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TMI Blog2016 (8) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal is right in law and on facts in restricting the disallwoance of Rs. 1,03,88,194/- to Rs. 11,87,360/- out of preoperative expenses of new business?" 3. The assessee filed its return of income on 30.11.1997. The Assessing Officer completed the assessment under section 143(3) of the Income-tax Act, 1961. While finalizing the assessment, the Assessing Officer observed that the assessee had not charged interest on the advances given to associate concerns. He further observed that the interest was not proved to have been incurred for the purpose of business in accordance with section 36(1)(iii) of the Act. He, therefore, made disallowance of the claim of the assessee. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Commissioner of Incometax (Appeals) who allowed the same. The revenue carried the matter in further appeal before the Tribunal. The Tribunal dismissed the appeal of the revenue. 4. The learned counsel for the revenue has contended that the expenses which are duly capitalized in the books of account of the assessee are being claimed as revenue expenses and the assessee has given interest free loans to its sister concerns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid case, the Karnataka High Court was faced with the question whether the revenue expenditure incurred by the assessee is in connection with its new division is deductible as business expenditure. The High Court laid down the following principles. (a) Unity of Management: If there is a unity of management for various divisions. (b) Unity of Finance: If there is a complete inter-lacing, interdependence and interconnection and financial management as whole. (C) Unity of Administration: If there is total integration and unity with common Directors at helm of the affairs of the divisions. In all the above cases, there is total and complete unity, interlacing, interdependence and interconnection of management, financial and administrating aspects. Therefore, all the divisions would be considered to be one business and therefore, all the expenses incurred on all the divisions would be allowable as business expenditure." 4.2 The learned counsel for the appellant contended that the Assessing Officer after considering the explanation of the assessee and various decisions as well as the provisions of the Income-tax Act, disallowed the claim of the assessee. 4.3 The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses were incurred for carrying on the business of integral part of profit earning process. Therefore, these expenses should be treated as revenue in nature, irrespective of entries in the books of accounts. Moreover, the ratio of CIT vs. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Guj.) is directly applicable in this case, whose decision is a binding decision for the officers working in Gujarat chares. The Commissioner (Appeals) held that the Assessing Officer was not justified in disallowing the expenditure of Rs. 1,03,88,194/-. It is observed that all other expenses except Rs. 11,87,360/-, such as Rs. 4,58,500/-, Rs. 64,53,450/- & Rs. 22,88,829/- were incurred for expansion of original business. However, Rs. 11,87,360/- was incurred for a new business of `telecommunication' which is altogether a different business. Therefore, the expense of Rs. 11,87,360/- should be treated as preoperative expenses of a new business and balance expenses of Rs. 88,00,834/- should be allowed as revenue expenses in view of above discussion and the same is deleted." 4.4 The learned counsel for the appellant-revenue has contended that all the expenses have been incurred for the acquisition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in connection with expansion of the business. 15. On due consideration of rival submissions, we notice at this stage that this Court, while adjudicating the said issue, had at length discussed the same to hold that the expansion since was of an existing business, the tests applied in case of CIT v. Alembic Glass Industries Limited, 103 ITR 715 (Guj) as also in case of Dy. CIT v. Core Health Care Limited, 298 ITR 194 (SC) would have relevance and the borrowings were whether capital or revenue expenditure would be of no consequence. Profitable it would be to reproduce these observations made in this respect, which reads thus - " The sole surviving question No.13, pertains to disallowance of soda ash project interest expenses of Rs. 3.33 crores (rounded off) and lab project interest of Rs. 12..27 crores (rounded off). The Assessing Officer, questioned the assessee on these expenses and deleted the same on two grounds, firstly that the interest was paid by way pre-operative expenditure and secondly the assessee had capitalized such expenditure. The assessee carried the matter in appeal. CIT (Appeals) relying on a decision of this Court in the case of CIT v. Alembic Glas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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