Fauercia Emissions Control Technologies India Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1281/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8027 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-05-2014
• Court: TRIBUNAL
• Department Lawyers: A B KOLI JCIT
• Assessee Lawyers: RAGHUNATHAN SAMBATH
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! . ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS.1281 & 1282 /MDS./2014 ( / ASSESSMENT YEARS :2008-09 & 2009-10) M/S.FAURECIA EMISSIONS CONTROL TECHNOLOGIES INDIA PRIVATE LTD ., NO.26, 4 TH FLOOR, FAGUN MANSON, C- IN-C ROAD, EGMORE, CHENNAI 600 008. VS. DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI 34. PAN AAACA 8450 F ( %& / APPELLANT ) ( '(%& / RESPONDENT ) / APPELLANT BY : MR.RAGHUNATHAN SAMBATH,ADVOCATE / RESPONDENT BY : MR.A.B.KOLI,JCIT, D.R ! / DATE OF HEARING : 11.01.2016 '# ! /DATE OF PRONOUNCEMENT : 10.02.2016 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INC OME TAX(A)-II, CHENNAI DATED 11.03.2014 PERTAINING TO THE ASSESSM ENT YEARS 2008- ITA NOS.1281,1282/MDS/2014 2 09 & 2009-10. SINCE CERTAIN ISSUES ARE COMMON NATU RE, THESE TWO APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER AND DI SPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN BOTH THE APPEALS IS WITH REGARD TO DISALLOWANCE OF ROYALTY PAYMENTS ON ACCOUNT OF THE SAME BEING TREATED AS CAPITAL EXPENDITURE. 3. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSE SSEE COMPANY DEBITED IN ITS P&L ACCOUNT AMOUNTS OF RS.1,04,10,66 5/- & ` 78,89,750/- UNDER THE HEAD ROYALTY PAID TO SANGO CO. LTD, JAPAN AND EMCON TECHNOLOGIES, GERMANY FOR ASSESSMENT YEAR 2008-09 & 2009-10 RESPECTIVELY. THIS ROYALTY WAS PAID FOR U SING TECHNICAL AND ENGINEERING INSTRUCTION KNOWHOW AND THE COPY RIGHT MATERIALS RELATING TO MANUFACTURE, ASSEMBLY AND SALE & DISTRIBUTION OF PRODUCTS. THE ASSESSEE CLAIMED THE ENTIRE ROYALTY PAYMENTS AS REV ENUE EXPENSES AND DEBITED TO P&L ACCOUNT. THE AO TREATED THE SAID ROYALTY PAYMENTS AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME. HOWEVER, THE AO ALLOWED DEPRECIATION @ 25% ON THE ROYALTY PA YMENTS, TREATING THEM AS INTANGIBLE ASSETS. ON APPEAL, THE CIT(A) CONFIRMED ITA NOS.1281,1282/MDS/2014 3 THE ACTION OF THE AO. AGAINST THIS, THE ASSESSEE I S IN APPEAL BEFORE US. 4. THE LD.A.R SUBMITTED BEFORE US THAT THE ROYALTY WAS PAID ON THE BASIS OF A PARTICULAR PERCENTAGE OF THE SALES M ADE IN EACH YEAR. HENCE, IT AMOUNTS TO A REVENUE EXPENDITURE AND ALLO WABLE IN ITS ENTIRETY. THE LD.A.R FURTHER SUBMITTED THAT ONLY T HE ONE TIME UP-FRONT PAYMENT OF ROYALTY AT THE BEGINNING OF THE AGREEMEN T, IF ANY PAID, IS TO BE CONSIDERED AS CAPITAL EXPENDITURE. ITS PAYME NT FOR ROYALTY IS FOR THE USE OF TECHNICAL KNOWHOW ETC. FROM YEAR TO YEAR AND THE PAYMENT OF ROYALTY IS ACCORDINGLY DISTRIBUTED OVER A NUMBER OF YEARS, BASED ON THE QUANTUM OF SALES MADE. HE PLEADED THAT THE ROY ALTY PAID ANNUALLY, BASED ON THE PERCENTAGE OF SALES MADE, IS AN ANNUAL CHARGE AND ALLOWABLE AS REVENUE EXPENDITURE. HE AL SO RELIED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF M/S.IHD INDUSTRIES PVT. LTD IN ITA NO.2405/MDS./2014 VIDE O RDER DATED 02.06.2015 AND ALSO THE JUDGMENT OF M/S.INDIA NIPPO N ELECTRICALS LTD. IN ITA NO.1706/MDS./2014 VIDE ORDER DATED 18.12.201 5 WHEREIN IT WAS HELD THAT:- ITA NOS.1281,1282/MDS/2014 4 WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SOUTHERN SWITCH GEAR LTD (SUPRA). IN THAT CASE THE FOREIGN COMPANY WAS REQUIRED TO MAINTAIN T HE ASSESSEES FACTORY IN INDIA. BEING SO, IT WAS HELD THAT THE ASSESSEE GOT THE ENDURING BENEFIT AND IT IS A CAPITAL EXPENDITURE. HOWEVER, IN THE PRESENT CASE, THOUGH THE AGREEMENT WAS FOR 10 YEARS , THE ROYALTY IS BASED ON THE QUANTUM OF SALES MADE BY THE ASSESSE E ONLY. BEING SO, THE ABOVE JUDGMENT CANNOT BE STRAIGHTLY A PPLIED TO THE FACTS OF THE PRESENT CASE. CONSIDERING THE FACTS O F THE CASE, IN OUR OPINION, THE JUDGMENT OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS HITECH ARAI LTD, 368 ITR 577, IS APPLICABLE. IN THAT CASE, IT WAS HELD THAT WHERE THE ROYALTY PAYMENT MADE BY THE ASSESSEE UNDER RENEWAL AGREEMENTS WERE FOR GRANT OF LICENSE TO AN EXISTING COMPANY FOR MANUFACTURE AND SALE OF AUTOMOBILE PART S AND COMPONENTS FOR SUBSEQUENT PERIODS, AFTER THE EXPIRY OF ORIGINAL PERIOD OF LICENSE AND IT WAS NOT TECHNICAL KNOW-HOW FOR SETTING UP A NEW PLANT OR FOR MANUFACTURING A COMPLETELY NEW PRO DUCT WITH AID AND ASSISTANCE OF FOREIGN COMPANY, PAYMENT MADE WAS PURELY REVENUE IN NATURE, MORE SO, WHEN DEPARTMENT HAD FOR THE NINE EARLIER ASSESSMENT YEARS ACCEPTED THE FACT THAT THE PAYMENT MADE TOWARDS ROYALTY WAS REVENUE EXPENDITURE AND HAD NOT RAISED DISPUTE THEREON. ITA NOS.1281,1282/MDS/2014 5 5. FURTHER, HE RELIED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS PANASONIC CARBON INDIA COMPAN Y LTD IN TAX CASE APPEAL NOS. 552, 553, 554 AND 556 OF 2010, ORD ER DATED 12.7.2010. THE TRIBUNAL HAS ALSO TAKEN THE SAME VI EW IN THE CASE OF M/S INDIA JAPAN LIGHTING P. LTD VS ACIT IN I.T.A.NO S.676 TO 678/MDS/2010, DATED 10.6.2011. ACCORDINGLY, IN OUR OPINION, THE ASSESSEES CLAIM HAS TO BE ALLOWED AND IT IS TO BE TREATED AS REVENUE EXPENDITURE ONLY. 6. THE LD.D.R SUBMITTED THAT THERE COULD BE TWO TY PES OF ROYALTY PAYMENTS. THE FIRST CATEGORY IS A ONE TIME UP-FRON T PAYMENT OF ROYALTY AT THE BEGINNING OF THE AGREEMENT. THIS CAT EGORY FORMS A CAPITAL EXPENDITURE BECAUSE THE BENEFITS OF THE PAY MENTS ACCRUE TO THE ASSESSEE FOR A NUMBER OF YEARS. THE SECOND CAT EGORY IS ANNUAL PAYMENT, WHICH IS NORMALLY CALCULATED AT A FIXED P ERCENTAGE OF THE ASSESSEES MANUFACTURES AND SALE OF THE ITEMS. HE F URTHER EMPHAISED THAT THE PRESENT CASE BEFORE US, THE ROYA LTY PAYMENT FALLS UNDER HE SECOND CATEGORY I.E. ANNUAL PAYMENT CALC ULATED AT A FIXED PERCENTAGE OF THE ASSESSEES MANUFACTURE AND SALE O F THE ITEMS. THE ITA NOS.1281,1282/MDS/2014 6 AO RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S.SOUTHER SWITCH GEA LTD., (232 ITR 359) TREAT ED THIS AS A CAPITAL EXPENDITURE. CONSEQUENT TO THE AMENDMENT T O THE DEPRECIATION SCHEDULE, W.E.F. 01.04.1998, ALL THE I NTANGIBLES HAVE BEEN GROUPED UNDER THE INTANGIBLE BLOCK OF ASSETS ENTITLED FOR DEPRECIATION @ 25%. HENCE, THE ROYALTY PAYMENTS, WH OSE BENEFITS ARE ENDURING IN NATURE, FALL UNDER THE CATEGORY OF CAPITAL EXPENSES OF INTANGIBLE BLOCK OF ASSETS OF 25% DEPRECIATION. F URTHER HE RELIED IN THE DECISION OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF M/S.SOUTHERN SWITCH GEAR LTD. REPORTED IN 148 ITR 2 72 (MAD.) AND ARGUED THAT THE FACTS OF THE ASSESSEES CASE ARE ID ENTICAL TO THOSE INVOLVED IN THAT CASE OF M/S.SOUTHERN SWITCH GEAR L TD. THE FACTS INVOLVED IN THE PRESENT CASE ARE EXACTLY IDENTICAL TO THE ABOVE DECISION OF JURISDICTIONAL HIGH COURT, AS CONFIRMED BY THE APEX COURT, AND HENCE SQUARELY APPLICABLE TO PRESENT ASSESSEE. THE ONLY DIFFERENCE IS THE TIME GAP. THE SAID DECISION OF TH E SUPREME COURT WAS PRIOR TO 01.04.1998, WHERE THE ALLOWANCE OF DEP RECIATION ON THE INTANGIBLE ASSETS WAS NOT IN EXISTENCE. HENCE, THE SUPREME COURT HELD THAT 75% OF THE ROYALTY PAYMENTS ARE TO BE CON SIDERED AS ITA NOS.1281,1282/MDS/2014 7 REVENUE EXPENSES AND THE BALANCE CONSTITUTES THE CA PITAL EXPENSES. THIS WAS PARTICULARLY SO, BECAUSE THE ASSESSEE WAS NOT ENTITLED FOR ANY DEPRECIATION ON THE ROYALTY (INTANGIBLE ASSET) IN THOSE YEARS, AS A RESULT OF WHICH THE ASSESSEE WILL NOT GET AN OPPORT UNITY TO RECOVER THE COST OF THE INTANGIBLE ASSET, WHICH, LILE ANY OTHER ASSET, WILL GET DEPRECIATED OVER A PERIOD OI USE OWING TO THE CHANG ES IN TECHNOLOGY ETC. CONSEQUENT TO 01.04.1998, THE ROYALTY PAYMENTS , BEING ONE OF THE INTANGIBLE ASSETS, IS ENTITLED FOR DEPRECIATION AT 25%. THUS, THE ASSESSEE GETS A BENEFIT OF DEPRECIATION I.E 25% ON THE ROYALTY PAYMENTS. THEREFORE, AS THE ASSESSEE IS GOING TO RE COVER THE COST OF THE ASSET OVER A PERIOD OF TIME, BY WAY OF DEPRECIA TION, BIFURCATING THE ORIGINAL COST INTO CAPITAL EXPENDITURE AND REVENUE EXPENDITURE, AND ALLOWING THE REVENUE PORTION, IS NO LONGER JUSTIFIE D OR REQUIRED. THEREFORE, THE DECISION OF THE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR (232 ITR 359)(SC) IS NO LONGER VALID, A S FAR AS BIFURCATION OF THE ROYALTY EXPENDITURE IS CONCERNED . HOWEVER, AS FAR AS THE NATURE AND TREATMENT OF THE EXPENDITURE IS C ONCERNED, THE DECISION OF THE APEX COURT CONFIRMING THAT THE ROYA LTY PAYMENTS ARE CAPITAL EXPENDITURE IN NATURE HOLDS GOOD, EVEN AFTE R 01.04.1998. IN ITA NOS.1281,1282/MDS/2014 8 VIEW OF THE ABOVE DISCUSSIONS, THE ASSESSING OFFICE R IS JUSTIFIED IN TREATING THE ROYALTY PAYMENTS OF RS.L,04,10,665/- A ND RS.78,89,750/-, DURING THE FINANCIAL YEARS 2007-08 & 2008-09, AS CA PITAL EXPENDITURE AND DISALLOWING 75% OF THE SAME AFTER ALLOWING DEPR ECIATION @ 25%. HE PRAYED THAT THE ACTION OF THE ASSESSING OFFICER IS AS PER THE LAW AND CONFIRMED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE ROYALTY PAYMENT IS BASE D ON THE PERCENTAGE OF QUANTUM SALES AND IT IS AN ANNUAL CHA RGE TO BE CONSIDERED AS BUSINESS EXPENDITURE IN RESPECT OF AS SESSMENT YEAR 2007-08 AS HELD BY CO-ORDINATE BENCH IN THE CASE OF INDIA NIPPON ELECTRICALS LTD., CITED SUPRA. FURTHER, THE JUDGMEN T OF JUDICIAL HIGH COURT IN THE CASE OF M/S.SOUTHERN SWITCH GEAR LTD (148 ITR 272) CANNOT BE APPLIED TO THE FACTS OF THE CASE AS IN TH AT CASE. IT IS A LUMP SUM PAYMENT TOWARDS ROYALTY AND AS SUCH IN THAT CIR CUMSTANCE IT WAS HELD THAT IT IS AN CAPITAL EXPENDITURE AND DEPRECIA TION WAS GRANTED. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED . ITA NOS.1281,1282/MDS/2014 9 8. THE SECOND GROUND IN A.Y 2009-10 IS WITH REGARD TO CONFIRM THE DISALLOWANCE OF THE CAPITAL WORK IN PROGRESS WRITTE N OFF. 9. THE BRIEF FACTS OF THE CASE RELATING TO THIS GR OUND ARE THAT THE ASSESSEE WAS CONSTRUCTING A FACTORY PREMISES AT SIN GUR IN WEST BENGAL. CONSEQUENT TO THE UNREST AND PROTESTS BY TH E LOCAL PEOPLE, THE ASSESSEE HAD ABANDONED THE SAID PROJECT AND CLA IMED THE EXPENDITURE OF RS.89,89,768/- AS WRITE OFF. THE AO DISALLOWED THE ASSESSEES CLAIM OF CAPITAL WORK-IN-PROGRESS WRITTE N OFF. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL. 10. LD.A.R SUBMITTED THAT THE PROPOSED PROJECT AT SINGUR WAS IN LINE WITH THE EXISTING BUSINESS. WHEN THE CONSTRUC TION WORK COMMENCED, THERE WERE CERTAIN UNREST AND PROTESTS B Y THE LOCAL PEOPLE AND HENCE, THE PROJECT WAS ABANDONED. HE FUR THER PLEADED THAT SINCE THE PROPOSED PROJECT WAS IN LINE WITH TH E EXISTING BUSINESS OF THE ASSESSEE, THE ENTIRE CAPITAL WORK-IN-PROGRES S, ON ABANDONING THE PROJECT, BECOMES AN ALLOWABLE REVENUE EXPENDITU RE AND ITA NOS.1281,1282/MDS/2014 10 ACCORDINGLY, DEBITED THE SAME IN ITS P&L ACCOUNT AS CAPITAL WORK-IN- PROGRESS WRITTEN OFF. HE ALSO RELIED THE CASE LAW S REPORTED IN 332 ITR 592(DEL.), 263 ITR 357(GAU.) AND 175 ITR 72 (RA J.). FURTHER HE ALSO RELIED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF (I) ACIT VS. M/S.LAKSHMI MACHINE WORKS LTD. , IN ITA NO.1349/MDS./2013 VIDE ORDER DATED 9 TH JULY, 2015, (II) DCIT VS.POLYGEL INDUSTRIES PVT. LTD. IN ITA NO.3655/MUM/ 2011 VIDE ORDER DATED 25.02.2015 & (III) OF HONBLE DELHI HIGH COUR T IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. VS. CIT REPORTED IN 2 28 CTR 276. THE LD.A.R PUTFORTH THE ARGUMENT FOR THE PROPOSITION TH AT IF THE PROJECT CARRIED OUT BY THE ASSESSEE NOT ULTIMATELY MATERIA LIZED , THE EXPENDITURE INCURRED FOR IT SHOULD BE CONSIDERED AS A REVENUE EXPENDITURE. 11. LD.D.R ON THE OTHER HAND SUBMITTED THAT UNDER THE PROVISIONS OF THE ACT , ONLY THE REVENUE EXPENSES ARE ALLOWABL E DEDUCTIONS, WHILE COMPUTING THE TAXABLE INCOME UNDER THE HEAD INCOME FROM BUSINESS. THE EXPENSES IN CAPITAL NAURE CANNOT BE ALLOWED AS REVENUE EXPENSES UNDER ANY OF THE SECTIONS 30 TO 37 OF THE AC. HOWEVER, THERE ARE CERTAIN EXPENSES, WHICH ARE PRIM ARILY CAPITAL ITA NOS.1281,1282/MDS/2014 11 EXPENSES IN NATURE, BUT ALLOWABLE AS DEDUCTION WHIL E COMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. THES E EXPENSES INCLUDE THE PRELIMINARY OR PRE-OPERATIVE EXPENSES, WHICH ARE INCURRED BEFORE THE COMMENCEMENT OF THE BUSINESS, ALLOWABLE U/S.35D OF THE ACT. LD.D.R FURTHER EMPHASIZED THAT IN THE PRESEN T CASE THE CAPITAL WORK-IN-PROGRESS, CLAIMED AS WRITTEN OFF, BY THE AS SESSEE ARE NOT IN THE NATURE OF PRELIMINARY OR PRE-OPERATIVE EXPENSES . HENCE THE SAME CANNOT BE CONSIDERED FOR THE PURPOSE OF ALLOWANCE A GAINST INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM BUSIN ESS. HE FURTHER SUBMITTED THAT THE CASE LAWS CITED ON BY THE ASSESS EE ARE WITH RESPECT TO THE EXPENSES WHICH ARE PRELIMINARY EXPEN SES IN NATURE. IN SUCH CASES, IF THE PROJECT FAILS TO TAKE OFF OR ABA NDONED, THE SAID EXPENSES ARE TO BE ALLOWED AS REVENUE EXPENDITURE. THESE EXPENSES IN NORMAL COURSE, IF THE PROJECTS MATERIAL IZE, ARE TO BE ALLOWED AS AMORTIZATION OVER A PERIOD OF FIVE YEARS FROM THE COMMENCEMENT OF THE BUSINESS. HOWEVER, IF THE PROJE CT FAILS TO MATERIALIZE, AS HELD BY THE JUDICIAL PRONOUNCEMENTS , THE EXPENSES ARE TO BE ALLOWED AS REVENUE EXPENDITURE IN THE YEA R IN WHICH THE PROJECT FAILS TO TAKE OFF OR ABANDONED. WHEREAS, I N THE PRESENT CASE, ITA NOS.1281,1282/MDS/2014 12 THE CAPITAL WORK IN PROGRESS, WHICH WAS CLAIMED AS WRITTEN OFF, IS NOT IN THE NATURE OF PRELIMINARY EXPENSE AND HENCE, THE CASE LAWS RELIED BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE CASE. HE FURTHER POINTED OUT THAT THE CAPITAL EXPENSES INCLUDING THE WORK-IN-PROGRESS, IF WRITTEN OFF, EVEN IN THE CASES OF ABANDONED PROJ ECTS, ETC. CANNOT BE ALLOWED AS AN ALLOWABLE DEDUCTION. THEREFORE, HE PL EADED THAT THE CLAIM OF THE ASSESSEES DEDUCTION ON ACCOUNT OF CAP ITAL WORK-IN PROGRESS WRITTEN OFF IS NOT ALLOWABLE. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ASSESSEE INCURRED AN EXPENDI TURE OF ` 89,89,768/- TOWARDS SETTING UP A FACTORY AT SINGUR IN WEST BENGAL. DUE TO UNREST AND PROTEST BY THE LOCAL PEOPLE, ASSE SSEE HAD ABANDONED THE SAID PROJECT , AND CLAIMED IT AS A RE VENUE EXPENDITURE AS A BUSINESS EXPENDITURE. A PERUSAL OF SEC.30 TO SEC.38 OF THE ACT SHOWS THAT NEITHER SECTIONS WILL APPLY TO THIS CASE AND THE ASSESSEE WILL NOT BE ABLE TO CLAIM THE BENEFIT U/S.28 OF THE ACT. THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT FOR THE PURPOSE OF CARRYING ON ITS BUSINESS, BUT ON THE OTHER HAND IT IS INCURRED FOR THE PURPOSE OF SETTING UP OF NEW BUSINESS WHICH IS IN CAPITAL FILE D. HAD THE ITA NOS.1281,1282/MDS/2014 13 EXPENDITURE INCURRED FOR CARRYING ON BUSINESS WHICH IS AN OUTGOING AND ASSESSEE COULD CLAIM AS DEDUCTION FROM THE PROF IT OF THE BUSINESS. THE LAW HAS EVOLVED CONSIDERABLY AS A RE SULT OF ACCEPTANCE OF THE CRUCIAL PRINCIPLE THAT THE DISTIN CTION BETWEEN CAPITAL AND REVENUE EXPENDITURE SHOULD BE DETERMINED FROM T HE PRACTICAL AND BUSINESS VIEW POINT AND IN ACCORDANCE WITH SOUND AC COUNTANCY PRINCIPLES, ESCHEWING THE LEGALISTIC APPROACH. THE EXPENDITURE INCURRED TO SET UP A PROJECT AT SINGUR IN WEST BENG AL IS NOT AN EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF CARRYING ON BUSINESS OF THE ASSESSEE OR INCIDENTAL O THE CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT IS AN EXPENDITU RE INCURRED IN THE CAPITAL FIELD AND IT ALSO CANNOT BE ALLOWED U/S.37 OF THE ACT. OUR ATTENTION HAS BEEN DRAWN TO VARIOUS JUDGMENTS MENTI ONED HEREIN ABOVE WHICH WERE DELIVERED ON DIFFERENT SET OF FACT S CANNOT BE ANY ASSISTANCE O THE ASSESSEE. SIMILAR BY JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. (SUPRA) IS ALSO OF NO ASSISTANCE TO THE ASSESSEE, SINCE THE FACT IS TO TALLY DIFFERENT. FURTHER, THE PASSING REMARK MADE BY THE TRIBUNAL IN THE CASE OF M/S.LAKSHMI MACHINE WORKS LTD., ALSO CANNOT BE APPL IED TO THE FACTS ITA NOS.1281,1282/MDS/2014 14 OF THE PRESENT CASE. BEING SO, THE LOSS IN RESPEC T OF DISCARDED PROJECT HAD WRITTEN OFF BY THE ASSESSEE DURING THE PREVIOUS YEAR IS NOT ALLOWABLE EXPENDITURE AS BUSINESS DEDUCTION AND IT CANNOT BE ALLOWED. BEING SO, WE ARE OF THE OPINION THAT LOWE R AUTHORITIES ARE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO .1281/MDS./14 IS ALLOWED AND IN ITA NO.1282/MDS./14 IS PARTLY ALLOWE D. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH OF FEBRUARY,2016 AT CHENNAI. SD/- SD/- ( . ) (G.PAVAN KUMAR) ( ( $% & ) ) ' CHANDRA POOJARI () JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH FEBRUARY,2016 . K S SUNDARAM. *+)),-).- /COPY TO: ) 1. /APPELLANT 2. /RESPONDENT 3. ) /)'( /CIT(A) 4. ) / /CIT 5. -01 )2 /DR 6. 13)4 /GF