JUDGMENT : K.S. Jhaveri, J. 1. By way of this appeal, the assessee has challenged the order of the Income Tax Appellate Tribunal, Ahmedabad Bench "A", Ahmedabad, (For short, "the Tribunal") in ITA No. 1062/Ahd/1998 dated 24.2.2006, whereby the Tribunal has confirmed the order of the CIT (A) with regard to the expenditure incurred by the assessee for the trial run. 2. At the time of admitting this Appeal, following question of law was framed:- "(i) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in treating the trial run expenditure incurred by the appellant in the process of expansion of its existing manufacturing facilities as capital expenditure?" 3. Mr. B.S. Soparkar, learned advocate for the appellant submitted that the assessee has increased its installed capacity of the tile manufacturing plant from 35000 MT to 42000 MT by installing balancing equipments. He submitted that the commercial production of this unit commenced w.e.f. 1.8.1993. Trial run before declaring the expansion took almost 45 days. During the period various raw materials (imported and indigenous) were utilized. The total cost of trial run was to the tune of Rs. 63.07 lacs, which were excluding revenue expenditure already charged to the P & L Account. He, therefore, submitted that as the expenses are incurred only for the purpose of existing line of business where the production was in progress, therefore, the same is rightly claimed as revenue and the Tribunal has committed an error in passing the impugned order. He contended that the expenses which are incurred for the trial run are for expansion of manufacturing activity and the same ought to have been allowed as revenue expense. In support of his submissions, he has relied upon the decisions of this Court in (i) Commissioner of Income-tax v. Alembic Glass Industries Ltd. reported in [1976] 103 ITR 715 (Gujarat), (ii) Gujarat Small Scale Industries Corprn. Ltd. v. Commissioner of Income-tax reported in [1982] 8 Taxman 210 (Gujarat) and (iii) Gujarat Alkalies & Chemicals Ltd. v. Deputy Commissioner of Income-tax (Asstt.) reported in [2015] 60 taxmann.com 79 (Gujarat). 4. On the other hand, learned counsel for the respondent has supported the impugned order passed by the Tribunal and submitted the Tribunal has not committed any error while passing the impugned order. 4. On the other hand, learned counsel for the respondent has supported the impugned order passed by the Tribunal and submitted the Tribunal has not committed any error while passing the impugned order. In support of its conclusion, the Tribunal has relied upon the decision in the case of Challapalli Sugars Ltd. v. CIT reported in [1975] 98 ITR 167. He, therefore, prayed that this appeal may be dismissed. 5. We have heard learned counsel appearing for both the sides. We have also perused the material on record as well as the impugned order. We have also gone through the judgments relied upon by the learned advocates. In Commissioner of Income-tax (supra), the assessee-company had an existing unit manufacturing glass at Baroda. For establishing a new glass manufacturing unit at Bangalore, the company incurred certain expenditure in the relevant years. The said unit did not go into production during the year in question. During the course of the assessee's assessment to income-tax, the ITO, inter alia, held that the Bangalore unit was not a branch of the assessee's factory and that it was, therefore, a new business and since that new business had not started production, the payment of interest on the borrowings made for incurring the expenditure for setting up the new unit could not be allowed as revenue expenditure. On the same ground, he also disallowed some miscellaneous expenditure and travelling expenditure referable to the establishment of the Bangalore unit. This decision was reversed on appeal by the AAC who held that the Bangalore unit did not become a distinct business undertaking although it was a new unit and the Income-tax Appellate Tribunal agreed with the AAC. On a reference, this court held that there was one company which controlled the administration of both the units and which supplied staff to both the units. One company alone managed the whole of the business organization of both the units and the production of both the units was considered the production of that company itself. The mere fact that there was no common place of business because the Bangalore unit was situate many miles away from Baroda was not a matter of any consequence because the head office of the assessee was at Baroda and it was the head office which controlled the affairs of both the businesses. The mere fact that there was no common place of business because the Bangalore unit was situate many miles away from Baroda was not a matter of any consequence because the head office of the assessee was at Baroda and it was the head office which controlled the affairs of both the businesses. It was pointed out that the closure of any of the two units would surely affect the working and the business of the remaining unit for the simple reason that a larger liability of the whole business would obviously have to be borne by the other unit on the closure of one unit. Having regard to all these circumstances, it was held that the factory at Bangalore did not constitute a new business but was only an establishment of a new unit of the existing business and that the amounts in question were allowable as revenue expenditure. While deciding this matter, the Court has also considered the decision rendered in the case of Challapalli Sugars Ltd. (supra). 5.1. In Gujarat Small Scale Industries Corprn. Ltd. (supra), this Court observed as under:- "6. If the expenditure was incurred before the commencement of the production, the matter might have stood on a different footing. The combined effect of these factors impels one to the conclusion that the expenditure was in the nature of revenue. The assessee-Corporation was carrying on numerous activities for about 10 years and the expenditure incurred was not in connection with the testing of the plant established for the manufacture of the scooters, but was an expenditure incurred in connection with the trial of the scooters. The trial revealed that the scooters had stood up the test satisfactorily and in subsequent years commercial production was commenced. Under the circumstances, the expenditure incurred in testing the scooters must be treated as expenditure of a revenue nature. It is difficult to conceive how it can be said to be an expenditure of a capital nature, for, it has not brought into existence any capital asset or advantage of an enduring nature. Counsel for the assessee placed reliance on CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj), in support of his contention that where the assessee-company was already engaged in manufacturing activities and had started a new branch of manufacturing activities, the expenditure incurred could be treated as revenue expenditure and not as capital expenditure. Counsel for the assessee placed reliance on CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj), in support of his contention that where the assessee-company was already engaged in manufacturing activities and had started a new branch of manufacturing activities, the expenditure incurred could be treated as revenue expenditure and not as capital expenditure. In that case, the assessee-company had established an altogether new unit at a different center, name, Bangalore, and all the expenditure incurred in this connection was treated as revenue expenditure by reason of the fact that it could not be considered to be a new business undertaking. The reasoning which found favour with the court was that the production of both the units was considered the production of the assessee-company itself and that both the lines of business constituted the "same business" of the assessee-company. In the present case, it is not necessary to go that far. The assessee-company was already engaged in manufacturing activities and it had started only a new line of production, namely, production of scooters, and the expenditure incurred was not in connection with the plant or machinery established in order to produce the scooters. It was incurred in connection with the testing of the product and not in connection with the testing of the machinery or plant installed in order to manufacture the product. The decision in CIT v. Saurashtra Cement & Chemical industries Ltd., (Income-tax Reference No. 26 of 1973 decided on August 25, 1975, [1981] 127 ITR 47 (Guj)) will not, therefore, come to the rescue of the Revenue in the facts and circumstances of the present case. In that case, the expenditure was incurred "before" a new plant commenced production. It was in that context that the court took the view that it was an expenditure of a capital nature having regard to the fact that it was a part of the actual cost incurred in order to bring into existence the cement plant which was to produce the cement. It may be mentioned that the expenditure incurred was in connection with the electricity charges paid in the course of the trial run for the plant before the plant commenced commercial production. It may be mentioned that the expenditure incurred was in connection with the electricity charges paid in the course of the trial run for the plant before the plant commenced commercial production. Since it was a new plant and the cost had entered into the cost of the plant and machinery having regard to the fact that it was incurred in order to test the machinery which was to produce the cement, the court understandably took the view that it was added to the actual cost of the plant as laid down by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The principle laid down in the aforesaid decision is that as per accepted accountancy principle all expenditure incurred in order to bring into existence a capital asset and put it in working condition would form a part of the fixed assets. We may again emphasise that, here, the expenditure was not incurred in connection with the testing of the plant and machinery which was installed in order to produce the scooters. The expenditure was incurred in connection with the testing of the product, namely, the scooters manufactured at the plant. The conclusion is, therefore, inescapable that the expenditure incurred is of the nature of revenue expenditure and the AAC was right in upholding the claim of the assessee. The Tribunal committed an error in reversing the view taken by the AAC. This question must, therefore, be answered in the negative and against the Revenue." 6. Taking into consideration the fact that the expense was incurred by the assessee for trial run with regard to expansion of present unit, to increase its installed capacity of the tile manufacturing plant from 35000 MT to 42000 MT, we find merit in the submissions of Mr. Soparkar. In view of aforesaid decisions, we are of the opinion that the question posed for our consideration is required to be answered in favour of the assessee and against the revenue. Accordingly, it is held that the Tribunal has committed an error in treating the trial run expenditure incurred by the appellant in the process of expansion of its existing manufacturing facilities as capital expenditure. This appeal is allowed accordingly.