Cited:
1) CIT Vs. Graphite India Ltd.
reported in (1996) 221 ITR 420 (Cal).
2) Hindusthan Aluminium Corporation Ltd. v. CIT [1986] 159 ITR 673, Calcutta HC
3) Asiatic Oxygen Ltd. v. CIT [1991] 190 ITR 328 (Cal)
4) CIT Madras Vs. Gajapathy Naidu reported in (1964)
53 ITR 114 (SC)
5) CIT Madhya Pradesh Nagpur and Bhandara Vs. Swadeshi Cotton and Flour Mills Pvt. Ltd. reported in (1964) 53 ITR 135 (SC)
6) Delhi Tourism and T.D.C Ltd. Vs. CIT reported in
(2006) 285 ITR (Delhi)
7) CIT Vs. Indian Mica Supply Co. P. Ltd. reported in (1970) 77 ITR 20 (SC)
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction ( Income Tax)
Original Side
Present:
The Hon’ble Justice Girish Chandra Gupta
&
The Hon’ble Justice Arindam Sinha
Income Tax Appeal no. 265 of 2009
M/s Binani Cement Ltd., Kolkata
Vs.
Commissioner of Income Tax, Kolkata Central-I & Anr.
The following question of law was framed when the appeal was admitted.
“Whether the Tribunal substantially erred in law in disallowing the expenditure
allegedly incurred by the assessee for preparation of the feasibility study report and capital-work-in-progress in the earlier years, but written off during the previous year corresponding to the assessment year 2002-03 since the proposed project was abandoned?”
The Tribunal found that the expenditure did not result in bringing into existence any capital asset of enduring in nature.
In Gajapathy Naidu on the question of power of the Income Tax Officer to relate
back an income the Apex court was of the following view:-
“When an Income-tax Officer proceeds to include a particular income in the
assessment, he should ask himself, inter alia, two questions, namely: (i) what is
the system of accountancy adopted by the assessee, and (ii) if it is the mercantile
system, subject to the deeming provisions, when has the right to receive accrued?
If he comes to the conclusion that such a right accrued or arose to the assessee in
a particular accounting year, he should include the said income in the assessment
of the succeeding assessment year. No power is conferred on the Income-tax
Officer under the Act to relate back an income that accrued or arose in a
subsequent year to another earlier year, on the ground that that income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in
the matter of ascertaining when a particular income acccrued or arose.”
Held:
(i) Expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage is allowable as incurred wholly or exclusively for the purpose of assessee’s business. It is revenue expenditure as it does not result in the acquisition of an asset or an advantage of an enduring nature;
(ii) The expenditure has to be claimed in the year in which the decision is taken to abandon the project. There would have been no occasion to claim the deduction if the work-in-progress had completed its course. Because the project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year.
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