2015 (1) TMI 423 - HC - Income Tax

High Court allows interest deduction in Tax Appeals, affirming Supreme Court's ruling on business expenses

M/s. DEEPAK NITRITE LTD. Versus JOINT COMMISSIONER OF INCOME TAX [ASSESSMENT]

The High Court ruled in favor of the assessee, overturning the Tribunal's decisions to disallow interest expenses in Tax Appeals related to assessment ... Disllowance of interest - Whether on the facts and in the circumstances of the case, the Tribunal was right in disallowing the interest treating the amount borrowed for the purpose of bringing the assets into existence for the purpose of establishment of plants for manufacturing ONCB,PNCB, ONT and PNT - Held that:- Following decision of GUJARAT STATE FERTILIZER AND CHEMICALS LTD. Versus ASSISTANT COMMISSIONER OF INCOME-TAX [2008 (8) TMI 313 - GUJARAT HIGH COURT] - respondent is not in a position to show any later decision of the Apex Court taking a contrary view than that taken in these matters - Decided in favour of assesse. Issues:Challenging ITAT judgment on disallowance of interest expenses for establishing manufacturing plants and extending existing business.Analysis:The appellant challenged the ITAT judgment concerning disallowance of interest expenses in Tax Appeals related to assessment years 1991-92, 1995-96, and 2001-02. The High Court framed substantial questions of law for each appeal, focusing on the treatment of borrowed amounts for establishing manufacturing plants and extending existing business. The facts revealed that the return of income was filed, assessments were made, and orders were challenged before CIT(A) and further appealed to the Tribunal.The Tribunal's decision was based on a previous order related to Gujarat State Fertilizer And Chemicals Ltd., which was later overturned by the Supreme Court. The Supreme Court's ruling emphasized that Section 36(1)(iii) of the Income Tax Act is a standalone provision, not distinguishing between capital borrowed for revenue or capital purposes as long as it is used for business. The Court applied this ruling to the present case, allowing the deduction of interest paid on borrowed capital for business purposes.The matter was taken to the Supreme Court, and the Special Leave Petition was dismissed, confirming the applicability of the Supreme Court's decision to the case at hand. Consequently, the High Court held in favor of the assessee, stating that no further reasoning was needed as the issue was settled by the Apex Court's decision. The Tribunal's decisions to disallow interest expenses were overturned in all three Tax Appeals, allowing the appeals and ruling in favor of the assessee.