TMI Blog2013 (7) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. The proposed business was not an individual business but vertical expansion of the present business. Thus, the test of existing business with common administration and common fund is clearly met - It is a case of interest paid on the borrowed capital - Interest paid on the loan borrowed from the IDBI will have to be treated as revenue in nature and accordingly, the same is allowable - Following decision of CIT vs. Tarai Development Corporation Ltd.[1993 (8) TMI 64 - ALLAHABAD High Court], Rama Synthetics India Ltd. vs. CIT [2009 (9) TMI 635 - Delhi High Court] - Decided against Revenue. - Income Tax Appeal No.-105 of 2007 - - - Dated:- 9-7-2013 - Hon'ble Sibghat Ullah Khan And Hon'ble Dr. Satish Chandra,JJ. For the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has completed expansion of its manufacturing plant and existing capacity of 36000 MT was increased to 108000 MT per annum. For this purpose, the assessee had borrowed loans from IDBI Bank and paid interest on the borrowings. He submits that this was a new unit and new business, so interest is not allowable under Section 36(1)(iii) of the Act. He submits that the assessee did not furnish bifurcation of the amount of the loans utilized in the building, plant and machinery. The AO worked out an investment in building, plant and machinery and calculated the loan in the ratio 1:3.5. Accordingly, a part of the investment was capitalized by the AO and interest paid thereupon was disallowed. The said interest is of Rs.31,92,676/-. The order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. Gupta; (1978) 113 ITR 647; (ii) CIT vs. Prithvi Insurance Co. Ltd., (1967) 63 ITR 632; (iii) Produce Exchange Corporation Ltd. vs. CIT (Central), Calcutta, (1970) 77 ITR 739; (iv) Challapalli Sugars Ltd. vs. CIT, (1976) 98 ITR 167, and (v) Veecumsees vs. CIT, (1996) 220 ITR 185. Lastly, he justified the impugned order. After hearing learned counsel for the parties and on perusal of the record, it appears that various loans were borrowed for the expansion of the business and the same were fully utilized for that purpose. It is not a case of the revenue that the funds were utilized anywhere else. The new unit was established in the existing premises of the factory under the same management and finance control. The controvers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that if the expenditure is incurred for starting a new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. In that event it would be irrelevant as to whether project really materialized or not. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start a new unit which is the same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case whether new business/asset comes into existence or not would become a relevant factor. If there is no creation of new ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was intermingling and interlacing of funds. The fact that the two divisions are located at different sites did not affect the outcome since marketing of the final products of both divisions was carried out under the supervision and control of the same set of executives at the head office. In the present case also, as already pointed out above, the main expenditure incurred was in the nature of salary, wages, repairs, maintenance, design and engineering fee, travelling and other expenses of administrative nature. Certain part of the expenditure was also made for the construction of additional shades, building to keep machines and products safely. But, no separate accounts were maintained. The loans were not have any nexus with the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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