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TMI Blog2016 (8) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... L JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) By way of this appeal under section 260A of the Income-tax Act, 1961, the appellant-revenue has challenged the order of the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") whereby the Tribunal has dismissed the appeal preferred by the revenue and confirmed the order of the Commissioner of Income-tax (Appeals). 2. While admitting the appeal, this court has framed the following substantial questions of law: "(A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance of ₹ 34,74,045/- made under section 36(1)(iii) being interest not charged by the assessee on the advance given to the associate concern? (B) Whether the Appellate Tribunal is right in law and on facts in restricting the disallwoance of ₹ 1,03,88,194/- to ₹ 11,87,360/- out of preoperative expenses of new business?" 3. The assessee filed its return of income on 30.11.1997. The Assessing Officer completed the assessment under section 143(3) of the Income-tax Act, 1961. While finalizing the assessment, the Assessing Officer observed that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well settled proposition that the entries passed in the books of accounts cannot determine whether the expenditure is allowable or an income is taxable. The Income-tax Act is a self contained code and the provisions and principles as provided under the Act are to be followed while determining the allowability or taxability of expenditure or income respectively. (ii) In accordance with the provisions of 37(1), the expenditure which is of the revenue nature is allowable under the provisions of the Income-tax Act. As may be observed from the above expenses, all the expenses are of revenue nature and pertaining to business of the company. Therefore, it should be allowed. (iii)Your kind attention is drawn to the judicial decision in the case of Hindustan Machine Tools 175 ITR 212 (Kara). In the said case, the Karnataka High Court was faced with the question whether the revenue expenditure incurred by the assessee is in connection with its new division is deductible as business expenditure. The High Court laid down the following principles. (a) Unity of Management: If there is a unity of management for various divisions. (b) Unity of Finance: If there is a complete inter-lacing, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed principles. The test to be applied for finding out whether a particular expenditure is revenue expenditure or not is to find out whether the expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit earning process. Any expenditure incurred for the acquisition of capital asset or a right of a permanent character or a benefit or advantage of an enduring nature should be treated as a capital expenditure. He has further observed that the appellant has incurred various expenses as mentioned above by incurring all such expenses, it is seen that these expenses have not been incurred for the acquisition of capital asset or a right of permanent character or benefit or advantage of an enduring nature. It is also seen that these expenses were incurred for carrying on the business of integral part of profit earning process. Therefore, these expenses should be treated as revenue in nature, irrespective of entries in the books of accounts. Moreover, the ratio of CIT vs. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Guj.) is directly applicable in this case, whose decision is a binding decision for the officers working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on disallowance of Soda Ash Project whereas as far as the instant case is concerned, it relates to Soda Ash Project Expenses [other than interest expenses] and therefore, reliance of the Court while deciding such an issue on the decision of CIT v. Alembic Glass Industries Limited, 103 ITR 715 (Guj) as also in case of Dy. CIT v. Core Health Care Limited, 298 ITR 194 (SC) would have no bearing. 14. Learned senior advocate Shri Soparkar has empathetically urged that both the authorities in the earlier year and in the present year had held the issue in favour of the assessee pointing out that this expenditure was in connection of expansion of the existing business. The Court on elaborate discussion had confirmed such a view of these authorities, and therefore, the interest expenses or otherwise, would get covered for the same being an expenditure in connection with expansion of the business. 15. On due consideration of rival submissions, we notice at this stage that this Court, while adjudicating the said issue, had at length discussed the same to hold that the expansion since was of an existing business, the tests applied in case of CIT v. Alembic Glass Industries Limited, 103 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or its captive consumption for the purpose of its existing manufacturing business. It is no doubt that the assessee is engaged in the business of manufacture of soap and the soda ash and lab so produced is used by way of captive consumption. When such facts viewed in light of the findings of the CIT (Appeals) and the Tribunal, we have no reason to interfere with the ultimate conclusion. Had it been a case of entirely a new project undertaken by the assessee as canvassed by the counsel for the Revenue, a serious question of claiming pre-operative expenditure of interest by way of revenue expenditure would arise. However, when the authorities below found that it was an expansion of the existing business, applying the tests laid down by this Court in the case of Alembic Glass Industries Ltd. (supra), in view of the decision of the Supreme Court in the case of Deputy CIT v. Core Health Care Ltd, 298 ITR 194 (SC), the fact whether the borrowing is capital or revenue expenditure would be of no consequence. " 6. We have heard learned counsel for the parties. Taking into account the contentions of both sides and considering the decision of this court in the case of Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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