TMI Blog2010 (1) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... terest until the asset is put to use by the assessee will only form part of actual cost for the purpose of depreciation and other allowances allowable under the Act - it is for the officer to verify whether interest is capitalised along with cost of plant and machinery and fixed assets, and if so interest component of the claim allowed by the Tribunal for the year 1997-98 will stand disallowed - 402 of 2009 - - - Dated:- 29-1-2010 - RAMACHANDRAN NAIR C. N., GOPINATHAN P. S., JJ. JUDGMENT C. N. Ramachandran Nair J.- 1. The question raised in the connected appeals filed by the Revenue against the very same assessee is whether the Tribunal was justified in holding that pre-operation expenditure incurred by the assessee for sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue mainly relied on the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) and contended that the assessee is entitled to claim deduction of preliminary expenditure incurred for setting up of the new factory, irrespective of whether it is under expansion scheme or not. He has relied on the statutory provisions, namely, the definition of "actual cost" contained in section 43(1) read with Explanation 8 thereto, section 37(1) and section 36(1)(iii) and its proviso for the proposition that interest paid on borrowed funds for acquisition of plant and machinery and other capital goods up to the date of commissioning should be treated as part of actual cost on which the assessee is entitled to depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not) ; for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. 37. General.-(1) Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purposes of the business or profession shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure and expenditure that is of a capital nature. In our view, it is the duty of the assessee to claim under what provision of the Act, he seeks to claim deduction of an expenditure in the computation of business income and unless it is proved that, that item falls under the provision under which it is claimed, the Assessing Officer is not free to allow it. In this case, admittedly the assessee has claimed the entire pre-operation expenditure in respect of new industrial unit that was being set up in the two previous years relevant for the assessment years as revenue expenditure allowable under section 37(1) of the Act. However, the Assessing Officer on verifying the accounts noticed that in the balance- sheet the assessee has styled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able as revenue expenditure. Standing counsel appearing for the Revenue submitted that the Supreme Court has only considered the interest paid on funds borrowed for purchase of two items of machinery, which were not commissioned in the relevant previous years. However, according to the standing counsel, in this case, it is not purchasing of one or two items of machinery, but it is a case of setting up of a factory as such, and so much so, the decision of the Supreme Court does not apply as such. On going through the judgment of the Supreme Court we notice that the Supreme Court has not considered the scope of the proviso introduced to section 36(1)(iii) which expressly bars granting of deduction of revenue expenditure on funds borrowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the above lines, we are still not inclined to interfere with the order in appeal because the Tribunal's orders are consistent with the decision of the Supreme Court above referred and relied on by the assessee. Further, we notice that many of the items of expenditure would have been allowed by way of amortisation under section 35D of the Act which provides for deduction of preliminary expenditure which is nothing but pre-operation expenditure otherwise not allowable under the Act. In other words, the assessee would have been entitled to amortisation of most of the items of expenditure in the course of 10 years under section 35D of the Act. So far as interest on borrowed funds, the assessee would have at least got depreciation benefit by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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