Commissioner of Income Tax vs Tamil Nadu Road Development Co. Ltd. (No. 1)

K. Raviraja Pandian, J.—This appeal is filed by the Revenue against the order of the Income Tax Appellate Tribunal, Madras ""C"" Bench,

dated November 30, 2007, in I.T.A. No. 2096/Mds/2006. The relevant assessment year is 2003-04. The substantial questions of law formulated

in this appeal are as follows:

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 facts of the case are as follows:

The assessee is engaged in the business of improvement, development and implementation of the infrastructure road projects. For the assessment

year 2003-04, the assessee claimed a sum of Rs. 70,73,967 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. On appeal,

the Commissioner of Income Tax (Appeals) following the 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 in the case of Commissioner of Income Tax Vs. Kerala State Industrial Development

Corporation Ltd. (No. 1), , allowed the appeal in favour of the assessee. The appeal preferred by the Revenue to the Tribunal ended in dismissal.

Aggrieved by the same, the present appeal is filed.

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 abovesaid finding of fact, the Commissioner (Appeals) 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 the 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 in Commissioner of Income Tax Vs. Kerala State

Industrial Development Corporation Ltd. (No. 1), held that the assessee is entitled to the benefit being a firm. In view of the abovesaid 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.

Therefore, for the foregoing reasons, the appeal is dismissed.