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Expenditure on abandoned project is revenue expenditure in the relevant year - Calcutta

Binani Cement Ltd vs. CIT (Calcutta High Court)
March 26th, 2015

S. 37(1): Expenditure on an aborted capital project is revenue in nature & can be claimed as deduction in year of abandoning the project

(i) Expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage is allowable as incurred wholly or exclusively for the purpose of assessee’s business. It is revenue expenditure as it does not result in the acquisition of an asset or an advantage of an enduring nature;

(ii) The expenditure has to be claimed in the year in which the decision is taken to abandon the project. There would have been no occasion to claim the deduction if the work-in-progress had completed its course. Because the project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year.

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