Business expenditure – Section 37 – A. Y. 2003-04 – Year in which allowable – Project abandoned as unviable at capital-work-in-progress stage – No claim made in earlier year – Expenses allowable in the year of write-off

In the A. Y. 2003-04, the assessee claimed deduction of the expenditure on a project which had been abandoned when it was found to be unviable. The expenditure was not claimed or allowed earlier as business expenditure and was written off as capital-work-in-progress in the relevant year. The Commissioner (Appeals) held that when construction/acquisition of a new facility was abandoned when it was found to be unviable at the work-in-progress stage, the expenditure did not result in an enduring advantage and such expenditure, when written off, had to be allowed u/s. 37. The Tribunal reversed the order of the Commissioner(Appeals) holding that the expenditure incurred in the earlier years could not be deducted in the A. Y. 2003-04.

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under:

“There was no challenge on the finding of the Commissioner(Appeals) on the facts before the Tribunal or even the appeal. 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 workin- 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. Thus the expenditure arose in the relevant year. The question is answered in favour of the assessee.”