2007 (5) TMI 170

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....pes of iron rods. The assessee used to procure the raw material, that is, billets from the open market. The assessee decided to manufacture the raw material on its own and for this purpose it set up a Steel Melting Shop. In the course of setting up the Steel Melting Shop, the assessee incurred substantial expenditure and this was shown by the assessee in its books as capital expenditure incurred. The assessee also filed its returns on this basis. 3. Later the assessee filed revised returns wherein it claimed that the expenditure was revenue expenditure having been incurred for the expansion of its business. On this basis, the assessee claimed a deduction. The Assessing Officer did not accept the view canvassed by the assessee primarily o....

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....turn claiming the amount as a revenue expenditure incurred in connection with the expansion of its existing business. 7. What is to be considered for deciding whether there is an expansion of an existing business or not was before the Calcutta High Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Income-tax, [1992] 196 ITR 845. One of the considerations would be the purpose of the expenditure and its object and effect. If expenses are incurred in setting up a new business, it would be an expenditure incurred on capital account but where it does not amount to the starting of a new business, the expenses in connection therewith would be revenue expenses. In Kesoram Industries Cotton Mills Ltd. v. CIT [1992] 196 ITR 845.....