IN THE ITAT MUMBAI BENCH ‘C’
Assistant Commissioner of Income-tax
V/s.
Essar Steel Ltd.
IT APPEAL NOS. 850A/2002 and 4214/A/2003
AND 3228 & 3229/m/2005
[ASSESSMENT YEARS 1998-99 TO 2000-01]
APRIL 4, 2012
ORDER
1. Since all these appeals pertain to same assessee they were heard together. We deem it convenient to pass a consolidated order.
ITA NO.850/A/2002 (A.Y. 1998-99):
2. This is an appeal by the revenue against the order dated 7/1/2002 of CIT(A) 1,Surat relating to assessment year 1998-99. Ground No.1 raised by the revenue reads as follows:
“(1) On the facts and circumstances of the case and in law, the learned CIT(Appeals) has erred in directing to allow expenditure of Rs.2,18,11,65,893/- of HRC Plant as revenue expenses though it was shown in the balance sheet as capital work-in-progress as commercial production had not started.”
3. The assessee is a company. It is engaged in the business of manufacturing of steel. The assessee was manufacturing Hot Briquetted Sponge Iron (HBI) and started a new project for production of HRC (Hot Rolled Coil). The AO noticed that while preparing the balance sheet and P&L Account the assessee had taken the income and expense of HRC Project to capital work-in-progress because commercial production of HRC started after 31/3/1996. However, while filing the return of income the assessee had claimed as revenue expenditure a sum of Rs. 2,18,11,65,893/- According to the assessee it continued its trial production during the previous year and made substantial sales and was entitled to claim the expenses in question as deduction. It is not in dispute that in respect of identical item of expenditure the AO had treated similar expenses as capital expenses because according to the AO the business of HRC project had not commenced. That was in the A.Y 1994-95. For the reasons given in AY 94-95, the AO disallowed the claim of the assessee for deduction of the aforesaid sum.
4. On appeal by the assessee the CIT(A) directed the AO to allow the deduction by following his order in A.Y 1994-95 on the identical issue whereby it was held that HRC Project was nothing but an extension of the existing business of the assessee and that both the business of HBI and HRC were same business.
5. Aggrieved by the order of the CIT(A) the revenue has preferred ground No.1 before the Tribunal.
6. The ld. D.R relied on the order of the AO. The learned counsel for the Assessee brought to our notice that identical issue had come up for consideration before this Tribunal in A.Y. 1994-95 in ITA No.807/MDS/99 and this Tribunal held that the HRC project was an extension of the existing business and therefore revenue expenditure incurred even prior to commercial production have to be allowed as deduction.
7. We have considered the rival submissions. Identical issue had come up for consideration before this Tribunal in A.Y. 1994-95 in ITA No.807/MDS/99 and this Tribunal held as follows:
“2.1.1 Briefly stated the facts of the case are that the assessee who was in the business of production of hot briquetted sponge iron (HBI) had started a new project for production of HRC. During the year the assessee had claimed to have completed construction and erection of plant and machinery for the new project. In the return of income the assessee claimed deduction on account of the following expenses as revenue expenses.
