Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of Where assessee spent some amounts in connection with his existing business to manufacture raw material required by it for manufacture of its finished products and for this purpose assessee set up steel melting shop, expenditure incurred by assessee for setting up steel melting shop was allowable as revenue expenditure. [A/Y 1995-96 TO 1997-98] The assessee carried on the business of manufacture and production of CTD bars as also different types of iron rods. The assessee used to procure the raw material, that is, billets, from the open market. It decided to manufacture the raw material on its own and for this purpose it set up a steel melting ship. In the course of setting up the steel melting shop, the assessee incurred substantial expenditure and this was shown by the assessee in its books as capital expenditure incurred. The assessee also filed its returns on this basis: Later the assessee filed revised returns wherein it claimed that the expenditure was revenue expenditure having been incurred for the expansion of its business. On this basis, the assessee claimed a deduction. The Assessing Officer did not accept the view canvassed by the assessee primarily on the ground that the assessee had shown the expenditure as being of a capital nature in its own books. Held that what the assessee had done was to spend some amounts in connection with his existing business in the sense that instead of purchasing billets from the open market, the assessee decided to manufacture that raw material on its own and it was for this purpose that the assessee set up the steel melting shop. Hence, the assessee's claim for deduction of expenditure incurred for setting up the steel melting shop was allowable as revenue expenditure. JUDGMENT Madan B. Lokur, J.-The Revenue is aggrieved by an order dated June 16, 2006, passed by the Income-tax Appellate Tribunal, Delhi Bench "A" in I.T.A. Mo. 915/Del/1999, I.T.A. No. 2389/Del/2000 and I.T.A. No. 4366/Del/2004 relevant for the assessment years 1995-96 to 1997-98. The assessee carries on the business of manufacturing and production of CTD bars as also…

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