Capital expenditure on projects under construction is not deductible where costs cannot be reliably separated from asset creation.

Administrative expenses incurred on projects under construction and shown as work-in-progress were treated as capital in nature where the assessee could not produce a reliable basis to separate project from ordinary administration. Because the expenditure formed part of the cost of creating the under-construction assets and conferred an enduring advantage, it was not allowable as revenue expenditure. The principle applied was that expenses inseparably linked to the creation of an enduring asset are capital expenditure and are therefore not deductible as revenue outgo.

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Issues: Whether administrative expenses incurred on projects under construction and shown as work-in-progress were admissible as revenue expenditure or were capital in nature.

Analysis: The expenditure related to hatcheries and other projects that were still under construction. The assessee failed to maintain or produce a reliable basis for bifurcating the expenses between capital work and regular business administration. On the facts found, the expenditure formed part of the cost of projects under construction and conferred an enduring advantage on the assessee-corporation.

Conclusion: The administrative expenses were capital expenditure and were not allowable as revenue expenditure.

Ratio Decidendi: Expenditure incurred on projects under construction, which cannot be satisfactorily segregated from the cost of creating an enduring asset, is capital in nature and not deductible as revenue expenditure.

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