Case Law Details
Where the so called new unit set up by the assessee was merely an expansion of its existing business and was not setting up of a new business, the expenses incurred in that regard were allowable as revenue expenses.
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF GUJARAT, IN THE CASE OF: CIT Vs. Ghanashyam Steel Work Ltd., APPEAL NO: Tax Appeal Nos. 553 to 555 of 2009, DECIDED ON May 4, 2010
FACTS OF THE CASE
The assessee is engaged in the business of manufacture of chemical processing equipment. During the years under consideration, the assessee started construction of a new unit in a separate plot, adjacent to its existing unit. For this new unit, the assessee borrowed funds and also collected funds through public issue of equity shares. The assessee incurred expenses of Rs.27,90,138/-, Rs. 19,81,792/- and Rs. 1,05,73,889/- respectively in Financial Years 1995-96, 1996-97 and 1997-98, in relation to the said unit. All these expenses were capitalized in the books of account and shown as pre-operative expenses. However, while filing the returns of income, the said expenses were claimed as revenue expenditure. Since these expenses had been incurred for the new unit which was a separate unit from the existing unit and the new unit had not started production, the Assessing Officer made addition of Rs.17,87,595/-, Rs.19,81,792/- and Rs.1,05,73,889/- for Assessment Years 1996-97, 1997-98 and 1998-99 respectively, treating the same as capital expenditure.
HELD
Thus, both, the Tribunal as well as Commissioner (Appeals), have recorded concurrent findings of fact and come to the conclusion that the so called new unit was merely an expansion of the existing business of the assessee and was not setting up of a new business and as such the expenses incurred in this regard were allowable as revenue expenses. Considering the fact that the Assessing Officer had not considered the claims of each of the items of expenditure incurred by the assessee from the angle as to whether the same were in the nature of revenue or capital expenditure, the matter has been restored to the Assessing Officer to look into the nature of the expenses and consider as to whether the same are allowable under Section 36(l)(iii) or Section 37 of the Act. In the circumstances, no infirmity can be found in the approach adopted by Commissioner (Appeals) as confirmed by the Tribunal so as to warrant interference. No question of law, much less any substantial question of law, can be stated to arise from the impugned order of the Tribunal.
_______ORDER______
1. Since all these three appeals arise out of consolidated order of the Tribunal and involve common questions, the same were taken up for hearing together and are decided by this common judgment. In these appeals, under section 260A of the Income-tax Act, 1961 (the Act), the appellant-revenue has proposed the following questions in relation to Assessment years 1996-97, 1997-98 and 1998-99 respectively:
TAX APPEAL No. 553 of 2009
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law allowing the interest/expenditure of Rs. 140.70 lacs as revenue expenditure incurred for new unit which was a separate unit from existing unit and this new unit had not started production?”
TAX APPEAL No, 554 of 2009
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law allowing the interest/expenditure of Rs. 140.70 lacs as revenue expenditure incurred for new unit which was a separate unit from existing unit and this new unit had not started production?”
TAX APPEAL No. 555 of 2009
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law allowing the interest/expenditure of Rs. 140.70 lacs as revenue expenditure incurred for new unit which was a separate unit from existing unit and this new unit had not started production?”
2. The assessee is engaged in the business of manufacture of chemical processing equipment. During the years under consideration, the assessee started construction of a new unit in a separate plot, adjacent to its existing unit. For this new unit, the assessee borrowed funds and also collected funds through public issue of equity shares. The assessee incurred expenses of Rs.27,90,138/-, Rs. 19,81,792/- and Rs. 1,05,73,889/- respectively in Financial Years 1995-96, 1996-97 and 1997-98, in relation to the said unit. All these expenses were capitalized in the books of account and shown as pre- operative expenses. However, while filing the returns of income, the said expenses were claimed as revenue expenditure. Since these expenses had been incurred for the new unit which was a separate unit from the existing unit and the new unit had not started production, the Assessing Officer made addition of Rs.17,87,595/-, Rs.19,81,792/- and Rs.1,05,73,889/- for Assessment Years 1996-97, 1997-98 and 1998-99 respectively, treating the same as capital expenditure.
3. Being aggrieved, the assessee carried the matter in appeal before Commissioner (Appeals) and succeeded. Revenue challenged the order of Commissioner (Appeals) before the Tribunal, but failed.
4. Learned Senior Standing Counsel for the appellant has assailed the impugned order of the Tribunal and has supported the order made by the Assessing Officer.
5. A perusal of the order made by Commissioner (Appeals) indicates that Commissioner (Appeals) has found that in the facts of the present case the respondent assessee was setting up the new unit for manufacturing the same product which it was already manufacturing and the control of the new unit was under common management in the same business organization. The registered office of both the units was the same and the fund for the two units was substantially common. He, accordingly, held that the process of setting up of the alleged new unit was nothing but expansion of existing business and revenue expenses in respect of the same were allowable. Commissioner (Appeals) found that the Assessing Officer had not considered the allowability of the expenses claimed in this regard from the angle as to whether the same were in the nature of revenue or capital expenses and directed the Assessing Officer to look into the details of expenses in all the three years and consider their allow ability under Sections 36(1) (iii) and 37 of the Act.
6. As can be seen from the impugned order of the Tribunal, the Tribunal has, upon appreciation of the evidence on record, recorded the following findings of fact:
“9. We have heard the learned DR and perused the orders of the lower authorities and the material available on record. In the instant case the assessee is engaged in the business of manufacturing equipments and the assessee has also set up a new unit in an adjacent plot of manufacture of the same product. The AO was of the opinion that this setting up to the new unit tantamount to setting up of a new business and therefore, disallowed the expenditure incurred in connection with the new unit including interest on borrowed capital for the years under consideration. The CIT (A) on the basis of the various decision quoted in his order held that as the assessee was in the same line of business the new unit was an expansion of his business and not setting up of a new business. He also observed that the AO has not considered the individual items of the various expenditure as they are revenue expenditure or capital expenditure. Hence, he restored the issue back to the file of the A O with a direction to allow revenue expenditure. We find that the Revenue could not controvert the findings of the CIT (A) to the effect that the new unit which is being set up by the assessee was the same line of business in which the assessee was already engaged. Thus, we find no error in the decision of the CIT (A) that the setting up of the new unit is in expansion of the already existing business in the hands of the assessee and hence, of the revenue expenditure incurred during the course of carrying of the business is allowable as per the provision of law. We thus, do not find any good reason to interfere with the order of the CIT (A). Hence, the ground of appeal of the Revenue is dismissed.”
Thus, both, the Tribunal as well as Commissioner (Appeals), have recorded concurrent findings of fact and come to the conclusion that the so called new unit was merely an expansion of the existing business of the assessee and was not setting up of a new business and as such the expenses incurred in this regard were allowable as revenue expenses. Considering the fact that the Assessing Officer had not considered the claims of each of the items of expenditure incurred by the assessee from the angle as to whether the same were in the nature of revenue or capital expenditure, the matter has been restored to the Assessing Officer to look into the nature of the expenses and consider as to whether the same are allowable under Section 36(l)(iii) or Section 37of the Act. In the circumstances, no infirmity can be found in the approach adopted by Commissioner (Appeals) as confirmed by the Tribunal so as to warrant interference. No question of law, much less any substantial question of law, can be stated to arise from the impugned order of the Tribunal.
7. The appeals are, accordingly, dismissed.
8. Registry to place a copy of this order in connected matters.
