2016 (8) TMI 202

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....enditure incurred by the assessee for the trial run. 2. At the time of admitting this Appeal, following question of law was framed:- "(i) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in treating the trial run expenditure incurred by the appellant in the process of expansion of its existing manufacturing facilities as capital expenditure?" 3. Mr.B.S.Soparkar, learned advocate for the appellant submitted that the assessee has increased its installed capacity of the tile manufacturing plant from 35000 MT to 42000 MT by installing balancing equipments. He submitted that the commercial production of this unit commenced w.e.f. 1.8.1993. Trial run before declaring the expansion took almo....

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....his appeal may be dismissed. 5. We have heard learned counsel appearing for both the sides. We have also perused the material on record as well as the impugned order. We have also gone through the judgments relied upon by the learned advocates. In Commissioner of Income-tax (supra), the assesseecompany had an existing unit manufacturing glass at Baroda. For establishing a new glass manufacturing unit at Bangalore, the company incurred certain expenditure in the relevant years. The said unit did not go into production during the year in question. During the course of the assessee's assessment to income-tax, the ITO, inter alia, held that the Bangalore unit was not a branch of the assessee's factory and that it was, therefore, a new ....

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....all these circumstances, it was held that the factory at Bangalore did not constitute a new business but was only an establishment of a new unit of the existing business and that the amounts in question were allowable as revenue expenditure. While deciding this matter, the Court has also considered the decision rendered in the case of Challapalli Sugars Ltd. (supra). 5.1 In Gujarat Small Scale Industries Corprn. Ltd. (supra), this Court observed as under:- "6. If the expenditure was incurred before the commencement of the production, the matter might have stood on a different footing. The combined effect of these factors impels one to the conclusion that the expenditure was in the nature of revenue. The assessee-Corporation was carrying ....

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....elf and that both the lines of business constituted the "same business" of the assessee-company. In the present case, it is not necessary to go that far. The assessee-company was already engaged in manufacturing activities and it had started only a new line of production, namely, production of scooters, and the e expenditure incurred was not in connection with the plant or machinery established in order to produce the scooters. It was incurred in connection with the testing of the product and not in connection with the testing of the machinery or plant installed in order to manufacture the product. The decision in CIT v. Saurashtra Cement & Chemical industries Ltd., (Income-tax Reference No. 26 of 1973 decided on August 25, 1975-[1981] 127 ....