TaxTMI 
TaxTMI 
2016 (11) TMI 391
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.... developing a resort and lease rent was being regularly paid. For constructing the resort, change of land was approved by Municipal Council, Pushkar and by the Senior Town Planner, Ajmer and hence work was started. However, in the year 2010, new rules were made effective and were received from the Senior Town Planner stating that a new s. 90A for change of land use and regarding the road width for a resort by the Government Authorities. Due to this all, the assessee again applied for change of land use as per the new s. 90A. Accordingly, the expenses incurred of Rs. 45,12,111/- on this project were written off as revenue expenditure. The claim of the assessee however did not find favour with the Assessing officer as well as with the ld CIT(A). Hence, the present appeal before us. 2.1 We now refer to the findings of the ld. CIT(A) which is reproduced as under: "I have considered the contentions of the appellant as well as assessment order. It is seen that the assessee has claimed to have invested 45,l2,111/- on the leased land of the director of the assessee company for establishing a all together new project i.e. a Resort. The expenses were incurred between the years 20....
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....ndo Rama Synthetics India Ltd. vs. CIT 333 ITR18 Lake Palace Hotels and Motels Pvt. Ltd. vs. CIT 213 ITR 735 (Raj) Your honour in the aforesaid judgment the Rajasthan High Court held that the dismantling charges incurred by the assessee are capital in nature particularly when the new construction was done either in the year or in the succeeding years whereas, the appellant has already started the new project with amended rules of Rajasthan Govt. Hence this ruling is in favour of the appellant. Copies of sanctioned letter and copy of receipt of charges are attached herewith. That without prejudice to above the total expenses includes expense of Rs. 15,00,000/- are of lease rent which was paid year to year and the rent was duly taxed in the hands of owner of the land year to year. That the lease rent paid are revenue expenditure and there is no enduring benefit. I rely on the following ruling: Band & Plantations and Ind. Ltd. vs CIT 242 ITR 22. Cit VS BPL Systems and Project Ltd. 227 ITR 779. That as regards the second ground I have to submit that although the expenses incurred in previous year but due to Government orders which w....
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.... progress, the expenditure does not result in advantage of enduring nature and such expenditure, when written off, has to be allowed u/s 37 of the Income Tax Act, 1961 and therefore, our case is directly covered by the said decision, wherein, it was held that "Business expenditure-Allowability-Tribunal disallowed expenditure allegedly incurred by assessee for preparation of feasibility study report and capital-work-in-progress in earlier years, which written off during previous year corresponding to assessment year 2002-03 since proposed project was abandoned-Held, facts of present case were covered in case of CIT vs. Graphite India Ltd. (1996) 221 ITR 420 (Cal) wherein it was held that expenditure made for construction/acquisition of new facility subsequently abandoned at work-in-progress stage was allowable as incurred wholly or exclusively for purpose of assessee's business-Further there would have been no occasion to claim deduction if work-in-progress had completed its course- Because project was abandoned work-in-progress did not proceed any further-Decision to abandon project was cause for claiming deduction-Said decision was taken in relevant year-It can therefore ....
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....a Jain & Co. vs. CIT (1971) 81 ITR 754 (SC) it was held that "In deciding whether a particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was in curred to create any new asset or was incurred for maintaining the business of the company. If it is the former, it is capital expenditure. If it is the latter, it is revenue expenditure." 3.4 In CIT vs. Pioneer Engg. Syndicate (1988) 38 Taxman 151 (Mad) it was held that "It would not be enough to merely ascertain whether a particular expenditure has resulted in any advantage of an enduring character. The advantage must be in a commercial sense and, further, it must be in capital field. If there is a payment made on the ground of commercial expediency and if such payment does not result in the acquisition of any capital asset or an enduring benefit, merely because such payment is made to get rid of the liability which is much larger, the outgoing amount cannot be considered as capital in nature." 4. Past history distinguishable and not binding: 4.1 In the earlier years the expenditure incurred was kept under the head work in progress, which is n....
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....ssessee" 5. The expenses incurred for the purpose of same business: 5.1 The authorities below have also raised an objection that the subjected expenditure was not incurred for the purpose of business. The ld. CIT(A) has held that such expenditure could not have been given the benefit of set off against the income from job work business of the assessee. However, the authorities below have not appreciated the settled legal position in as much as it was a case of complete interconnection, interlacing and interdependence between the old business biscuit division and the new business of Resort. The law is well settled that if there exist the interconnection, interlacing and interdependence the AO has not made out that the Biscuit division was entirely separate from the Resort. Infact, both these divisions are under the same management-control (there was a common board of directors) both the divisions. Further, there were common funds and both are financially interconnected. The accounting was common. All these facts are clearly evident from the Audited Balance Sheet. 5.2.1 Further the Hon'ble Rajasthan High Court in the case of Maharaja Shri Umaid Mills Ltd. vs. CIT (1989) 1....
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....usiness and was rightly allowed as deduction under s. 36(1)(iii) Held: The Tribunal found as a fact that there was a common board of directors controlling the ferro alloys plant as well as the sugar plant which operated from the head office located at Delhi, funds for the two plants were common and hence, there was intermingling and interlacing of funds as also the fact that even though the two divisions were geographically located at different sites, marketing of the final products was carried out under the supervision and control of the same set of executives at the head office. Thus, there is no difficulty in holding that the sugar plant and the ferro alloys plant were in the same fold of business. 5.2.4 In Jay Engineering Works Ltd. vs. CIT (Del) (2009) 311 ITR 0405/ (2008) 166 Taxman 0115 it was held that "The nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be distinct. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or admini....
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....ase and this aspect is also directly covered by the case of Graphite (Supra) wherein, it was held: "11. Following the judgment in the case of Gajapathi Naidu (supra) the question to be asked is when did the expenditure claimed by way of deduction arise? There would have been no occasion to claim the deduction if the work- in-progress had completed its course. Because the project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year." 7. Lease paid is revenue expenditure: 7.1 Further there can be a least doubt that annual lease paid totaling to Rs. 15,00,000/- by the assessee this year and in the past, is a revenue expenditure. Such expenditure does not bring into any new asst into existence nor any advantage of enduring nature and hence fully allowable u/s 37(1) of the Act. Even where, the assessee made an attempt to claim depreciation on expenditure incurred on leasehold land by taking help of Explanation 1 to s. 32(1), the same was denied in the case ....
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....ta High Court in the case of Benani Cement Ltd. (supra) and Graphite India Ltd. (supra) directly supports the case of the assessee. Further, in respect of whether there is complete inter connection, interlacing and interdependence between the biscuit division and the new business relating to development of resort, the ld. AR has submitted that both these divisions are under the same management control, having common funds and financially and economically are interconnected. The said facts remain uncontroverted before us. The decision of Hon'ble Delhi High Court in case of Jay Engineering Works Ltd. (supra) directly supports the case of the assessee wherein it was held that "the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be distinct. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity. However, the funds utilized for the management of bo....