Krishah Bharti Co-op. Ltd., V. JCIT, Spl.Range-12,

ITA 1021/DEL/2000

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74376 (ITAT-DELHI)
• Duration Of Justice: 14 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-12-2013
• Assessment Year: 1996-1997
• Appeal Filed On: 08-03-2000
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH VERMA
• Keywords: Business income; Depreciation; Business expenditure; Competent authority; Revenue expenditure; Capital expenditure
• Section: 37(1); 32

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI G. D. AGARWAL, HONBLE VICE PRESIDENT AND SHRI A. T. VARKEY, JUDICIAL MEMBER I TA NO. 1021 /DEL/ 2000 (ASSESSMENT YEAR: 1996 - 97 ) KRISHAK BHARATI COOPERATIVE LTD. , 49 - 50, RED ROSE HOUSE, NEHRU PLACE, NEW DELHI - 110019 VS. JT. COMMISSIONER OF INCOME TAX, SPECIAL RANGE 12, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : K.V.S. R. KRISHNA, CA RESPONDENT BY: YOGESH VERMA, CIT DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - X, NEW DELHI DATED 01.11.1999 FOR THE ASSESSMENT YEAR 1996 - 97 . 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. THE LD ASSESSING OFFICER HAS DISALLOWED AND T HE CIT(A) - X HAS ALSO ERRED IN CONFIRMING AND NOT ALLOWING THE DEPRECIATION OF RS. 2,15,487/ - ON THE BUILDING USED AS GUEST HOUSE BY INVOKING SECTION 37(4)(I) IN GENERAL INSTEAD OF ALLOWING THE SAME UNDER SPECIFIC SECTION 32 OF THE INCOME TAX ACT, 1961, WHI CH IS RELEVANT AND APPLICABLE. 2 (A) . THE LD CIT(A) - X HAS ERRED IN CONFIRMING THE ORDER OF THE A.O IN NOT INCLUDING IN THE COMPUTATION OF ELIGIBLE PROFITS FOR DEDUCTION U/S 80 I IN THE COMPUTATION OF ELIGIBLE PROFITS FOR DEDUCTION U/S 80I, THE FOLLOWING IT EMS: INTEREST RECEIVED FROM EMPLOYEES OF RS. 1,96,09,604/ - AND 20% THEREOF (AS WITHOUT THE EMPLOYEES OF THE HAZIRA FACTORY PRODUCING 2700 M.T. PER DAY OF AMMONIA AND 4400 M.T. OF UREA, CANNOT BE RUN WHICH IS ADMITTEDLY THE RELEVANT INDUSTRIAL UNDERTAKING E ARNING PROFITS AND GAINS. 2(B) . THE LD CIT(A) HAS ERRED IN NOT INCLUDING IN THE COMPUTATION OF ELIGIBLE PROFITS RECEIPT OF SERVICE CHARGES WORKING U/S 80I OF RS. 7,77,84370/ - BEING THE AMOUNT RECEIVED FROM HEAVY WATER BOARD OF THE DEPARTMENT OF ATOMIC ENE RGY, GOVERNMENT OF INDIA IN TERMS OF AN AGREEMENT WITH THE APPELLANT AND THE HEAVY WATER BOARD. SERVICE CHARGES FORMS PART OF THE INDUSTRIAL ACTIVITY HAS NOT BEEN UNDERSTOOD AND NOT ALLOWED BY BOTH THE A.O AND THE CIT(A), SINCE SUBSTANTIAL PRODUCTION OF AM MONIA AND OTHER GOODS ARE SUPPLIED ON A DAY TO DAY BASIS TO THE FACTORY MANUFACTURING HEAVY WATER. 2(C) . THE LD CIT(A) - X HAS ERRED IN CONFIRMING DISALLOWANCE OF THE CLAIMS OF THE APPELLANT FOR INCLUSION IN THE COMPUTATION OF DEDUCTION U/S 80I OF THE FOLLO WING: - PAGE NO. 2 RS. A. EQUIPMENT HIRE CHARGES 11,16,366/ - B. CRANE HIRE CHARGES 6,80,090/ - C. AMMONIA TANK WAGON HIRE CHARGES 1,21,67,726/ - TOTAL 1,39,64,182/ - 2(D). THE LD CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF THE CLAIM OF THE APPELLANT FOR INCLUSION IN TH E COMPUTATION OF DEDUCTION U/S 8 0I OF THE GUEST HOUSE RECEIPT (BEING NET OF GUEST HOUSE EXPENSE OF RS. 1,87,229/ - . 2(E) THE LD CIT(A) HAS ERRED IN NOT INCLUDING IN THE COMPUTATION OF ELIGIBLE PROFITS FOR DEDUCTION U/S 80I OF THE INTEREST IN COME OF RS. 79,14,60,573/ - FROM BANKS ON VARIOUS DEPOSITS WHICH WERE HELD BY THE APPELLANT WITH THE BANKS DIRECTLY MADE OUT OF SALE PROCEEDS ONLY BASED ON THE POLICY FOLLOWED BY THE APPELLANT AS PER THE TERMS OF CENTRAL GOVERNMENT AS PER THE ADVICE BY THE BUREAU OF PUBLIC ENTERPRISE. 3.(A) THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS FOR NOT ALLOWING THE CLAIM OF RS. 2,61,05,321/ - INCLUDED UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES INCURRED ON VARIOUS CONSULTANTS FOR FEASIBILITY STUDIES, ETC. BESIDES R ELATED EXPENSES, FOR ASCERTAINING THE BEST UTILIZING OF THE EXISTING SURPLUS FUNDS OUT OF THE PRESENT BUSINESS INCOME. THIS CLAIM SHOULD HAVE BEEN ALLOWED AS REVENUE EXPENSES AND IT IS OF AN ANTENATAL NATURE AND ALSO IT IS THE UTILIZATION OF THE EXISTING B USINESS INCOME, PROFITABLY AND EFFECTIVELY. 3.(B) THE LD CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE FEES OF RS. 26105321/ - WAS FOR THE UTILIZATION OF THE EXISTING BUSINESS INCOME, PROFITABLY AND EFFECTIVELY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED . 4. THE LD A.O. HAS ERRED AND THE LD. CIT(A) - X HAS ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234C OF RS. 46,37,670/ - WHICH IS WRONG AND BAD IN LAW AND THERE IS NO SPEAKING ORDER EVEN OTHERWISE BY THE A.O. THEREFORE, IT IS NULLITY. 5. THE ORDER OF THE A.O AND THE CIT(A) HAS BEEN MADE ON A ROUTINE MANNER, DISREGARD OF THE PROVISIONS OF THE FACTS SUBMITTED, CASE LAWS SUBMITTED, APPLYING VARIOUS JUDGMENTS IN THE SITUATIONS FOR DEDUCTION GIVEN IN WRITING, TREATED IN A MECHANICAL WAY WITHOUT APPLICATION OF PROPER MIND AND CONSEQUENT DISALLOWANCE OF THE CLAIMS ARE WRONG AND BAD IN LAW. IT IS ALSO CONTENDED THAT THE LD. CIT(A) HAS DEALT WITH THE HUGE CLAIM OF THE APPELLANT IN RESPECT OF DEDUCTION 80I VERY LIGHTLY AND HAS DISPOSED OF THE GROUND IN A SMALL PARAGRAPH (PAGE 3 PARA OF THE CIT(A) ORDER. THE ORDER OF LD CIT(A) IS NOT A SPEAKING ORDER AND HAS BEEN DONE IN A MECHANICAL WAY WITHOUT PROPER APPLICATION OF MIND AND FACTS TO THE CLAIMS AND CONSEQUENT CONFIRMATION BY CIT(A) OF THE DISALLOWANCE IS WRONG AND BAD IN LAW. 6. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 7. THE APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD, ALTER, AMEND OR FOREGO ANY OF THE GROUNDS AT THE TIME OF HEARING. 3. APROPOS GROUND NO. 1 IN RESP ECT OF DISALLOWING DEPRECIATION FOR BUILDING USED AS GUEST HOUSE. 4. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A MULTI STATE CO - OPERATIVE SOCIETY SUBSTANTIALLY OWNED BY THE GOVERNMENT OF INDIA REGISTERED UNDER THE MULTI PAGE NO. 3 STATE CO - OPERATIVE SOCIETIES ACT, 1984, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZERS SUCH AS UREA AND AMMONIA AT ITS PLANT AT HAZIRA IN GUJARAT. THE ASSESSEE ALSO DOES TRADING OF OTHER FERTILIZERS ON BEHALF OF GOVERNMENT OF INDIA. THE ASSESSEE CLAIMED DEPRECIATION OF RS. 2,15,487/ - ON THE BUILDING USED AS GUEST HOUSE UNDER SECTION 32 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) WHICH WAS DISALLOWED BY THE ASSESSING OFFICER BY INVOKING SECTION 37(4)(1 ) OF THE ACT . AGGRIEVED BY THE SAID DISALLOWANCE OF DEPRECIATION, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHO CONFIRMED THE SAME. AGGRIEVED BY THE SAID IMPUGNED ORDER ASSESSEE IS BEFORE US. 5 . AT THE OUTSET THE LD AR WAS FAIR AND CANDID TO ACCEPT THAT THIS GROUND WAS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF BRITANNIA INDIA LIMITED VS. CIT (2005) 278 ITR AND THEREFORE IT WAS NOT PRESSED. IN THE SAID CIRCUMSTANCES THIS GROUND OF APPEAL STANDS DISMISSED. 6 . AP ROPOS GROUND NO. 2(A) WHICH IS IN RESPECT TO NOT INCLUDING THE INTEREST RECEIVED FOR ANY EMPLOYEES IN COMPUTATION OF ELIGIBLE PROFITS FOR DEDUCTION U/S 80I OF THE ACT. 7 . BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A MULTI STATE CO - OPERATIVE SOCIETY S UBSTANTIALLY OWNED BY THE GOVERNMENT OF INDIA REGISTERED UNDER THE MULTI STATE CO - OPERATIVE SOCIETIES ACT, 1984, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZERS SUCH AS UREA AND AMMONIA AT ITS PLANT AT HAZIRA IN GUJARAT. THE ASSESSEE ALSO DO ES TRADING OF OTHER FERTILIZERS ON BEHALF OF GOVERNMENT OF INDIA. THE ASSESSEE WAS ENTITLED TO CLAIM U/S 80I OF THE ACT IN RESPECT OF ITS MANUFACTURING ACTIVITY. WHILE COMPUTING THE ELIGIBLE DEDU CTION THE ASSESSEE HAD INCLUDED : (I) INTEREST INCOME FROM EMPLOYEES ON ADVANCE GIVEN TO THEM, WHICH WAS NOT ALLOWED BY THE AO. AGGRIEVED BY THE SAID ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE IS BEFORE US. 8 . AG AIN THE LD AR WAS FAIR AND CANDID TO ADMIT THAT THIS ISSUE HAS BEEN COVERED AGAINST THE ASSESSEE BY THE HONBLE DELHI HIGH COURT REPORTED (2008) 300 ITR 92 DATED 15.11.2006 WHEREIN IT WAS HELD THAT THE INTEREST ON LOANS TO EMPLOYEES, WOULD NOT BE ENTITLED TO SPECIAL DEDUCTION U/S 80I OF THE ACT. 9 . APROPOS GROUND NO. 2(B), SERVICE CHARGES RECEIVED FROM HEAVY WATER BOARD OF THE DEPARTMENT OF ATOMIC ENERGY, GOVT. OF INDIA U/S 80I. PAGE NO. 4 10 . BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A MULTI STATE CO - OPERATIVE SOCIETY SUBSTANTIALLY OWNED BY THE GOVERNMENT OF INDIA REGISTERED UNDER THE MULTI STATE CO - OPERATIVE SOCIETIES ACT, 1984, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZERS SUCH AS UREA AND AMMONIA AT ITS PLANT AT HAZIRA IN GUJARAT . THE ASSESSEE ALSO DOES TRADING OF OTHER FERTILIZERS ON BEHALF OF GOVERNMENT OF INDIA. THE ASSESSEE WAS ENTITLED TO CLAIM U/S 80I OF THE ACT IN RESPECT OF ITS MANUFACTURING ACTIVITY. WHILE COMPUTING THE ELIGIBLE DEDUCTION THE ASSESSEE HAD INCLUDED SERVICE CHARGES RECEIVED FROM HEAVY WATER BOARD OF THE DEPARTMENT OF ATOMIC ENERGY, GOVT. OF INDIA WHICH WAS NOT ALLOWED BY AO. AGGRIEVED BY THE SAID ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO CONFIRM THE ORDER OF AO. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE ASSESSEE IS BEFORE US. 11 . AT THE OUTSE T THE LD AR POINTED OUT THAT IN ASSESSEES OWN CASE REPORTED IN (2013) 358 ITR 168 THE HONBLE DELHI HIGH COURT HAS FAVOURED THE ASSESSEE AND THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. IN THE AFORESAID ASSESSEES OWN CASE THE HONBLE DELHI HIGH COURT HELD AS FOLLOWS: - THEREFORE, WE FEEL THAT AS THE ISSUE OF OWNERSHIP IS IRRELEVANT, THE SERVICE CHARGES RECEIVED BY KRIBHCO FROM THE HEAVY WATER BOARD, WOULD HAVE TO BE REGARD AS PROFITS OR GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING SO AS TO QUALIFY FOR DEDUCTION U/S 80I OF THE SAID ACT. BECAUSE OF THE VIEW WE HAVE TAKEN, IT IS NOT NECESSARY FOR US TO EXAMINE THE ALTERNATIVE PLEA ADVANCED BY MR . GANESH . THE QUESTION FORMULATED IS ANSWERED IN THE NEGATIVE, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE . 12 . IN THE LIGHT SAID ORDER OF THE HONBLE DELHI HIGH WE RESPECTFULLY FOLLOW THE SAID ORDER AND ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 13 . APROPOS GROUND NO. 2C IN RESPECT TO DISALLOWANCE OF CLAIMS EQUIPMENT HIRE CHARGES, CRANE HIRE CHARGES, AND AMMONIA TANK WAGON HIRE CHARGES . 14 . BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A MULTI STATE CO - OPERATIVE SOCIETY SUBSTANTIALLY OWNED BY THE GOVERNMENT OF INDIA REGISTERED UNDER THE MULTI STATE CO - OPERATIVE SOCIETIES ACT, 198 4, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZERS SUCH AS UREA AND AMMONIA AT ITS PLANT AT HAZIRA IN GUJARAT. THE ASSESSEE ALSO DOES TRADING OF OTHER FERTILIZERS ON BEHALF OF GOVERNMENT OF INDIA. THE ASSESSEE WAS ENTITLED TO CLAIM U/S 80I O F THE ACT IN RESPECT OF ITS MANUFACTURING ACTIVITY. WHILE COMPUTING THE ELIGIBLE DEDUCTION THE PAGE NO. 5 ASSESSEE HAD INCLUDED : II) INCOME FROM EMPLOYEES ON ADVANCE; (II) SERVICE CHARGES FROM HEAVY WATER BOARD ; (III) EQUIPMENT HIRE CHARGES; (IV) CRANE HIRE CHARGES ( V) AMMONIA TANK WAG ON HIRE CHARGES, WHICH WAS NOT ALLOWED BY THE AO. AGGRIEVED BY THE SAID ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO WAS PLEASED TO CONFIRM THE ORDER OF THE AO. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE ASSESSEE IS BEFORE US. 15 . THE LD AR FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JURISDICTIONAL DELHI HIGH COURT IN ASSESSEES OWN CASE VIDE ORDER DATED 04.10.2013 IN ITA NO. 1279/2007, WHEREIN THE HONBLE JUDGE HELD IN PARA 7 AS UNDER IN RESPECT TO AMMONIA TANK WAGON HIRE CHARGES : - 7. TO EXAMINE WHETHER THE INCOME WAS DERIVED FROM AN INDUSTRIAL UNDERTAKING, IT IS IMPERATIVE TO TRACE THE SOURCE OF PROFIT OR INCOME TO MANUFACTURE/ PRODUCTION. TRANSPORTATION, AS NOTED ABOVE, IS POST - MANUFACTURE AND TAKES PLACE AFTER THE GOODS OR ARTICLES HAVE BEEN MANUFACTURED IN THE INDUSTRIAL UNDERTAKING. THEY RELATE TO ACTIVITY OF TRANSPORTATION OF THE SAID ARTICLES OR GOODS FROM THE FACTORY TO THE PLACE OF THE CONSUMER/ CUSTOMER. IT IS A S ERVICE AND DOES NOT PARTAKE CHARACTER AND IS NOT A PART OF MANUFACTURE. QUESTION NO. 2(II) IN RESPECT OF AMMONIA TANKER HIRE CHARGES IS, THEREFORE, TO BE DECIDED AGAINST THE APPELLANT - ASSESSEE. 16 . THE HONBLE HIGH COURT OF DELHI IN THE AFORESAID DECISIO N HAS HELD IN PARA 3 AS UNDER: - WE ALSO RECORD THAT CRANE HIRE CHARGES WOULD ALSO BE COVERED BY THE AFORESAID DECISION, WHICH REFERS TO EQUIPMENT HIRE CHARGES 17 . IN RESPECT TO EQUIPMENT HIRE CHARGES, THE HONBLE HIGH COURT ORDER IS REPORTED IN (2008) 300 ITR 92 DATED 15.11.2006 WHEREIN IT WAS HELD THAT EQUIPMENT HIRE CHARGES WOULD NOT BE ENTITLED TO SPECIAL DEDUCTION U/S 80I OF THE ACT. IN THE LIGHT OF THE ABOVE DECISION S OF THE JURISDICTIONAL HIGH COURT AGAINST THE ASSESSEE , THIS GR OUND OF THE ASSESSEE IS DISMISSED. 18 . APROPOS GROUND NO. 2(D) DISALLOWANCE OF THE CLAIM OF GUEST HOUSE RECEIPT (NOTED AS GUEST HOUSE EXPENSES) FOR INCLUSION IN THE COMPUTATION U/S 80I. THIS GROUND HAS NOT BEEN PRESSED DUE TO SMALLNESS OF AMOUNT OF RS. 1,87,229/ - , THEREFORE, THIS GROUND OF THE ASSESSEE IS DISMISSED. 19 APROPOS GROUND NO. 2(E) IN RESPECT OF INTEREST INCOME FROM (I) NATIONALIZED BANKS (II) FINANCIAL INSTITUTIONS (III) FRO M ICICI BANK. THE LD AR FAIRLY AND CANDIDLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE DELHI PAGE NO. 6 HIGH COURT IN ASSESSEES OWN CASE. IN THE LIGHT OF THE SAID SUBMISSION OF THE LD AR WE DISMISS THIS GROUND OF THE ASSESSEE. 20 . APROPOS ADDITIONAL GROUND IN RESPECT OF INTEREST FROM IDBI UNDER INVESTMENT DEPOSIT UNDER SECTION 32AB. 21 . BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A MULTI STATE CO - OPERATIVE SOCIETY SUBSTANTIALLY OWNED BY THE GOVERNMENT OF INDIA REGISTERED UNDER THE MULTI STATE CO - OPERATIVE SOCIETIES ACT, 1984, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZERS SUCH AS UREA AND AMMONIA AT ITS PLANT AT HAZIRA IN GUJARAT. THE ASSESSEE ALSO DOES TRADING OF OTHER FERTILIZERS ON BEHALF OF GOVERNMENT OF IND IA. THE ASSESSEE WAS ENTITLED TO CLAIM U/S 80I OF THE ACT IN RESPECT OF ITS MANUFACTURING ACTIVITY. WHILE COMPUTING THE ELIGIBLE DEDUCTION THE ASSESSEE HAD INCLUDED INTEREST FROM IDBI UN DER INVESTMENT DEPOSIT U/S 32AB, WHICH WAS NOT ALLOWED BY THE AO. AGGR IEVED BY THE SAID ORDER OF THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A), ASSESSEE IS BEFORE US. 22 . THE LD AR SUBMITTED THAT IN ORDER TO GET THE BENEFIT OF INVEST MENT DEPOSIT DEDUCTION U/S 32AB , A SUBSTANTIAL SUM WAS DEPOSITED WITH IDBI RESULTING IN THE EARNING OF RS. 2.70 CRORES AS INTEREST RECEIPTS AND SINCE THE INTEREST FOR THE SAID DEPOSIT IS INEXTRICABLY LINKED WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING IT QUALIFY FOR DEDUCTION U/ S 80I AND THEREFORE THE SAME MAY BE ALLOWED. THE CASE OF CIT VS. EASTERN TAR P. LTD, (20 08) 301 IT 427 (JHARKHAND) WAS CITED TO SUPPORT HIS CONTENTION. ON THE OTHER HAND THE LD D R CONTENDED THAT THE SAID ISSUE IS NO LONGER RES - IN TEGRA AFTER THE APEX COURT ORDER IN CIT VS. PANDIAN CHEMICALS LTD REPORTED IN 262 ITR 278 (SC) WHEREIN THE HONBLE SUPREME COURT HELD AS UNDER: - THE WORD DERIVED FROM INCOME IN SECTION 80HH OF THE ACT, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE INDUSTRIAL UNDERTAKING. 23 . FROM THE SAID RATIO - DECIDENDI OF THE HONBLE APEX COURT, WE FIND CONSIDERABLE FORCE IN THE LD DRS CONTENTION THAT THE INTEREST DERIVED FROM IDBI UNDER INVESTMENT DEPOSIT U/S 32AB COULD NOT BE SAID TO BE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING AND WE DO NOT SEE ANY DIRECT OR IMMEDIATE NEXUS OF THE INCOME FROM THE ASSESSEES UNDERTAKING , CONSEQUENTLY WE HOLD THAT THE INTEREST DERIVED FROM IDBI UNDER INVESTMENT U/S 32AB CANNOT QUALIFY AS PROFIT AND GAIN PAGE NO. 7 DERIVED FROM THE UNDERTAKING FOR THE PURPOSE OF THE SAID DEDUCTION U/S 80I OF THE ACT . IN THE RESULT THIS GROUND OF THE ASSESSEE FAILS AND IS THEREFORE DISMISS ED . 24 . APROPOS GROUND 3(A) AND 3(B) IN RESPECT TO DISALLOWANCE OF CLAIM OF LEGAL AND PROFESSIONAL CHARGES INCURRED ON VARIOUS CONSULTANTS FOR FEASIBILITY STUDIES BY THE ASSESSEE . 25 . BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A MULTI STATE CO - OPERATIVE SOCIETY SUBSTANTIALLY OWNED BY THE GOVERNMENT OF INDIA REGISTERED UNDER THE MULTI STATE CO - OPERATIVE SOCIETIES ACT, 1984, AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FERTILIZ ERS SUCH AS UREA AND AMMONIA AT ITS PLANT AT HAZIRA IN GUJARAT. THE ASSESSEE ALSO DOES TRADING OF OTHER FERTILIZERS ON BEHALF OF GOVERNMENT OF INDIA. THE ASSESSEE CLAIMED LEGAL AND PROFESSION AL CHARGES INCURRED TO PAYMENT OF CONSULTANT FOR FEASIBILITY STUD IES FOR ACQUIRING PHOSPHATE MANUFACTURING ABROAD AS REVENUE EXPENDITURE, WHICH WAS NOT ACCEPTED BY THE AO. AGGRIEVED BY THE SAID ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHO CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE SAI D ORDER OF THE LD CIT(A), THE ASSESSEE IS BEFORE US. 26 . THE LD AR CITED DECISION S OF THE JURISDICTIONAL HIGH COURT OF DELHI WHICH FAVORS ALLOWANCE OF SUCH CLAIM AS THAT OF THE ASSESSEE IN WHICH THE HONBLE HIGH COURT IN THE CASE OF CIT VS. PRIYA VILLAGE ROADSHOWS LTD. (2011) 332 ITR 594 (DELHI) AND ALLOWED IT AS REVENUE EXPENSES. THE HONBLE HIGH COURT HELD AS UNDER: - (HEAD NOTE) . IN ORDER TO FIND OUT WHETHER AN EXPENDITURE IS CAPITAL OR REVENUE THE ESSENTIAL PURPOSE FOR WHICH SUCH AN EXPENDITURE IS INCURRED HAS TO BE LOOKED INTO. IF THE EXPENDITURE IS INCURRED FOR STARTING A NEW BUSINESS WHICH WAS NOT CARRIED OUT BY THE ASSESSEE EARLIER, THEN SUCH EXPENDITURE IS HELD TO BE OF CAPITAL NATURE. IN THAT EVENT IT WOULD BE IRRELEVANT AS TO WHETHER THE PROJ ECT REALLY MATERIALIZED OR NOT. HOWEVER, IF THE EXPENDITURE INCURRED IS IN RESPECT OF THE SAME BUSINESS WHICH IS ALREADY CARRIED ON BY THE ASSESSEE, EVEN IF IT IS FOR THE EXPANSION OF THE BUSINESS NAMELY TO START A NEW UNIT WHICH IS THE SAME AS THE EXISTIN G BUSINESS AND THERE IS UNITY OF CONTROL AND COMMON FUND, THEN SUCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE. IN SUCH A CASE WHETHER A NEW BUSINESS/ ASSET COMES INTO EXISTENCE OR NOT WOULD BECOME A RELEVANT FACTOR. IF THERE IS NO CREATION OF A N EW ASSET, THEN THE EXPENDITURE INCURRED WOULD BE REVENUE NATURE. HELD, DISMISSING THE APPEAL, THAT THE FEASIBILITY STUDIES CONDUCTED BY THE ASSESSEE WERE FOR THE SAME AND EXISTING BUSINESS WITH A COMMON ADMINISTRATION AND COMMON FUND AND THE STUDIES WERE A BANDONED WITHOUT CREATING ANY NEW ASSET. THEREFORE, THE EXPENSES WERE OF REVENUE NATURE. PAGE NO. 8 27 . SIMILARLY IN INDO RAMA SYNTHETICS INDIA LTD. VS. COMMISSIONER OF INCOME - TAX (2011) 333 ITR 18 (DELHI) THE JURISDICTIONAL HIGH COURT HAS HELD: - (HEAD NOTE) THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE OF YARN AND POLYSTER. ACCORDING TO THE ASSESSEE, FOR THE SEVERAL YEARS PRIOR TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2000 - 01, THE ASSESSEE HAD BEEN GENERATING SUBSTANTIAL SURPLUS CASH FROM ITS EX ISTING BUSINESS OF MANUFACTURE OF YARN AND POLYESTER. WITH A VIEW TO UTILIZING THE CASH SURPLUS AVAILABLE AND WITH A VIEW OF EXPANDING ITS EXISTING OPERATIONS, THE ASSESSEE COMMENCED THE SETTING UP OF A SPINNING AND WEAVING UNIT FOR THE MANUFACTURE OF FABR IC AND TEXTILE DURING THE FINANCIAL YEAR 1995 - 96 IN THE STATE OF KARNATAKA. THE UNIT WAS IN THE LINE WITH THE ASSESSEES STRATEGY TO EXPAND ITS BUSINESS OPERATIONS IN THE SAME LINE OF BUSINESS THROUGH VERTICAL INTEGRATION, BY UTILIZING AS RAW MATERIALS FOR THE PROPOSED NEW UNIT, THE PRODUCTS SUCH AS YARN AND POLYSTER, MANUFACTURED BY THE EXISTING UNITS. FOR SETTING UP THE NEW UNIT, THE ASSESSEE IDENTIFIED MANPOWER FROM THE EXISTING POOL OF RESOURCES OF THE ASSESSEE. FURTHERMORE, THE UNIT WAS PROPOSED TO BE ESTABLISHED UNDER THE COMMON CONTROL OF THE BOARD OF DIRECTORS OF THE ASSESSEE AND OUT OF THE SURPLUS FUNDS GENERATED BY THE EXISTING BUSINESS OPERATIONS. IN RELATION TO THE SETTING UP OF THE WEAVING AND SPINNING UNIT, THE ASSESSEE, FROM TIME TO TIME, INCU RRED REVENUE EXPENDITURE IN THE NATURE OF SALARY, WAGES, REPAIR, MAINTENANCE, DESIGN AND ENGINEERING FEE, TRAVELLING AND OTHER EXPENSES OF ADMINISTRATIVE NATURE. THE PROPOSAL OF THE ASSESSEE HOWEVER, COULD NOT SEE THE LIGHT OF THE DAY SINCE THE ASSESSEE, C OULD NOT PROCURE THE ALLOTMENT OF REQUISITE LAND FROM THE GOVERNMENT OF KARNATAKA. SINCE THE SETTING UP OF THE PROPOSED UNIT WAS ABANDONED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2000 - 01, RELATED PROJECT EXPENSES AMOUNTING TO RS. 64,47,855 / - WERE WRITTEN OFF AND CLAIMED AS A DEDUCTION IN COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR 2000 - 01 UNDER SECTION 37(1) OF THE INCOME - TAX ACT, 1961. THE CLAIM WAS REJECTED BY THE ASSESSING OFFICER AND THIS WAS CONFIRMED BY THE TRIBUNAL . THE ASSESSEE H AD ENGAGED THE SERVICES OF M AN INTERNATIONAL FIRM OF CONSULTANTS, FOR CARRYING OUT A DETAILED STUDY ON THE VARIOUS ASPECTS RELATING TO THE OPERATIONS OF THE ASSESSEE AND TO SUGGEST MEASURES FOR IMPROVING THE OPERATIONAL EFFICIENCY AND PROFITABILITY OF THE ASSESSEE. BASED ON A REVIEW OF THE COST BENEFIT ANALYSIS THE ASSIGNMENT FOR CARRYING OUT THE DETAILED OPERATIONAL EFFICIENCY AND PROFITABILITY STUDY WAS, HOWEVER, TERMINATED SHORTLY AFTER THE MANDATE HAD BEEN GIVEN. IN RESPECT OF THE WORK ALREADY DONE BY M UNITIL THE DATE OF TERMINATION OF THE MANDATE, A SUM OF RS. 74,04,128 WAS PAID BY THE ASSESSEE TO M. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001 - 01, THE PAYMENT WAS CLAIMED AS A DEDUCTION BY THE ASSESSEE. THE CLAIM WAS DISALLOWED AND THIS W AS CONFIRMED BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD, ALLOWING THE APPEAL, (I) THAT THE EXPENDITURE INCURRED WAS IN THE NATURE OF SALARY, WAGES, REPAIRS, MAINTENANCE, DESIGN AND ENGINEERING FEE, TRAVELLING AND OTHER EXPENSES OF ADMINISTRATIVE N ATURE. INDUBITABLY, IN THE NORMAL COURSE, THESE EXPENSES WOULD BE TREATED AS REVENUE EXPENDITURE. THE UNIT, WHICH THE ASSESSEE PROPOSED TO SET UP HAD INEXTRICABLE LINKAGE WITH THE EXISTING BUSINESS OF THE ASSESSEE. THE PROPOSED BUSINESS WAS NOT AN PAGE NO. 9 INDIVIDU AL BUSINESS BUT VERTICAL EXPANSION OF THE EXISTING BUSINESS. THUS, THE TEST EXISTING BUSINESS WITH COMMON ADMINISTRATION AND COMMON FUND WAS MET. SINCE THE PROJECT WAS ABANDONED, NO NEW ASSET ALSO CAME TO BE CREATED. THE EXPENDITURE WAS DEDUCTIBLE. 28 . IN THE LIGHT OF THE RATIO LAID BY THE JURISDICTIONAL HIGH COURT LET US LOOK INTO THE FACTS REGARDING AN EXPENSE WHICH IS IN ISSUE BEFORE US . THE FACTS OF THE EXPENSES INCURRED BY THE ASSESSEE SOCIETY EMERGE FROM THE RECORDS IS AS FOLLOWS : - (I) SINCE THE AS SESSEE SOCIETY WAS ALREADY CARRYING ON MANUFACTURE AND SALE OF UREA AND AMMONIA AND THE SOCIETY HAD SURPLUS IN THE ABOVE MANUFACTURING OPERATION AND SO DESIRED TO PRODUCE THE PRODUCTS OF VARIOUS CHEMICALS BY ACQUIRING PHOSPHATIC MANUFACTURING FACILITIES OU TSIDE INDIA AND FOR THAT SOCIETYS BOARD IN ITS 103TH MEETING HELD ON 21.09.1993, APPROVED THAT SOCIETY MAY INSPECT THE FACILITIES IN USA AND OPEN A DIALOGUE WITH PROSPECTIVE SELLERS FOR PURCHASE OF A RUNNING DAP PLANT IN USA WITH OR WITHOUT CAPTIVE MINE. M/S. ALUTEC INC WAS ENGAGED AS CONSULTANT FOR INITIAL PREPARATORY WORK IN CONSULTATION WITH INDIAN EMBASSY IN WASHINGTON USA AT A FEE OF US$ 27,000. GOVT. OF INDIA VIDE LETTER REF NO. 129/15/93 - FDD - II DATED 3 RD DECEMBER, 1993 CONVEYED THEIR APPROVAL FOR P AYMENT OF US$ 27,000 TO THE CONSULTANT M/S ALUTEC INC. FOR INITIAL PREPARATORY WORK IN USA IN CONNECTION WITH PURCHASE OF PHOSPHATIC FERTILISER PLANT. (II) THE EXECUTIVE COMMITTEE OF SOCIETY IN ITS 39 TH MEETING HELD IN MARCH 12,1994 AFTER REVIEW OF THE PR OPOSAL FOR EXPLORING THE POSSIBILITY OF ACQUIRING PHOSPHATIC MANUFACTURING FACILITIES ABROAD RESOLVED AS UNDER: (A) TO SIGN CONFIDENTIALITY AGREEMENTS WITH M/S. OCCIDENTAL CHEMICAL CORPORATION AND MS/. TEXASGULF INCORPORATED. (B) TO ENTER INTO A DIALOGUE WITH THOSE PARTIES WHOSE UNITS ARE NOT OPERATING AT PRESENT DUE TO LACK OF DEMAND. (C) TO INITIATE INVESTIGATIONS FOR SIMILAR FACILITIES IN SOUTH AFRICA AND RUSSIA (D) TO CARRY OUT FURTHER DETAILED DISCUSSIONS WITH THE PROSPECTIVE SELLERS FOR ACQUIRING/ PARTICIPATION IN EQUITY IN THEIR EXISTING PHOSPHATIC FERTILIZER FACILITIES. (E) TO ENGAGE THE SERVICES OF M/S ALUTEC INC. FOR SEARCH & SCREEN PROCESS AT A FEE OF US$ 65, 000 TO MAINTAIN THE CONTINUITY OF WORK. (III) THE GOVT. OF INDIA VIDE LETTER NO. 129/15/93 - FDD - II DATED MAY 11,1994 APPROVED THE PROPOSAL FOR SEARCH & SCREEN PROCESS FOR PAYMENT OF US$ 65,000 AS FEE TO M/S. ALUTEC INC, USA. 29 . THEREAFTER, A HIGH LEVEL TEAM ALONGWITH THE MANAGEMENT CONSULTANT VISITED THE FACILITIES OF PROSPECTIVE SELLERS IN USA & RUSSIA. THE PLAN FOR VISIT TO SOUTH AFRICA WAS DROPPED AS THE INVESTIGATION CARRIED OUT BY M/S ALUTEC INC AND THE SOCIETYS REVIEW OF THE SAME CONFIR MED THAT THE FURTHER FOLLOW UP ACTION WITH THE FERTILIZER INDUSTRY IN SOUTH AFRICA WAS NO LONGER NECESSARY AS THE PRODUCTS TYPES DID NOT PAGE NO. 10 MATCH WITH THE KRIBCHOS REQUIREMENTS AND FURTHER THEY HAD NO PLAN OF HAVING JOINT VENTURE/ DISINVESTMENT IN FAVOUR OF A FOREIGN COMPANY. THE EXECUTIVE COMMITTEE OF THE BOARD IN ITS 42 ND MEETING HELD ON JULY 18, 1994 REVIEWED THE PROPOSAL AND RESOLVED TO CARRY OUT DUE DILIGENCE PROCESS OF THE TARGET COMPANIES M/S. IRGIZ IN RUSSIA &M/S. MULBERRY PHOSPHATE IN USA DISCUSSION S WAS INITIATED WITH M/S ACRON IN RUSSIA FOR MARKETING NITROPHOSPHATE FERTILISERS IN INDIA AT AN ATTRACTIVE PRICE TO ESTABLISH KRIBCHOS MARKET. TO ENGAGE M/S ALUTEC INC. USA TO MAINTAIN CONTINUITY OF WORK FOR A FIXED LUMP - SUM FEE OF US$ 295,250 AND REIMB URSABLE PROJECTS SUPPORT SERVICE COST ESTIMATED AT US$ 137,850. FURTHER TO ENTER INTO EXPERT CONSULTANCY SERVICES SUB - CONTRACTS FOR A TECHNICAL, ENVIRONMENTAL, LEGAL AND FINANCIAL ASPECTS DIRECTLY WITH SELECTED COMPANIES AND ADMINISTERED BY ALUTEC INC. FOR ESTIMATED AMOUNT OF US$593, 820 FOR DUE DILIGENCE PROCESS OF TARGET PLANTS IN RUSSIA AND USA. SUBSEQUENTLY IT WAS ALSO FELT DESIRABLE TO INCLUDE THE FACILITIES OF ACRON IN RUSSIA FOR DUE DILIGENCE PROCESS TO KNOW THE STRENGTH AND WEAKNESS OF THE COMPANY BEFORE GOING FOR MARKETING TIE UP FOR NITROPHOSPHATE AND ACCORDINGLY THE SCOPE OF WORK OF M/S ALUTEC INC. WAS ENHANCED BY ADDING THE DUE DILIGENCE WORK FOR ACRON IN RUSSIA WITHOUT ANY EXTRA COST. GOVERNMENT OF INDIA, VIDE LETTER NO. 129/15/93/FDD - II PROJ ECT - I DATED NOVEMBER 10, 1994 APPROVED THE PROPOSAL TO CARRY OUT THE DUE DILIGENCE PROCESS (PREPARATION OF DETAILED FEASIBILITY REPORT) TO ESTABLISH THE POSSIBILITY AND VIABILITY OF ACQUIRING INTERESTS IN A PHOSPHATIC MANUFACTURING FACILITY IN USA/RUSSIA A T AN ESTIMATED COST OF RS. 3.75 CRORES. SERVICE AGREEMENT WITH M/S. ALUTEC INC., USA AS THE LEAD CONSULTANT FOR DUE DILIGENCE PROCESS IN USA AND RUSSIA WAS ENTERED ON NOVEMBER 25, 1994. THE EXPERT SUB - CONSULTANTS WERE ENGAGED DIRECTLY BY THE SOCIETY IN C ONSULTATION WITH THE MANAGEMENT CONSULTANT, M/S ALUTEC INC. ON THE BASIS OF THEIR EXPERIENCE IN THE RELEVANT FIELD OF MERGERS AND ACQUISITIONS AND RESOURCES OF PERSONNEL ASSOCIATED WITH THEM FOR DUE DILIGENCE PROCESS OF TARGET COMPANIES IN RUSSIA AND USA F OR THE FOLLOWING AREAS: ENGINEERING, TECHNOLOGY AND ENVIRONMENTAL STUDY, ECONOMICAL, FINANCIAL AND ACCOU NTING SERVICES, LEGAL SERVICES, DUE DILIGENCE INVESTIGATION OF TARGET PLANTS IN USA FOLLOWING SUB - CONSULTANTS WERE SELECTED FOR A TOTAL FEE OF US$ 480,0 00 ON THE LOWEST TECHNO - COMMERCIALLY ACCEPTABLE BASIS AND LETTERS WERE ISSUED ON 28.01.1995 FOR IMMEDIATE COMMENCEMENT OF DUE DILIGENCE PROCESS IN USA WITH THE FEE AS INDICATED BELOW: - S. NO. DESCRIPTION SUB - CONSULTANT FEE (US$) 1. ENGINEERING, TECHNOLOGY & ENVIRONMENTAL STUDY COMPRISING OF MULBERY PLANT AND PINEY POINT PLANT. TEBCO ASSOCIATES USA 119,000 2. ENGINEERING, TECHNOLOGY & ENVIRONMENTAL STUDY FOR WINGATE CREEK MINE AND ADJOINING TEXACO MINE. MINERAL RESOURCE ASSOCIATES, US 71,000 PAGE NO. 11 3. ECONOMICAL, FINANCIAL AND ACCOUNTING SERVICES BDO SEIDMAN 115,000 4. LEGAL SERVICES THE BUSCH FIRM 175,000 TOTAL 480,000 SERVICE AGREEMENT WERE ENTERED WITH ABOVE EXPERT CONSULTANTS. DUE DILIGENCE INVESTIGATION OF TARGET PLANTS IN RUSSIA: FOLLOWING SUB CONSULTANTS WERE SELECTED FOR A TOTAL FEE OF US$ 230,000 ON TECHNO - COMMERCIAL BASIS FOR DUE DILIGENCE INVESTIGATIONS OF M/S IRGIZ AND M/S AKRON IN RUSSIA AS PER FEES INDICATED BELOW: S. NO. DESCRIPTION SUB - CONSULTANT FEE (US$) 1. ENGINEERING, TECHNOLOGY & ENVIRONMENTAL STUDY SCIENTIFIC INSTT. OF FERTILISER, MOSCO 80,000 2. ECONOMICAL, FINANCIAL AND ACCOUNTING SERVICES INOTEKU PROGRESS, MOSCO 80,000 3. LEGAL SERVICES SANCTUM, MOSCO 70,000 TOTAL 230,000 A COMMITTEE COMPRISING OF OFFICIALS TECHNICAL & FINANCE ALONGWITH EXPERT FROM FEDO WAS CONSTITUTED TO EXAMINING THE REPORTS SUBMITTED BY MANAGEMENT CONSULTANT FOR DUE DILIGENCE PROCESS FOR TARGET PLANTS IN USA AND RUSSIA. THE RECOMMENDATION OF COMMITTEE ALON G WITH REPORTS WERE SUBSEQUENTLY REVIEWED BY COMMITTEE OF SR. EXECUTIVE OF THE SOCIETY (COSE). STATUS OF PAYMENTS TO CONSULTANT/ EXPERT CONSULTANTS S. NO. DESCRIPTION PAYMENT MODE 1. MANAGEMENT CONSULTANT - ALUTEC A) FIXED FEE (US$295250) US$ 147625 B) REIMBURSABLE EXPENSES US$ 137850 ADVANCE US$ 27570+ JRS. 709954 (EQUIVALENTS TO US$ 22325.15) TOWARDS ARRANGEMENTS MADE BY SOCIETY DURING VISIT OF M/S ALUTEC INC. IN INDIA 2. M/S. ALUTC INC. - TARGET PLANTS IN RUSSIA US$ 230,000 US $ 92,000 PAYMENT MADE TO EXPERT CONSULTANTS FOR TARGET PLANTS IN USA CONSULTANT FEE (US$) PAYMENT MADE (US$) 1. TEBCO ASSOCIATES (ENGG. FOR PLANTS) 119000 95200 2. MRA (ENGG. FOR MINES) 71000 56800 3. BDO SEIDMEN (FINANCE SERVICES) - FIXED 100000 70000 - REIMBURSABLE EXPENSES 15000 9000 4. THE BUSCH FIRM (LEGAL SERVICES) 175000 157500 THE ASSESSEE HAVE PAID CESS AMOUNTING TO RS. 11,47,488.00 TO RBI FOR ABOVE IN REMITTANCES IN ADDITION TO ABOVE. THE FOLLOWING IS THE SCHEDULE OF PAYMENT MADE: PAGE NO. 12 NAME OF CONSULTANT AND SUB - CONSULTANT CONTRACT IN US$ AMOUNT PAID UP TO 31.03.96 IN US$ IN RS. FOR PRE FEASIBILITY AND SEARCH AND SCREEN ACTIVITIES I) M/S ALUTEC INC. USA II) DO - 27000 65000 27000 65000 850230 2046200 FOR THE DILIGENCE PROCESS IN USA I) M/S ALUTECH INC. USA 295250 147625 4668936 SUB - CONSULTANTS I) M/S M.R.A. II) M/S. TEBCO ASSOCIATES III) M/S. B.D.O. SEIDMAN IV) M/S. BUSH FIRM 71000 119000 115000 175000 56800 95200 79000 157500 1792324 3004036 2492420 4965975 FOR DUE DILIGENCE PROCESS IN RUSSIA I) M/S. ALUTEC INC. USA 230000 92000 2944920 REIMBURSIBLE EXPE. TO M/S. ALUTEC INC. USA PAID (GROSS) RS. 1750355.00 RECOVERY FOR HOTEL & TPT. 172497.35 1477857.65 127850 49895.15 1577857.65 CESS TAX ON ABOVE PAYMENTS 1147448.00 TOTAL 1225100 770020.15 25490346.65 A COMMITTEE OF SENIOR EXECUTIVES OF THE SOCIETY (COSE) WAS CONSTITUTED ON 9TH NOV. 1995 TO REVIEW AND RECOMMEND FINAL PAYMENTS TO CONSULTANT (M/S. ALUTEC INC)/ EXPERT CONSULTANT FOR TARGET PLANTS IN USA/RUSSIA. COSE HAS RECOMMENDED THAT NO FURTHER PAYMENT IS DUE TO CONSULTANT/ EXPERT SUB - CONSULTANTS AS THERE ARE MANY DEFICIENCIES IN THE REPORTS SUBMITTED BY THEM. THIS COMPRISES OF ACQUISITION OF PHOSPHATIC MANUFACTURIN G FACILITIES IN THE USA/ RUSSIA. (IV) CLAIM OF RS. 2,61,05,321/ - INCLUDED IN LEGAL AND PROFESSIONAL CHARGES: RS. 2,61,05,321.65 COMPRISES OF THE FOLLOWING AMOUNTS DEBITED TO THE P&L A/C UNDER THE HEADING LEGAL AND PROFESSIONAL CHARGES AND CLAIMED AS DEDUCTION. 1. INTEGRATED AQUACULTURE PROJECT RS. 1,60,000.00 2. MUSHROOM PROJECT RS. 2,83,475.00 3. INTEGRATED SUGAR CUM NEWSPRINT PROJECT RS. 1,71,500.00 4. PHOSPHATIC MANUFACTURING FACILITIES (DAP) IN USA? RUSSIA (PHOSPHATIC FERTILISERS) 2,54,90,346.65 TOTAL RS. 2,61,05,321.65 OF THE TOTAL SUM OF RS. 2,61,05,321.65 , A SUM OF RS. 1,12,97,891.35 HAS BEEN ACTUALLY INCURRED DURING THE FINANCIAL YEAR 1995 - 96 RELEVANT TO ASSESSMENT YEAR 1996 - 97 AND ONLY THE BALANCE AMOUNT OF RS. 1,48,07,430.00 HAS BEEN INCURRED IN THE EARLIER YEARS AS PER THE TABLE BELOW: (AMOUNT IN RUPEES) S. NO. NAME OF ITEM AMOUNT INCURRED IN F.Y. 95 - 96 RELEVANT TO ASST. YEAR 96 - 97. AMOUNT INCURRED IN EARLIER YEARS 1. INTEGRATED AQUACULTURE PROJECT 32000.00 128000.00 2. MUSHROOM PROJECT 58000.00 225475.00 3. INTEGRATED SUGAR CUM NEWSPRINT 0.00 171500.00 PAGE NO. 13 PROJECT 4. PHOSPHATIC MANUFACTURING FACILITIES (DAP IN USA/RUSSIA)PHOSPHATIC FERTILISERS) 11207891.35 14282455.00 TOTAL 11297891.35 14807430.00 T HE DECISION OF THE BOARD/APPROVAL OF MANAGING DIRECTOR TO ABANDON THE RESPECTIVE PROJECTS HAVE BEEN COMMUNICATED DURING FINANCIAL YEAR 1995 - 96 RELEVANT TO ASSESSMENT YEAR 1996 - 97, EXPENDITURE HAD BEEN CHARGED OFF TO PROFIT AND LOSS ACCOUNT OF FINANCIAL YEAR 1995 - 96 (ASSESSMENT YEAR 1996 - 97), BEING THE RELEVANT YEAR OF DECISION TO ABANDON THE PROJECT: MINUTES OF THE 117 TH BOARD MEETING HELD ON 09.10.1995 ALONGWITH BOARD AGENDA NO. 117/19 IN RESPECT OF NON PURSUING OF ANY INVESTMENT IN PHOSPHA TIC MANUFACTURING FACILITIES IN USA/RUSSIA WAS PRODUCED BEFORE THE AUTHORITIES BELOW. MINUTES OF 106 TH BOARD MEETING ALONGWITH SUPPLEMENTARY AGENDA NO. 106/4 FOR WITHDRAWING FROM THE BIDDING FROM M/S NEPA LTD. FOR THEIR NEWSPRINT PROJECT, WAS ALSO PRODUCE D BEFORE THE AUTHORITIES BELOW. MDS APPROVAL FOR NOT PURSUING THE INTEGRATED AQUACULTURE PROJECT AND MDS APPROVAL FOR NOT PURSUING THE MUSHROOM PROJECT TOO WAS PRODUCED BEFORE THE AUTHORITIES BELOW ON A PERUSAL OF THE SAID DECISIONS , TAKEN BY THE COMPETENT AUTHORITY OF THE ASSESSEE THAT THE DECISION NOT TO PURSUE THE PROJECTS WAS TAKEN DURING ASSESSMENT YEAR 1996 - 97 AND AS SUCH THE AMOUNTS HAVE BEEN CHARGED OFF TO THE PROFIT AND LOSS ACCOUNT DURING THE RELEVANT ASSESSMENT YEAR UNDER CO NSIDERATION . 30. IT WAS SUBMITTED BY THE LD AR THAT T HE SOCIETY WAS ALREADY CARRYING ON MANUFACTURE AND SALE OF UREA AND AMMONIA. AND SINCE THE SOCIETY HAD SURPLUS IN THE ABOVE MANUFACTURING OPERATION AND SO DESIRED TO FURTHER THE PRODUCTS OF VARIOUS CHEMICALS BY ACQUIRING PHOSPHATIC MANUFACTURING FACILITIES OUTSIDE INDIA, ENGAGED CONSULTANTS FOR PREPARATORY WORK WITH INDIAN EMBASSY IN WASHINGTON (USA) AT A FEES OF US $ 27,000 TO M / S. ALUTEC INC. FURTHE R, CONFIDENTIALITY AGREEMENT WAS MADE WITH M/S. OCCIDENTAL CHEMICAL CORPN. AND M / S. TEXAS GULF INCORPORATED. ALSO SOCIETY WAS EXPLORING WHETHER SIMILAR FACILITIES COULD BE ESTABLISHED IN S OUTH AFRICA AND RUSSIA. FOR THE PRE - FEASIBILITY AND SEARCH AND SCREEN ACITIVIES BY M/S ALUTECH INC. , USA TWO CONTRAC TS OF US$ 27,000 AND US $ 65,000 WERE ENTERED INTO AND THE AMOUNTS PAID UPTO 31 ST MARCH 1996 FOR THESE TWO ITEMS WERE RS. 8,50,230 AND RS.20,46,200 RESPECTIVELY. THERE WERE DUE DILIGENCE PROCESS IN THE USA BY M/S. ALUTEC INC., USA FOR A CONTRACTED AMOUNT OF US$2,95,250 BUT AMOUNT PAID WAS ONLY US $ 1,47,625 I.E. RS. 46,68,936 . THERE WERE PAGE NO. 14 SUB - CONSULTANTS ALSO AND AS PER THE DETAILS IN THE CHART ABOVE, THEY WERE ALSO MADE PART PAYMENTS AS AGAINST THE CONTRACTED SUM ONLY FOR THE FOUR PARTIES. 31. THE LD AR SUB MITS THAT M/S. ALUTECH INC. THE LEAD CONSULTANT WAS ALSO REQUIRED TO EXPLORE THE ACQUIS ITION OF SIMILAR PROJECTS FROM RUSSIA AND CONSEQUENTLY, THEY WERE ENGAGED FOR A REPORT RELATED TO DUE D ILIGENCE . AS PER THE CHART AGAINST THE CONTRACTED SUM, A PART OF AMOUNT HAS BEEN PAID AND AS WELL AS EXPENSE S WHICH WERE REIMBURSABLE HAVE ALSO BEEN PARTLY PAID. ALSO, CESS TAX WHICH WAS IMPOSED THOSE DAYS BY RESERVE BANK OF INDIA WAS ALSO PAID TO RBI FOR THE ABOVE REMITTANCES . 32. THE LD AR SUBMITTED THAT ULTIMATELY , THE BOARD OF DIRECTORS OF THE SOCIETY IN OCTOBER 95 RESOLVED THAT THE SOCIETY SHOULD NOT GO FOR ANY INVESTMENTS IN PHOSPHATIC MANUFACTURING FACILITIES EITHER IN USA OR RUSSIA DUE TO VARIOUS IMPONDERABLES UNCERTAINTIES, FINANCIAL RISKS, CONDITIONS OF PLANTS ETC. AS REVEALED BY THE DUE DILIGENCE P ROCESS AND ALSO FURTHER NOTED REPORT OF THE EXECUTIVES OF THE SOCIETY CONSTITUTED ON 9.11.95 WHO REVIEWED AND RECOMMENDED FINAL PAYMENTS TO CONSULTANTS AND EXPERTS. NO FURTHER PAYMENT WAS M ADE THEREAFTER. THUS ACCORDING TO THE LD AR THE ABOVE PROJECT WAS ALSO ABANDONED. 33. IT WAS SUBMITTED BY THE AR THAT ABOVE PROPOSALS AND OBTAINING OF THE TECHNICAL REPORTS ETC. ARE BASICALLY TO UTILIZE THE SURPLUS MONEY OF ABOUT RS. 700 CRORES LYING IN BANKS AS DEPOSITS OF THE ASSESSEE SOCIETY. THE ASSESSEE WANTS TO UTILIZE THESE MONEY IN PRODUCTIVE ACTIVITIES FOR PRODUCING MORE PROFITS WHICH MEANS THE SELF GENERATED FUND WILL BE BETTER UTILIZED FOR PRODUCING MORE PROFITS TOO THE ADVANTAGE OF THE ASSESSEE TO INCREASE ITS INCOME AND ALSO THE COUNTRY ULTIMATELY. 34. IN THIS CONNECTION A DECI SION IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR PAGE 1 (SC), T HE RELEVANT HEAD NOTE IS REPRODUCED BELOW: THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LESS, BE ON REVEN UE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND, IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRA DING OPERATIONS OR ENABLING THE MANA GEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL PAGE NO. 15 UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TE ST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE'. 35 . FROM A READING OF THE AFORESAID HEAD NOTE IT IS CLEAR THAT IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATION OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED , THE EXP ENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR A N INDEFINITE FUTURE IF THE PROJECT HAD MATERLIZED ON GROUND, WHICH IS NOT THE CASE ON HAND . 36 . THE ABOVE FINDING OF THE HON'BLE S UPREME COURT CLEARLY STATES THAT ONE CANNOT S AY ALL EXPENDITURE INCURRED WOULD BE OF A CAPITAL NATURE. IF THE EXPENDITURE INCURRED FOR OBTAINING EVEN AN ENDURING ADVANTAGE OR BENEFIT A TEST OF ENDURING BENEFIT CAN BREAK DOWN EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. T HE ULTIMATE IDEA OF COLLECTING THESE TECHNICAL DATA FROM CONSULTANTS AND OTHERS IS ONLY FOR PRODUCING MORE PROFITS BY BETTER UTILISATION OF THE EXISTING SURPLUS OF ABOUT RS.700 CORES AS DETAILED ABOVE. 37 . THE LD AR SUBMITTED THAT THE ASSESSING OFFICER IN HIS ORDER H AS STATED THAT THE CASE LAWS CITED BY THE ASSESSEE BEFORE HIM ARE DISTINGUISHABLE AND HAS TRIED TO STATE THAT EVEN THE PROJECT STUDY ON PHOSPHATIC MANUFACTURE IS DISTINCT AND SEPARATE FROM THE ASSESSEE'S LINE OF BUSINESS. ACCORDING TO THE LD AR THE ASSESSING OFFICER HAS NOT UNDERSTOOD THE FACT THAT PHOSPHATIC FE RTILISERS ARE ALSO A FERTILISER LIKE UREA AND ARE IN THE SAME LINE OF BUSINESS OF ASSESSEE AND IS AN ESSENTIAL ELEMENT IN THE AGRICULTURAL PRODUCTION OF THE COUNTRY. 38 . PERUSAL OF THE EXTR ACT OF THE BOARD MINUTES AND EXTRACT OF THE M.D'S APPROVAL HAVE ALSO BEEN GIVEN EVIDENCING THAT THEY WERE ALL WRITTEN OFF IN THIS PROFIT & LOSS A/C. DETAILED REPLY WAS FURNISHED BY THE ASSESSE BEFORE THE LOWER AUTHORITIES, CLAIMING THAT THESE EXPENSES WERE INCURRED TO P RODUCE MORE INCREASE IN PROFITS BY CONVENIENTLY CARRYING ON ONE OR MORE OF THE ABOVE PROJECTS TO EARN MORE PROFIT. ACCORDING TO THE LD AR THE ASSESSING OFFICER HAS ERRONEOUSLY HELD THAT THESE PROJECTS ARE NOT RELATED TO PRODUCTION OF URE A AND SO SUCH EXPENSES ARE NOT ALLOWABLE EXPENDITURE WHEN THE FACT IS THAT THE ASSESSEE HAS BEEN CARRYING ON MANUFACTURING UREA AND AMMONIA AND INTEGRATING THE SAME IN AGRICULTURAL PAGE NO. 16 PROJECTS INCLUDING PRODUCTION OF MUSHROOM WHIC H ARE ALL FOR THE PURPOSE OF INCREASING AGRICULTURAL PRODUCTION IN THE COUNTRY AND THE MONEY CANNOT BE KEPT IDLE SO FOR THE LARGER INTEREST OF THE NATION THE ASSESSEE SOCIETY HAD INCURRED THESE EXPENSES WHICH ARE CLEARLY REVENUE IN NATURE . 39 . IT WAS SUBMITTED BY THE LD AR THAT SUGAR PROJECT IS NOTHING BUT EXPLORING BAGASSE , AS A BY - PRODUCT OF THE SUGARCANE FROM WHICH JUICE HAS BEEN EXTRACTED IN THE MANUFACTURE OF SUGAR ; AND BAGASSE IS SOUGHT TO BE UTILIZED AS RAW MATERIAL FOR PRODUCTION OF NEW PRODUCT. THIS MEANS AGRICULTURAL WASTE IS SOUGHT TO BE UTILIZED BY THE INDUSTRY AND THAT HAS BEEN ADMITTED BY THE ASSESSEE. THE ASSESSEE HAS TECHNOLOGISTS AND TECHNOCRATS WHO ARE ALREADY ENGAGED IN THE PRODUCTION OF UREA AND AMMONIA AND SUCH TECHNOCRATS AR E TO DO THESE ACTIVITIES ALSO, BECAUSE THE ASSESSEE IS IN THE COOPERATIVE SECTOR ALWAYS PROJECT ED TOWARDS PROMOTION OF AGRICULTURAL PRODUCTION ON COOPERATIVE LINES FOR ENCOURAGING COOPERATIVE SECTOR MORE FROM THE POINT OF VIEW OF AGRICULTURAL PRODUCTS AS C AN BE SEEN THAT AGRICULTURAL PRODUCTS ARE CAPABLE OF INCREASED PRODUCTION BY APPLICATION OF UREA ETC. 40 . SIMILARLY FOR PHOSPHATE MANUFACTURE, FACILITIES IT IS PHOSPHATE FERTILIZER. IN OTHER WORDS, THIS IS ANOTHER CHEMICAL FERTILIZER WHICH ALSO IS USED FO R INCREASED PRODUCTION OF FERTILIZER I.E. ADDING EXISTING PRODUCTION OF UREA BY ALSO ENGAGING PRODUCTI O N OF PHOSPHATIC FERTILIZER. ACCORDING TO THE LD AR, THESE ARE TECHNICAL MATTERS, WHICH TO BE APPRECIATED AND UNDERSTOOD IN THE GREATER INTEREST OF THE CO UNTRY AND BETTER UTILIZATION OF SURPLUS LYING WITH THE ASSESSEE FOR PROMOTION OF AGRICULTURAL PRODUCTION AND ALSO IN THE NATION BUILDING. SOME OF THE THEM ARE SUCCESSFUL AND SOME ARE NOT. SINCE AN ATTEMPT WAS NOT SUCCESSFUL, THESE PROJECTS HAVE BEEN ABANDO NED. 41 . ACCORDING TO THE LD AR THESE EXPENSES ARE ACTUALLY BUSINESS LOSS AND ARE TO BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME. IN THE CASE OF CIT VS. WOOD CRAFT PRODUCTS LTD. REPORTED IN (1996) 217 ITR PAGE 862 THE HONBLE CALCUTTA HIGH COURT HAPPENED TO DEAL WITH THE QUESTION WHICH IS REPRODUCED AS : 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IS JUSTIFIED IN LAW IN DELETING A DISALLOWANCE OF RS.1,32,484 BEING TRAVELLING EXPENSES IN CONNECTION WITH EXPLORATION OF POSSIBIL ITIES OF THE ASSESSEE'S BUSINESS WHICH DID NOT TAKE PLACE.' IN THAT CASE THE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF PLYWOOD. IT EXPLORED THE POSSIBILITY OF EXPANDING ITS BUSINESS OPERATION PAGE NO. 17 AND SETTING UP A SAW - CUM - PLYWOOD FACTO RY AT KENYA WITH A VIEW TO EXPANDING ITS BUSINESS ACTIVITIES ENDEAVORING TO SETUP A FACTORY AT KENYA. AND ANSWERING THE SAID QUESTION ,T HE HONBLE HIGH COURT HELD THAT THE EXPENDITURE IS ALSO FOR THE EXPANSION OF THE EXISTING BUSINESS, THOUGH THE OBJECT O F MANUFACTURE, IN CONTEMPLATION OF WHICH EXPENDITURE WAS INCURRED, DID NOT MATERIALIZE, MAY BE ABORTIVE, BUT YET THE REVENUE CHARACTER OF THE EXPENDITURE INCURRED FOR THE EXPANSION OF THE EXISTING BUSINESS IS NOT DISPUTABLE AND SO ANSWERED THE SECOND QUEST ION RELATED TO TRAVELLING EXPE NSES AS AN ALLOWABLE DEDUCTION. THEREFORE, THE LD AR, CONTENDS THAT THE SAID EXPENSE SHOULD BE TREATED AS REVENUE EXPENDITURE AND SHOULD BE ALLOWED. ON THE OTHER HAND, THE LD DR, SUPPORTED THE DECISION OF THE ASSESSING OFFICER AND LD CIT(A) AND DOES NOT WANT US TO INTERFERE WITH IT. 42 . WE HAVE HEARD BOTH SIDES AND PERUSED THE RECORDS AND HAVE GONE THROUGH THE CASE LAWS CITED BY BOTH PARTIES. IN THE LIGHT OF THE RATIO LAID IN THE AFORESAID DECISIONS WHEN ONE HAS TO DECIDE WHETH ER EXPENDITURE IS CAPITAL OR REVENUE , THE ESSENTIAL PURPOSE FOR WHICH SUCH EXPENDITURE IS INCURRED HAS TO BE LOOKED INTO. IF THE EXPENDITURE IS INCURRED FOR STARTING A NEW BUSINESS WHICH WAS NOT CARRIED OUT BY THE ASSESSEE IN EARLIER YEAR, THEN SUCH EXPENDITURE IS HELD TO BE OF CAPITAL IN NATURE. IN THAT EVENT IT WOULD BE IRRELEVANT AS TO W HETHER PROJECT REALLY MATERIALIZE S OR NOT. HOWEVER , IF THE EXPENDITURE INCURRED IS IN RESPECT OF THE SAME BUSINESS WHICH IS ALREADY CARRIED ON BY THE ASSESSEE, EVEN IF IT IS SO FOR THE EXPANSION OF THE BUSINESS NAMELY TO START A NEW UNIT WHICH IS THE SAME AS THE EXISTING BUSINESS AND THERE IS UNITY OF CONTROL AND COMMON FUND , THEN SUCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE. IN SUCH A CASE WHETHER A NEW BUSINESS /ASSET COME S INTO EXISTENCE OR NOT WOULD BECOME RELEVANT. IF THERE IS NO CREATION O F NEW ASSET, THEN THE EXPENDITURE INCURRED WOULD BE OF REVENUE NATURE. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. PRIYA VILLAGE ROADSHOWS LTD. (SUPRA) WHILE DECIDING A CASE IN WHICH T HE ASSESSEE WAS INVOLVED IN THE BUSINESS OF RUNNING CINEMAS AND THE RE WAS A PROPOSAL BEFORE THE ASSESSEE TO TAKE OVER A CINEMA THEATRE FOR CONVERSION INTO AS MULTIPLEXES AND OPERATION AND MANAGEMENT THEREOF. THE ASSESSEE AVAILED OF THE SERVICES OF A N ARCHITECT AND PAID HIM RS. 2 ,0 5 , 000 . - AS FEE . HOWEVER IT WAS FOUND THAT THE PROJECT WAS NOT FINANCIALLY , TECHNOLOGICALLY AND TECHNICALLY VIABLE AND HENCE THE ASSESSEE DROPPED THE PROJECT . LIKEWISE , THERE WAS A PROPOSAL TO TAKE OVER CINEMA THEATER FOR THE PURPOSE OF CONVERSION INTO A FOUR - SCREEN CINEMA COMPLE X. DETAILED PAGE NO. 18 TECHNICAL AND FINANCIAL FEASIBILITY STUDY WAS CARRIED OUT AND BUILDING PLANS WERE PREPARED BY A CONSULTANCY GROUP. IN THIS CONNECTION THE ASSESSEE INCURRED AN EXPENDITURE OF RS. 12,39,239/ - . ON SUBSEQUENT MARKET RESEARCH THE ASSESSEE PREFERRED TO RETAIN THE SINGLE - SCREEN CINEMA AND THE PROPOSAL OF CONVERSION OF THE CINEMA INTO MULTIPLEXES WAS SHELVED. THE ASSESSEE CLAIMED THIS EXPENSES AS REVENUE EXPENDITURE. THE REVENUE HELD IT TO BE A CAPITAL EXPENDITURE ON THE GROUND THAT THE EXPENSES WERE INCURRED FOR CREATING A NEW ASSET . HOWEVER THE TRIBUNAL ALLOWED THE EXPENDITURE AS BUSINESS EXPENDITURE U/S 37 OF THE ACT. ON APPEAL THE HONBLE HIGH COURT HELD THAT THE FEASIBILITY STUDIES CONDUCTED BY THE ASSESSEE WERE FOR THE PURP OSE OF THE SAME AND EXISTING BUSINESS WITH A COMMON ADMINISTRATION AND COMMON FUND AND THE STUDIES WERE ABANDONED WITHOUT CREATING ANY NEW ASSET , THEREFORE THE EXPENSES WERE FOR REVENUE NATURE. THIS CASE DECIDED BY THE JURISDICTIONAL HIGH COURT IS GERMANE TO THE INS TANT CASE AND THE RATIO - DECIDEND I LAID BY THE HONBLE HIGH COURT WHEN APPLIED TO THE CASE IN HAND WE FIND THAT THE ASSESSEE SOCIETY WAS IN THE BUSINESS OF PRODUCTION AND CARRYING ON MANUFACTURING OF UREA AND AMMONIA. THE ASSESSEE INTENDED TO EXPA ND ITS MANUFACTURING CAPACITIES IN THE SAME FIELD OF ACTIVITY BY ACQUIRING THE ESTABLISHMENT DOING THE SAME KIND OF BUSINESS I.E. WHICH PRODUC ES FERTILIZERS REQUIRED FOR AGRICULTURE THE PRODUCTS OF VARIOUS CHEMICALS BY ACQUIRING PHOSPHATIC FERTILIZER OUTSI DE INDIA. THE ASSESSING OFFICER HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PHOSPHATIC FERTILIZER IS ALSO A FERTILIZER LIKE UREA IN THE SAME LINE OF BUSINESS OF THE ASSESSEE AND IS AN ESSENTIAL ELEMENT IN THE AGRICULTURAL PRODUCTION OF THE COUNTRY. AND SINCE THE EXPENDI TURE INCURRED IS IN RESPECT OF SAME BUSINESS WHICH IS ALREADY CARRIED ON BY ASSESSEE AND IT IS FOR THE EXPANSION OF THE BUSINESS NAMELY TO START / ACQUIRE NEW UNIT WHICH IS IN THE SAME LINE OF BUSINESS AS THE EXISTING BUSINESS AND THERE IS UNITY OF CONTROL AND COMMON FUND THEN SUCH EXPENDITURE HAS TO BE TREATED AS BUSINESS EXPENDITURE. AND THE ASSESSEE WHO IS IN THE BUSINESS OF PRODUCTION OF FERTILIZER INTENDED TO PRODUCE MORE FERTILI Z ERS OF DIFFERENT VARIANT , FOR ULTIMATE PURPOSE OF PROMOT ION OF AGRICULTURAL PRODUCTION AND THOUGH THE SAID ATTEMPT WAS NOT SUCCESSFUL AND THE FACT THAT IT WAS ABANDONED IS OF NO CONSEQUENCE AND THE EXPENDITURE HAS TO BE TREATED AS BUSINESS EXPENDITURE . FROM THE FOREGOING FACTS OF ALL THE FOUR ITEMS, THE ASSESSE E MADE ATTEMPT TO CONVENIENTLY CARRY ON SOME MORE BUSINESS ACTIVITIES TO PRODUCE MORE PROFIT WHICH IT COULD NOT AND ULTIMATELY ABANDONED. ALL THE PAGE NO. 19 PAYMENTS WERE MADE TO OBTAIN CONSULTANTS REPORT, FEAS IBILITY STUDY FOR CARRYING ON SA ME , CONNECTED BUSINESS AC TIVITY BUT ULTIMATELY HAD TO BE ABANDONED FOR VARIOUS REASONS AS DETAILED AGAINST EACH CASE. SINCE SUBSTANTIALLY THE AMOUNTS WERE PAID FOR GETTING TECHNICAL REPORTS, DETAILS AND FEASIBILITY STUDIES, AND THE AMOUNTS HAVE BEEN DEBITED TO THE EXISTING HEAD 'LEGAL AND PROFESSIONAL CHARGES' AND QUALIFY AS REVENUE EXPENDITURE BECAUSE THE SAID EXPENDITURE INCURRED HAD DIRECT NEXUS WITH THE EXISTING BUSINESS CARRIED ON BY THE ASSESSEE IT IS ALLOWABLE EXPENDITURE U/S 37 OF THE ACT. 43 . WE FIND THAT THE LD CIT(A) HAS NOT LOOKED INTO THE ISSUE PROPERLY AND HENCE PASSED A CRYPTIC ORDER WITHOUT ANALYZING PROPERLY THE BUSINESS OF THE ASSESSEE , AND THEREFORE WE SET - ASIDE THE IMPUGNED ORDER IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. PRIYA VILLAGE ROADSHOWS LTD. (SUPRA) RATIO AND OTHER CASE LAWS DISCUSSED ABOVE AND WE HAVE NO HESITATION TO H O LD THAT THE CLAIM OF THE ASSESSEE WAS CORRECT AND NEED TO HAVE BEEN ALLOWED U/S 37 OF THE ACT. THEREFORE THIS GROUND OF THE APPE AL OF THE ASSESSE E IS ALLOWED. 44 . APROPOS GROUND NO. 4 IN RESPECT TO LEVY OF INTEREST U/S 234C. THE LD AR HAS SUBMITTED THAT CIT HAS ALLOWED THE WAIVER PETITION OF THE ASSESSEE, THEREFORE THE SAID GROUND IS NOT PRESSED. SO WE DISMISS THE SAME. 45. GROUND NOS. 5, 6 AND 7 ARE GENERAL GROUNDS AND THE SAME ARE ALSO DISMISSED. 46. IN THE RESULT THE APPEAL OF THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 1 . 03 . 2014 . - S D / - - S D / - ( G. D. AGARWAL) (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED 2 1 / 03 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI