Intermarket India Private Limited Vs DCIT (ITAT, Mumbai)
When the Factory Stays on Paper, the Write-Off Turns Revenue: ITAT Allows Abandoned Bharuch Project Cost u/s 28/37
Facts: A Towel Unit That Never Took Off
Intermarket India Pvt. Ltd., a textile manufacturer & trader, proposed a towel-manufacturing facility at Bharuch, Gujarat, as an expansion. It required governmental permissions, particularly approval for water procurement. The assessee incurred ₹3,05,80,830 on architectural services, drawings, permissions, excavation, civil work, fencing, electrical consultancy, plant design & professional fees, accumulated as capital work-in-progress (CWIP).
The water-supply approval was not granted. Consequently, the manufacturing facility never became operational, the project was abandoned & the CWIP was written off in the profit & loss account for AY 2013-14. The assessee claimed the amount as business expenditure u/s 28/37, asserting that the proposed unit represented expansion of the same textile business & produced neither a completed asset nor an enduring benefit.
The AO disallowed the claim as capital expenditure, reasoning that abandonment could not change its character & section 37(1) excludes capital expenditure. The CIT(A) affirmed, stressing the assessee’s capitalisation, civil & site-development work, & the matching principle. The assessee appealed.
Core Issue: Capital Intent or Revenue Reality?
The issue was whether abandoned-project expenditure recorded as CWIP remained capital expenditure, or was deductible where the project expanded an existing business & no asset emerged. The Tribunal had to distinguish a new profit-making apparatus from expansion of an existing business.
