CIT Vs. SRF LTD.

JUDGEMENT

(1.) THE Revenue is aggrieved by the impugned order of the Income Tax Appellate Tribunal (ITAT) dated 06.09.2013 in ITA No. 4454/Del/2010. The assessee had claimed the sum of Rs. 7,03,95,000/ - as pre -capitalization expenses towards expansion of its business. This was disallowed by the Assessing Officer (AO) as well as the CIT (Appeals) concurrently. The Revenue urges that the ITAT's decision, reversing the view of the lower authorities is contrary to law.

(2.) BRIEFLY the facts are that the assessee engages itself in the manufacturing of Nylon Tyre Cord Fabrics, Packaging Film, Fluorochemicals, Chloromethane and Refrigerant Gases. During the year in question, i.e. 2005 -06, it sought to expand its business in polyester films at Indore, pharma chemical business at Bhiwadi and industrial fabrics business at Trichy. Towards these, it claimed expenses to the tune of Rs. 7,03,95,000/ - as pre -capitalization costs. The Revenue treated this as properly falling in the capital side and disallowed the expenditure. At the same time, the Revenue also permitted the allowable depreciation. The CIT (Appeals) confirmed the findings of the AO. The ITAT, after considering the existing business and the expansion sought to be urged by the assessee in support of its claim, that the pre -capitalization expenditure is really revenue in nature, held that there was an element of interlacing and intermingling of funds between the new or expanding venture and the existing venture, and consequently the expenses had to be treated as falling on the revenue side.

(3.) LEARNED counsel for the assessee, on the other hand, relied upon the judgment in Jay Engineering Works Ltd. v. CIT : 2009 (311) ITR 405 (Del) to say that seemingly diverse and disparate lines of business can yet be treated as part of the same business provided certain important parameters are kept in mind - that both should have common management and that the funds used for the purposes of the existing business as well as the new entity should be common. Applying these tests, urged learned counsel, the assessee was squarely covered by the ruling in Jay Engineering (supra) . In Jay Engineering (supra) , a Division Bench of this Court relied upon large number of previous judgments, including judgments of this Court and held as follows: