TaxTMI 
TaxTMI 
2007 (5) TMI 363
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....d under section 37 of the Income-tax Act, 1961. 2. (a) That the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the learned Assessing Officer in rejecting the claim of Rs. 1,38,23,156 being the interest on capital borrowed for acquiring the fixed assets which were purchased for the purposes of business of the company. (b) That the learned Commissioner of Income-tax (Appeals) has erred in confirming the said disallowance despite the fact that the said amount of Rs. 1,38,23,156 is an allowable deduction under section 36 (1)(iii) of the Income-tax Act. (c) That the learned Commissioner of Income-tax (Appeals) has erred in coming to a conclusion in respect of machinery which is purchased for its existing business but has not been installed, interest cannot be allowed as a deduction. In coming to such conclusion, the CIT (Appeals) has erred in brushing aside the various judicial pronouncements in favour of the assessee on this matter. 3. (a) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 50,46,239 being the gratuity payments made to the approved gratuity fund duri....
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....rchasing power from this unit pursuant to a power purchase agreement entered into by the company with UPSEB, that there was investment of substantial capital in setting up the said industrial undertaking, that there was earning of profits clearly attributable to the said undertaking, thereby clearly establishing that a separate and distinct industrial unit was set up. 6. (a) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 2,00,000 out of expenses relatable to Bio-tech Division of the company by treating these to be excessive and for want of check and verification. (b) That the learned Commissioner of Income-tax (Appeals) has erred completely in holding that all the expenses claimed are not fully vouched and hence not open to verification without going in the facts of the case and merely on the basis of the assumptions which is unjust. The CIT (Appeals) has erred in confirming the said disallowance of Rs. 2,00,000 without identifying any specific defect in any of these expenses and without appreciating that the said disallowance has been made on an ad hoc basis which is unjust, bad in law and against the facts of....
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....s) has erred in not deleting the disallowance of Rs. 27,77,312 towards loss arising on conversion of liability towards foreign currency loan. (b) That the learned Commissioner of Income-tax (Appeals) has erred in remanding the matter to the Assessing Officer to verify the claim despite being given all the evidence showing that these amounts were never claimed as revenue expenditure as the assessee had capitalized these amounts and included these in the actual cost of fixed assets. This is apparent from the foot-notes on the schedule of fixed assets annexed to the balance sheet. 4. (a) That the learned Commissioner of Income-tax (Appeals) has erred in upholding the disallowance of Rs. 5,00,000 out of expenses relatable to Bio-tech Division of the company by treating these to be excessive and for want of check and verification. (b) That the learned Commissioner of Income-tax (Appeals) has erred completely in holding that all the expenses claimed are not fully vouched and hence not open to verification without going in the facts of the case and merely on the basis of the assumption which is unjust. The CIT (Appeals) has erred in confirming the said disallowa....
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....isions (supra) it is held that the expenditure incurred by the assessee on the subscription and expenses of the club for the working Directors of the company was an allowable expenditure and the tax authorities below have wrongly disallowed the impugned expenditure and, therefore, the order of the CIT(A) in this regard is set aside and the Ground No. 1 of the appeals of the assessee for both the assessment years under consideration is allowed. 8. Now we shall deal with Ground No. 2 of the appeal of the assessee for assessment year 2000-01 pertaining to the issue of the assessee's claim of deduction of Rs. 1,38,23,156 in respect of interest on the capital borrowed for acquiring the fixed assets purchased for the business purpose of the assessee-company. 9. The tax authorities below disallowed the above claim on the reasoning that the interest is directly attributable to the cost of the plant/fixed assets and any expenditure attributable to the cost of capital asset/fixed asset is capital in nature. 10. Before us, according to the learned AR for the assessee interest on amounts borrowed by a running concern in connection with its business was an allowable expenditure, irresp....
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....annot claim any benefit of section 36(1)(iii) or section 37 in this case." 14. Whereas, in the case of Dy. CIT v. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj.), their Lordships have taken a view contrary to the view taken by the Calcutta High Court in JCT Ltd. (supra) by observing that the scope of section 36(1)(iii) and Explanation 8 to section 43(1) are different. They operate in separate fields and though both are relatable to computing income under section 28 yet the nature of deductions are entirely distinct from each other. The concept and the meaning of "actual cost" which is the definition laid down in section 43(1) of the Act is for a limited purpose, viz., at a point of time when deduction is to be granted for the purpose of wear and tear (section 32) or an incentive for the purpose of setting up a specified industry (sections 32A and 33). The term "actual cost" is applicable only in relation to an asset as against the phrase "capital borrowed" used in clause (iii) of section 36(1) of the Act. The term "capital borrowed" in the said provision is of a much wider import than the phrase "actual cost". Explanation 8 only lays down that where an amount is paid/payable as an....
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....wable as revenue expenditure. 18. Similar view was taken by the Hon'ble Allahabad High Court in the case of CIT v. J.K. Synthetics Ltd. [1988] 169 ITR 267 while holding that 'interest on amounts borrowed by a running concern in connection with its business was an allowable expenditure'. 19. Similarly Madhya Pradesh High Court in the cases of ITO v. Malwa Vanaspati & Chemical Co. Ltd. [1997] 226 ITR 253 and CIT v. Bhillai Iron Foundry (P.) Ltd. [1998] 234 ITR 661 held that the interest on loan taken for the purchase of plant and machinery was deductible under section 36(1)(iii) of Income-tax Act though no production had commenced in that case till the close of the accounting year as the assessee has borrowed funds and utilized the same in the purchase of plant and machinery for the purpose of its business. 20. Hence, in view of the ratio of the majority decisions (supra) it is clear that in case the expenditure incurred on interest on the capital borrowed for acquiring the machinery required to be used for the business of the assessee is eligible for deduction under section 36(1)(iii) of Income-tax Act irrespective of the fact whether the machinery was put to use or not in ....
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....at this amendment has retrospective effect and hence would be applicable in the instant case. 24. Since the provision of gratuity made in earlier years was not allowed in those years the same was allowable to the assessee in the assessment years under consideration, as the assessee has made these payments in the relevant assessment years. Learned AR for the assessee, thus, concluding his arguments submitted that as the deduction claimed by the assessee is based on the actual payment of gratuity fund in the assessment years under consideration the same is eligible for deduction under the provisions of section 43B of the Act. In this regard he referred to the procedure of the payments being made in time on account of the general conditions stipulated by LIC in the master policy with gratuity scheme under which the payments were regulated and required to be paid within the grace period and change in due date due to the date of acceptance of the payment by LIC. Learned AR for the assessee further placed reliance on CIT v. Chandulal Venichand [1994] 209 ITR 7 (Guj.); Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677 (SC); Kwality Milk Foods Ltd. v. Asstt. CIT [2006] 100 ITD 199 (Chen....
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....ection 43B of the Act so as to apply it to earlier assessment years, particularly when there is no indication in the Finance Act, 2003, from the language used and from the object indicated that the Legislature intended expressly or by implication that the second proviso to section 43B was deleted to cure an acknowledged evil for the benefit of the community as a whole or to remove any such hardship, or any express provision in the statute that such deletion of the second proviso to section 43B of the Act would have any retrospective effect. Nor is it possible to hold that without the aid of the subsequent Finance Act, 2003, by which the second proviso to section 43B was omitted, the unamended provision of section 43B would allow the deduction of payments to provident funds, etc., when such payment was made by the assessee on or before the due date applicable for filing return. There is no material to hold that the deletion is either clarificatory or declaratory or intended for the removal of doubts to give a consequential retrospective effect to the deletion so as to make it applicable to earlier assessment years. 28. The above decision was rendered by the Hon'ble Madras High....
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....he above-mentioned loans is being charged to P&L Account pertaining to working capital which has been accepted by the department in the previous years. For the first time foreign exchange fluctuations charged to P & L Account was disallowed by the Assessing Officer in assessment year 1998-99 but the same was deleted by the CIT(A). However, the department in this regard has accepted the position because the department has not contested the same before the Tribunal in ITA No. 2179/Del/2002, so, the tax authorities below were not justified in sustaining the disallowance in the assessment year under consideration when there was no change in the facts. 33. He further submitted that in view of the rule of consistency as laid down by the High Courts in the cases of CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 (Delhi); DIT (Exemption) v. Apparel Export Promotion Council (No. 1) [2000] 244 ITR 734 (Delhi); Radhasaomi Satsang v. CIT [1992] 193 ITR 321 (SC); and CIT v. A.R.J. Security Printers [2003] 264 ITR 276 (Delhi), the tax authorities below were not justified in disallowing the claim of the assessee in the assessment year under consideration when the same has been allowed in ass....
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....ade by the Assessing Officer and in the assessment year under consideration i.e., 2000-01 the CIT(A) following the order passed in assessment year 1999-2000 sustained the disallowance made by the Assessing Officer. 39. Now, before us both the parties were fair enough to concede that in view of the decision of ITAT, Delhi Bench-B in the case of this very assessee for assessment year 1998-99 in ITA No. 2179/Del/2002 the issue stands covered in favour of the assessee and against the revenue wherein the Tribunal observed as under :- "5. As is evident from the aforesaid observations recorded by the learned CIT(A) in his impugned order, the objections raised by the Assessing Officer about non-maintenance of separate books of account, common control and management, common funds and non-maintenance of separate bank account were not the conclusive factors to decide that the power unit set up by the assessee was not a separate industrial undertaking for the purpose of claiming deduction under section 80-IA(2). Moreover, as pointed out by the learned counsel for the assessee before us, a separate profit and loss account in respect of power unit was prepared and furnished by the as....
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....der of the CIT(A) in this regard and allow the Ground No. 5 of the appeal of the assessee for assessment year 2000-01. 41. We shall now take up Ground No. 6 of the appeal of the assessee for assessment year 2000-01 and Ground No. 4 of the appeal for assessment year 2001-02 involving the issue of disallowance of Rs. 2 lakhs and Rs. 5 lakhs out of the expenses relatable to bio-tech division of the company by treating the same to be excessive and for want of check and verification in the assessment year under consideration. 42. In brief, the facts relating to the issue are that in the instant cases the impugned disallowances relatable to bio-tech division expenses of the company were disallowed by the Assessing Officer on ad hoc basis on the reasoning that these were excessive and the same could not be subjected to check and verification. 43. On appeal the assessee contended that since the expenses were vouched and no defect in the audited books of account were specified the Assessing Officer was not justified in making such disallowances, more so, when no such disallowances have been made in the past. The CIT(A), however, upheld the order of Assessing Officer not accepting t....