TaxTMI 
TaxTMI 
2015 (1) TMI 1024
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....has written off expenditure amounting to Rs. 19,29,010/- in the profit and loss account incurred on seamless steel tube project on the plea that envisaged scheme was not finally approved by the Government of India. However, complete details regarding the scheme and how the scheme was dropped were missing. In view of this, an amount of Rs. 19,29,010/- was added back to the profits of the year. The Assessing Officer found that this amount cannot be treated as revenue expense. Such finding of the Assessing Officer is confirmed by the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal, which has given rise to Tax Appeal No.447 of 2000. 3. In the aforesaid Tax Appeal, following question of law is framed: "Whether, the Income Tax appellate Tribunal was right in law and on facts in deleting the disallowance of Rs. 19,29,010/- being capital expenditure treating the same as revenue expenditure incurred for the expansion of existing business?" 4. Short facts giving rise to Tax Appeal No.2033 of 2009 are as under. 4.1 The assessee had filed original return of income on 29.10.2001 declaring total income of Rs. 54,30,57,988/-. In the case of the assess....
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.... not granted by the Central Government for the envisaged scheme and the same was not finally approved. In that view of the matter, these expenses are required to be shown as revenue expenses and therefore the view taken by the tribunal is just and proper. 8. We have considered the rival submissions on both the sides. While passing the order impugned in Tax Appeal No.447 of 2000, the Income Tax Appellate Tribunal has observed as under: "9. We have heard both the sides and perused the materials on record. Both the authorities below were of the view that the Seamless Steel Tube project is a new line of business of the assessee because the assessee is basically a manufacturer of fertilizers. On that ground the expenditure was not treated as revenue expenditure. In this connection, the assessee has brought on record the memorandum of Association from which we find that the main objects of the assessee company is to carry out business of all types of fertilizers, chemicals, synthetic chemical, byproducts etc. Incidental or ancillary to the attainment of the main objects are to purchase, take on lease, mortgage or exchange hire, or otherwise acquire any movable or immovable property....
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.... giving advantage in revenue field. It was so held in CIT v. Coromandel Fertilizers, 247 ITR 417 (AP) following the decision of the Supreme Court in Empire Jute Co. Ltd. Vs. CIT, 124 ITR 1 (SC). "Once for all" payment test is inconclusive as was pointed out in Alembic Chemical Works Co. Ltd. v. CIT, 177 ITR 377 (SC). Extension of assessee's business could not be treated as an activity, which will disentitle the expenditure for the purpose as was held in Kesoram Industries and Cotton Mills Ltd. v. CIT, 196 ITR 845 (Cal). It is under these circumstances expenditure incurred on CPSU amounting to Rs. 42.53 lakhs by the appellant company may be treated as revenue expenditure and allowed. Since the purpose of the study was identification of new projects for existing business rather than setting up a new business. Whereas the position in respect of new PET business of the appellant company amounting to Rs. 32.03 lakhs is different. PET is a new product the manufacturer of which could be treated as a different business altogether. In E.I.D. Parry (India) Ltd. vs. CIT (2002) 257 ITR 253 (mad), the High Court inferred the same to be different business following the guidelines provided....
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....Seamless Steel Tube Project. In such circumstances, it cannot be said that t is altogether a new business of the assessee company. Considering the facts involved in the present case, in our opinion, the Seamless Steel Tube Project was an expansion of the present business of the assessee which I supported by the objects mentioned in the memorandum of association. However, ultimately the project was given up by the assessee for some reason even otherwise it is a business loss of the existing company. Considering the entire circumstances of the case and the decisions which have been relied upon by the assessee, in our opinion, the Assessing Officer should have allowed the expenditure as revenue expenses." 16. Learned DR has supported the order of the CIT(A). 17. We have considered rival submissions, facts and circumstances of the case and the Tribunal order in assessee's own case for A.Y. 1986-87 and have noticed that similar issue was subject matter of consideration of the Tribunal and was decided in assessee's favour. Relevant part of the order of the Tribunal contained in para 2.3 was reproduced above. Since revenue has not brought any decision contrary to the decisio....
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.... Issue." 12. At this stage, we also deem it proper to refer to relevant observations of the Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax reported in [2012] 343 ITR 89 (SC), which are as under: "10. Under Clause (1) of Explanation (baa), ninety per cent. of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains of Business or Profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and Gains of Business or Pr....
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....omputed under the head "Profits and Gains of Business or Profession", ninety per cent. of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent. of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head "Profits and Gains of Business or Profession", is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the p....