INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Expenditure incurred on feasibility study forming part of development of assessee's existing business - -

Assessee engaged in steel and minerals business claimed deduction of expenditure incurred on feasibility studies. AO treated the same as capital expenditure and granted depreciation @ 25%. Assessee stated that feasibility study was undertaken as part of the vision and strategic growth plans in 'materials' sector. It examined various business opportunities apart from its primary focus on steel business. The preliminary analysis indicated that assessee could be one of the lowest cost producers in world in heavy mineral sands business. Hence, it was proposed in existing mineral business to develop and process minerals such as Zircon, limenite, etc., for producing the titanium metal. The proposed study would involve mineral and separation of limenite and other valuable minerals from inland heavy mineral sand deposits in districts of Tuticorin and Tirunelveli in the State of Tamil Nadu and its upgradation to synthetic Rutile later to Titanium Di-Oxide and ultimately to Titanium.Held: It could be safely concluded that feasibility study was conducted for prospecting various minerals which would cater to existing steel and mineral business of assessee. It was mere identification of minerals, which might be taken up for development of steel business of assessee and did not amount to initiation of new business but, on the other hand, it forms part of development activities of assessee's existing business. Accordingly expenditure incurred on feasibility study was allowed as revenue expenditure.