ACIT 6(3), MUMBAI V. GRAVISS FOODS P.LTD, MUMBAI

ITA 1051/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100741 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 14-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2013
• Court: TRIBUNAL
• Department Lawyers: L K S DEHIYA; RAKESH K AGARWAL DRS
• Assessee Lawyers: A V SONDE
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 115JB; 37(1)

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO. 1051/M/2013 (AY: 2009 - 2010 ) ACIT - 6(3), R.NO.522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S. GRAVIS FOODS PVT LTD., 254 - C, INDIAN OIL BUKLDING, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. ./ PAN : AABCM 6895 P ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI L.K.S. DEHIYA AND MR. RAKESH K. AGARWAL, DRS / RESPONDENT BY : SHRI A.V. SONDE, AR / DATE OF HEARING : 21.07.2015 / DATE OF PRONOUNCEMENT : 28 .08.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 6.2.2013 IS AGAINST THE ORDER OF THE CIT (A) - 12, MUMBAI DATED 14.11.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,27,20,969/ - HELD AS PRE - OPERATING EXPENSE FOR A MAWA PROJECT - A NEW PROJECT UNCONNECTED WITH EXISTING BUSINESS AS CAPITAL IN NA TURE AND NOT DEDUCTIBLE U/S 37(1) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONSIDERING THE EXPENDITURE OF RS. 1,27,20,969/ - INCURRED BY THE ASSESSEE ON MAWA PROJECT AS EXPENDITURE INCURRED FOR EX PANSION OF THE DAIRY BUSINESS OF THE ASSESSEE WHEN IT WAS TOTALLY A NEW BUSINESS UNCONNECTED WITH THE EXISTING BUSINESS. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING & MARKETING OF ICE - CR EAMS OF BASKIN ROBBINS BRAND . ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 28,57,36/ - UNDER NORMAL PROVISIONS OF THE ACT AND RS. 1,50,47,439/ - AS BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. AS PER THE MEMORANDUM OF ASSOCIATION (M OA), ASSESSEE COMPANY IS INCORPORATED IN 1984 WITH THE OBJECT TO PRODUCE, BUY, PROCESS, GRADE, 2 PACK, STORE AND SELL MILK, MILK PRODUCTS AND ICE CREAM. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE DEBITED EXPENDITURE OF RS. 1,24,81,369/ - TOWARDS CANCELLATION OF PROJECT INVOLVING MANUFACTURING AND SALE OF KHOA , A MILK PRODUCT. THE BREAK - UP OF THE ABOVE EXPENDITURE FOR THE SUM OF RS. 1,27,20,969/ - IS GIVEN IN A TABULAR FORM AND THE SAME IS NARRATED ON PAGE 5/6 OF THE IMPUGNED ORDER. THE S AID EXPENDITURE IS DIVIDED INTO VARIOUS HEADS VIZ., SALARIES / WAGES AND ALLOWANCES; STAFF WELFARE AND CANTEEN EXPENSES; SAMPLING EXPENSES; CONVEYANCE AND TRAVELLING EXPENSES; RENT; PROFESSIONAL CHARGES; PRINTING AND STATIONERY, POSTAGE AND COURIER CHARGES ; TELEPHONE AND INTERNET CHARGES; BUSINESS DEVELOPMENT EXPENSES; FEES AND SUBSCRIPTION, RATES AND TAXES; REPAIRS AND MAINTENANCE; FREIGHT, OCTROI, ASSIGNMENT CHARGES ETC. IT IS ALSO SUBMI TTED THAT THE SAID PRODUCT WAS NEVER MANUFACTURED OR MARKETED AND TH E SAME IS ABORTED EVENTUALLY. IN RESPONSE TO THE ASSESSING OFFICERS PROPOSAL TO TREAT THE SAID EXPENDITURE AS PRE - OPERATIVE EXPENSES, THE ASSESSEE REPLIED VIDE LETTER DATED 22.12.2011 AND GIST OF THE SAID REPLY IS SUMMARIZED IN PARA 5.3 OF THE ASSESSMENT ORDER. ACCORDINGLY, THE CASE OF THE ASSESSEE IS THAT IT IS IN THE BUSINESS OF MILK PRODUCTS. AS PER THE OBJECT CLAUSE OF THE MOA, THE MANUFACTURING OF MAWA / KHOA IS PART OF ITS APPROVED BUSINESS OBJECTIVES. THE ICE - CREAMS ALSO BELONG TO THE SAME FAMIL Y OF MILK PRODUCTS. THE SAID EXPENDITURE OF RS. 1,27,20,969/ - WAS NOT INCURRED ON ANY CAPITAL ASSET E NDURING BENEFIT . THE PROJECT OF MANUFACTURING AND SUPPLY OF KHOA, A MILK PRODUCT, IS A PART OF THE EXISTING ICE - CREAM BUSINESS OF THE ASSESSEE. ALL THESE BUSINESS ACTIVITIES RELATING TO THE ICE - CREAM MANUFACTURING AS WELL AS KHOA MANUFACTURING CONSTITUTES A PRODUCT DIFFERENTIATION U NDER THE COMMON FUND, COMMON CONTROL AND COMMON MANAGEMENT OF THE ASSESSEE COMPANY. ASSESSEE ALSO SUBMITTED THAT THE PROJECT WAS ABORTED AND NEVER EARNED ANY ENDURING BENEFIT OUT OF THE EXPENDITURE AND THEREFORE, THE ABOVE SAID EXPENDITURE IS NEITHER FOR ANY CAPITAL INVESTMENT NOR IT IS A PRE - OPERATIVE EXPENDITURE. SINCE, THE A SSESSEE IS IN THE ICE - CREAM BUSINESS FOR A LONG TIME, SO THE LAUNCHING OF A NEW BUSINESS CONSTITUTES EXPANSION OF AND EXTENSION OF EXISTING BUSINESS OF THE ASSESSEE , WHICH IS ALREAD Y COMMENCED THEN . FOR THIS PROPOSITION, ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE COMPANY LTD VS. CIT [124 ITR 1] . ASSESSING OFFICER DID NOT CONSIDER THE ABOVE ARGUMENT OF THE ASSESSEE AND REJECTED THE SAME. THE 3 REASONS GIVEN BY THE AO FOR SUCH REJECTION ARE NARRATED IN PARA 5.4 OF THE IMPUGNED ORDER. THE SUMMARY OF THE AOS REASONING FOR REJECTION INCLUDES THAT THE MAWA A NEW PRODUCT OF THE ASSESSEE AND THE MANUFACTURING OF A NEW PRODUCT CONSTITUTES A NEW BUSINESS. FURTHER, AO RELIES ON THE REPLY LETTER OF THE ASSESSEE DATED 22.12.2011, WHEREIN IT WAS STATED THAT THE ASSESSEE IS LAUNCHING A NEW PROJECT CONSTITUTING AN EXPANSION AND EXTENSION OF THE EXISTING BUSINESS. AO INTERPRETED THE SAME AS STATING A SEPARATE PROJECT ALTOGETHER. AO IS OF THE OPINION THAT THE SAID EXPENDITURE OF RS. 1,27,20,969/ - DO NOT FALL IN THE NEW FIELD. HE ALSO REFERS THE EXPRESSION PRE - OPERATIVE EXPENSES FROM THE SAID LETTER DATED 22.12.2011. AO IS ALSO AWARE OF THE FACT THA T THESE EXPENSES ARE INCURRED TOWARDS ABORTED MAWA PRODUCT. HOWEVER, AO IS OF THE OPINION THAT SUCH MAWA PRODUCT CONSTITUTES A NEW PROJECT ENTERING INTO NEW HORIZONS OF CUSTOMERS. AO MENTIONED THAT THE EXPENDITURE MAINLY IS FOR SETTING UP OF A NEW PROJEC T AT AMRITSAR AND THEREFORE, THE SAME IS IN REVENUE FIELD. HE ACCORDINGLY HELD THAT THE EXPENDITURE OF RS. 1,27,20,969/ - IS NOT AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT AND PROCEEDED TO MAKE AN ADDITION. AGGRIEVED WITH THE SAID ADDITION, ASSESSEE FI LED AN APPEAL BEFORE THE CIT (A). 3. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE FILED WRITTEN SUBMISSION DATED 23.10.2012. IN THE SAID WRITTEN SUBMISSIONS, ASSESSEE EXPLAINED THE BACKGROUND OF ASSESSEE - COMPANY AND INFORMED THE ABOVE REFERRED DET AILS OF MAWA PROJECT AND ALSO COMMUNICATED THE SAID EXPENDITURE WAS CONSIDERED AS A CAPITAL WORK - IN - PROGRESS IN THE BOOKS OF ACCOUNTS (PARA 3.2 OF THE CIT (A)S ORDER) . ASSESSEE FURTHER COMMUNICATED THE GENERAL NATURE OF THE EXPENDITURE BY GIVING THE BREA K - UP OF THE DETAILS FOR THE SAID SUM OF RS. 1,27,20,969/ - AND INFORMED THAT THE SAID EXPENDITURE WAS TREATED AS DEDUCTIBLE EXPENDITURE IN THE COMPUTATION OF TOTAL INCOME. FURTHER, HE OBJECTED TO THE SAID ADDITION MADE BY THE AO AND EXPLAINED THAT THE MAWA , BEING A MILK PRODUCT FALLS IN THE GENERAL CLASS OF MILK PRODUCTS, THE PRIME OBJECT OF THE ASSESSEE - COMPANY. AS PER THE ASSESSEE, CONSIDERING THE GENERAL NATURE OF THE ALLOWABLE EXPENDITURE, THE SAID EXPENDITURE DID NOT CREATE ANY ASSET OF CAPITAL NATURE WITH ENDURING BENEFITS. HE ALSO SUBMITTED THAT NO NEW ASSET COME INTO EXISTENCE BY INCURRING THE SAID EXPENDITURE. HE ALSO EXPLAINED THAT THE ICE - CREAMS ARE MADE OUT OF MILK AND THE PRODUCT OF MAWA ALSO HAS MILK AS A RAW MATERIAL. HE ALSO ARGUED THAT TH E SAID EXPENDITURE WAS INCURRED SUBSEQUENT TO THE 4 SET - UP OF THE ASSESSEES BUSINESS AND THEREFORE, THE EXPENDITURE SHOULD NOT BE CATEGORIZED AS PRE - OPERATIVE EXPENDITURE, MERELY RELYING ON THE EXPRESSIONS USED BY THE ASSESSEE IN THE CORRESPONDENCE WITH THE AO. ASSESSEE ALSO EXPLAINED THE APPLICABILITY OF THE PROVISIONS OF SECTION 37(1) OF THE ACT AND REASONED THE EXPENDITURE IN QUESTION FALLS WITHIN THE MEANING OF THE SAID PROVISIONS OF SECTION 37(1) AND THEREFORE, THE CLAIM IS FULLY ALLOWABLE. HE ALSO RE LIED ON THE FACT THAT THERE IS A COMPLETE UNITY OF CONTROL AND INTERLACING, INTERDEPENDENCE AND INTERCONNECTION OF ALL THE BUSINESS ACTIVITIES OF THE ASSESSEE WITH THAT OF THE MAWA PROJECT. THERE IS COMMON FUND, COMMON CONTROL AND COMMON MANAGEMENT IN LAU NCHING THE MAWA PROJECT, WHICH FALLS IN THE SAME LINE OF BUSINESS OF THE ASSESSEE IE FOOD BUSINESS / DAIRY PRODUCT. ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PRITHVI INSURANCE CO (63 ITR 632), WHICH IS RELEVANT FOR THE PR OPOSITION S RELATING TO THE ABOVE PROVISO. THE SAID JUDGMENT HAS LAID DOWN THE PRINCIPLE TO DECIDE WHETHER TWO BUSINESSES ARE SEPARATE OR A PART AND PARCEL OF THE SAME BUSINESS. THE GUIDELINES ALSO HELPS TO COME TO THE CONCLUSION THAT IF THERE WAS COMMON M ANAGEMENT, COMMON BUSINESS ORGANIZATION / ADMINISTRATION / FUND / PLACE BUSINESS ETC WHICH HELPS TO COME TO THE CONCLUSION THAT THERE WAS INTERCONNECTION, INTERLACING AND INTERDEPENDENCE. IF ANY SUCH ELEMENTS ARE SEEN IN A BUSINESS ACTIVITY, THAT WOULD ME AN THAT SUCH A NEW BUSINESS LIKE MAWA PROJECT CONSTITUTES THE SAME BUSINESS. THEY ALSO REFERRED TO VARIOUS SUBSEQUENT JUDGMENTS VIZ (I) HOOGHLY TRUST (P) LTD VS. CIT (73 ITR 685); (II) PRODUCTION EXCHANGE CORPORATION LTD VS. CIT (77 ITR 739) AND OTHERS. ASSESSEE ALSO CITED THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA CHEMICALS LTD (256 ITR 399) FOR THE SAID IDENTICAL PROPOSITION. THUS, THE CASE OF THE ASSESSEE IS THAT THE MAWA PROJECT BEING MILK / DAIRY PRODUCT CONSTI TUTES THE SAME EXISTING BUSINESS AND THEY QUALIFY THE CHARACTERS OF INTERLACING, INTERDEPENDENCE AND INTERCONNECTION OF THE MAWA PROJECT WITH THAT OF THE EXISTING ICE - CREAM / DAIRY BUSINESS. HE RELIED ON VARIOUS OTHER DECISIONS FROM VARIOUS HIGH COURTS IN SUPPORT OF HIS SUBMISSIONS. CIT (A) CONSIDERED THE SAME AND ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD IN FAVOUR OF THE ASSESSEE AS PER THE LENGTHY DISCUSSION GIVEN IN PARAS 5.1 TO 5.4 OF HIS ORDER. CIT (A) IS OF TH E OPINION THAT IN PRINCIPLE MAWA PRODUCT IS RELATED TO THE DAIRY MILK PRODUCTS BUSINESS. CIT (A) IS ALSO OF THE OPINION THAT THE ASSESSEE QUALIFIES THE 5 TEST RELATING TO THE COMMON FUND, COMMON CONTROL AND COMMON MANAGEMENT. FURTHER, IT IS ALSO MENTIONED THAT N O CASE IS MADE OUT BY THE AO THAT THERE IS NO INTERLACING, INTERDEPENDENCE AND INTERCONNECTION OF THE EXISTING AND NEW BUSINESS ACTIVITIES. FURTHER, HE ANALYZED THE NATURE OF EXPENDITURE AND FIND NONE OF THEM ARE HELPFUL IN CREATING THE NEW ASSET AS TECHNICALLY THE SAID EXPENSES A RE INCURRED FOR OFFICE MAINTENANCE AND MARKETING ACTIVITIES AND OTHER OVERHEADS. CIT (A) ALSO DISCUSSED THE DETAILS ABOUT THE ABORTED PRODUCT. HE ALSO COMMENTED ON THE NOTE LEFT BY THE AUDITORS IN THE FINANCIAL STATEMENTS AND HELD THAT THE SAID EXPENSES WERE RELATED TO A NEW PROJECT AND PRODUCT AND NOT FOR SEPAR ATE BUSINESS ACTIVITIES. CIT (A) ALSO RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF TATA CHEMICALS LTD (SUPRA), WHICH AFFIRMED THE PRINCIPLES RELATING TO THE COMMON MANAGEMENT / ADMINISTRATION / BUSINESS ORGANIZATION / FUND. RELY ING ON THE JUDGMENT IN THE CASE OF CIT VS. ESCORT AUTO COMPONENT LTD (323 ITR 11), CIT (A) HELD THAT THE EXPENDITURE INCURRED ON DIVERSIFICATION AND EXPANSION OF NEW PRODUCT RANGE INCLUDING ACQUISITION OF PLANT AND MACHINERY TO AID SUCH EXPANSION, SUCH EXP ENDITURE IS ALLOWABLE. FURTHER, CIT (A) RELIED ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF STERLITE INDUSTRIES (INDIA) LTD VS. ADDL. CIT (102 TTJ 53) (MUMBAI), WHEREIN IT WAS HELD THAT THE INTEREST EXPENDITURE INCURRED ON THE BORROWED LOANS FOR ACQUIRING A NEW PLANT AND MACHINERY, WHICH IS FOR EXPANSION OF THE EXISTING BUSINESS CONSTITUTES AN ALLOWABLE REVENUE EXPENDITURE. THERE IS ALSO A REFERENCE TO THE DECISION OF ITAT, CHANDIGARH BENCH IN THE CASE OF GLAXO SMITHKLLINE CONSUMER HEAL TH CARE LTD VS. ACIT (1121 TTJ 94) (CHANDIGARH) AS WELL AS THE ITAT, DELHI BENCH DECISION IN THE CASE OF CIT VS. USHA IRON & FERRO METAL CORP. LTD [2007] 163 TAXMAN 256 (DELHI) FOR AN IDENTICAL PROPOSITION. EVENTUALLY, VIDE PARA 5.3 OF HIS ORDER , CIT (A) GAVE RELIEF TO THE ASSESSEE AND THE SAID PARA OF THE CIT (A) IS REPRODUCED AS UNDER: 5.3. IN THE CASE OF CIT VS. ESCORT AUTO COMPONENT LTD (323 ITR 11), THE HONBLE PUNJAB & HARYANA HIGH COURT CLEARLY STATED THAT IF AN APPELLANT INCURS EXPENDITURE ON DIVE RSIFICATION AND EXPANSION OF NEW PRODUCT RANGE INCLUDING ACQUISITION OF MACHINERY TO AID SUCH EXPANSION , THE SAID EXPENSES / EXPENDITURE IS TO BE ALLOWED AS A BETA EXPENDITURE. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF STERLITE INDUSTRIES (INDIA) LTD VS. ADDL.CIT (102 TTJ 53) (MUMBAI), WHEREIN THE HONBLE COURT HAS HELD THAT WHEREIN THE APPELLANT SETS UP NEW PLANT WHICH IS INTER - DEPENDENT ON THE EXISTING ONES AND ARE SUPERVISED BY THE COMMON MANAGEMENT OF THE COMPANY THEY ARE MERE EXPANSION OF THE EXISTIN G BUSINESS AND THEREFORE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST INCURRED ON FUNDS BORROWED FINANCING THE NEW PROJECT . SIMILARLY, IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD VS. ACIT (1121 TTJ 6 94) (CHANDIGARH), IT HAS BEEN HELD THAT DEV ELOPMENT EXPENSES INCURRED BY ASSESSEE FOR INTRODUCING AND DEVELOPING NEW PRODUCT IN THE EXISTING LINE OF BUSINESS MERELY ENABLES THE ASSESSEE TO REMAIN COMPETITIVE IN THE MARKET AND RETAIN CONSUMER PREFERENCES AND LOYALTY TOWARDS BRAND OF PRODUCTS AND THE REFORE, IT IS ALLOWABLE AS REVENUE EXPENDITURE . THE EXPENDITURE INCURRED BY ASSESSEE FOR EXPANSION AND BETTERMENT OF ITS EXISTING BUSINESS WOULD NEED TO BE TREATED AS A REVENUE EXPENSE. RELIANCE IS ALSO PLACED IN THE CASE OF CIT VS. USHA IRON & FERRO MET AL CORP. LTD (2007) 163 TAXMAN 256 (DELHI). AGGRIEVED WITH THE ABOVE, RELIEF GRANTED BY THE CIT (A), REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 4. DURING THE PROCEEDINGS BEFORE US, LD DR FOR THE ASSESSEE NARRATED THE FACTS OF THE CASE AND READ OUT THE RELEVANT PARAS OF THE ASSESSMENT ORDER TO MAKE OUT A CASE THAT THE DECISION OF THE AO IS PROPER. FURTHER, REFERRING TO THE ORDER OF THE CIT (A) AND TH E CONCLUSIONS DRAWN THEREON, LD DR FOR THE REVENUE ARGUED THAT THE MAWA PRODUCT IS NOT AKIN TO THE ICE - CREAM PRODUCTS. HOWEVER, HE AGREED WITH THE PROPOSITION THAT FOR BOTH THE PRODUCTS, MILK, SUGAR AND CREAMS ARE THE RAW MATERIAL AND THEY BELONG TO THE C OLD CHAINS. LD DR RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF JONAS WOODHEAD AND SONS (INDIA) LTD VS. CIT [224 ITR 342] FOR THE PROPOSITION THAT IT HAS LAID DOWN THE PRINCIPLES AS TO IDENTIFY THE CAPITAL OR REVENUE NATURE OF CERTAIN EXPENDITURE. FURTHER, HE AGREED TO THE FACT THAT THE SAID JUDGMENT RELATES TO THE PAYMENT OF SUPPLY OF TECHNICAL KNOW - HOW AND SET - UP OF PLANT AND MACHINERY. HE ALSO RELIED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF TRIVENI ENGINEERING WO RKS LTD VS. CIT (232 ITR 639) WHICH IS RELEVANT FOR THE PROPOSITION THAT THE NATURE OF EXPENDITURE WOULD NOT CHANGE TO REVENUE MERELY BECAUSE THE PROJECT DID NOT MATERIALIZE . THE SAID CASE WAS DELIVERED ON THE FACTS THAT THE ASSESSEE INCURRED EXPENDITURE TO BRING INTO EXISTENCE AN ASSET OR AN ADVANTAGE OF ENDURING BENEFIT OF TRADE UTILIZING THE BY - PRODUCTS OF THE SUGAR UNITS, WHICH IS CERTAINLY IN THE CAPITAL FIELD. IN THAT CASE, THE EXPENDITURE WAS WRITTEN - OFF AS ABORTED EXPENDITURE SINCE, THE PROJECT D ID NOT MATERIALIZE. OTHERWISE, LD DR HEAVILY RELIED ON THE ORDER OF THE AO. 5. PER CONTRA, SHRI A.V. SONDE, LD COUNSEL FOR THE ASSESSEE RELIED HEAVILY ON THE ORDER OF THE CIT (A) AND THE DETAILED WRITTEN SUBMISSIONS CONTAINING THE SERIES OF CASE LAWS FURN ISHED BEFORE THE CIT (A) VIDE WRITTEN SUBMISSION LETTER D ATED 23.10.2012. THESE ARE EXTRACTED AND FORM PART OF THE IMPUGNED ORDER AT PARA 3.2. IN SUMMARY, THE CASE OF THE LD COUNSEL FOR THE ASSESSEE IS THAT THE EXPENDITURE 7 INCURRED BY THE ASSESSEE AND DE BITED TO THE P & L ACCOUNT RELATING TO THE MAWA PROJECT RELATES TO THE GENERAL OVERHEADS, MARKETING AND OTHER OFFICE EXPENSES. NONE OF THESE EXPENSES HAVE CREATED ANY ASSET OR AN ADVANTAGE OF ENDURING BENEFIT. THEREFORE, IN PRINCIPLE, THE SAID EXPENDITUR E HAS NOT CREATED ANY CAPITAL ASSET TO GENERATE INCOME TO THE ASSESSEE ON STAND ALONG BASIS. 6. MAWA PROJECT IS AIMED TO MANUFACTURE AND SALE OF KHOA, WHICH IS UNDISPUTEDLY A DAIRY PRODUCT FOR WHICH THE ASSESSEE IS INCORPORATED. THE ICE - CREAMS OF BASKIN ROBBINS FALL IN THE SAME GENUS OF DAIRY PRODUCTS. HE HAS ALSO REITERATED THE FACT THAT THE REVENUE DID NOT ESTABLISH THE ABSENCE OF INTERLACING, INTERDEPENDENCE AND INTERCONNECTION OF THE BUSINESS ACTIVITIES AFTER CONSIDERING THE SET PRINCIPLES OF COMMON MANAGEMENT / ADMINISTRATION / BUSINESS ORGANIZATION / FUND. HE ALSO CITED VARIOUS DECISIONS WHICH WERE ALREADY DISCUSSED IN THE ABOVE PARAS OF THIS ORDER. REFERRING TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF JONAS WOODHEAD AND SONS (IND IA) LTD (SUPRA) AND THE DELHI HIGH COURT JUDGMENT IN THE CASE OF TRIVENI ENGINEERING WORKS LTD (SUPRA), LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS ARE DISTINGUISHABLE SO FAR AS THE LEGAL PROPOSITIONS ARE CONCERNED THERE IS NO DISPUTE AS THEY ALL SPEAK OF THE SAME LANGUAGE IE SO LONG AS INTERLACING, INTERDEPENDENCE AND INTERCONNECTION OF THE ACTIVITIES ARE CONCERNED IF THEY ARE CLUBBED WITH THE PRINCIPLES OF COMMON MANAGEMENT / ADMINISTRATION / BUSINESS ORGANIZATION / FUND, THE NEW BUSINESS SHOULD BE TREATED AS PART OF THE EXISTING BUSINESS. ACCORDINGLY, THE EXPENSES INCURRED IN CONNECTION WITH THE SAID NEW PROJECT OF THE ASSESSEE CONSTITUTE ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE PRECEDENTS CITED BY THE LD REPRESENTATIVES OF BOTH THE PARTIES. AFTER HEARING BOTH THE PARTIES AND PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US, OUR ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS. 8. NATURE OF EXPENDITURE : WE FIND THAT THE EXPENDITURE IN QUESTION UNDISPUTEDLY IS OF REVENUE NATURE. THE SAME IS EVIDENT FROM THE NATURE OF NOMINAL ACCOUNTS THEY ARE ACCOUNTED IN THE RECORDS OF THE ASSESSEE. BY NO STRETCH OF IMAGINATION THE EXPENDITURE INCURRED ON ACCOUNTS OF SALARIES, WAGES, MARKETING EXPENDITURE, PROFESSIONAL FEE, TRAVELLING ETC FALLS IN THE CAPITA L FIELDS BUT FOR THE 8 ALLEGED PREOPERATIVE NATURE OF THE CLAIM. THEREFORE, WE HAVE NO DOUBT TO TREAT THE IMPUGNED EXPENDITURE AS ALLOWABLE REVENUE BUT FOR THE ALLEGATION OF THE AO . NO EXPENDITURE INCURRED ON ACQUISITION OF THE CAPITAL ASSETS SUCH AS PLANT & MACHINERY, LAND AND BUILDING, TECHNICAL KNOW - HOW ETC., IS INCLUDED IN THE EXPENDITURE CLAIMED BY THE ASSESSEE. 9. NEW PRODUCT VS NEW BUSINESS: MEMORANDUM OF ASSOCIATION OF THE ASSESSEE PROVIDES FOR THE FOLLOWING MAIN OBJECT OF THE BUSINESS OF THE ASSESS EE AND THE SAME READS AS UNDER: ...........T O PRODUCE OR CAUSE TO BE PRODUCED, BUY, PROCESS, GRADE, PACK, STORE AND SELL MILK, MILK PRODUCTS AND ICE - CREAM 9.1. FROM THE ABOVE IT IS EVIDENT THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF THE DAIRY/MILK PRODUCTS, ICE CREAMS ETC. ACCORDINGLY, THE MANUFACTURE OF PRODUCT OF THE ASSESSEE DOES NOT STOP WITH THE ICE - CREAMS ONLY. ASSESSEE MANUFACTURES THE ICE - CREAMS FO R THE BASKIN ROBBINS FOR MAKING AND MARKETING IN INDIA. THE MILK IS AN IMPORTANT RAW MATERIAL FOR THE MANUFACTURE OF THE ICE - CREAMS. THE EXPRESSION MILK PRODUCT IS A GENERIC EXPRESSION AND IN OUR OPINION, THE SAID EXPRESSION COVERS ALL KINDS OF MILK PROD UCTS. ICE CREAMS ARE MADE UP OF THE MILK OR THE CREAM. BOTH THE MILK AND THE CREAM ARE THE DAIRY PRODUCTS. 9.2. IN THE CONTEXT OF ICE - CREAMS, A MILK - PRODUCT THE CREAM IS A DAIRY PRODUCT COMPOSED OF THE HIGHER - BUTTERFAT LAYER SKIMMED FROM THE TOP OF MILK BEFORE HOMOGENIZATION . CREAM BEING OF THE LESS DENSE, THE SAME IS GATHERED ON THE TOP OF THE DENSE MILK. THEREFORE, IT IS NOT PROPER FOR LD DR TO ARGUE THAT THE I CE - CREAMS OF THE BASKIN ROBBINS BRANDS ARE NOT THE MILK PRODUCTS. 10 . NO W WHAT IS THE NATURE OF THE MA WA? IS IT A MILK PRODUCT OR NOT AND IF FAILS IN THE SCOPE OF THE ASSESSEES BUSINESS OF NOT. THE UNDISP UTED FACTS INCLUDE THAT THE MA WA IS MADE UP OF THE MILK PRODUCT AND THEREFORE, IT IS A DAIRY PRODUCT AND THEY SAME IS COVERED WITHIN THE SCOPE OF THE DECLARED BUSINESS OF THE ASSESSEE. WE HAVE CONSIDERED THE LD DRS ARGUMENT IS THE PREOPERATIVE EXPENDITURE INCURRED BEFORE A NEW PRODUCT IS LAUNCHED CONSTITUTES A NEW BUSINESS AND REJECT THE SAME. 9 11 . INTERLACING OF THE ACCOUNTS, MANAGEMENT AND CONTROL: IT IS A SETTLED PROPOSITION IN LAW THAT SO LONG AS THERE EXISTS THE INTERLACING OF THE CONTROL & MANAGEMENT, INTERLACING OF THE ACCOUNTS ETC, NO NEW BUSINESS IS SAID TO HAVE BEEN SET UP. IN THE INSTANT CASE, NONE OF THESE TESTS ARE CLEARED. AO HAS NOT MA DE OUT THAT THE MA WA DIVISION IS ENTIRELY SEPARATE FROM THE POINTS OF THE ABOVE AND IT IS UNCONNECTED TO THE ICE - CREAM DIVISIONS. ACTUALL Y, BOTH THESE DIVISIONS ARE UNDER THE SAME MANAGEMENT - CONTROL AND ARE FINANCIALLY INTERCONNECTED. IN THAT SENSE, THE CIT(A) HAS NOT APPLIED HIS MIND TO THE SAID SETTLED LEGAL PROPOSITIONS. 12 . ABORTED EXPENDITURE: FURTHER, IT IS A DECIDED ISSUES LEGALLY T HAT THE CAPITAL EXPENDITURE INCURRED ON THE CAPITAL ASSETS OF A ABORTED PROJECT IS NOT AN ALLOWABLE EXPENDITURE. HOWEVER, THE REVENUE EXPENDITURE SUCH AS THE SALARIES, WAGES, TRAVELLING, FEE, RENT ETC OF AN ABORTED PROJECT IS AN ALLOWABLE EXPENDITURE. 13 . THER EFORE, THE ICE - CREAM AND THE MAWA FALL IN THE GENUS OF THE DAIRY/MILK PRODUCTS AND THEY ARE COVERED BY THE NATURE OF DECLARED BUSINESS OF THE ASSESSEE. AS SUCH, THE IMPUGNED EXPENDITURE CLAIMED BY THE ASSESSEE DOES NOT INCLUDE ANY EXPENDITURE OF C APITAL NATURE. THE CONTROL AND MANAGEMENT, ACCOUNTS, CEOS FOR BOTH THE DAIRY /MILK PRODUCTS IS ONE AND THE SAME. AO HAS NOT MADE OUT THE ABSENCE OF INTERLACING OF THE ABOVE. UNDER THE FACTUAL MATRIX OF THE CASE, WE FIND THE CLAIM OF THE ASSESSEE IS ALLOWA BLE. AC CORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION. THE ORDER OF THE CIT (A) IS THUS, AFFIRMED. 14 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2015. SD/ - SD/ - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 28 .8 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 10 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI