Abandoned project write-off deductible when no capital asset emerges and the claim arises in the abandonment year.

Feasibility-study expenditure and capital work-in-progress relating to a proposed project that was later abandoned were held deductible in the year of write-off, because no enduring capital asset ever came into existence and the outlay was incurred wholly and exclusively for business purposes. The decisive factor was the year of abandonment: once the project was abandoned and the work-in-progress was not carried forward, the liability to claim the deduction arose in that year. The reasoning was stated to accord with the correspondence between section 10(2)(xv) of the Income-tax Act, 1922 and section 37(1) of the Income-tax Act, 1961.

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Issues: Whether expenditure incurred on feasibility study and capital work-in-progress for a proposed project, later abandoned, was deductible in the year in which it was written off.

Analysis: Expenditure incurred for construction or acquisition of a new facility that is abandoned at the work-in-progress stage does not result in any enduring capital asset and is incurred wholly and exclusively for the purposes of business. The decisive question was whether the deduction could be claimed in the relevant assessment year. Since the project was abandoned in that year, there was no further completion of the work-in-progress, and the decision to abandon the project itself gave rise to the claim for deduction. On that basis, the expenditure arose in the relevant year and was deductible. The principle was reinforced by the correspondence between section 10(2)(xv) of the Income-tax Act, 1922 and section 37(1) of the Income-tax Act, 1961.

Conclusion: The expenditure was allowable in the relevant assessment year and the issue is decided in favour of the assessee.

Ratio Decidendi: Where a project is abandoned before any capital asset comes into existence, the resulting write-off of the related expenditure is deductible in the year in which the abandonment occurs if the liability to claim the deduction arises in that year.

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