1981 (4) TMI 43

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....ire payment of interest was revenue expenditure. The ITO found that a sum of Rs. 5 lakhs out of the sums borrowed had been directly utilised for creation of capital assets. He was of the view that interest of Rs. 50,000 attributable to the said sum of Rs. 5 lakhs could not be allowed as business expenditure. The ITO did not record a finding to the effect that the assessee-company had spent the said sum of Rs. 5 lakhs in creating capital assets before the commencement of its business or production. He also did not find that the expenditure of Rs. 5 lakhs in acquiring capital assets was not related to the business of the assessee-company. The only ground on which he disallowed the interest to the extent of Rs. 50,000 was that this interest wa....

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....ant previous year ? The question which arises for our consideration is whether the ITO was justified in disallowing interest payment to the extent of Rs. 50,000. As laid down by the Supreme Court in Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52, whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances and by the application of principles of commercial expediency. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process....