TMI Blog2010 (3) TMI 1102X X X X Extracts X X X X X X X X Extracts X X X X ..... ss were allowable revenue expenditure under section 37(1)/36(1)(iii) of the Income Tax Act, 1961. 2.1 During the course of assessment the AO made the following addition by observing as under:- Capital expenditure debited to profit and loss account A sum of ₹ 1,32,31,892/- represents expenses incurred on G.Noida project during determent period. As per details filed, it is seen that expenses are on account of interest on loans taken and for other expenses like security, bhomi pujan, electricity etc. These expenses are clearly capital in nature and had the project not been deferred, the assessee would have capitalized the same. Hence, they are being disallowed. 2.2 Upon assesse s appeal ld. CIT(A) noted the submission of the assessee. Ld. CIT further observed that the assessee has undertaken construction of new printing unit at Greater Noida in 2000 with the funds borrowed from Central Bank of India. The expenditure incurred upto 12.12.2001 was capitalized. Ld. CIT(A) further observed the details as under:- The details of expenditure are as under:- Particulars Amount Rs. Land 64,162,59 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed fund for expansion of the existing business qualifies for deduction as revenue expenditure. Ld. counsel of the assessee in this regard placed reliance upon the following case laws:- - 60 ITR 52 India Cement Ltd. Vs. CIT - 220 ITR 185 Veecumsees Vs. CIT - 221 CTR 226 CIT Vs. Monnet Industries Ltd. - 200 ITR 345- CIT Vs. Modi Industries Ld. counsel of the assessee further claimed that amount of interest is allowable as per the mandate of section 36(1)(iii) of the IT Act. He further submitted the proviso in section 36(1)(iii) was introduced by the Finance Act, 2003 with effect from 1.4.2004. He claimed it is a settled law that the said proviso is prospective in nature and is not applicable to the assessee s case as the assessment order involved here is 2002-03. 2.5 Ld. DR submitted that it cannot be said that the assessee was engaged in the expansion of the same business. He claimed that it was a new line of business. He further claimed that there was also no information as to whether the project which has been deferred was ever activated or not. Ld. DR further referred to the Tax Audit Report wherein in para 17 against amount debited to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a settled that this proviso is not retrospective in nature. AS-16 as relied by the assessee mandates vide para 6 as under:- 6. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Standard. Other borrowing costs should be recognized as an expense in the period in which they are incurred. 2.8 Para 17 and 18 of the AS-16 mandate as under:- Suspension of Capitalization 17. Capitalization of borrowing costs should be suspended during periods in which active development is interrupted. 18. Borrowing costs may be incurred during an extended period in which the activities necessary to prepare an asset for its intended use or sale or interrupted. Such costs are costs of holding partially completed assets and do not qualify for capitalization. However, capitalization of borrowing costs is not normally suspended during a period when substantial technical and administrative work is being carried out. Capitalization of borrowing costs is also not sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in holding that business of manufacture of MS Special Alloy wires and billets was expansion of business and not a new business and as such the expenditure incurred by assessee for raising loans by issue of debentures was allowable as deduction. - 221 CTR 226 CIT vs. Monnet Industries Ltd. In this case the Hon ble Delhi High court held that the Tribunal has found that there was a common Board of Directors controlling both plants. That funds for two plants were common and hence there was intermingling and interlacing of funds and that even though two divisions were geographically located at different sites, marketing of the final products was carried out under the supervision and control of the same set of executives. The Tribunal was justified in holding that sugar plan was mere extension of existing business of ferro alloys plant and therefore interest paid on funds borrowed for the purpose of setting up of sugar plan was allowable under section 36(1)(iii). 2.10 Now on the analysis of the above case laws show that if it is expansion of the same line of business, the expense incurred on obtaining the borrowed funds should be allowed as revenue expenditure. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue was neither before the AO nor raised before the ld. CIT(A). However, ld. counsel of the assessee contended that it is an important legal issue and hence assessee is entitled to raise this issue before the Tribunal. 3.2 Ld. DR on the other hand vehemently opposed this submission. 3.3 We have carefully considered the submissions and perused the records. In our considered opinion the issue raised by the assessee merits adjudication. For this proposition we draw support from the Hon ble Apex court in the case of Goetz (India) Ltd. vs. CIT 284 ITR 323 wherein the Hon ble Apex Court had clarified that the decision referred in that case shall not restrict the powers of the Tribunal to admit and adjudicate the claim of the assessee. In our considered opinion the claim of the assessee was genuine. Article 265 of the Constitution of India states that no tax can be collected except by authority of law. CBDT Circular No. 114 XL-35 of 1955 dated 11.4.1955 states that officer of the department must not take advantage of the ignorance of an assessee as to his rights. Hon ble Apex Court in the case of CIT Vs. Mr. P. Firm in 56 ITR 67 wherein the Bench comprised three of their Lordship ..... X X X X Extracts X X X X X X X X Extracts X X X X
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