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TMI Blog1987 (7) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to revise the orders of assessment under section 263? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing interest paid to the M.P. State Finance Corporation? In the other case, Kashiram Ramgopal ( supra), reference has been made by the Tribunal as per order of this Court dated 13-10-1980 in Misc. Civil Case No. 483 of 1975, referring the second question for opinion of this Court. 2. The assessee is a registered partnership firm carrying on business in grains, oil-seeds, pulses, hemp, rice and dal mill, with its head office at Seoni and branches at Calcutta, Benaras and Kawlari. The firm wanted to expand its business by starting a factory to utilise the waste product of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Corporation, by saying that the deductions were not considered by the AAC and that the interest was not deductible as the straw board factory had not commenced production in those assessment years and actually started production in the year 1971-72. The order was affirmed in appeal by the Tribunal. For the assessment year 1970-71 the ITO did not allow deduction of ₹ 38,581 towards interest paid to the M.P. State Finance Corporation, in view of the orders passed in the previous assessment years, as the payment did not pertain to the existing business. But, in appeal, the AAC allowed deduction of interest, saying that the assessee will be entitled to the deduction claimed, even though the plant and machinery purchased for the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded by a recent Full Bench decision of this Court in CIT v. K.L. Rajput [1987] 164 ITR 197 where it was held: The doctrine of merger applies to income-tax proceedings but the extent of its application depends on the scope and subject-matter of the appeal and the decision rendered by the appellate authority. Where an appeal has been preferred by the assessee to the Appellate Assistant Commissioner from an order of assessment made by the Income-tax Officer in respect of only some of the items covered by the Income-tax Officer's order and the remaining items, forming part of the Income-tax Officer's assessment order, were not agitated or the Appellate Assistant Commissioner did not consider them suo motu and no decision of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains of any business or profession which was carried on by the assessee at any time during the previous year; Section 36(1)(iii) provides for deduction to be allowed in computation of income referred to In section 28, of the amount of interest paid in respect of capital borrowed for the purpose of the business or profession. Admittedly, amongst others, the assessee is carrying on, the business of running a rice and dal mill and husk is the waste product of the mill, which can be utilised as raw material for manufacturing straw boards. That is the reason for which the assessee decided to start a straw board factory to utilise the waste material of the mill as a raw material for manufacturing straw boards. For this purpose, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of spinning and weaving mills as well as the straw-board factory. The management, trading organisation, administration, funds and the place of business were identical. It could not, hence, be said that the setting up of the straw board factory was initiation of a different business by the assessee and on that ground the expenditure could not be disallowed. The decisive test was unity of control and not the nature of the two lines of business. (p. 21) 6. It is nobody's case here that the ownership and management of the straw board factory is by somebody else other than the assessee. On the other hand, it is undisputed that the assessee decided to start the straw board factory to utilise the waste product of husk for manufacturing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal borrowed for the purpose of an existing plantation. Both are for the purposes of the plantation. Therefore, the second question is answered in the negative, in favour of the assessee by holding that the Tribunal was not right in disallowing interest paid by the assessee to the M.P. State Finance Corporation for the assessment year in question. 8. The cases referred by the Tribunal, in support of its decision, are clearly distinguishable. In Ramaraju Surgical Cotton Mills Ltd.'s case (supra), the assessee was manufacturing absorbent cotton wool and resolved to establish a new spinning unit. The construction of the mill started in 1956 and completed in 1957. In the assessment of wealth-tax, the assessee claimed deduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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