The Commissioner of Income Tax vs Tamil Nadu Road Development Company Limited

K. Raviraja Pandian, J.—The revenue on appeal against the order of the Income Tax Appellate Tribunal Madras ''C'' Bench, Chennai dated

05.09.2008 passed in ITA. No. 933/Mds/2007 relating to the assessment year 2004-2005 by formulating the following substantial questions of

law:

Whether on the facts and circumstances of the case, the Tribunal was right in deleting the disallowance made by the assessing officer towards

expenditure incurred by the assessee on techno-economic feasibility report for the manufacture of the new product?

Whether on the facts and circumstances of the case, expenses related to feasibility study for a new project which did not take off can be

considered as a revenue expenditure?.

The material facts as culled out from the statement of facts in the memorandum of grounds of appeal are as follows: For the assessment year

2004-2005, the assessee filed its return of income wherein it had claimed a sum of Rs. 87,86,382/- as revenue expenditure, towards techno-

economic feasibility report for the manufacture of new products. The assessing Officer disallowed the claim of the assessee and treated the same

as capital expenditure. However, the Commissioner of Income Tax (Appeals) allowed the appeal in favour of the assessee. On further appeal at

the instance of the revenue, the Tribunal confirmed the order of the Commissioner of Income Tax (Appeals). The correctness of the same is now

canvassed before us by filing this appeal.

The learned Counsel appearing for the revenue submitted before this Court in respect of earlier years in assessee''s own case, on the very same

reasoning of the Tribunal, the revenue came up by way of tax appeal in T.C. No. 697 of 2008 and this Court by order dated 08.07.2009

dismissed the appeal and confirmed the order of the Tribunal by observing as follows:

The Commissioner of Income Tax (Appeals) has recorded a finding that various expenses claimed by the assessee have been incurred on

various test studies, feasibility reports, pilot studies and related travelling expenses, etc., which cannot be specified for setting up of any new

project. These expenses are of the nature of general business expenses incurred during the course of business operations. It is an uncontroverted

fact that the assessee is in the business of laying road and also a Government of Tamil Nadu Company incorporated as a Nodal Agency for

implementation of the Industrial policy in the State of Tamil Nadu and for creation of infrastructure facilities such as road system highways bridge

projects in the State on a commercial frame work. On the above said finding of fact, the Commissioner has come to the conclusion that those

expenses cannot be treated as capital expenditure for the current year and the expenses clearly come within the ambit of provisions of Section 35D

because these have not been incurred for the expansion or extension of business but merely to find out new ideas by conducting test studies and

pilot studies for improving the existing business. On those facts and relying on a decision of this Court in the case of Commissioner of Income Tax,

Tamil Nadu-II Vs. Seshasayee Bros. P. Ltd., and that of the Kerala High Court held that the assessee is entitled to the benefit being a firm. In view

of the above said factual finding recorded by the authorities under the Act as well as the Tribunal, we are of the view that there is no question of

law, much less, a substantial question of law involved in this appeal. Learned Counsel appearing for the revenue also is not able to convince us that

this amount has been expended for the purpose of any new project.

For the very same reasoning, this appeal is dismissed.