TaxTMI 
TaxTMI 
2010 (1) TMI 949
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....nbsp; 2. The assessee is engaged in the manufacture of rubber chemicals and it had a factory at Edayar in Ernakulam. However, during the previous years relevant for the assessment years 1996-97 and 1997-98, the assessee was engaged in setting up of a new industrial unit which was also for manufacture of the same product or in other words, the new industrial unit was set up in the same line of business by way of expansion of production. For the assessment year 1996-97, the assessee claimed deduction of Rs.24,21,333 towards various items of expenditure incurred in the setting up of the new factory. Similarly, for the next assessment year 1997-98, the assessee claimed deduction of Rs. 54,04,739 out of which Rs. 25,69,663, according to the sta....
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.... to use. Counsel appearing for the assessee relying on several judgments and particularly that of the Supreme Court in Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC) contended that irrespective of whether the amount borrowed is for acquisition of capital asset or for meeting revenue needs, interest is allowable under section 36(1)(iii) of the Act. So far as the other items of expenditure are concerned, his contention is that the entire expenditure is allowable as revenue in nature. Even though counsel for the assessee has relied on the decisions of various High Courts, we do not think there is any need to go into those decisions because the two decisions of the Supreme Court above referred are essentially on the same question. ....
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....s of certain terms relevant to income from profits and gains of business or profession.-In sections 28 to 41 and in this section, unless the context otherwise requires- (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. . . Explanation 8.-For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included and shall be deemed never to have ....
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....apportioning to various assets on commissioning of the project. In other words, the assessee which showed in its books of account the entire preoperation expenditure as a capital expenditure, claimed the same as revenue expenditure for the purpose of deduction under the Act. As already stated, section 37 prohibits granting of any deduction which is of a capital nature. Admittedly the assessee has incurred expenditure only for the purpose of setting up of new industrial unit which was not commissioned in any of the two previous years relevant for the assessment years involved. Therefore, in our view, the entire expenditure incurred for setting up of new industrial unit, though under expansion scheme, for the manufacture of very same product,....
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....on is read along with the definition of "actual cost" contained in section 43(1) read with Explanation 8 thereto, what emerges is that actual cost of plant and machinery or capital asset will be increased by interest on borrowed funds up to the date of commissioning of plant and machinery. Therefore, after introduction of the proviso to section 36(1)(iii) the decision of the Supreme Court in Core Health Care Ltd.'s case [2008] 298 ITR 194 (SC) referred to above and relied on by the assessee has no more application and the interest paid on borrowed funds for acquisition of capital asset cannot be allowed as deduction but the assessee is only entitled to claim depreciation and other allowances of actual cost by adding interest incurred on the....