2017 (1) TMI 1706 - HC - Income Tax

Allowable revenue expenditure u/s 37 - Interest paid on the borrowings utilized for setting up a new unit of cement plant - interest was paid on borrowed capital to set up a new unit and also capitalized in the books of account - HELD THAT - Questions in this appeal are covered by the decision of this court in the case Manglam Cement Ltd MANGALAM CEMENT LTD. 2002 (10) TMI 11 - RAJASTHAN HIGH COURT

Summary

Issues Involved:
1. Interpretation of revenue expenditure on interest paid for setting up a new unit of cement plant.
2. Allowability of expenses related to repairs, rent, and depreciation of guest house properties under section 37(4).
3. Disallowance of expenditure for gifts and presentations under rule 6B.
4. Deduction of interest under section 43B for a new unit.
5. Legal precedents and judgments influencing the decision-making process.

Issue 1: Interpretation of Revenue Expenditure on Interest for New Cement Plant
The appellant challenged the Tribunal's decision on interest paid for setting up a new cement plant as revenue expenditure. The court framed questions regarding the legitimacy of considering the interest paid on borrowings for the new unit as revenue expenditure, especially when production had not commenced. The court referred to past decisions and legal interpretations to determine the admissibility of such interest as a deductible expense. The court ultimately ruled in favor of the assessee, allowing the interest payment as a revenue expenditure.

Issue 2: Allowability of Guest House Expenses under Section 37(4)
The case involved the assessment of guest house expenses, repairs, rent, and depreciation. The appellant argued that certain expenses related to guest house properties should not be disallowed under section 37(4) based on legal precedents and past tribunal decisions. The court examined the details provided by the assessee and concluded that no further additions were necessary for depreciation, rent, and repairs of the guest house under section 37(4).

Issue 3: Disallowance of Expenditure for Gifts and Presentations
The court addressed the disallowance of expenses for gifts and presentations under rule 6B. The appellant contended that the gifts and presentations did not constitute expenditure by way of advertisement, citing tribunal decisions. However, the court did not accept this argument and disallowed the expenditure under rule 6B based on the tribunal's decision.

Issue 4: Deduction of Interest under Section 43B for a New Unit
The case involved the deduction of interest under section 43B for a new unit, specifically related to the borrowings obtained for the new unit M/s. Neer-Shree Cement. The appellant claimed that the interest payment for the new unit should be an allowable deduction. However, the court disallowed the interest payment under section 43B, considering the legal issue pending before the Income-tax Appellate Tribunal and the case's history.

Issue 5: Influence of Legal Precedents and Judgments
The court referred to past judgments and legal precedents to support its decisions on various issues raised in the appeal. The court highlighted specific cases and decisions that influenced the outcome of the current case, ensuring consistency and adherence to established legal principles in tax matters.

In conclusion, the court ruled in favor of the assessee on certain issues, while upholding disallowances on other grounds, based on legal interpretations, past decisions, and relevant provisions of the Income Tax Act.