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2017 (4) TMI 669 - SC - Income TaxNature of expenditure - interest and other expenditure incurred towards creation assets - revenue or capital expenditure - HC 2006 (2) TMI 677 - GUJARAT HIGH COURT confirms ITAT order in allowing expenditure claimed as followed the decision of the Gujarat High Court in the case of CIG v. Core Health Care (2001 (4) TMI 46 - GUJARAT High Court) - Held that - We find that this Court in the case of Deputy Commissioner of Income Tax, Ahmedabad v. Core Health Care Ltd. (2008 (2) TMI 8 - SUPREME COURT OF INDIA) has affirmed the view taken by the Gujarat High Court as relied upon by ITAT. Income Tax Appellate Tribunal was justified in allowing the expenditure towards the interest paid on the loans taken and expenditure on other items connected connected herewith for establishment of the unit, while affirming the order of the Commissioner of Income Tax (Appeals). Depreciation on the amount of interest which has been allowed as revenue expenditure - Held that - Be that as it may, if as a fact the respondent has taken any depreciation on the amount of interest and other items which has been allowed as revenue expenditure that much depreciation should be reversed by the assessing authority.
Issues Involved:
1. Allowance of expenditure claimed as revenue expenditure. 2. Claiming depreciation on interest expenditure. 3. Reversal of depreciation if taken on allowed expenditure. Analysis: Issue 1: Allowance of expenditure claimed as revenue expenditure The main issue in this case revolved around the allowance of expenditure claimed by the respondent as revenue expenditure. The respondent, a public limited company, had incurred an expenditure of &8377; 3,37,84,348/- towards payment of interest on loans and other items for setting up an industry. The respondent initially capitalized the amount but later claimed it as revenue expenditure. The Commissioner of Income Tax (Appeals) allowed the claim only for the interest amount paid on loans but disallowed other expenditures like financial charges and professional expenses. The Income Tax Appellate Tribunal upheld the Commissioner's decision, allowing the expenditure on interest and other connected items. The High Court also supported this decision based on a precedent from the Gujarat High Court. Issue 2: Claiming depreciation on interest expenditure The appellant argued that the respondent should not be allowed to claim depreciation on the interest amount treated as revenue expenditure. However, the court noted that there was no evidence on record to show that the respondent had actually claimed depreciation on this amount. The court directed that if the respondent had indeed claimed depreciation on the interest and other items treated as revenue expenditure, the assessing authority should reverse the depreciation accordingly. Issue 3: Reversal of depreciation if taken on allowed expenditure In conclusion, the Supreme Court affirmed the decision of the Income Tax Appellate Tribunal to allow the expenditure claimed by the respondent as revenue expenditure. The court directed that if the respondent had taken any depreciation on the allowed expenditure, it should be reversed by the assessing authority. With these observations, the appeals filed by the Commissioner of Income Tax were dismissed, and the court listed other appeals for hearing in the following week.
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