DCIT, New Delhi V. M/s Ultra Motor India Pvt. Ltd., New Delhi

ITA 2556/DEL/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4201 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT JAIN SENIOR
• Keywords: Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO.2556/DEL./2011 (ASSESSMENT YEAR : 2007-08) DCIT, CIRCLE 18 (1), VS. M/S. ULTRA MOTOR INDIA PV T. LTD., NEW DELHI. 89/5, OKHLA INDL. ESTATE III, NEW DELHI 110 020. (PAN : AAACU7979H) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI AMIT JAIN, SENIOR DR DATE OF HEARING : 13.08.2018 DATE OF ORDER : 17.08.2018 O R D E R PER L.P. SAHU, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (APPEALS)-XXI, NEW DELHI DATED 23.02.2011 FOR THE A SSESSMENT YEAR 2007- 08 ON THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW BY RESTRICTING TO RS.4,00,84,012/- THE DISALLOWANCE OF RS.10,02,10,030/- TREATED BY THE AO AS THE AMOUNT O F CAPITAL EXPENDITURE, IGNORING THAT: (I) ALTHOUGH RELIANCE HAS BEEN PLACED ON THE HON'B LE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS OCL INDIA LTD., (2010-TIOL-SOS-HC-DEL-IT), NO REASONS HAS BEEN CITED FOR THE RANDOM ADOPTION ITA NO.2556/DEL./2011 2 OF 40% AS THE PERCENTAGE OF CAPITAL EXPENDITURE LOUT OF THE TOTAL EXPENDITURE. (II) NO REASON HAS BEEN GIVEN FOR HOLDING THAT THE EXPENSES AMOUNTING TO RS.10,02,10,030/- .TREATED BY AO AS CAPITAL EXPENDITURE WAS NEITHER FULLY CAPITAL NOR FULLY REVENUE IN NATURE. (III) THE EXPENDITURE OF RS.10,02,10,030/- HAD BEE N MOSTLY INCURRED TOWARDS INITIAL OUTLAY OF BUSINESS COMPRISING PROCUREMENT OF CAPITAL EQUIPMENT, RESEARCH AND DEVELOPMENT6 LAND LOT6HJER EXPENDITURE IT6HE AIM AND OBJECTIVES OF WHICH WERE OF ENDURING BENEFIT TO THE ASSESSEE'S BUSINESS . (IV) THE EXPENDITURE OF RS.10,02,10,030/- WAS MAIN LY INCURRED FOR THE PURPOSE OF EXPLORING AND ESTABLISHING A NEW BUSINESS WHICH WAS YET TO COMMENCE AND THEREFORE, THE SAME WAS PRIOR PERIOD EXPENDITURE OF CAPITAL NATURE WHICH IS NOT ALLOWABLE.' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME AND DECLARED LOSS FROM BUSINESS OR PROFESSION AT RS.9,8 3,05,419/- AND INCOME FROM OTHER SOURCES DECLARED AT RS.10,007/-. M/S. U LTRA MOTOR LIMITED STARTED THEIR OPERATIONS IN INDIA AS A LIAISON OFFI CE IN EARLY 2005 AND REALIZING THE POTENTIAL M/S. ULTRA MOTOR UK DECIDED TO OPEN A SUBSIDIARY COMPANY BY THE NAME OF M/S. ULTRA MOTOR INDIA PVT. LTD. (UMI I .E. ASSESSEE). THE ASSESSEE, UMI, WAS INCORPORATED ON 2 ND JANUARY, 2006 WITH AN OBJECTIVE OF MANUFACTURING MOTORS FROM PATENTED RUSSIAN MOTOR TE CHNOLOGY AND SELL THE SAME TO THE EXISTING BI-CYCLE MANUFACTURING COMPANI ES LIKE AVON, HERO, BSA, ETC. ENABLING THEM TO LAUNCH ELECTRICAL BICYCL ES. IN THIS REGARD, THE COMPANY INITIATED THE ACTIVITIES FOR MANUFACTURING OF THE ABOVE PRODUCTS AND ITA NO.2556/DEL./2011 3 THE ASSESSEE COMPANY INCURRED HUGE EXPENDITURE ON T HE INTERNATIONAL TRAVEL, INLAND TRAVEL, MARKETING & ADVERTISEMENT EXPENSES, RESEARCH & DEVELOPMENT COST AND PERSONNEL EXPENSES. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE. IN RESPONSE TO THE NOTICES, THE ASSESSEE MADE WRITTEN SUBMISSIONS BEFORE THE LD. AO . ON PERUSAL OF THE PROFIT & LOSS ACCOUNT, THE LD. AO OBSERVED THAT THE ASSESSEE HAS SHOWN SALES OF RS.5,23,890/- AND EXPENDITURE OF RS.10,02,10,030 /-. ON THE JUSTIFICATION OF THE ABOVE LOSS DECLARED BY THE ASSESSEE, THE ASS ESSEE MADE SUBMISSIONS BEFORE THE AO. AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, AO DISALLOWED THE EXPENSES DEBITED OF RS.10,02,10,030/ - BY HOLDING AS UNDER:- I HAVE CAREFULLY EXAMINED ASSESSEE'S SUBMISSIONS AND FOUND NOT ACCEPTABLE IN VIEW OF THE FOLLOWING FACTS : 1. IT IS SAID THAT ASSESSEE COMPANY WAS INCORPORAT ED ON 2-1- 2006 AS A 100% SUBSIDIARY OF ULTRA MOTOR CO. LTD. U K. 2. THE COMPANY WAS FORMED WITH AN OBJECTIVE OF INT RODUCING 'ELECTRIC MOTOR' TO USED IN MAKING E-BIKES IN INDIA . 3. ASSESSEE HAS CHANGED ITS OBJECT CLAUSE TO INCLU DE INTRODUCTION OF E-BIKES INTO INDIA AS ITS MAIN OBJE CTIVE ALONG WITH DEALING IN SPARE PARTS OF E-BIKES. 4. INFORMATION CALLED FROM ASSESSEE'S SUBMISSION T HAT ASSESSEE COMPANY HAS STARTED A JOINT VENTURE WITH R OTOMAG CO. IN THIS DIRECTION. HOWEVER, THIS VENTURE WAS CLOSED DUE TO COMPETITION FROM CHINA. THE ABOVE FACTS INDICATE TH AT FIRST STATED BUSINESS ACTIVITY HAS NOT COMMENCED AT ALL. THE ASS ESSEE HAS DEBITED AN AMOUNT OF RS.88,22,825/- IS NOTHING BUT CAPITAL IN NATURE. TO SUBSTANTIATE THIS FINDING THE NOTE GIVEN BY THE AUDITORS IN NOTES TO THE ACCOUNTS CLEARLY PROVES TH AT IT IS AN ACCOUNT OF CAPITAL IN NATURE AND PERTAIN TO THE EAR LIER STATED BUSINESS ACTIVITY. IT IS SAID THAT THE COMPANY PROV IDED ITA NO.2556/DEL./2011 4 RS.62,32,063/- FOR PROCURING THE RAW MATERIAL AND C APITAL EQUIPMENT PURCHASED BY THE VENDOR M/S ROTOMAG MOTOR S AND CONTROLS LTD RELATED TO THE DISCONTINUED BUSINESS A ND AN AMOUNT OF RS.22,40,765/- PURCHASED FROM M/S MAXOP ENGG. CO . PVT. LTD. ON ACCOUNT OF TOOLS IS ALSO RELATED TO DISCONTINUED BUSINESS. THEREFORE, THESE EXPENSES ARE NOT ALLOWABLE EXPENDI TURE BECAUSE BUSINESS HAS BEEN DISCONTINUED. THEREFORE THE SUBMI SSIONS MADE VIDE LETTER DATED 24-8-2009 AND 4-12-2009 ARE WITHO UT ANY SUBSTANCE THEREFORE, IS REJECTED. VIDE SUBMISSIONS DATED 24-8-2009 IT IS SAID THAT RE LEVANT FINANCIAL YEAR ASSESSEE COMPANY HAS DECIDED TO IMPO RT THE MOTORS FROM CHINA DUE TO SUITABILITY OF TECHNOLOGY AND PRICING ADVANTAGE. THEREFORE, IT HAS APPOINTED HIGH PROFILE EXECUTIVES LIKE SH. V.J. PRAKASH, AS MD, SH. GANESH MAHALINGAM , DIRECTOR, BUSINESS DEVELOPMENT, AND SH. BHAN KK, DI RECTOR, CHINA OPERATIONS. IT IS FURTHER SAID THAT THE ACTIV ITY OF SOURCING OF RIGHT VENDORS PRODUCING HIGH QUALITY PRODUCTS AT MOST SUITABLE PRICE STARTED DURING THIS YEAR AND A NO. OF VISITS ARE MADE BY THE COMPANY EXECUTIVES TO CHINA. HOWEVER, ON PERUSAL OF P&L ALC. NO SUCH IMPORT HAS BEEN SHOWN AS PURCHASES AND CORR ESPONDING SALES ETC. THEREFORE, THIS ARGUMENT IS TAKEN WITHOU T SUPPORTING FACTS. THEREFORE, THIS EXPENDITURE INCURRED INTERNA TIONAL TRAVEL, INLAND TRAVEL, MARKETING AND ADVT. EXPENSES AND RES EARCH AND DEVELOPMENT COST, AND PERSONAL EXPENDITURE ARE NOTH ING BUT THEY ARE INCURRED TO EXPLORE NEW BUSINESS WHICH HAS NOT YET COMMENCED. THEREFORE, ALL THESE EXPENDITURES ARE TR EATED AS CAPITAL IN NATURE. IN THE P&L A/C. ASSESSEE HAS CREDITED SALES OF RS.5,23,890/- FOR WHICH NO DETAILS HAVE BEEN FILED. THEREFORE, IT IS HELD THAT ASSESSEE HAS NOT COMMENCED ANY BUSINESS A ND IS IN THE PROCESS OF SETTING UP OF ASSESSEE. THEREFORE, ALL E XPENDITURE ARE TREATED AS CAPITAL IN NATURE AND DISALLOWED. SUBJECT TO THE ABOVE DISCUSSION, INCOME OF THE ASSE SSEE COMPANY IS RECOMPUTED AS UNDER :- NET LOSS AS PER COMPUTATION RS. 9,83,05,419 ADD : EXPENSES DISALLOWED RS.10,02,10,030 TOTAL INCOME RS. 6,73,552 ITA NO.2556/DEL./2011 5 3. FEELING AGGRIEVED FROM THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A) AND THE LD. CIT (A), AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND RELYING UPON S OME CASE LAWS, ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED FROM THE ORD ER OF THE LD. CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 4. ASSESSEE HAS NOT PREFERRED TO PUT IN APPEARANCE DESPITE ISSUANCE OF THE NOTICE ON DIFFERENT DATES AND CONSEQUENTLY, WE PROC EEDED TO DECIDE THE PRESENT APPEAL WITH THE ASSISTANCE OF THE LD. SENIO R DR AS WELL AS ON THE BASIS OF DOCUMENTS AVAILABLE ON THE FILE. 5. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E FOR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOCUMENTS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. LD. DR RELIED ON THE ORDER OF THE AO AND SUBMITT ED THAT THE ASSESSEE HAS NOT YET STARTED THE BUSINESS ACTIVITIES, THEREF ORE, THE LD. AO HAS RIGHTLY TREATED THE EXPENDITURE INCURRED BY THE ASSESSEE AS CAPITAL EXPENDITURE. HE SUBMITTED THAT THE LD. CIT (A) HAS PARTLY ALLOWED T HE APPEAL WITHOUT ANY BASIS TREATING ONLY 40% OF THE EXPENDITURE AS CAPIT AL EXPENDITURE. 7. AFTER HEARING THE REVENUE AND OBSERVING THE ORDE RS OF THE AUTHORITIES BELOW, WE FIND THAT THE LD. CIT (A) HAS PASSED GOOD REASONED ORDER AND FOR THE SAKE OF CLARITY, THE FINDINGS RECORDED BY THE L D. CIT (A) IS REPRODUCED AS UNDER :- ITA NO.2556/DEL./2011 6 4.2 I HAVE GONE THROUGH THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER AND WRITTEN SUBMISSION OF THE LD.A R OF THE APPELLANT AND IT IS HELD THAT EXPENSES AMOUNTING TO RS.10,02,10,030/- IS NEITHER CAPITAL NOR FULLY REV ENUE IN NATURE AS HAS BEEN DISCUSSED BY THE AO IN THE BODY OF ASSE SSMENT ORDER THAT THIS EXPENDITURE HAS BEEN INCURRED FOR INTERNA TIONAL TRAVEL, INLAND TRAVEL, MARKETING AND ADVERTISEMENT EXPENSES , RESEARCH AND DEVELOPMENT COST AND PERSONAL EXPENDITURE ARE N OTHING BUT INCURRED TO EXPLORE NEW BUSINESS. IN THIS REGARD RE LIANCE IS PLACED ON THE JUDGEMENT OF THE HON'BLE DELHI HIGH C OURT IN THE CASE OF CIT VS.OCL INDIA LTD. REPORTED AT 2010-TIOL -808-HC- DEL-IT, WHEREIN, THE HON'BLE DELHI HIGH COURT RELIE D ON THE JUDGMENT IN THE CASE OF CIT VS J.K.SYNTHETICS LTD. 222CTR 339, WHEREIN, THE HON'BLE DELHI HIGH COURT HAS LAID DOWN THE BROAD PRINCIPLES FOR TREATING THE EXPENSES AS IN THE NATU RE OF CAPITAL OR REVENUE AS UNDER:- '13. WE MAY FIRST SPELL-OUT THE PRINCIPLES WHICH A RE TO BE KEPT IN MIND TO DETERMINE AS TO WHETHER SUCH EXPENS ES ARE TO BE TREATED CAPITAL OR THE REVENUE EXPENDITURE. T HESE ARE NEATLY CULLED OUT IN THE CASE OF CIT VS. J.K.SYNTHE TICS LTD, 222 CTR( 2008-TIOL-671-HC-DEL-IT) BY THIS COURT, AS UNDER:- 'BOARD PRINCIPLES WHICH EMERGE ONR EADING OF VARIOUS AUTHORITIES 38. AN OVERALL VIEW OF THE JUDGEMENT OF THE SUPREM E COURT, AS WELL AS, OF THE HIGH COURTS WOULD SHOW TH AT THE FOLLOWING BROAD PRINCIPLES HAVE BEEN FORGED OVER TH E YEARS, WHICH REQUIRE, TO BE APPLIED TO THE FACTS OF EACH C ASE: (I) THE EXPENDITURE INCURRED TOWARDS INITIAL OUTLA Y OF BUSINESS WOULD BE IN THE NATURE OF CAPITAL EXPENDIT URE, HOWEVER, IF THE EXPENDITURE IS INCURRED WHILE THE B USINESS IS ONGOING, IT WOULD HAVE TO BE ASCERTAINED IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE ASSET OR AN ADVANTAGE OF AN ENDURING BENE FIT FOR THE BUSINESS, IF THAT BE SO, IT WILL BE IN THE NATU RE OF CAPITAL EXPENDITURE. IF THE EXPENDITURE, ON THE OTHER HAND, IS FOR RUNNING THE BUSINESS OR WORKING IT, WITH A VIEW TO PRODUCE PROFITS, IT WOULD BE IN THE NATURE OF REVENUE EXPEN DITURE; ITA NO.2556/DEL./2011 7 (II) IT IS THE AIM AND OBJECT OR EXPENDITURE, WHIC H WOULD, DETERMINE ITS CHARACTER AND NOT THE SOURCE AND MANN ER OF ITS PAYMENT; (III) THE TEST OF 'ONCE AND FOR ALL' PAYMENT I.E., A LUMP SUM PAYMENT MADE, IN RESPECT OF, A TRANSACTION IS A N INCONCLUSIVE TEST. THE CHARACTER OF PAYMENT CAN BE DETERMINED BY LOOKING AT WHAT IS THE TRUE NATURE OF THE ASSET WHICH IS ACQUIRED AND NOT BY THE FACT WHETHER IT IS A PAYMENT IN 'LUMP SUM' OR IN AN INSTALLMENT. IN APPL YING THE TEST OF AN ADVANTAGE OF AN ENDURING NATURE, IT WOULD NOT BE PROPER, TO LOOK AT THE ADVANTAGE OBTAINED, . S LASTING FOREVER. THE DISTINCTION WHICH IS REQUIRED TO BE DR AWN IS, WHETHER THE EXPENSE HAS BEEN INCURRED TO DO AWAY WI TH, WHAT IS A RECURRING EXPENSE FOR RUNNING A BUSINESS, AS AGAINST, AN EXPENSE UNDERTAKEN FOR THE BENEFIT OF T HE BUSINESS AS A WHOLE; (IV) AN EXPENSE INCURRED FOR ACQUISITION OF A SOUR CE OF PROFIT OR INCOME WOULD BE ABSENCE OF ANY CONTRARY CIRCUMSTANCE, BE IN THE NATURE OF CAPITAL EXPENDITU RE. AS AGAINST THIS, AN EXPENDITURE WHICH ENABLES THE PROF IT MAKING STRUCTURE TO WORK MORE EFFICIENTLY LEAVING T HE SOURCE OR THE PROFIT MAKING STRUCTURE UNTOUCHED, WO ULD BE IN THE NATURE OF REVENUE EXPENDITURE. IN OTHER WORD S, EXPENDITURE INCURRED TO FIND TUNE TRADING OPERATION S TO ENABLE THE MANAGEMENT TO RUN THE BUSINESS EFFECTIVE LY, EFFICIENTLY AND PROFITABLY LEAVING THE FIXED ASSETS UNTOUCHED WOULD BE AN EXPENDITURE OF A REVENUE NATU RE EVEN THOUGH THE ADVANTAGE OBTAINED MAY LAST FOR AN INDEFINITE PERIOD. TO THAT EXTENT, THE TEST OF ENDU RING BENEFIT OR ADVANTAGE COULD BE CONSIDERED AS HAVING BROKEN DOWN; (V) EXPENDITURE INCURRED FOR GRANT OF LICENSE WHIC H ACCORDS' ACCESS' TO TECHNICAL KNOWLEDGE, AS' AGAINS T, 'ABSOLUTE' TRANSFER OF TECHNICAL KNOWLEDGE AND INFO RMATION WOULD ORDINARILY BE TREATED AS REVENUE EXPENDITURE. IN ORDER TO SIFT, IN A MANNER OF SPEAKING, THE GRAIN F ORM THE CHAFF, ONE WOULD HAVE TO CLOSELY LOOK AT THE ATTEND ANT CIRCUMSTANCES, SUCH AS: (A) THE TENURE OF THE LICENCE. ITA NO.2556/DEL./2011 8 (B) THE RIGHT, IF ANY, IN THE LICENSEE TO CREATE F URTHER RIGHTS IN FAVOUR OF THIRD PARTIES' (C) THE PROHIBITION, IF ANY, IN PARTING WITH A CONFIDENTIAL INFORMATION RECEIVED UNDER THE LICENSE TO THIRD PARTIES WITHOUT THE CONSENT OF THE LICENSO R, (D) WHETHER THE LICENCE TRANSFERS THE 'FRUITS OF R ESEARCH' OF THE LICENSOR, 'ONCE FOR ALL', (E) WHETHER ON EXPIRY OF THE LICENCE THE LICENSEE IS REQUIRED TO RETURN BACK THE PLANS AND DESIGNS OBTAINED UNDER THE LICENCE TO THE LICENSOR EVEN THOUGH THE LICENSEE MAY CONTINUE TO MANUFACTURE THE PRODUCT, IN RESPECT OF, WHICH 'ACCESS' TO KNOWLEDGE WAS OBTAINED DURING THE SUBSISTENCE OF THE LICENCE. (F) WHETHER ANY SECRET OR PROCESS OF MANUFACTURE W AS SOLD BY THE LICENSOR TO THE LICENSEE. EXPENDITURE O N OBTAINING ACCESS TO SUCH SECRET PROCESS WOULD ORDINARILY BE CONSTRUED AS CAPITAL IN NATURE; (VI) THE FACT THAT ASSESSEE COULD USE THE TECHNICA L KNOWLEDGE OBTAINED DURING THE TENURE OF THE LICENSE FOR THE PURPOSES OF ITS BUSINESS AFTER THE AGREEMENT HAS EX PIRED, AN IN THAT SENSE, RESULTING IN AN ENDURING ADVANTAG E, HAS BEEN CATEGORICALLY REJECTED BY THE COURTS. THE COUR TS HAVE HELD THAT THIS, BY ITSELF, CANNOT BE DECISIVE BECAU SE KNOWLEDGE BY ITSELF MAY LAST FOR A LONG PERIOD EVEN THOUGH DUE TO RAPID CHANGE OF TECHNOLOGY AND HUGE STRIDES MADE IN THE FIELD OF SCIENCE, THE KNOWLEDGE MAY WITH PAS SAGE OF TIME BECOME OBSOLETE; (VII) WHILE DETERMINING THE NATURE OF EXPENDITURE, GIVEN THE DIVERSITY OF HUMAN AFFAIRS AND COMPLICATED NATU RE OF BUSINESS; THE TEST ENUNCIATED BY COURTS HAVE TO BE APPLIED FROM A BUSINESS POINT OF VIEW AND ON A FAIR APPRECI ATION OF THE WHOLE FACT SITUATION BEFORE CONCLUDING WHETHER THE EXPENDITURE IS IN THE NATURE OF CAPITAL OR REVENUE. 14. GOVERNED BY THE AFORESAID PRINCIPLES, WE ARE O F THE VIEW THAT THE TRIBUNAL HAS RIGHTLY HELD THAT THE SC OPE OF STUDY WAS THE MIXTURE OF BOTH THE AREAS NAMELY PART OF IT RELATED TO THE STUDY FROM WHICH BENEFIT OF ENDURING NATURE WAS SOUGHT TO BE ACHIEVED AND PART THEREOF RELATED TO THE TREATING ACTIVITIES. THEREFORE, THE EXPENDITURE INC URRED WAS ITA NO.2556/DEL./2011 9 REQUIRED TO BE APPORTIONED BETWEEN THE TWO VIZ CAPI TAL AND REVENUE EXPENDITURE. 15. WHEN WE COME TO THE ALLOCATION OF THIS EXPENDI TURE, THE REASON FOR ALLOCATION 20% OF THE EXPENSES TOWAR DS CAPITAL EXPENDITURE IS NOT DISCERNIBLE FROM THE ORD ER OF THE TRIBUNAL. ACCORDING TO THE TRIBUNAL ITSELF, OUT OF THE FIVE ASPECTS ON WHICH REPORT TO THE CONSULTANT WAS SOUGH T, TWO RELATED TO EXPANSION OR STARTING OF NEW PROJECTS. O N THIS OBSERVATION OF THE TRIBUNAL THERE IS NO DISPUTE. TH IS IS CORRECT AS AREAS NO.4 & 5 RELATE TO POSSIBLE ACQUIS ITION IN SOUTHERN REGION AND EXPANSION OF EXISTING CEMENT PL ANT AND FROM THESE STUDIES BENEFIT OF ENDURING NATURE W AS SOUGHT TO BE DERIVED AT. THEN THE OBVIOUS FALLOUT W OULD BE TO ALLOCATE 40% OF THE TOTAL EXPENDITURE AND NOT 20 % TO THE HEAD 'CAPITAL EXPENDITURE'. 4.3 THE RATIO OF THE ABOVE SAID JUDGEMENT OF THE H ON'BLE DELHI HIGH COURT CLEARLY HITS THE CASE AND THE SAME RATIO IS TAKEN FOR DETERMINING THE RATIO OF CAPITAL OR REVENUE NATURE. AS IN THE INSTANT CASE, AO HAS DECIDED THAT ALL THE EXPENSES AMOUNTING TO RS.10,02,10,030/- AS CAPITAL NATURE, SAME IS RESTRI CTED TO 40% ONLY. THUS, BY APPLYING THE RATIO OUT OF RS.10,02,1 0,030/-, AN AMOUNT OF RS.4,00,84,012/- (40%) SHOULD BE TREATED AS CAPITAL EXPENDITURE AND REMAINING 60%, I.E., RS.6,01,26,018 /- SHOULD BE ALLOWED AS REVENUE EXPENDITURE. ACCORDINGLY, APPEAL IS PARTLY ALLOWED. 5. FOR STATISTICAL PURPOSE, APPEAL WILL BE TREATED AS PARTLY ALLOWED. 8. FROM THE ABOVE, WE FIND THAT THE LD. CIT (A) HAS , AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER PASSED BY THE AO, HAS RIGHTLY ALLOWED 40% OF THE EXPENDITURE I.E. RS.4,00,84,012/ - AS CAPITAL EXPENDITURE AND THE REMAINING 60% EXPENDITURE I.E. RS.6,01,26,0 18/- IS ALLOWED AS REVENUE EXPENDITURE. IT IS ALSO CLEAR FROM THE SUB MISSIONS MADE BEFORE THE AO THAT THE ASSESSMENT FOR THE YEAR ENDING 31.03.20 06 WAS ASSESSED U/S ITA NO.2556/DEL./2011 10 143(3) OF THE INCOME-TAX ACT, 1961 VIDE ORDER DATED 16.09.2008 AT A BUSINESS LOSS OF RS.13,73,867/-. THEREFORE, THERE IS NO DOUBT THAT THE BUSINESS HAS ALREADY BEEN COMMENCED AND DURING THE IMPUGNED YEAR, THE ASSESSEE ALSO SHOWN THE SALE OF RS.5,23,890/-. FRO M THE IMPUGNED YEAR, THE ASSESSEE HAS ALSO STARTED THE RESEARCH AND DEVELOPM ENT ACTIVITY. THEREFORE, IT IS PATENTLY CLEAR THAT THE ASSESSEE COMPANY BUSINES S WAS SET UP IN THE PREVIOUS YEAR AND THE ASSESSEE COMPANY CONTINUED IT S MAIN ACTIVITIES FOR EXPANSION OF ITS BUSINESS NETWORK. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT WANT TO INTERF ERE WITH THE FINDINGS REACHED BY THE LD. CIT (A), THEREFORE, THE APPEAL O F THE REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DAY OF AUGUST, 2018. SD/- SD/- (AMIT SHUKLA) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 17 TH DAY OF AUGUST, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.