TaxTMI 
TaxTMI 
2014 (12) TMI 885
X X X X Extracts X X X X
X X X X Extracts X X X X
....e expenses irrespective of the accounting treatment. 2. Disallowance of revenue expenses of Rs. 23,71,00,000 included in CWIP 2.1 The CIT(A)"} erred in law and facts in disallowing the claim of revenue expenditure of Rs. 23,71 ,00,000 incurred in the course of the existing business as incurred on a new line of business and thus capital expenditure. 2.2 The Appellant submits that expenses of Rs. 23,71,00,000 incurred during trial run .period of Cold Rolling Mill should have been allowed as revenue expenses irrespective of the accounting treatment. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of manufacturing and sale of Hot Briquette Iron (HBI), Hot rolled coils (HRC) sheets, plates etc. In the computation of income, the assessee has claimed a sum of Rs. 54,80,00,000/- on account of expenditure during construction period and Rs. 23,71,00,000/-- under the head trial run expenses. Assessee was asked to explain why the expenses mentioned above should not be treated as capital expenditure. The AO disallowed the same by observing that the assessee has to set up a new unit from scratch to manufacture Cold Roll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l purposes." 6. On the other hand, learned DR relied on the orders of the authorities below. 7. We have considered the rival contentions, carefully gone through the orders of the authorities below and found from the record that the assessee is engaged in manufacturing of hot rolled coils, sheets, plates etc. During the course of scrutiny assessment AO found that assessee had incurred capital expenditure for establishing cold rolling plant. Accordingly, the AO disallowed capital expenditure incurred on cold rolling plant after having the following observation :- "The assessee is involved in the manufacture of Hot Rolled Steel. The assessee has started a new line of business by venturing into manufacture of Cold Rolled Steel. This is a totally new process and technology entirely different from the one followed by the assessee in its earlier business. Under no circumstances can it be considered as an extension of its existing business. The assessee has to set up a new unit from scratch to manufacture Cold Rolled Steel. It has to acquire profit making assets like building, plant and machinery etc. and incur capital expenditure for setting up its new unit. The expenses incurred for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 23.71 crores under the head trial run expenses as Revenue expenditure. There is no dispute that the expenditure incurred by the assessee on account of salary, wages, power charges, repair maintenance, professional fees etc. are prior to the date of setting up of plant and machinery so acquired by the assessee. The contention of the assessee for claiming the said expenditure as revenue is that since the expenditure has been incurred for expansion of the existing business and capacity of manufacturing, therefore, it is an allowable revenue expenditure. It is pertinent to note that the question as to whether a particular expenditure is capital or revenue has to be decided by considering the purpose for which the expenditure is laid out. In the case in hand though the expenditure has been incurred on account of salary, wages, power charges, repair maintenance, professional fees etc. but the same is with respect to a new plant and machinery acquired by the assessee and before the same is put to use. Therefore, the expenditure in question was incurred for bringing a new asset into existence. The Hon'ble Supreme Court in the case of Dalmia Jain and Co. Ltd. Vs. CIT, reported in 81 ITR 7....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... our view, it is not really material to decide whether the project at Rajasthan should be viewed as establishing a new business by the assessee or as an extension of its existing business. This fact may be relevant in the circumstances of a given case, but is not so in the present case, because it is an accepted position that if the assessee were to set up its unit at Rajasthan, it would have to acquire land, plant and machinery and incur capital expenditure in that connection for setting up its unit at Rajasthan. The project report which the assessee obtained from Messrs. Dorr Oliver (India) Ltd. was for the purpose of setting up such a unit at Rajasthan. In other words, the expenditure incurred for the project was incurred by the assessee-company in order to decide whether to acquire some profit-making assets for the purposes of is business which would be of an enduring nature. The expenses incurred for the project report have, therefore, to be viewed as being capital in nature. Simply because the assessee had a running business of manufacturing fertilisers, it cannot be said that the expense for obtaining such a project report was a part of the expenses incurred by the assessee ....