TMI Blog1999 (4) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest of revenue and hence a proposal was sent to the CIT for taking action under section 263 of the Income-tax Act. The CIT, after receipt of this proposal, issued a show-cause notice to the assessee giving A reasonable opportunity of being heard. In this connection, the ld. CIT, while passing the order under section 263, also observed that the assessee in its audited Balance Sheet had capitalised this amount of interest and this amount of interest was not claimed as an expenditure in the Profit Loss Account relating to the year under consideration. In response to the show-cause notice issued by the CIT, assessee submitted that for financing the new project of the company on 6-9-1990 issued fully secured bonds of Rs. 1,000 each bearing interest @ 13% redeemable after seven years of the value of Rs. 220 crores. This plant was completed in the month of March, 1991 and thereafter it commenced its trial runs. It was also submitted that the company had three other zinc lead smelter unit and hence setting up additional lead/ zinc smelter at Chanderia was in the nature of expansion in the line of business of the company. It was submitted that the entities in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is dismissed. 7. Coming to the Appeal in ITA No. 341/JP/97 on the ground that the CIT (A) erred in holding that the interest payment on bonds was not a revenue expenditure, without considering the merits of the case. As the company was not setting up a new business but was only expanding its existing line of business, as was allowed in the case of Alembic Glass Industries Ltd. wherein the facts of the case were identical to the present case of the company. This appeal is consequential of the order passed by the CIT under section 263. While passing this order, the Assessing Officer has fully relied upon the order passed by the CIT and the Assessing Officer has further relied on the decision of Hon'ble Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The CIT(A) has upheld this decision of the Assessing Officer following his own order in appeal for the assessment year 1992-93. The CIT(A), while upholding the order of the Assessing Officer, passed by him for assessment year 1992-93, has mainly relied upon the fact that the funds were specifically raised for Chanderia lead and zinc smelter unit which has not gone into production during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew asset in existence and also relied upon the decision of Bombay High Court in CIT v. J.K. Chemicals Ltd. [1994] 207 ITR 985 and Manoj Dyeing Co. v. CIT [1995] 212 ITR 299/83 Taxman 469 (Raj.). He also fully relies upon the decision cited by the Assessing Officer and the CIT(A). 10. We have heard the rival parties and have perused the material placed on record as well as the case laws relied by them. The pre-requisite for allowing the deductions of interest paid on borrowings for the purpose of business are--- (a) the money must have been borrowed by the assessee; (b) it must have been borrowed for the purpose of business; and (c) the assessee must have paid interest on the so borrowed amount. So far as these three pre-requisites are concerned, there are no dispute amongst the rival parties. The amount has been borrowed and this was borrowed for the business activities of the assessee and the interest is payable. The expression for the purpose of business' occurring in section 36(1)(iii) is wider in scope than the expression 'for the purpose of making or earning ... income' [section 57(iii)]. Therefore, the scope for allowing a deduction under section 36(1)(iii) would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid was held as deductible as revenue expenditure. Under section 36(1)(iii), it is not necessary that the assessee must have used the acquired asset for doing business in the relevant accounting year itself. Mere acquisition for the purpose of the business in the relevant accounting year is sufficient to claim deduction for the amount of interest paid---C.T. Desai v. CIT [1979] 120 ITR 240 (Kar.). In another case, the Madhya Pradesh High Court in the case of CIT v. Bhilai Iron Foundry (P.) Ltd. [1998] 100 Taxman 193 has held : "The deduction permissible under section 36(1)(iii) is of the amount of interest paid in respect of capital borrowed for the purposes of business or profession. In the instant case, the finding had been given by the Tribunal that the department did not dispute that the project was an expansion of the old business. In view of this categorical finding that the said capital was borrowed for expansion of the old business, the assessee was entitled to deduction. But the Assessing Officer had gone wrong by holding that the ... extended unit had not gone into operation. That was not the decisive of the matter. The decisive feature of the matter is whether the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same business and that, therefore, whatever loan had been obtained though forgone line of business and if that was closed, even after the closure of that business, the assessee's business continued and it carried on some other activities, the assessee was entitled to deduction of interest on the loans obtained for the purpose of carrying on the business. The Assessing Officer rejected the claim of the assessee. On appeal, the Commissioner (Appeals) found that the assessee was carrying on the boring business alongwith its mining business and the activity of boring business continued even after the nationalisation of the mines. The Commissioner (Appeals) also found that there was common management, common accounts, and interlacing of the various activities of the assessee and the receipts from the different activities were deposited in the same bank account and were also utilised without any reservation for the other activities of the assessee. The Commissioner (Appeals) also verified the cash book produced before him which showed the commonness of the funds and also intermingling of funds among the activities of the assessee. The Commissioner (Appeals), therefore, directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year constitute a single composite business so that the interest claimed in respect of the capital borrowed can be allowed against the profits of the other business and that the decision of the Hon'ble Supreme Court in the case of Challapalli Sugar's Ltd. is not an impediment where interest is claimed as deduction under section 36(1)(iii). The various activities or business pursued constitute one single or composite business fully satisfied. The decisive test in the case of the assessee is the unity of control which is indicated by interlacing, inter-dependence and inter-connection between the business of the various units of the assessee. Interlacing, inter-dependence or inter-connection is proved by the fact that there was common management, common administration, common fund and common place of business. It is also worth observing here that assessment is not framed on the basis of unit-wise but assessee-wise and there is no rule which can compel the assessee under such circumstances to capitalise the interest or to include it in the capital expenditure. On the basis of these findings the business of the appellant should be treated as a single business. We, accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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