Case Law Details
Issue- Whether the Tribunal substantially erred in law in disallowing the expenditure allegedly incurred by the assessee for preparation of the feasibility study report and capital-work-in-progress in the earlier years, but written off during the previous year corresponding to the assessment year 2002-03 since the proposed project was abandoned?
Mr. Bajoria, learned Senior Advocate, appearing for the appellant submitted that the question is partly covered by the decision in CIT Vs. Graphite India Ltd. reported in (1996) 221 ITR 420 (Cal). The relevant question referred by the Tribunal to this court in that case was whether in the facts and circumstances of that case, the Tribunal was justified in holding that the expenditure incurred for the assessee’s proposed petro-chemical project was revenue expenditure and to be allowed as a deduction? This court in answering the question, held as follows:-
“So far as question no.4 is concerned, the Tribunal recorded the finding that the assessee spent an amount of Rs. 56,665 as project expenditure. The expenditure represented fees paid to Engineering India Ltd. in connection with the petrochemical project report. The amount was paid by the assessee in order to explore the possibility of setting up of a petro-chemical project which could provide a captive plant for manufacture of raw material at the assessee ’s own factory which would help the assessee in getting continuous supply of raw material even during periods of acute shortage. In fact, the project did not materialise. The Income-tax Officer as well as the Commissioner of Income-tax (Appeals), therefore, held that the expenditure was capital in nature. However, the Tribunal found that the expenditure did not result in bringing into existence any capital asset of enduring in nature. The Tribunal further found that the decision of the Calcutta High Court in the case of Hindusthan Aluminium Corporation Ltd. v. CIT [1986] 159 ITR 673 was applicable and following that decision held that the expenditure was allowable as incurred wholly and exclusively for the purpose of the assessee ’s business. Therefore, the Tribunal deleted the disallowance. The case relied upon by the Tribunal was subsequently followed in the case of Asiatic Oxygen Ltd. v. CIT [1991] 190 ITR 328 (Cal). This court in the said case reiterated the view taken in Hindusthan Aluminium Corporation Ltd. ’s case [1986] 159 ITR 673 (Cal).
According to us, question no.4 in this reference stands concluded by the aforementioned two decisions. We, accordingly, answer question no.4 in the affirmative and in favour of the assessee and against the Revenue.”
Mr. Bajoria further relied on two decisions of the Supreme Court being respectively the decision in CIT Madras Vs. Gajapathy Naidu reported in (1964) 53 ITR 114 (SC) and CIT Madhya Pradesh Nagpur and Bhandara Vs. Swadeshi Cotton and Flour Mills Pvt. Ltd. reported in (1964) 53 ITR 135 (SC). In Gajapathy Naidu on the question of power of the Income Tax Officer to relate back an income the Apex court was of the following view:-
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