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TMI BlogJudgement on Feasibility Study Costs on Project Development: Revenue or Capital Expenditure?X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred for feasibility studies related to potential new projects by a cinema business. The assessee, engaged in operating cinemas, planned to expand by converting existing single-screen cinemas into multiplexes. Specifically, the projects involved Savitri Cinema and Priya Cinema. These expansion plans were abandoned after feasibility studies deemed them financially and technically unvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibility studies did not result in the creation of any new capital assets and thus should be treated as revenue expenditure. Court s Analysis Substantial Question of Law The primary question was whether the expenses incurred for feasibility reports on projects that were ultimately abandoned should be treated as capital or revenue expenditure. Reference to Precedents The Court referred to several pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riya Cinema) were ultimately abandoned, and no new capital assets were created. The intention behind the feasibility studies was to expand the existing business, not to start a new business. Harmonious Reading of Judgements A harmonious reading of the aforesaid judgments clearly demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. The Court emph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MILLS LTD. VERSUS COMMISSIONER OF INCOME-TAX - 1987 (9) TMI 425 - RAJASTHAN HIGH COURT , COMMISSIONER OF INCOME-TAX VERSUS MODI INDUSTRIES LIMITED - 1992 (10) TMI 74 - DELHI HIGH COURT which supported treating similar expenditures as revenue expenditure. Concluding Remarks The Delhi High Court dismissed the Revenue's appeal, affirming the ITAT s decision. The Court concluded that expenses incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere created. Therefore, it concluded that these expenses should be classified as revenue expenditure, aligning with precedents and emphasizing the nature and purpose of the expenditure. Full Text : 2009 (8) TMI 765 - Delhi High Court - FAQ - Frequently Asked Questions, TMI Short Notes , Experts comment, opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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