TaxTMI 
TaxTMI 
TaxTMI 
2013 (9) TMI 81
X X X X Extracts X X X X
X X X X Extracts X X X X
....n expansion of the project, holding that the said expenditure was incurred in the earlier assessment year and did not pertain to the assessment year 1998-99. The Assessing Officer also disallowed depreciation of Rs. 55,74,831 claimed on thermopac machine, holding that the capital work-in-progress incurred by the assessee for expansion-cum-diversification project includes machinery called thermopac machine installed in the site during the assessment year 199798 ; the machinery was sitting idle as the project was abandoned by the assessee. Therefore, the assessee is not entitled for depreciation on such machinery since such machinery was not used by the assessee during the assessment year 1998-99. The assessee filed an appeal before the Commissioner of Income-tax (Appeals) against these disallowances. The Commissioner of Income-tax (Appeals) vide his order dated October 10, 2001 deleted the disallowance of Rs. 13,94,779 made towards prior period expenses. However, he sustained the disallowance of depreciation on thermopac machine. The assessee carried on the matter further to this Tribunal against the disallowance of depreciation sustained by the Commissioner of Income-tax (Appeals).....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome-tax (Appeals) also confirmed the disallowance of depreciation on thermopac machine as the said machinery was not put into use by the assessee and further held that the assessee could not controvert the view of the Assessing Officer that an asset not ready for use can claim the beneficial interpretation of passive use for claiming depreciation. Against this order of the Commissioner of Incometax (Appeals), the assessee is in appeal before us. Counsel for the assessee submits that the Assessing Officer went beyond the directions of the Tribunal while disallowing the entire expenditure of Rs. 43,88,823. Counsel for the assessee submits that in the original assessment, the Assessing Officer disallowed expenditure of Rs. 13,94,779 on the ground that this expenditure pertains to prior period and the Assessing Officer himself had allowed Rs. 29,94,044 as allowable expenditure for the assessment year 1998-99. Counsel for the assessee submits that this Tribunal has remitted the matter to the file of the Assessing Officer only to examine the admissibility of the expenditure of Rs.13,94,779 which was originally disallowed by the Assessing Officer but not the entire expenditure of Rs. 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....98 for expansion of new project and this project was later abandoned in the year 1999. In an identical situation, the hon'ble jurisdictional High Court in the case of E. I. D. Parry (India) Ltd. v. CIT [2002] 257 ITR 253 (Mad) has held as under : "It is clear from the assessee's own case that the expenditure was incurred for the purpose of setting up a new project. The expenditure had been incurred in the years prior to the assessment year in question. The assessee's case that it subsequently abandoned that project does not on that score convert what was an expenditure in the nature of capital expenditure into a revenue expenditure. The setting up of a new project was clearly in the capital field and not in that of revenue. The abandonment of that project is the abandonment of a project on which capital expenditure had been incurred. The expenditure incurred on that capital project was not something which could be regarded as revenue expenditure laid out exclusively and wholly for the purposes of business of the assessee as what the assessee was trying to start was a new business for the manufacture of a new product. The expenditure incurred therein was clearly capital expenditure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h the assessee itself thought would no longer be beneficial to pursue. Such expenditure incurred by it for a new project which was in the nature of capital expenditure remains such, and by claiming it in a subsequent year as revenue expenditure, the assessee cannot convert what was capital expenditure into revenue expenditure." In view of the above decision of the hon'ble jurisdictional High Court, we hold that the expenditure incurred by the assessee on the new project as capital in nature. The Assessing Officer is directed to restrict to the disallowance to Rs. 13,94,779 only as against Rs. 43,88,823 made in the consequential assessment order. With regard to the disallowance of depreciation on thermopac machine, counsel for the assessee submits that depreciation is allowable on the machinery which was installed and it was used for the business of the assessee even though the project could not take off due to various factors. Counsel for the assessee, relying on the decision of the hon'ble Supreme Court in the case of CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308 (SC), submits that once the machinery is used for the purpose of business of the assessee, depreciation has to be a....