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TMI Blog2016 (8) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee claimed Special advertisement expenditure amounting to ₹ 39,49,930/- , however the AO allowed 1/5th of the expenditure and made disallowance of ₹ 31,59,944/- . In the assessment order, an amount of ₹ 13,62,000/- was disallowed in respect of travelling and medical expenses of the Chairman. That in the assessment order, an amount of ₹ 5,44,23,397/- was disallowed in respect of interest paid on nonconvertible debenture shares of public issue. That in the assessment order, a lump sum disallowance of ₹ 4,91,93,000/- was made out of expenses for selling publicity and medical literature. The matter was carried before the CIT (Appeals) and who had deleted the addition on account Special advertisement expenditure; travelling and medical expenses of the chairman, interest paid on nonconvertible debenture portion of public issue debenture (capitalized); selling publicity and medical literature. Thereafter, the matter was carried before the ITAT and it had upheld the order of the CIT (A) which has given rise to this appeal. 3. While admitting this appeal, several questions were posed for consideration, however the appeal came to be admitted on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in Section 28 - (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation : Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfill such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires (1) actual cost means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. Further, the words actual cost do not find place in Section 36(1)(iii) of the 1961 Act which otherwise find place in Sections 32, 32A etc of the 1961 Act. The expression actual cost is defined in Section 43(1) of the 1961 Act which is essentially a definition section which is subject to the context to the contrary. 9. In the case of Commissioner of Incometax v. Associated Fibre and Rubber Industries (P) Ltd. (1999) 236 ITR 471, the Division Bench of this Court held as follows: Even though the machinery has not been actually used in the business at the time when the assessment was made, the same has to be treated as a business asset as it was purchased only for business purposes. In the circumstances, the interest paid on the amount borrowed for purpose of such machinery is certainly a deductible amount. 10. As stated above, the Department contended before us that the judgments of this Court, prior to insertion of Explanation 8 in Section 43(1) of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. 11. Before concluding on this point we may state that in this batch of civil appeals we are concerned with the assessment years 1992-93, 1993-94, 1995-96 and 1997-98. A proviso has since been inserted in Section 36(1)(iii) of the 1961 Act. That proviso has been inserted by Finance Act, 2003 w.e.f. 1.4.2004. Hence, the said proviso will not apply to the facts of the present case. Further, in our view the said proviso would operate prospectively. In this connection it may be noted that by the same Finance Act, 2003 insertions have been made by way of proviso in Section 36(1)(viia) by the same Finance Act which is also made with effect from 1.4.2004. Same is the position with regard to insertion of a subsection after Section 90(2) and before the Explanation. This insertion also operates w.e.f. 1.4.04. In short, the above amendments have been made by Finance Act, 2003 and all the said amendments have been made operational w.e.f. 1.4.04. Therefore, the proviso inserted in Section 36(1)(iii) has to be read as prospectively and w.e.f. 1.4.04. In this case, we are concerned with the law as it existed prior to 1.4.2004. As stated above, we are not concerned with the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Printing Works (supra) and the judgment of the Supreme Court India Cements Ltd. (supra) have been given with reference to the borrowings made for the purposes of a running business, while the decision of the Supreme Court in Challapalli Sugars Ltd. (supra) was given with reference to the borrowings which could not be treated as made for the purposes of business as no business had commenced in that case. Therefore, there is no inconsistency between the above decisions. CONCLUSIONS 14. For the above reasons, we hold that A.O. was not justified in making disallowance of ₹ 1,56,76,000/- in respect of borrowings utilized for purchase of machines. Accordingly, the above question is answered in favour of the assessee and against the Department. 6. Having heard the learned Counsel for the parties and having gone through the order passed by the ITAT, whereby the order passed by the CIT (A) deleting the disallownace made by the A.O. in respect of interest paid to nonconvertible debenture portion of public issue came to be confirmed, as also considering the decision in case of Core Health Care Ltd. (supra) , this Court while adopting the said view does not thin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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