imposing Demurrage charges for not clearing those parts. Subsequently during year under review, we decided not to clear those parts and asked Port authority to auction out those goods under the Customs Act and clear the import duty, customs duty, etc. recoverable on import of said goods. Further even during the year under review if we could have tried to clear those parts from Port authority we could have saddled with huge expenditure in form of import duty, Customs duty, interest, penalties and so on. Further those parts were all electronics one and after lying idle for so many years those must have expired or become unworkable or obsolete. In view thereof, looking to the commercial expediency or business compulsions we took the said decision which was fully in the interest of our business. It may be noted that though all the expenses incurred by us were for acquiring a capital asset, the same cannot be capitalized by mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co.Ltd. vs. CIT (177 ITR 377). Your Honour would appreciate that in light of these judicial pronouncements, the advances written off and cost of assets not acquired does not become capital in nature. 8. We further submit that, in one decision the Hon'ble ITAT, Bombay (refer ITA No.3892/Bom/1974-75 dated 27th December, 1978), held that the disallowance made by the lower authorities was not proper because though employees were sent abroad for purchase of capital goods for their expansion programme, the assessee-company did not make any purchase as a result that the assessee could not be allowed to capitalize the expenditure. Accordingly the Tribunal held that the lower authorities should have allowed the expenditure since new machinery intended to be purchased was not so done and the expansion was in respect of the same business of the assessee. 9. Without prejudice to above, we further submit that, though we have never acquired the asset the cost of which is written off, if for sake of argument we assume that it is acquired, than also we are eligible for decuctionu/s.32(1)(iii) of the Act as discarded asset. It was held in case of Guidy Machine Tools P.Ltd. vs. CIT (254 ITR 780)(M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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