Relisys Medical Devices Limited , Mangalpally V. Dy. Commissioner of Income Tax , Circle-3(1), Hyderabad

ITA 1783/Hyd/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2334 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 06-10-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 10-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Capital asset converted into stock in trade; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 37(1); 192; 13; 119; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. 1783/H/2019 ASSESSMENT YEAR: 2014 - 15 RELISYS MEDICAL DEVICES LTD., MANGALPALLY. PAN AABCC5660L VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI P. MURALI MOHANA RAO REVENUEBY: SHRI YVST SAI DATE OF HEARING: 06/10/ 20 21 DATE OF PRONOUNCEMENT: 26 /10/2021 O R D E R PER L.P. SAHU, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST CIT(A) - 4, HYDERABADS ORDER DATED 23/10/2019 FOR AY 2014 - 15 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT, ON THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD . CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . 2. (A) THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE OF RS. 17,70,87,021/ - (B) THE LD. CIT(A) ERRED IN DISMISSING THE GROUNDS OF APPEAL TAKEN IN RESPECT OF THE DISALLOWANCE MADE OF RS. 17,70,87,021/ - (C) THE LD. CIT(A) FAILED TO APPRECIATE THE WRITTEN SUBMISSIONS MADE WITH REGARD TO THE CLAIM OF RS. 17,70,87,021/ - 3. (A) THE LD. CIT(A) GROSSLY ERRED IN NOT ADJUDICATI NG THE GROUNDS OF APPEAL TAKEN IN RESPECT OF DEFERRED REVENUE EXPENDITURE FOR RS. 2,17,5, 487/ - (B) THE LD. CIT(A) HAVING EXTRACTED THE GROUNDS OF APPEAL BEARING NOS. (III)(B) AND (X) IN HIS ORDER, HAS FAILED TO ADJUDICATE ON THE SAME. 4. THE LD. CIT(A) E RRED IN UPHOLDING THE ADDITION OF AO IN DISALLOWING THE AMOUNT OF RS. 17,70,87,021/ - TREATING THE SAME AS CAPITAL EXPENDITURE THOUGH IT IS CLEARLY EVIDENT THAT THE SAME IS REVENUE IN NATURE. 5. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THAT THE AO ERRED IN CONSIDERING THAT THE ABOVE MENTIONED EXPENDITURE OF RS. 17,70,87,021/ - TO BE CAPITAL IN NATURE WHEREAS THE SAME HAS BEEN INCURRED FOR MEETING UP SALARIES, WAGES, INTEREST ON SECURED AND UNSECURED LOANS WHICH IS CLEARLY IN THE NATURE OF REVENUE. 6. THE L D. CIT(A) OUGHT TO HAVE CONSIDERED THAT THE AMOUNT IN RESPECT OF WHICH ADDITION IS MADE IS REVENUE IN NATURE AND INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 7. THE LD. CIT(A) ERRED IN DISALLOWING THE EXPENDITURE MERELY BASING ON THE NOMENCLATUR E OF THE EXPENSES, WITHOUT IDENTIFYING THE TRUE NATURE OF IT. 8. THE LD. CIT(A) ERRED IN UPHOLDING THE ADDITION OF THE AO OF RS. 2,17,51,487/ - TREATING THE SAME AS DEFERRED 3 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . REVENUE EXPENDITURE WHEREAS THE SAME HAS BEEN USED EXCLUSIVELY FOR BUSINESS PURPO SE AND IS REVENUE IN NATURE. 9. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT UNDER SECTION 35(2AB), BOTH REVENUE AND CAPITAL EXPENDITURE IS ALLOWABLE IN ITS ENTIRETY, EXCLUDING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING. 10. T HE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT AS PER PROVISIONS OF SECTION 37(1), IF THE EXPENDITURE IS UTILIZED FOR THE PURPOSE OF BUSINESS THEY SHOULD BE ALLOWED. 11. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF THE EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE DEPRECIATION SHOULD BE ALLOWED U/S 32 OF THE ACT OR ELSE THEY SHOULD BE ALLOWED OVER A PERIOD OF TIME OF SECTION 35D OF THE ACT. 12. THE APPELLANT MAY, ADD OR ALT ER OR AMEND OR MODIFY OR SUBSTITUTE OR DELETE AND/OR RESCIND ALL OR ANY OF THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUF ACTURING AND SALE OF CRITICAL CARE DEVICES IN CARDIOLOGY LIKE STENTS, CATHETERS AND STENT SYSTEMS, E - FILED ITS RETURN OF INCOME FOR THE AY 2014 - 15 ADMITTING LOSS OF RS. 33,77,86,913. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, STATUTO RY NOTICES WERE ISSUED TO THE ASSESSEE. AGAINST WHICH, THE ACCOUNTS MANAGER OF THE ASSESSEE COMPANY FURNISHED THE INFORMATION CALLED FOR. 4 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . 2.1 THE AO COMPLETED THE A SSESSMENT U/S 143(3) OF THE ACT ON 16/12/2016 ASSESSING THE LOSS AT RS. 12,46,86,608/ - AS AGAINST THE LOSS DECLARED BY THE ASSESSEE AT RS. 33,77,86,913/ - BY MAKING VARIOUS ADDITIONS INCLUDING THE ADDITIONS OF RS. 17,70,87,021/ - ON ACCOUNT OF EXPENSES CAPIT ALIZED AND RS. 2,17,51,487/ - TOWARDS DEFERRED REVENUE EXPENSES OF R&D, WHICH ARE THE SUBJECT MATTER OF APPEAL. 3. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 5. AS REGARDS GROUND NO. 2 (A) TO (C), 3 (A) TO (C), AND 4 TO 8 REGARDING THE DISALLOWANCE OF RS. 17,70,87,021/ - AND RS. 2,17,51,487/ - , ON EXAMINING THE PROFIT & LOSS ACCOUNT, THE AO OBSERVED THAT T HE ASSESSEE HAD CLAIMED PRODUCTION DEVELOPMENT AND OTHER WRITE OFFS OF RS. 21,78,21,855/ - AS UNDER: I) RECEIVABLES WRITE - FF RS. 1,02,39,636/ - II) EXPENSES CAPITALIZED RS.17,70,87,021/ - III)DIFFERED REVENUE EXPENDITURE R&D RS.2,17,51,487/ - IV)PRODUCT DEV. EXP. CVC CATHETERS RS. 9,18,002/ - V) PRODUCT DEV. EXP. PTCA CATHETERS RS. 78,25,709/ - 5.1 THE AO DISALLOWED THE EXPENSES CAPITALIZED OF RS. 5 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . 17,70,87, 021/ - AND RS. 2,17,51,487/ - TOWARDS DEFERRED REVENUE EXPENSES BY HOLDING THAT SINCE THESE EXPENSES ARE CAPITALIZED NOT ALLOWABLE EXPENDITURE. 6. THE CIT(A) CONFIRMED THE ACTION OF THE AO. 7. BEFORE US, THE LD. AR OF THE ASSESSEE BESIDES REITERATING THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, SUBMITTED THAT THESE EXPENSES WERE WRITTEN OFF ON THE GROUND THAT THE SAME ARE NOT TO BE USED IN FUTURE WHICH WERE SHOWN IN THE FINANCIAL STATEMENTS AS CAPITAL - WORK - IN PROGRESS, BUT, LATER ON MANAGEMENT DECIDE D THAT THE SAME ARE NOT BENEFICIAL TO THE COMPANY AND DECIDED TO BE ABANDONED AND TO BE WRITTEN OFF SO THAT THE FUTURE LOSS CAN BE AVOIDED. HE FURTHER CONTENDED THAT THE AO DISALLOWED THE EXPENDITURE TREATING AS CAPITAL IN NATURE, BUT, THE ABOVE EXPENDITUR E INCURRED TOWARDS BUSINESS AS IT CONSIST INTEREST, SALARY, WAGES, TELEPHONE AND SECURITY CHARGES AND, ACCORDINGLY DEBITED THE SAME IN P&L ACCOUNT UNDER THE HEAD PRODUCT DEVELOPMENT EXPENDITURE. TO THIS EFFECT, HE INVITED THE BENCH ATTENTION TO PAGE NOS. 70 TO 452 OF THE PAPER BOOK WHEREIN THE LEDGER COPIES FOR THE EXPENDITURE INCURRED HAVE BEEN FILED. HE RELIED ON THE FOLLOWING CASES: 1. SA BUILDERS, 158 TAXMAN 74 (SC) 2. WEST BENGAL STATE ELECTRICITY BOARD, ITA NO. 126/KOL/2017 (ITAT KOLKATA) 3. MA HANAGAR GAS LTD., 42 TAXMANN.COM 40 (HC BOM) 4. OCIMUM BIO SOLUTIONS INDIA LTD., ITA NO. 6 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . 2090/HYD/2018 5. PACT SECURITIES, 61 TAXMANN.COM 192 (AP & TELENGANA HC) 6. AS 26 ISSUED BY ICAI. 7. CIV VS. VIRTUAL SOFT SYSTEMS LTD., 92 TAXMANN.COM 3 70 (SC) 8. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND SUBMITTED THAT IT WAS CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE, WHICH CANNOT BE ALLOWED U/S 37(1) OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. THE CRUX OF THE ISSUE TO BE DECIDED BY IS WHETHER THE EXPENSES DISALLOWED BY THE REVENUE AUTHORITIES ARE CAPITAL IN NATURE OR REVENUE IN NATURE ? ON PERUSAL OF THE ASSESSMENT ORDER, IT HAS BEEN OBSERVED THAT THE AO HAS DISALLOWED AN AMOUNT OF RS. 17,70,87,021/ - UNDER THE HEAD EXPENSES CAPITALIZED AND DEFERRED REVENUE EXPENSES R&D OF RS. 2,17,51,487/ - . THESE EXPENSES HAVE BEEN CREATED BY THE ASSESSEE AS REVENUE EXPENDITURE. BEFORE DECIDING THE ISSUE, WHETHER IS IT A CAPITAL OR REVENUE IN NATURE, IT IS PERTINENT TO REFER T O THE FINANCIAL STATEMENTS OF THE ASSESSEE FOR THE IMPUGNED AY, WHICH ARE PLACED IN THE PAPER BOOK AT PAGES 464 TO 517. THE REVENUE AUTHORITIES WERE NOT DISPUTED THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS ITS BUSINESS. ON PERUSAL OF THE NOTE NO. 28, WHICH IS PLACE AT PAGE NO. 504, THE DETAILS MENTIONED THEREIN, WHICH HAVE BEEN DEBITED INTO P&L 7 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . ACCOUNT UNDER THE HEAD PRODUCT DEVELOPMENT AND OTHER WRITE OFF. FURTHER, ON GOING THROUGH THE BALANCE SHEET FOR THE PRECEDING FY I.E. 31 ST MARCH, 2013 UNDER THE NON - CURRENT ASSETS, THERE IS A CAPITAL WORK IN PROGRESS OF RS. 17,70,87,021/ - . FURTHER, ON PERUSAL OF THE PAPER BOOKS FILED BY THE ASSESSEE, THE RELEVANT LEDGER COPIES OF REVENUE EXPENDITURE WRITTEN OFF IS PLACED AT PAPER BOOK PAGE NO. 1 TO 434. THE A BOVE EXPENDITURE IS RELATED TO THREE FYS, WHICH IS AS UNDER: FINANCIAL YEAR PAPER BOOK PG . NO. AMOUNT (RS.) 2008 - 09 1 5,20,87,700 2009 - 10 119 6,80,77,667 2010 - 11 313 5,69,21,644 TOTAL 17,70,87,021 THE SCANNED COPIES OF DETAILS OF THE ABOVE EXPENDITURE ARE AS UNDER: - :INTENTIONALLY LEFT BLANK: - 8 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . - :INTENTIONALLY LEFT BLANK: - 9 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . - :INTENTIONALLY LEFT BLANK: - 10 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . 9.1 ON GOING THROUGH THE ABOVE DETAILS, IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE UNDER THE DIFFERENT HEADS, FOR THE ABOVE FYS, WHICH HAS BEEN CAPITALIZED BY THE ASSESSEE, BUT, DURING THE IMPUG NED AY IT WAS CHARGED INTO P&L ACCOUNT FOR THE REASON THAT THE SAME WERE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE WHEREAS IN THE PRECEDING FYS IT WAS CAPITALIZED BASED ON THE NEEDS OF THE ASSESSEE IN THOSE YEARS. BUT, IN THE IMPUGNED AY THERE I S NO PRUDENCE TO INCUR FURTHER TOWARDS CAPITALIZATION FOR THE BUSINESS NEEDS OF THE ASSESSEE AND, THEREFORE, THE SAME HAS BEEN WRITTEN OFF. WE 11 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . FIND SUBSTANCE IN THE SUBMISSIONS OF THE AR OF THE ASSESSEE THAT THESE ARE THE REVENUE EX PENDITURE IN THE IMPUGNED AY ON THE BASIS OF THE ABOVE FINDINGS. IN THIS REGARDS, WE RELY ON THE JUDGMENT OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF TAMILNADU MAGNESITE LTD. VS. ASSISTANT COMMISSIONER OF INCOME - TAX, [2018] 95 TAXMANN.COM 239 (MAD RAS) , WHEREIN THE HONBLE COURT HAS HELD AS UNDER: 8. WE HAVE HEARD THE LEARNED COUNSELS FOR THE PARTIES AND CAREFULLY PERUSED THE MATERIALS PLACED ON RECORD. 19. THE COMMON ISSUE INVOLVED IN BOTH THE APPEALS IS WHETHER THE TRIBUNAL WAS JUSTIFIED IN REVE RSING THE DECISION OF THE CIT (A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS REVENUE IN NATURE AND NOT CAPITAL. 20. TO DECIDE THE SUBSTANTIAL QUESTIONS OF LAW FRAMED FOR CONSIDERATION , WE WOULD HAVE TO APPLY THE PROPER TEST, WHICH WOULD DISTINGUISH CAPITAL AND REVENUE EXPENDITURE. THIS QUESTION CAME UP FOR CONSIDERATION BEFORE THE HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD. (REFERRED SUPRA). IT WAS POINTED OUT THAT FROM TIME TO TIME CASES HAVE EVOLVED VARIOUS TESTS FOR DISTINGUISHING BETWEEN CAPITAL AND REVENUE EXPENDITURE, BUT, NO TEST IS PARAMOUNT OR CONCLUSIVE. FURTHER, THERE IS NO ALL - EMBRACING FORMULA, WHICH CAN PROVIDE A READY SOLUTION TO THE PROBLEM; NO TOUCHSTONE HAS BEEN DEVI SED. IT WAS POINTED OUT THAT EVERY CASE HAS TO BE DECIDED ON ITS OWN FACTS KEEPING IN MIND THE BROAD PICTURE OF THE WHOLE OPERATION IN RESPECT OF WHICH THE EXPENDITURE HAS BEEN INCURRED. AFTER REFERRING TO THE DECISION OF LORD RADCLIFFE IN CIT V. NCHANGA C ONSOLIDATED COPPER MINES LTD. [1965] 58 ITR 241 (PC), IT WAS HELD THAT IT WOULD BE MISLEADING TO SUPPOSE THAT, IN ALL CASES, SECURING A BENEFIT FOR THE BUSINESS WOULD BE PRIMA FACIE CAPITAL EXPENDITURE 'SO LONG AS THE BENEFIT IS NOT SO TRANSITORY AS TO HAV E NO ENDURANCE AT ALL'. 21. FURTHER, IT WAS HELD THAT THERE MAY BE CASES WHERE EXPENDITURE EVEN IF INCURRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT WAS POINTED OUT THAT IT IS 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 ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE 12 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . ADVANTAG E IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. 22. FURTHER, IT WAS POINTED OUT THAT IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND COND UCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THUS, IT WAS HELD THA T THE TEST OF ENDURING BENEFIT IS 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. 23. FURTHER, IT WAS HELD THAT ANOTHER TEST, WHICH IS OFTEN APPLIE D IS THE ONE BASED ON DISTINCTION BETWEEN FIXED AND CIRCULATING CAPITAL. THIS TEST WAS APPLIED BY LORD HALDANE IN THE CASE OF JOHN SMITH & SON V. MOORE 12 TC 266, WHERE THE LEARNED LAW LORD DREW THE DISTINCTION BETWEEN FIXED CAPITAL AND CIRCULATING CAPITAL BY HOLDING THAT FIXED CAPITAL IS WHAT THE OWNER TURNS TO PROFIT BY KEEPING IT IN HIS OWN POSSESSION; CIRCULATING CAPITAL IS WHAT HE MAKES PROFIT OF BY PARTING WITH IT AND LETTING IT CHANGE. 24. BEARING THE ABOVE LEGAL PRINCIPLES IN MIND, WE PROCEED TO EXAMINE THE FACTS OF THE INSTANT CASE. IT IS NOT IN DISPUTE THAT THE CHEMICAL BENEFICIATION PLANT WAS ALREADY ESTABLISHED BY TIDCO AND ON ACCOUNT OF THEIR NOT BEING ABLE TO ACHIEVE THE DESIRED RESU LT, THE ASSESSEE WAS INVITED TO TAKE OVER THE PROJECT, AS THE ASSESSEE POSSESSED EXPERTISE IN THE FIELD. THIS IS HOW THE ASSESSEE STEPPED INTO THE PROJECT AND BY TURN OF EVENTS, THE GOVERNMENT GRANTED APPROVAL DURING THE YEAR 1998. 25. AS COULD BE SEEN FRO M THE ORDER PASSED BY THE CIT (A), THE ASSESSEE HAD ENTERED INTO AN ARRANGEMENT WITH TIDCO AS WELL AS WITH IDBI AND FIXED THE PROJECT COST WITH A DEBT EQUITY RATIO, WHICH WAS APPROVED BY THE GOVERNMENT OF TAMIL NADU AND THEREAFTER, STEPS WERE TAKEN TO ACQU IRE LAND, IMPORT MACHINERY ETC. IN THE MEANTIME, 12 YEARS HAD PASSED BY AND THE PROJECT HAD NOT TAKEN OFF. THE IDBI HAD WITHDRAWN FROM THE PROJECT, AS IT WAS FOUND TO BE UNVIABLE AND ANOTHER CO - PROMOTER VIZ., M/S. KHALTAN SUPERMAG LIMITED WAS BROUGHT IN AN D A JOINT SECTOR COMPANY WAS FORMED WITH THE ASSESSEE SUBJECT TO CERTAIN CONDITIONS. HOWEVER, THE SAID CO - PROMOTER, M/S. KHALTAN SUPERMAG LIMITED EXPRESSED INABILITY TO BE A PART OF THE PROJECT AND AFTER 12 YEARS, THE GOVERNMENT TOOK A DECISION TO SELL THE PROJECT AND CONSEQUENTLY, CANCELLED THE ALLOTMENT OF 47 ACRES OF LAND IN FAVOUR OF THE ASSESSEE. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THE ASSESSEE THOUGH HAD ENTERED INTO ARRANGEMENT WITH THE BANKS AND CO - PROMOTERS AND TOOK ACTION 13 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . FOR ACQUISITION OF L AND, IMPORT OF MACHINERIES, ETC., NO NEW VENTURE WAS ESTABLISHED BY THE ASSESSEE. THE VENTURE, WHICH WAS TO BE TAKEN OVER BY THE ASSESSEE AND OPERATED DID NOT FRUCTIFY, NOT ON ACCOUNT OF THE CONDUCT OF THE ASSESSEE, BUT ON ACCOUNT OF THE DECISION OF THE GO VERNMENT OF TAMIL NADU. IN OUR CONSIDERED VIEW, THE DECISION OF THE GOVERNMENT OF TAMIL NADU TO SELL THE PROJECT IS A VERY IMPORTANT FACT, WHICH HAS TO BE BORNE IN MIND TO DECIDE AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE WAS CAPITAL OR REVENUE IN NATURE. 26. THE ASSESSING OFFICER FELL IN ERROR IN GOING BY THE FACT THAT THE EXPENDITURE WAS INCURRED FROM THE CAPITAL ACCOUNT FORGETTING THAT THE TEST TO BE APPLIED TO ASCERTAIN AS TO WHETHER THE EXPENDITURE IS REVENUE OR CAPITAL IS NOT BASED ON WHER E THE FUNDS WERE DRAWN FROM. THE BROAD PARAMETERS AND TESTS, WHICH HAVE BEEN LAID DOWN BY VARIOUS DECISIONS ARE THAT THERE SHOULD BE AN ENDURING BENEFIT, WHICH SHOULD ACCRUE TO THE ASSESSEE AND THERE SHOULD BE A CREATION OF A NEW ASSET. IN THE INSTANT CASE , BOTH THESE PARAMETERS REMAIN UNFULFILLED. 27. THE HIGH COURT OF DELHI IN INDO RAMA SYNTHETICS LTD. (SUPRA) HELD THAT IF THE EXPENDITURE IS INCURRED FOR STARTING A NEW BUSINESS, WHICH WAS NOT CARRIED OUT BY THE ASSESSEE EARLIER, THEN SUCH EXPENDITURE WAS HELD TO BE CAPITAL IN NATURE. 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, VIZ., TO START A NEW UNIT, WHICH IS SAME AS EARLIER BUSINES S AND THERE IS UNITY OF CONTROL AND A COMMON FUND, THEN SUCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE AND IN SUCH A CASE WHETHER IT IS A NEW BUSINESS/ASSET WOULD BECOME A RELEVANT FACTOR. 28. IT IS FURTHER HELD THAT IF THERE IS NO CREATION OF NE W ASSET, THEN THE EXPENDITURE INCURRED WOULD BE REVENUE IN NATURE. HOWEVER, IF THE NEW ASSET COMES INTO EXISTENCE, WHICH IS OF ENDURING BENEFIT, THEN SUCH EXPENDITURE WOULD BE CAPITAL IN NATURE. 29. THE HON'BLE DELHI HIGH COURT TOOK NOTE OF THE DECISION OF THE GAUHATI HIGH COURT IN DY. CIT V. ASSAM ASBESTOS LTD. [2003] 263 ITR 357/132 TAXMAN 808 . THE HIGH COURT OF CALCUTTA IN THE CASE OF BINANI CEMENT LTD. (SUPRA), CONSIDERED A CASE WHERE THE TRIBUNAL DISALLOWED THE EXPENDITURE ALLEGEDLY INCURRED BY THE ASSESSEE FOR PREPARING FEASIBILITY STUDY REPORT AND CAPITAL WORK - IN - PROGRESS IN THE EARLIER YE ARS BUT WRITTEN OFF DURING THE PREVIOUS YEAR, SINCE THE PROPOSED PROJECT WAS ABANDONED. THE COURT AFFIRMED THE VIEW TAKEN BY THE CIT (A), WHERE IT WAS HELD THAT THE COMPANY CLAIMED AS ALLOWABLE THE EXPENDITURE ON THIS ABANDONED PROJECT. WHILE IT WAS FOUND TO BE UNVIABLE, THE 14 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . EXPENDITURE ON IT WAS FOR THE PURPOSE OF BUSINESS AND IT WAS NOT CLAIMED OR ALLOWED EARLIER AS BUSINESS EXPENDITURE BECAUSE IT WAS OF CAPITAL NATURE ENTITLED TO DEPRECIATION AFTER COMPLETION AND ON COMMENCEMENT OF ITS USE FOR BUSINESS A ND THAT STAGE HAVING NOT REACHED AND NO ASSET HAVING COME INTO EXISTENCE, THE CAPITAL WORK - IN - PROGRESS HAD TO BE WRITTEN OFF AS SUCH. 30. IN THE CASE OF ASIA POWER PROJECTS (P.) LTD. (SUPRA), THE HIGH COURT OF KARNATAKA HELD THAT, IF THE ASSESSEE INCURS A LIABILITY AND WHEN THE CONTRACT UNDER WHICH THAT LIABILITY WAS INCURRED WAS TERMINATED AND WHEN NO AMOUNTS UNDER THE OR IN PURSUANCE OF A CLAIM IS RECEIVABLE, HE IS ENTITLED TO CLAIM THE SAID AMOUNT INCURRED AS EXPENDITURE IN IMPLEMENTING THE CONTRACT AS A SET OFF UNDER SECTION 37(1) READ WITH 28 OF THE INCOME TAX ACT, 1961. 31. INSOFAR AS THE ABANDONED FEATURE FILMS ARE CONSIDERED, A DIVISION BENCH OF THIS COURT IN THE CASE OF TIRUVENGADAM INVESTMENTS (P.) LTD. V. ASSTT. CIT [2016] 95 CCH 0024, REFERRING T O A CIRCULAR ISSUED BY THE CBDT IN CIRCULAR NO.16/2015 DATED 06.10.2015, HELD THAT FILM PRODUCTION EXPENSES OF ABANDONED FILMS SHOULD BE TREATED AS REVENUE EXPENDITURE. THIS DECISION WAS FOLLOWED IN THE CASE OF ASIA POWER PROJECTS P. LTD. (SUPRA). 32. THE LEARNED COUNSEL FOR THE REVENUE STRENUOUSLY CONTENDED THAT A NEW PROJECT HAD EMERGED AND IT IS IMMATERIAL WHETHER MACHINERY WAS REDUCED TO SCRAP AND ORDERED TO BE SOLD AND WHAT IS REQUIRED TO BE SEEN IS THAT THE EXPENDITURE WAS INCURRED FROM THE CAPITAL AC COUNT. 33. IN OUR CONSIDERED VIEW, RELIANCE PLACED ON THE DECISION OF THIS COURT IN THE CASE OF E.I.D. PARRY (INDIA) LTD. (SUPRA) AND THE KERALA HIGH COURT IN THE CASE OF MALABAR & PIONEER HOSIERY (P.) LTD. (SUPRA) IS OF LITTLE AVAIL, AS IN BOTH CASES, IT WAS FOR A NEW PROJECT, IN CONTRA DISTINCTION WITH THE FACTUAL POSITION IN THE CASE ON HAND. THEREFORE, THOSE DECISIONS ARE FACTUALLY DISTINGUISHABLE. HEAVY RELIANCE WAS PLACED ON THE DECISION OF THIS COURT IN THE CASE OF MASCON TECHNICAL SERVICES LTD. (SUP RA). 34. AT THE FIRST BLUSH IT APPEARS THAT THE DECISION WOULD HELP THE CASE OF THE REVENUE, BUT ON A CLOSER READING IT PROVES OTHERWISE. THE QUESTION WAS WHETHER THE ASSESSEE WAS JUSTIFIED IN SEEKING FOR BIFURCATION OF THE EXPENSES INCURRED INTO CAPITAL A ND REVENUE. THE DIVISION BENCH REFERRED TO THE DECISION IN THE CASE OF BROOKE BOND INDIA LTD. V. CIT [1997] 225 ITR 798/91 TAXMAN 26 (SC) . IN THE CASE OF BROOKE BOND INDIA LTD. (SUPRA), IT WAS HELD THAT EXPENDITURE, IN CONNECTION WITH THE ADDITIONAL ISSUE OF SHARES, PAID TO THE REGISTRAR OF COMPANIES BY WAY OF FILING FEE AND HENCE, HAS NO APPLICATION. THE DIVISION BENCH HELD THAT THE 15 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . DECISI ON IN THE CASE OF BROOKE BOND INDIA LTD. (SUPRA) WOULD HAVE NO APPLICATION TO THE FACTS OF THE CASE, AS THE EXPENDITURE INCURRED BY THE ASSESSEE WERE SHOWN IN THE BOOKS OF ACCOUNTS AS TOWARDS ISSUE EXPENSES INCURRED DURING THE YEAR AND THEY FOUND THERE WAS NO JUSTIFIABLE GROUND TO DISSECT ONE PART OF THE EXPENDITURE AS REVENUE EXPENDITURE AND ANOTHER PART AS CAPITAL EXPENDITURE. AS POINTED OUT BY THE HON'BLE SUPREME COURT IN EMPIRE JUTE CO. LTD. (SUPRA), WE CANNOT TAKE A DECISION SANS FACTS AND THE FACTUAL POSITION AS SET OUT IN THE PRECEDING PARAGRAPH WOULD CLEARLY SHOW THAT THE ABANDONED PROJECT WAS NOT A NEW ONE AND IT WAS A DECISION TAKEN BY THE GOVERNMENT AFTER ABOUT 12 YEARS AFTER THE PETITIONER WAS INVITED TO TAKE OVER THE PROJECT, WHICH WAS ALREADY I N EXISTENCE, AS THEY WERE AN EXPERT IN THE SAME LINE OF BUSINESS. THEREFORE, ON FACTS, WE FIND THAT THE CIT (A) WAS PERFECTLY RIGHT IN DELETING THE ADDITION AND HOLDING THAT THE EXPENDITURE WAS REVENUE NOT CAPITAL EXPENDITURE. WE MAY POINT OUT THAT THE DEC ISION IN THE CASE OF IDEAL CELLULURA LTD. (SUPRA) WAS ALSO A CASE WHERE THE EXPENDITURE WAS INCURRED TO BRING INTO EXISTENCE A NEW ASSET, WHICH IS NOT SO IN THE CASE ON HAND. THEREFORE, THE SAID DECISION IS ALSO DISTINGUISHABLE ON FACTS. 35. IN THE RESULT, BOTH THE TAX CASE APPEALS ARE ALLOWED, THE ORDER PASSED BY THE TRIBUNAL IS SET ASIDE AND THE SUBSTANTIAL QUESTIONS OF LAW FRAMED FOR CONSIDERATION ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9.2 RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT, WE SET ASIDE THE ORDER OF THE CIT(A) AND TREAT THE EXPENDITURE WRITTEN - OFF OF BY THE ASSESSEE UNDER THE HEAD CAPITAL WORK IN PROGRESS AS REVENUE EXPENDITURE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ON TH IS ISSUE IS ALLOWED. 10. AS REGARDS THE ADDITION OF RS. 2,17,51,487/ - UNDER THE HEAD DEFERRED REVENUE EXPENDITURE R&D, THE DETAILS OF THE LEDGER COPIES ARE PLACED AT PAGE NOS. 435 TO 463 OF PAPER BOOK. ON GOING THROUGH THE COPIES OF THE LEDGER ACCOUNT UNDER THIS HEAD, THE EXPENDITURE IS CARRIED FORWARD FROM 01/04/2002 AND IN THE SUBSEQUENT YEARS , THERE IS AN 16 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . INCREASE IN THE EXPENDITURE IN EVERY SUBSEQUENT YEAR, AND WRITTEN - OFF OF BY THE ASSESSEE , WHICH IS CLEAR FROM THE COPY OF LEDGER ACCOUNTS PLACED IN THE PAPER BOOK. ON THIS ISSUE, THERE IS NO DISPUTE RAISED BY THE DEPARTMENT TOWARDS THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS . IN THE INCOME TAX ACT, THERE IS NO PROVISION FOR DEFERRED REVENUE EXPENDITURE EXCEPT WHICH ARE EXPLI CIT AS PER THE SECTIONS PROVIDED. FURTHER, ON PERUSAL OF THE PAPER BOOK, IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FROM THE FY 31 ST MARCH, 2012 UNDER THIS HEAD. AS PER THE BUSINESS NEEDS OF THE ASSESSEE, THE ASSESSEE HAS WRITTEN - O FF OF THE EXPENDITURE AS OBSERVED IN EARLIER PARAS, AND FOLLOWING THE CONCLUSIONS DRAWN THEREIN, WE HOLD THAT THIS IS A REVENUE EXPENDITURE FOR THE IMPUGNED AY AND ACCORDINGLY, WE DELETE THE ADDITION MADE ON THIS ACCOUNT. THUS , THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED . 11. AS REGARDS THE OTHER REMAINING GROUNDS, SINCE WE HAVE TREATED THE EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUNT AS ALLOWABLE REVENUE EXPENDITURE FOR THE YEAR UNDER CONS IDERATION, THESE GROUNDS BECOME INFRUCTUOUS AND DISMISSED AS INFRUCTUOUS. 17 ITA NO. 1783/HYD/2019 RELISYS MEDICAL DEVICES LTD., MANGALPALLY . 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN ABOVE TERMS. PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER, 2021. SD/ - SD/ - (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 26 TH O CTOBER, 2021. KV COPY TO : 1 RELISYS MEDICAL DEVICES LTD., C/O P. MURALI & CO., CAS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82 2 DCIT, CIRCLE 3(1), HYDERABAD. 3 CIT(A) - 4, HYDERABAD 4 PR. CIT - 3, HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.