2006 (9) TMI 137

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ded in the bill for the purchase of plant and machinery when interest cannot be capitalised in view of Explanation 8 to section 43(1) of the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing expenditure incurred by way of rent of guest house holding that the deduction of expenditure is admissible under section 37(1) and the disallowance is not covered by the specific provisions of section 37(4) read with section 37(5) of the Income-tax Act?" The facts noticed by the Tribunal are that the assessee had purchased certain plant and machinery during the previous year relevant to the assessment year 1986-87 for Rs. 9,55,000. The Assessing Officer notic .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... he IDBI. It was argued that, in that light, interest could not be treated otherwise except as part of the cost because a composite bill was received by the assessee and payment was made accordingly. A similar question had been examined by the Tribunal in the case reported in Indian Pistons Repco. Ltd. v. IAC [1988] 40 Taxman-Mag. (AT) 139 (Mad), wherein it was observed that the amount of interest formed part of cost. The assessee had also placed reliance on the judgment of the hon'ble Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The Tribunal agreed with the assessee that Explanation 8 below section 43(1) of the Act was not attracted because interest was not paid as such but as part of cost under a special scheme of the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which have been created as a result of such expenditure. The above rule of accountancy should, in our view, be adopted for determining the actual cost of the assets in the absence of any statutory definition or other indication to the contrary." Explanation 8 has rightly been held not to be attracted when interest was not paid as such but only as a part of cost under the scheme of the IDBI. A similar view has been expressed by the different High Courts in Widia (India) Ltd. v. Chief CIT (Admn.) [1998] 233 ITR 1 (Karn), CIT v. Widia (India) Ltd. [1992] 193 ITR 475 (Karn) (S.L.P. (C) No. 7272 of 1993 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X