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TMI Blog2018 (6) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... mportant fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature. The Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there should be an enduring benefit, which should accrue to the assessee and there should be a creation of a new asset. In the instant case, both these parameters remain unfulfilled. - Decided in favour of assessee - T. C. ( Appeal ) Nos. 907 and 908 of 2007 - - - Dated:- 5-6-2018 - T. S. Sivagnanam And N. Seshasayee, JJ. For the Appellant : Mr. A. S. Sriraman For the Respondent : Mr. S. Rajesh JUDGMENT ( Delivered by T. S. Sivagnanam, J. ) These appeals, by the assessee, the Tamilnadu Magnesite Limited, are directed against the common order passed by the Income Tax Appellate Tribunal, D Bench, Chennai (ITAT) in ITA Nos.1436/Mds/03 and 825/Mds/04 for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 11.58 crores as project expenses as revenue expenses. 7. The assessee filed appeals before the CIT(A). The CIT(A) considered the facts of the case and by orders dated 25.04.2003 and 09.12.2003, allowed the appeals filed by the assessee. The CIT(A) pointed out that looking at the facts and circumstances of the case as per the assessment order, the sole ground, on which the Assessing Officer described that the proposition appears to be utilisation of funds from capital account and aid from Government of Tamil Nadu and using the term capital work-in-progress , the Assessing Officer came to a conclusion that the assessee had started a new venture and new project and incurred capital expenditure and thought fit to disallow. The CIT(A) held that as amply enumerated in the case laws and the Government Order, it came to light that the assessee's basic intention was to take over the Chemical Beneficiation Project from the Tamil Nadu Industrial Development Corporation (TIDCO) for production of 'high quality sintered magnesia', which is one of the products of the assessee company. Therefore, the appellate authority held that, it cannot be said that a new venture has come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expenses incurred for the implementation of the project was claimed as revenue expenses / business loss in the computation of total taxable income on the strength of the Government Order in G.O.No.140, directing closure of the project and cancellation of the allotment of the land. This aspect of the matter was not considered by the Tribunal and without reference to the factual position, the impugned order has been passed. 12. Further, it is submitted that the decisions, which were referred to by the assessee were not properly considered by the Tribunal and the factual position in those decisions were not appreciated. Thus, it is submitted that when there is no new business, which has been created and there is no creation of any new asset, nor there being any enduring benefit accrued to the assessee, the expenditure should be treated as revenue and not as capital. 13. Further, it is pointed out that, though it may be true that the expenditure was incurred from the capital account, that would not be the proper test to determine the nature of expenditure for the reasons not attributable to the assessee, when the existing unit ought to be closed. 14. In support of his co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Idea Cellulura Ltd. reported in [2016] 76 Taxmann.com 77 (Bombay), against which the revenue has preferred appeal before the Hon'ble Supreme Court and the Special Leave Petition has been admitted as reported in [2017] 81 Taxmann.com 112 (SC) (Commissioner of Income Tax vs. Idea Cellular Ltd.). 18. We have heard the learned counsels for the parties and carefully perused the materials placed on record. 19. The common issue involved in both the appeals is whether the Tribunal was justified in reversing the decision of the CIT(A) deleting the addition made by the Assessing Officer on the ground that the expenditure incurred by the assessee was revenue in nature and not capital. 20. To decide the substantial questions of law framed for consideration, we would have to apply the proper test, which would distinguish capital and revenue expenditure. This question came up for consideration before the Hon'ble Supreme Court in Empire Jute Co. (referred supra). It was pointed out that from time to time cases have evolved various tests for distinguishing between capital and revenue expenditure, but, no test is paramount or conclusive. Further, there is no all-embracing formula, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceed to examine the facts of the instant case. It is not in dispute that the Chemical Beneficiation Plant was already established by TIDCO and on account of their not being able to achieve the desired result, the assessee was invited to take over the project, as the assessee possessed expertise in the field. This is how the assessee stepped into the project and by turn of events, the Government granted approval during the year 1998. 25. As could be seen from the order passed by the CIT(A), the assessee had entered into an arrangement with TIDCO as well as with IDBI and fixed the project cost with a debt equity ratio, which was approved by the Government of Tamil Nadu and thereafter, steps were taken to acquire land, import machinery etc. In the meantime, 12 years had passed by and the project had not taken off. The IDBI had withdrawn from the project, as it was found to be unviable and another co-promoter viz., M/s.Khaltan Supermag Limited was brought in and a joint sector company was formed with the assessee subject to certain conditions. However, the said co-promoter, M/s.Khaltan Supermag Limited expressed inability to be a part of the project and after 12 years, the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tos Ltd. reported in (2003) 185 CTR (Gau.) : (2003) 263 ITR 357 (Gau.). The High Court of Calcutta in the case of Binani Cement Ltd. (supra), considered a case where the Tribunal disallowed the expenditure allegedly incurred by the assessee for preparing feasibility study report and capital work-in-progress in the earlier years but written off during the previous year, since the proposed project was abandoned. The Court affirmed the view taken by the CIT(A), where it was held that the company claimed as allowable the expenditure on this abandoned project. While it was found to be unviable, the expenditure on it was for the purpose of business and it was not claimed or allowed earlier as business expenditure because it was of capital nature entitled to depreciation after completion and on commencement of its use for business and that stage having not reached and no asset having come into existence, the capital work-in-progress had to be written off as such. 30. In the case of Asia Power Projects P Ltd. (supra), the High Court of Karnataka held that, if the assessee incurs a liability and when the contract under which that liability was incurred was terminated and when no amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no justifiable ground to dissect one part of the expenditure as revenue expenditure and another part as capital expenditure. As pointed out by the Hon'ble Supreme Court in Empire Jute Co. Ltd. (supra), we cannot take a decision sans facts and the factual position as set out in the preceding paragraph would clearly show that the abandoned project was not a new one and it was a decision taken by the Government after about 12 years after the petitioner was invited to take over the project, which was already in existence, as they were an expert in the same line of business. Therefore, on facts, we find that the CIT(A) was perfectly right in deleting the addition and holding that the expenditure was revenue not capital expenditure. We may point out that the decision in the case of Ideal Cellulura Ltd. (supra) was also a case where the expenditure was incurred to bring into existence a new asset, which is not so in the case on hand. Therefore, the said decision is also distinguishable on facts. 35. In the result, both the tax case appeals are allowed, the order passed by the Tribunal is set aside and the substantial questions of law framed for consideration are answered in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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