COMMISSIONER OF INCOME TAX vs. SAYAJI INDUSTRIES LTD.

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ITA/299/1999HC GujaratGJHC24025038199907 August 2002Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE K.A.PUJ3 pages

AI SummaryDismissed

What did the High Court hold?

The High Court rejected the Revenue's application for a reference. The Court found that the ITAT had made categorical factual findings that the expenditure was related to an expansion of the existing business. The project was abandoned due to unfavorable government pricing policies, rendering it economically unfeasible, and the letter of intent was revoked. The ITAT had concluded that no enduring benefit resulted to the assessee, and therefore, the expenditure could not be treated as capital expenditure. Instead, it was considered an infructuous expenditure resulting in a business loss. The High Court held that the decision relied upon by the Revenue, CIT vs. Ambica Mills Ltd., was distinguishable on facts. Consequently, the Court concluded that no substantial question of law arose from the ITAT's order, and thus, the application for reference was rejected. The Rule was discharged.

What were the facts?

The Revenue (Commissioner of Income Tax) filed an application before the High Court of Gujarat seeking a direction to the Income-Tax Appellate Tribunal (ITAT) to draw a statement of case and refer a specific question of law for the Court's opinion. The question pertained to whether the ITAT was correct in holding that an amount of Rs. 10,50,000 paid to a consultant in connection with the establishment of a plant was an allowable business expenditure. The ITAT had found that the expenditure was an expansion of existing business, but the project could not proceed due to government pricing policy making it economically unfeasible. The ITAT also noted that the letter of intent was revoked by the government and the amount paid to the consultant was irrecoverable, resulting in an infructuous expenditure and a business loss, not a capital expenditure.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that the amount of Rs. 10,50,000 paid to a consultant in connection with the establishment of a plant was an allowable business expenditure? (Question of law and fact, concerning the nature of expenditure). Assessee's Contention: Not recorded in the judgment. Revenue's Contention: The Revenue argued that the question proposed was a question of law and that the ITAT should be directed to refer it to the High Court. The Revenue relied on the decision in CIT vs. Ambica Mills Ltd. (1999) 236 ITR 921, where expenditure for a feasibility report for a new, different business project that did not materialize was held to be capital expenditure.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX APPLICATION No 299 of 1999

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE K.A.PUJ

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus SAYAJI INDUSTRIES LTD. -------------------------------------------------------------- Appearance: 1. INCOME TAX APPLICATION No. 299 of 1999 MR MANISH R BHATT for Petitioner No. 1 RULE SERVED for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE K.A.PUJ

Date of decision: 07/08/2002

ORAL JUDGEMENT (Per : MR.JUSTICE K.A.PUJ)

The revenue has proposed the following question

and requested this Court to direct the Income-tax Appellate Tribunal to draw a statement of case and refer the same question for the opinion of this Court :-

"whether, the Appellate Tribunal is right in law and on facts in holding that the amount of Rs.10,50,000/- paid to consultant in connection with establishment of plant was an allowable business expenditure ?"

Heard Mr Manish Bhatt, the learned senior standing counsel appearing for the applicant-revenue. Though Rule was duly served on the respondent-assessee, assessee as the amount of Rs. 10,50,000/- paid by the assessee to the consultant was an infructuous expenditure resulting in a business loss.

In view of the above fact, we are of the view

that the decision relied by the revenue is not applicable to the facts of the present case and hence, is distinguishable on facts.

In view of the above facts and circumstances of the case, we are of the view that no question of law arises from the order of the Tribunal and hence, we reject this application.

Rule is discharged with no order as to costs.

(M.S. Shah, J.) (K.A. Puj, J.)

sundar/-

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