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TMI Blog2012 (7) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenses considering the judgments in Ashima Syntex Limited. Versus Assistant Commissioner Of Income-tax Central Circle - 2(3)[2006 (3) TMI 188 (Tri)] have to be allowed - decided in favour of assessee. Deletion of disallowance of interest expenditure on the working capital of HRC Division - shown by the assessee company as Deferred Revenue expenditure - Held that:- As it has already been held that HRC project is part of the existing business of the assessee all revenue expenditure have to be allowed - in favour of assessee. Deletion of disallowance of lease rent - assessee had debited in the P&L account expenses on account of rent paid on leasing transactions less by Rs.25.15,95,039, while filing the return of income the assessee claimed this difference as a deduction - Held that:- The deduction claimed by the assessee was in respect of its actual liability of payment of lease rent to the lessor and the treatment in the books of account will not alter the character of the expenditure when it comes to claiming deduction while computing total income under the Act - no prejudice is caused to revenue - decided in favour of assessee. Deletion of addition of provision made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of HRC Project to capital work-in-progress because commercial production of HRC started after 31/3/1996. However, while filing the return of income the assessee had claimed as revenue expenditure a sum of Rs. 2,18,11,65,893/- According to the assessee it continued its trial production during the previous year and made substantial sales and was entitled to claim the expenses in question as deduction. It is not in dispute that in respect of identical item of expenditure the AO had treated similar expenses as capital expenses because according to the AO the business of HRC project had not commenced. That was in the A.Y 1994-95. For the reasons given in AY 94- 95, the AO disallowed the claim of the assessee for deduction of the aforesaid sum. 4. On appeal by the assessee the CIT(A) directed the AO to allow the deduction by following his order in A.Y 1994-95 on the identical issue whereby it was held that HRC Project was nothing but an extension of the existing business of the assessee and that both the business of HBI and HRC were same business. 5. Aggrieved by the order of the CIT(A) the revenue has preferred ground No.1 before the Tribunal. 6. The ld. D.R relied on the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him that the HRC project was a new and independent project, the commercial production in respect of which was yet to start. It was also observed by him that in the earlier year, heavy expense incurred had been capitalized in the books of account. The AO took the view that expenditure could allowed only in relation to the project in respect of which profit was being computed. He placed reliance on the judgment of Hon ble High Court of Kolkata in the case of Ritz Continental Hotel (114 ITR 554). As the new project was still being set up and not ready for production at the end of the accounting year, the AO disallowed the claim of expenses mentioned above. 2.1.3 The assessee disputed the decision of the AO and submitted before CIT(A) that in the business of steel, HBI was an intermediate product which was automatically carried over to HRC plant being set up by the assessee. It was pointed out that for the purpose of excise duty, the whole factory was considered as a one unit in the excise return and therefore the view taken by the AO that HBI and HRC were two different units was not correct. It was also pointed out that whether the two businesses were one and the same business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not conclusive regarding nature of expenditure. It was also observed by him that for considering allowability of deduction on account of interest on borrowed funds under section 36(1)(iii) what was required to be seen was that the money must have been borrowed for business purpose. CIT(A) accordingly allowed the claim of deduction on account of interest and general administrative expenses. 2.1.6 As regards the debenture issue expenses CIT(A) observed that debentures were convertible into shares and therefore the issue of debenture amounted to extension of capital base of the assessee company. The expenditure incurred for increasing the capital base was not allowable as revenue expenditure in view of the judgment of Hon ble Supreme Court in case of Brooke Bond India Ltd. Vs CIT (225 ITR 798) CIT(A) also observed that the assessee itself had withdrawn claim of deduction amounting to Rs.17,11,000/- and the effective amount was only Rs.16,32,79,000/-. He therefore confirmed the disallowance to that extent. Aggrieved by the decision of the CIT(A) both the parties are in appeal. Whereas the assessee has challenged the decision of CIT(A) to confirm the disallowance on account of deben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and has allowed the general administrative expenses and interest expenses except the debenture issue expenses which have been disallowed on the ground that the debentures were convertible in shares and therefore the expenditure was for raising the capital base not allowable as revenue expenditure. It is a settled legal position that whether two businesses are one and the same business will not depend upon the nature of business or the product but on the fact whether there is unity of control and integration of the two businesses by common management, administration and finance etc. This view is supported by the judgment of Hon ble Supreme Court in case of Prithvi Insurance Co. Ltd. (supra) and in case of Veecumsees (220 ITR 185) which have been relied upon by the CIT(A). In this case, there is clear finding by the CIT(A) that there was integration, interlacing, interdependence and dovetailing of the two division which has not been controverted before us. Therefore we have to hold that HRC project has to be taken as part of the existing business. In view of the above position all expenditure incurred in connection with new project which is of revenue in nature has to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. We therefore set aside the order of CIT(A) on this point and allow the claim of the assessee. Respectfully following the decision of the Tribunal referred to above we uphold the order of the CIT(A). Thus Ground No.1 raised by the revenue is dismissed. 8. Ground No.2 raised by the revenue reads as follows: (2) The learned CIT[A] has erred in deleting the disallowance of interest expenditure of Rs.26,62,32,317/- on the working capital of HRC Division shown by the assessee company as Deferred Revenue expenditure, though it was in the nature of capital expenditure. 9. This ground is consequential to Ground No.1. The AO disallowed the claim of the Assessee for deduction on account of interest on working capital relating to trial production of HRC Project. Because of the conclusion that the HRC business is a new business the AO disallowed the interest expenditure. Since it has already been held that HRC project is part of the existing business of the assessee all revenue expenditure have to be allowed. In fact in A.Y 1994-95 the Tribunal has already allowed general administration expenses. Respectfully following the decision of the Tribunal in assessee s own case ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be accepted. Admittedly the deduction claimed by the assessee was in respect of its actual liability of payment of lease rent to the lessor. The treatment in the books of account will not alter the character of the expenditure when it comes to claiming deduction while computing total income under the Act. We, therefore, dismiss Ground No.4 of the revenue. 12. The lease rent in question is the very same lease transaction considered by the Tribunal in AY 96-97 and the basis on which the AO made the disallowance is also identical. In view of the above, respectfully following the decision of the Tribunal referred to above, Ground No.3 raised by the revenue is dismissed. 13. Ground No.4 raised by the revenue reads as follows: (4) The learned CIT(A) has erred in deleting the addition of provision made for doubtful debts of Rs, 3,53,35,020/- to the Book Profit u/s115JA of the Act holding that it is not an provision for unascertained liability. 14. While computing book profits the AO added Provision for Doubtful debts of Rs.3,53,35,020/- debited to the profit and loss account to the profits arrived at in the profit and loss account prepared in accordance with the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these appeals by the revenue, which were admittedly filed prior to 15/5/2008 the returned income and assessed income was a loss. In assessment year 1998-99 though the income was determined under section 115JA of the Act the additions disputed by the assessee before the CIT(A) were only in respect of determination of total income under the normal provisions of the Act. The ld. Counsel for the assessee has raised the issue before us that these appeals by the revenue liable to be dismissed on the ground that the tax effect in all these appeals is only notional and, therefore, these appeals by the revenue have to be dismissed as they are filed contrary to the instructions by the CBDT with regard to filing of appeal by the revenue before the Tribunal. In this regard ld. Counsel for the assessee has brought to our notice that in assessee s own case similar issue was considered by the Tribunal in ITA No.3227/M/05 for A.Y 1997-98 and ITA No.1656/M/01 for A.Y 1997-98 and this Tribunal held as follows: 4. We have perused the records and considered the rival contentions carefully. The dispute is regarding maintainability of appeals only on ground of low tax effects CBDT had been issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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