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2007 (5) TMI 363 - AT - Income TaxInterest on capital borrowed - Treated as Revenue or Capital expenditure - Acquiring fixed assets purchased - HELD THAT:- In the case of CIT v. J.K. Synthetics Ltd.[1985 (2) TMI 4 - ALLAHABAD HIGH COURT] while holding that ‘interest on amounts borrowed by a running concern in connection with its business was an allowable expenditure’. Similarly, in the cases of ITO v. Malwa Vanaspati & Chemical Co. Ltd.[1996 (8) TMI 55 - MADHYA PRADESH HIGH COURT] and CIT v. Bhillai Iron Foundry (P.) Ltd. [1997 (8) TMI 43 - MADHYA PRADESH HIGH COURT] held that the interest on loan taken for the purchase of plant and machinery was deductible u/s 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. Therefore, in view of the ratio of the majority decisions 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 u/s 36(1)(iii) of Income-tax Act irrespective of the fact whether the machinery was put to use or not in the accounting year relevant to assessment year under consideration. Therefore, it is held that the CIT(A) has wrongly upheld the disallowance made by the Assessing Officer in respect of the deduction claimed by the assessee u/s 36(1)(iii) of the Income-tax Act and the order of CIT(A) in this regard is set aside and Ground No. 2 of the appeal of the assessee is allowed. Disallowance on gratuity payments made to the approved gratuity fund - HELD THAT:- The Hon’ble Madras High Court in the case of Synergy Financial Exchange Ltd.[2006 (7) TMI 106 - MADRAS HIGH COURT]. In this decision reliance was also placed on the case of CIT v. Udaipur Distillery Co. Ltd.[2003 (10) TMI 9 - RAJASTHAN HIGH COURT], a Division Bench of the Rajasthan High Court, wherein it was held that in order to avail of the benefits of deduction under clause (b) of section 43B in respect of contributions to the provident fund, superannuation fund and gratuity fund or any other funds for the welfare of the employees, the sums are not only to be actually paid before the end of the previous year but are further required to be paid within the time stipulated under the relevant statute or notification, standing order, award, contract of service or otherwise and if the payments have not been made within the stipulated time, the deduction cannot be claimed at any time thereafter. From the perusal of section 43B, it is evident that deduction for payment of gratuity can be claimed during the year of actual payment irrespective of the fact whether or not the liability pertains to any previous year. This can only be allowed if the payment is made by the due date stipulated by the statute or within the grace period provided therein. Thus, it is evident that due date of payment was 1st March of the relevant year or the 15th day of March of that period which was extended time. In the instant case, the payments have been made beyond the due date as well as beyond the grace period; therefore, no deduction is allowable for the payment of gratuity. Therefore, the orders of the CIT(A) in this regard are upheld and Ground Nos. 2 and 3 of the respective appeals of the assessee are rejected. Disallowance relatable to bio-tech division expenses - HELD THAT:- We are of the opinion that since the tax authorities below in their orders have not been able to point out any specific expenditure which could not be subjected to check and verification and, on the contrary, the contention of the assessee that the assessee’s books of account were audited and no defects therein were found by the Assessing Officer remained uncontroverted, we are of the opinion that the ad hoc impugned disallowances were arbitrary and the same cannot be upheld when admittedly the expenses incurred by the assessee were for the purposes of the business of the assessee, more so, when such disallowances were never made in the past. Accordingly, the orders of the tax authorities below are set aside and the impugned allowance made/sustained in this regard are deleted and the Ground No. 6 and Ground No. 4 of the respective appeals of the assessee are allowed.
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