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TMI Blog2015 (6) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterate our earlier directions and remit the grounds raised by both the parties to the Assessing Officer for passing a fresh order as per law invariably following consequential order; if any, passed in assessment year 1995-96 in furtherance to the tribunal’s direction. - Decided in favour of assessee for statistical purposes. Assessment Year 1999-2000 - The CIT(A) has distinguished facts of the impugned assessment year with those involved in 1997-98 as adjudicated herein above. He presumes that the assessee has put to use its plant and machinery and allows the impugned interest sum to have been incurred on borrowed funds for machinery. We reiterate that the assessee has already started its commercial production on 23.9.1996. Therefore, we held it entitled for deduction of impugned sum incurred on capital borrowed for purpose of the business in question - Decided in favour of assessee. - ITA No.14/Ahd/2012,ITA No.58 & 59/Ahd/2012 - - - Dated:- 9-6-2015 - S/Shri N. S. Saini and S. S. Godara,JJ. For the Petitioner: Shri Vijay Ranjan, AR For the Respondent:Shri D. C. Mishra, Sr. D.R. ORDER PER S. S. Godara, Judicial Member These are three appeals. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. Similarly, the Revenue s pleading read as under :- 1. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer to further examine the project report to know whether all the machineries in respect of which loan was sanctioned prior to the setting up of the business of the assessee had been put to use for commercial production, even though the assessment order has been passed on the basis of directions issued by Hon ble ITAT and detailed verifications have been made by the AO. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the AO. 3. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the AO be restored to the above extent. 3. This is second round of litigation between the parties upto the tribunal . The sole issue in question is that of interest disallowance of ₹ 1,97,32,000/-. The Assessing Officer had framed a regular assessment on 29.3.2000 inter alia disallowing the impugned interest sum capitali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Ltd. vs. CIT (1975) 98 ITR 167 (SC) After the asset is first put to use It cannot be capitalized (Expln.8 to sec.43(1). It may be claimed as deduction under section 36 (see also Note infra) Situation 2 An existing concern acquiring asset for expanding the same business Upto the time the asset is put to use I can be capitalized (i.e. added to the cost of asset). It cannot be claimed as deduction as revenue expenditure under section 36 (proviso to sec.36(1)(iii) After the asset is first put to use It cannot be capitalized (Expln.8 to sec.43(1). It may be claimed as deduction under section 36. Situation 3 An existing concern acquiring assets to set up a new undertaking which is an extension to existing business See Situation 2 Situation 4 An existing concern acquiring asset to set up a new undertaking which is not an extension to the existing business See Situation 1 This resulted in the impugned disallowance b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court in the case of Challapalli Sugar Ltd, 98 ITR 167 (SC). However, after the asset is first put to use, the interest expenses cannot be capitalised in view of explanation 8 to section 43 (1). In that case only it can be claimed as deduction -under section 36 of the Income-tax Act. According to him, since all the assets have not been put to use up to the commencement of commercial production, in that case in respect of those assets which are put to use after the commencement of commercial production, interest pertaining to the period after the commencement of commercial production but before the asset is first put to use, may be capitalised. Alternatively at the option of the taxpayer interest can be claimed as deduction under section 36 as revenue expenditure. The AO also referred to a situation where an existing concern acquires asset for expending its business. In that case upto the time the asset is first put to use the interest on the borrowed capital can be capitalized. It cannot be claimed as deduction under section 36 of the Income-tax Act. The interest can be claimed only after the asset is first put to use. According to the AO, since the assets ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nourable Supreme Court in the case of Gore Healthcare has discussed the situations about the interest expenditure on the borrowed funds of the live looms. It does not discuss the situation: regarding the eight looms not put to use for the newly setting up of its business. Further, the contention of the appellant that the ITAT, Special -Bench in the case of.Ashima Syntex Ltd., 117 ITD.l (Ahd) has allowed interest expenses, is of no help since in that case there was no such finding of the AO that the Plant and Machinery has not been put to use. In the present case the AO has categorically mentioned that during the year ending March, 1997 the appellant has purchased Plant and Machinery of ₹ 38.38 crores out. of which ₹ 16.01 .crores is shown as capit al work-inprogress and that after the date of commercial production-on 23/9/1996, the appellant has purchased total Plant Machinery worth ₹ 54 crores including the capital work-in-progress. This finding of the AO is not 'disputed by the appellant. This shows that all the Plant Machinery was not put to use by the appellant for its production. It is therefore essential to know whether such Plant and Machinery is pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer for passing a fresh order as per law invariably following consequential order; if any, passed in assessment year 1995-96 in furtherance to the tribunal s direction. The grounds raised by both the parties in these two appeals are allowed for statistical purposes. ITAs 14 58/Ahd/2012 are allowed for statistical purposes. Assessment Year 1999-2000 Revenue s appeal ITA 59/Ahd/2012. A perusal of this case reveal that assessing officer had disallowed impugned interest sum of ₹ 1,25,06,250/- on the very same line as in assessment year 1997-98. The CIT(A) has accepted the assessee s contentions as under :- 6. As regards the disallowance of interest in A.Y. 1999-2000, it was stated that as on 1.4.1998 there was opening balance of Plant Machinery of ₹ 72 crores. The additions during the year are only ₹ 2.68 crores. The facts are therefore, different from the facts in A.'Y: '1997-98. However, the AO ha.s followed the assessment order for A.Y. 1997-98 to make disallowance of interest of ₹ 1,25,06,250/- without mentioning as to which Plant Machinery were not put to use by the appellant. In A.Y. 1998-99 no disallowance of interest was m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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