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Judgment
K. Raviraja Pandian, J.—The Revenue has filed these tax case appeals against the order of the Income Tax Appellate Tribunal, Madras ''B''
Bench dated 04.09.2006 made in I.T.A. Nos. 1413/Mds/2000 & 937(Mds)/2003. The relevant assessment years are 1994-95 and 1999-2000.
The assessee is Tamilnadu Industrial Investment Corporation Ltd., and the main object of the assessee is to promote industrial development in
the State through partnership with private enterprises, either as Joint sector or as associate sector or as escort sector. During the course of its
business for the assessment year 1994-95 the assessee claimed to write off a sum of Rs. 8,98,706/- being the pre project expenses in respect of
13 projects. Those projects were being promoted by the assessee in joint venture. The assessing officer found that the projects were yet to come
up and there was no situation to warrant that the projects have been shelved. He disallowed the claim as prematured. For the assessment year
1999-2000, the assessee made a similar claim in a sum of Rs. 18,31,054/-, which was allowed by the assessing officer.
The assessee filed appeals in respect of both the assessment years although the order for the year 1999-2000 in respect of the pre project
expenses was favourable to the assessee, before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals)
confirmed the order of the assessing officer in respect of the pre project expenses for the assessment year 1994-95. In respect of the assessment
year 1999-2000 though the Commissioner of Income Tax (Appeals) considered a sum of Rs. 29,52,391/- being expenditure on unsuccessful
project written off, which was the subject matter of appeal, ultimately concluded that the working of the business loss arrived at by the assessing
officer made it clear that he had not made a disallowance of the sum of Rs. 29,52,391/- as has been represented by the assessee and thus
concluded that the issue did not survive.
Against the orders of the Commissioner of Income Tax Appeals, the assessee and the revenue filed second appeals before the Income Tax
Appellate Tribunal. The Tribunal held in favour of the assessee by following the decision of this Court in the case of Commissioner of Income Tax,
Tamil Nadu-II Vs. Seshasayee Bros. P. Ltd., . The correctness of the said order is now canvassed in the present tax case appeals by formulating
the following substantial question of law:
Whether on the facts and circumstances of the case, the Tribunal was right in holding that the write off of pre-project expenses was correct in law,
when there is a clear factual finding that the projects had not been shelved as not viable and that the write off was premature?
Learned Counsel appearing for the revenue submitted that this Court in somewhat similar set of facts in the case of E.I.D. Parry (India) Ltd. Vs.
Commissioner of Income Tax, observed that when the assessee incurred the expenditure for the purpose of setting up a new project, it was clearly
in the capital field and not in the revenue field. The abandonment of that project was the abandonment of a project on which capital expenditure
had been incurred. The expenditure incurred on that capital project was not something which could be regarded as revenue expenditure laid out
exclusively and wholly for the purposes of business of the assessee as what the assessee was trying to start was a new business for the manufacture
of a new product. The expenditure incurred therein was clearly capital expenditure and not revenue expenditure. Relying on the said decision the
counsel appearing for the revenue sought to argue that the order of the Tribunal is erroneous in nature and requires consideration from this Court.
We heard the arguments of the counsel appearing for the revenue and perused the materials available on record.
We are not able to concur with the argument of the counsel for the revenue. The assessee, in the above cited decision, was a company which
has expended the amounts for the purpose of putting up a new industrial unit. Here, in this case, the assessee is not an industry and it is a State
Industrial Development Corporation Ltd., with the object of financing private parties for the purpose of promotion of industrial development either
as joint sector or as associate sector or as escort sector. It financed the private parties for the purpose of putting up industries. That makes a total
difference between the case with which reliance has been made by the learned Counsel for the revenue. However, the Tribunal placed reliance on
the decision of this Court in the case of Commissioner of Income Tax, Tamil Nadu-II Vs. Seshasayee Bros. P. Ltd., , wherein the assessee, a
managing agency company had been investigating several projects and wherever feasible, promoting new industrial undertakings. If the new
undertakings materialised the expenses were transferred and recovered from the new unit and the assessee secured the office of managing agents
of technical consultancy or the like and earned profits. If, however, the project was unsuccessful, the assessee company wrote off the expenses. In
its assessment for 1966-67 and 1967-68 the assessee claimed deduction of the sum of Rs. 9,865/- and Rs. 10,785/- respectively which were
project expenses incurred by it in a newsprint paper mill project which did not materialise. The Tribunal held that as the assessee''s business was
promotion of new ventures, the project expenditure was incidental to the business and hence could not be treated as preliminary or capital in nature
and accordingly, allowed the same. The revenue carried the matter on appeal before this Court. This Court, after analysing the various judgments,
ultimately held that the expenses incurred by the assessee were in the course of the business as promoters of companies or as managing agents and
with a view to augmenting their income and consequently held that the Tribunal was right in its conclusion that the sums in question were allowable
as revenue expenditure.
The case on hand would be squarely covered by the ratio laid down by the Division Bench of this Court in the case of Commissioner of Income
Tax, Tamil Nadu-II Vs. Seshasayee Bros. P. Ltd., . Hence, we do not find any question of law for entertainment of the appeals. The appeal are
dismissed. No costs. The connected miscellaneous petition is dismissed.