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TMI Blog2010 (3) TMI 1102X X X X Extracts X X X X X X X X Extracts X X X X ..... h extension of business were allowable revenue expenditure under section 37(1)/36(1)(iii) of the Income Tax Act, 1961. 2.1 During the course of assessment the AO made the following addition by observing as under:- "Capital expenditure debited to profit and loss account A sum of ₹ 1,32,31,892/- represents expenses incurred on G.Noida project during determent period. As per details filed, it is seen that expenses are on account of interest on loans taken and for other expenses like security, bhomi pujan, electricity etc. These expenses are clearly capital in nature and had the project not been deferred, the assessee would have capitalized the same. Hence, they are being disallowed." 2.2 Upon assesse's appeal ld. CIT(A) noted the submission of the assessee. Ld. CIT further observed that the assessee has undertaken construction of new printing unit at Greater Noida in 2000 with the funds borrowed from Central Bank of India. The expenditure incurred upto 12.12.2001 was capitalized. Ld. CIT(A) further observed the details as under:- "The details of expenditure are as under:- Particulars Amount Rs. Land 64,162,599 Building (Porta Cabin) 550,093 Building under construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 36(1)(iii) of the IT Act. He further submitted the proviso in section 36(1)(iii) was introduced by the Finance Act, 2003 with effect from 1.4.2004. He claimed it is a settled law that the said proviso is prospective in nature and is not applicable to the assessee's case as the assessment order involved here is 2002-03. 2.5 Ld. DR submitted that it cannot be said that the assessee was engaged in the expansion of the same business. He claimed that it was a new line of business. He further claimed that there was also no information as to whether the project which has been deferred was ever activated or not. Ld. DR further referred to the Tax Audit Report wherein in para 17 against amount debited to the profit and loss account being expenditure in capital nature following is also included. "Rs. 13231892/- being expenses incurred on Noida Project during deferment period". It is further mentioned herein that auditors have accepted the accounting principles and judicial pronouncements in confirming this opinion. Ld. DR further referred to 315 ITR 114 wherein the Hon'ble Apex Court has observed that accounting treatment given by the assessee is also indicative of the real natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod in which they are incurred." 2.8 Para 17 and 18 of the AS-16 mandate as under:- "Suspension of Capitalization 17. Capitalization of borrowing costs should be suspended during periods in which active development is interrupted. 18. Borrowing costs may be incurred during an extended period in which the activities necessary to prepare an asset for its intended use or sale or interrupted. Such costs are costs of holding partially completed assets and do not qualify for capitalization. However, capitalization of borrowing costs is not normally suspended during a period when substantial technical and administrative work is being carried out. Capitalization of borrowing costs is also not suspended when a temporary delay is a necessary part of the process of getting an asset for its intended use or sale. For example, capitalization continues during the extended period needed for inventories to mature or the extended period during which high water levels delay construction of a bridge, if such high water levels are common during the construction period in the geographic region involved." 2.9 Now the assessee's claim is that after 12.12.2001 the assessee has suspended the work on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlacing of funds and that even though two divisions were geographically located at different sites, marketing of the final products was carried out under the supervision and control of the same set of executives. The Tribunal was justified in holding that sugar plan was mere extension of existing business of ferro alloys plant and therefore interest paid on funds borrowed for the purpose of setting up of sugar plan was allowable under section 36(1)(iii). 2.10 Now on the analysis of the above case laws show that if it is expansion of the same line of business, the expense incurred on obtaining the borrowed funds should be allowed as revenue expenditure. We find that in the present case there was no finding regarding the nature of the project being undertaken at Noida. Admittedly, the detail shows only expenditure on acquisition of land and building construction. In such circumstances, it is not possible on our part to give a finding regarding the nature of the said project whether the same was a new business altogether or the expansion of the existing project. Moreover this line of argument was never made by the assessee before the lower authorities. Assessee had itself capitalize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. CIT 284 ITR 323 wherein the Hon'ble Apex Court had clarified that the decision referred in that case shall not restrict the powers of the Tribunal to admit and adjudicate the claim of the assessee. In our considered opinion the claim of the assessee was genuine. Article 265 of the Constitution of India states that no tax can be collected except by authority of law. CBDT Circular No. 114 XL-35 of 1955 dated 11.4.1955 states that officer of the department must not take advantage of the ignorance of an assessee as to his rights. Hon'ble Apex Court in the case of CIT Vs. Mr. P. Firm in 56 ITR 67 wherein the Bench comprised three of their Lordships had expounded that if a particular income is not taxable under IT Act, it cannot be taxed on the basis of estoppel of any other equitable doctrine. If a particular income is not exigible to tax, AO has no power to impose tax on the said income. In the background of the aforesaid discussion, we find that assessee's claim in this regard is justified. Hence in our considered opinion there is no infirmity in admitting a genuine claim of the assessee. 3.5 In the light of the above, we permit the assessee to raise this ground before us. We f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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