Would expenditure incurred on feasibility study conducted for examining proposals for technological advancement relating to the existing business be classified as revenue expenditure, where the project was abandoned without creating a new asset?

Would expenditure incurred on feasibility study conducted for examining proposals for technological advancement relating to the existing business be classified as revenue expenditure, where the project was abandoned without creating a new asset?

CIT v. Priya Village Roadshows Ltd. (2011) 332 ITR 594 (Delhi HC)

In this case, the assessee, engaged in the business of running cinemas, incurred expenditure towards architect fee for examining the technical viability of the proposal for takeover of cinema theatre for conversion into a multiplex/ four-screen cinema complexes. The project was, however, dropped due to lack of financial and technical viability. The issue under consideration is whether such expenses can be treated as revenue in nature, since no new asset has been created.

On this issue, the High Court observed that, in such cases, whether or not a new business/asset comes into existence would become a relevant factor. If there is no creation of a new asset, then the expenditure incurred would be of revenue nature. In this case, since the feasibility studies were conducted by the assessee for the existing business with a common administration and common fund and the studies were abandoned without creating a new asset, the expenses were of revenue nature.

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