TaxTMI 
TaxTMI 
2019 (5) TMI 114
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.... questions. 4. At the request of the learned counsel for the Assessee, we have permitted him to argue on the three Substantial Questions of Law. Accordingly, first and second Questions of Law are framed now along with the third Substantial Question of Law, which was already framed by the Co-ordinate Bench of this Court on 27.03.2008. All the three Substantial Questions of Law are quoted below for the ready reference: "a) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erroneously concluded that the new unit set up by the Appellant at Haryana for manufacture of door frames is not an expansion of existing business? b) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in disallowing the interest on borrowings to set up a new unit for manufacturing doorframes at Haryana? c) Whether the Income Tax Appellate Tribunal is right in law in setting aside the issue pertaining to disallowance of expenditure for earning dividend and tax free interest income for disallowing the actual expenditure incurred despite there being no provision on the date of passing the Assessment Order ....
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....tion in the hands of the Assessee, since the unit at Haryana is yet to commence production in this Assessment Year. He further submitted that Section 14 A was inserted on the statute book by the Finance Act, 2001 with retrospective effect from 01.04.1962 and which empowers Assesseing authority to disallow the Expenditure incurred in relation to income not included in total income under Section 14 A. Therefore, the said provision was very much available and could be invoked by the Assessing Authority for A.Y.-1998-1999. He further submitted that since the matter is only remitted by the learned Tribunal to the Assessing Officer on the said ISSUE, no Substantial Question of Law infact arises for consideration by this Court. 8. Having heard the learned counsel for the parties, we are satisfied that the present Appeal filed by the Assessee has no merit and deserves to be dismissed. The reasons are as follows: (i) On the issue of interest on borrowings to the extent of Rs. 2.72 crores, we find that all the three authorites consistently have given a finding of fact against the Assessee that the said interest on borrowing paid by the Assessee pertaining to the loan taken for....
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....re & install a new 60 ton caustic soda plant; being already engaged in the manufacture of caustic soda. While considering whether the interest paid should form part of the actual cost, the Kerala High Court referred to an earlier decision of the Calcutta High Court in Standard Vacuum Refining Company. There the Calcutta High Court had held that if the principles of accountancy are considered, interest is to be regarded as an element of cost. Therefore, applying the principles of accountancy, it was held that interest paid till the plant is ready for production would form part of the actual cost of the assets. Accordingly, the Kerala High Court has also held that interest paid on borrowed capital till the building, plant or machinery is erected or constructed is part of the actual cost to the assessee. Accordingly, the amount paid as interest on funds borrowed by the assessee for setting up two new projects for manufacturing new products and capitalized in the books, is not allowed as revenue expenditure as claimed by the assessee." From the Order dated 26.03.2004 of CIT (Appeals) "6.2. The Assessing Officer in the course of assessment proceedi....
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....ion of Supreme Court in India Cements Ltd. V.CIT (60 ITR 52) and decision of Madras High Court in 241 ITR 412. On consideration of the facts of the case, I hold that the manufacturing of wide width strips and door frames are not part of existing line of manufacturing of Cold Rolled Strips and Cold Rolled Formed Sections of the appellant-company. Therefore, the Assessing Officer is justified in disallowing the claim as captial expenditure. I confirm the disallowance of interest of Rs. 2,72,02,000/-. From the Order dated 27.07.2007 of the Income Tax Appellate Tribunal "10.We have heard the rival submissions and perued the record. In this case, the assessee has capitalized the interest paid in its books of accounts. Even the same was claimed as deduction for income tax purposes. The interest was for loans taken for the projects set up to manufacture wide width strips & doorframes. According to the assessee it is engaged in the manufacture of narrow width strips and there is no difference between narrow width strips and wide width strips. According to the AO the assessee was manufacturing only narrow width strips, the new project set up was to manufacture ....
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....nit was yet to commence production. Mr.M.V.Subbiah, the Chairman of the Assessee Firm, has stated in his Annual report dated 19.06.1998, about the Haryana unit as under: "The division's new project at Bawal, Haryana for manufacturing of door frames for Maruthi's 800 cc car is nearing completion and commercial production is expected in the 2nd quarter of this year." 10. In view of the said finding of facts, which are binding on this Court, while hearing the Appeal under Section 260 A, we cannot entertain the arguments advanced by the learned counsel for the Assessee that Haryana Unit set up by the Assessee for manufacturing of wide width strips & doorframes is merely an expansion of the existing business at Chennai which is engaged in the manufacture of narrow width strips for Hyundai Motor India Limited which is a different car manufacturing unit in Chennai. Even though the Assessee is one company and it has set up a diferent unit at Haryana and since the interest paid on borrowings pertains to Haryana Unit, which was a new unit set up by the same company,it cannot be construed as a mere expansion of business existing at Chennai particularly, when the Assesse....