1. This appeal by the assessee relates to asst. yr. 1991-92 and is directed against the order of the CIT(A), Belgaum, dt. 19th May, 1995.
2. The assessee filed return of income on 30th Dec., 1991, declaring 'nil' income. While processing the return of income under Section 143(1)(a) of the IT Act, some adjustments of Rs. 4,12,720 were made to the total income returned as the expenditure was in the nature of capital expenditure. On receipt of intimation, the assessee filed petition under Section 154 requesting to rectify the mistake. An amount of Rs. 4,12,720 was stated to have been incurred by the assessee to develop a new project suitable for defence distribution mechanism for T-72 tanks but the assessee had not debited the above amount yet while computing total income, assessee's claim is that the expenditure in question is wholly and exclusively for the business purpose and as such the same is allowable as a revenue expenditure. But the AO concluded that in the absence of any evidence to show that it is not deriving the benefit of enduring nature by developing a new product, it cannot be allowed as a revenue expenditure, The AO disallowed this amount on the basis of documents and notes filed with the return of income holding it to be a prima facie disallowable as capital expenditure.
3. When the assessee went in appeal before the CIT(A), he also confirmed the order of the AO. The same issue has been reiterated before us by the learned authorised representative Shri Ullas Kini whereas the learned Departmental Representative Shri Sudheendra has supported the orders of the authorities below. The learned counsel has further submitted before us that the expenditure of Rs. 4,12,720 incurred by the assessee was revenue in nature because the expenditure incurred related to a project of distribution mechanism for heavy vehicle factory at Avadi, Madras. The learned counsel has also vehemently submitted before us that in any case, the disallowance cannot be done under the provisions of Section 143(1)(a) of the IT Act.
4. After hearing the arguments of both the sides and considering the evidence on record we decide as under : The whole gamut of the facts as well as for and against arguments which were advanced before us and also the reasoning given in the appellate order as well as the AO's order definitely go to establish that the disallowance in question is such an issue which is a debatable one and it is a settled principle of law by now that any debatable issue cannot be disallowed by way of intimation under Section 143(1)(a) of the Act unless it is prima facie disallowable adjustment. Hence, we set aside the orders of the lower authorities.