TaxTMI 
TaxTMI 
2016 (5) TMI 723
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....pitalized by the Assessing Officer be allowed as revenue expenditure? (c) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that the expenses of Rs. 2,84,10,992/pertaining to closed down Thane unit incurred after closure of unit are allowable under section 37 of the Income Tax Act, 1961? (d) Whether on the facts and circumstances of the case and in law, the Tribunal is justified in holding that the entire investment in tax free bonds were made out of the own funds and there was no utilization of borrowed funds without appreciating the fact that assessee had failed to establish the direct nexus of the said investment with interest free fund?" 3. Regarding question (a): (i) Ms. Bharucha, the learned counsel for the Revenue very fairly states that the question as formulated is concluded against the RespondentRevenue by the decision of this Court in CIT Vs. Bhor Industries Ltd. 264 ITR 180. We find that in the impugned order, the Tribunal also has placed reliance upon the decision of this Court in Bhor Industries Ltd. (supra) to dismiss the Revenue's Appeal on the above issue. (ii) Accordingly, question no.(a) as formulated doe....
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....manufacturing plant at Jambusar, Gujarat was an expansion of the existing business of the RespondentAssessee. Thus upheld the order of the CIT (A). (v) Ms. Bharucha, the learned counsel for the Revenue in support of the appeal placed reliance upon Explanation(8) to Section 43(1) of the Act to contend that all payments of interest made prior to the plant being commissioned has necessarily to be capitalized. This according to her is evident from the prohibition of the interest payment made post the asset being put to use being capitalized. (vi) We find that the contention of the Revenue on basis of the Explanation(8) to Section 43(1) of the Act, as urged by Ms. Bharucha is no longer resintegra. This is so in view of the decision of the Supreme Court in Deputy Commissioner of Income Tax Vs. Core Health Care Ltd. 298 ITR 194 wherein on almost an identical fact situation, in the context of deduction of interest on borrowed capital under Section 36(1)(iii) of the Act, the Apex Court held as under:- "According to the Department, section 36(1)(iii) of the 1961 Act being general in nature has to give way to special provisions contained in Explanation 8 to section 43(1) of the 1961 Act. ....
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....n Gujarat and setting up the new business was a mere expansion of its existing business. Further, both the Authorities also found that as a matter of fact there was a functional integrity between all the three business viz. Pharma business, bulk drugs business and glass manufacturing business with interlinking of management and funds. This finding of fact rendered by the Tribunal has not been shown to be perverse or arbitrary. (vii) In the above view, the issue as urged before us is settled by the Apex Court in Core Health Services (supra). Moreover the finding of fact rendered by the CIT(A) and the Tribunal about glass manufacturing being existing business and commonality of management and funds not being shown to be perverse, the question as formulated does not give rise to any substantial question of law. Thus, not entertained. 5. Regarding question (c): (i) The RespondentAssessee was engaged in manufacturing of pharmaceutical drugs at its Thane plant. In September, 1996 the RespondentAssessee had to close down its manufacturing unit at Thane in view of failing to meet the standards required by the Food Drug Administration. The closure of its Thane plant resulted in shifting ....
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....iture incurred was for the purposes of business. The closure of Thane unit was out of business necessity arising out of statutory compulsion. Thus the expenditure was incurred with regard to carrying on its business and thus allowable under Section 37(1) of the Act. (vi) In view of the Apex Court decision in K. Ravindranathan Nair (supra) on law and the concurrent finding of facts which are not shown to be perverse, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 6. Regarding question no.(d): (i) In the subject assessment year the RespondentAssessee had made an investment of Rs. 38.32 crores in shares, mutual funds and tax free bonds. The Assessing Officer during the course of assessment found that of the total funds available with the Respondent for the relevant period, 57% were borrowed funds. Therefore applying the aforesaid ratio the Assessing Officer by order dated 28th February, 2001 concluded that an amount of Rs. 21.82 crores out of Rs. 38.32 crores invested in shares, mutual funds and tax free bonds would come out of borrowed funds. On the aforesaid basis, he disallowed interest Rs. 1.32 crores attributable to the b....