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TMI Blog2013 (4) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, the assessee company became operational w.e.f. 01.10.2006. The Assessing Officer found that the assessee has incurred expenses of Rs.2,32,447/- prior to 01.10.2006, which have not been capitalized. Therefore, out of the same, depreciation was allowed in a sum of Rs.34,867/- and balance amount of Rs.1,97,580/- was added to the income of the assessee. The expenses incurred were in the nature of interest paid to Vijaya Bank, cash payment of service tax, insurance premium, office expenses, electric bill and interest paid on unsecured loans to the directors and their family members prior to 01.10.2006. The assessee submitted before the ld. CIT(A) that the assessee company was established in 1999, although started commercial production from its Industrial undertaking on 01.10.2006, but the business had duly been set up even prior to that date and by setting up business itself, as different from commercial production, all the expenditure of revenue nature were incurred by the assessee time to time. Therefore, the same were allowable. The ld. CIT(A), however, did not accept the contention of the assessee and held the same to be capital in nature and accordingly confirmed the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in carrying on the activity of extraction of limestone as also depreciation allowance and development rebate in respect of machinery employed in extracting limestone were deductible in computing the trading profits of the assessee for the assessment years 1960-61 and 1961-62. (ii). The decision of Hon ble Supreme Court in the case of CIT vs. Sarabhai Management corporation Ltd., 192 ITR 151, in which it was held The main object of the respondent, a private company, was to acquire immovable property and to give it out either on leave and licence basis or on lease as residential or, in the alternative, business accommodation, with all appurtenant amenities including the amenities of storage, watch and ward facilities, canteens, refreshment rooms, etc. A bungalow together with the appurtenant compound at Ahmedabad was purchased by the respondent on March 28, 1964. Thereafter, repairs, rewiring, installation of lifts, etc., were carried out by it for the purpose of converting the residential accommodation to business and storage accommodation and to render the premises more serviceable to its licensees or lessees. The respondent claimed that it was in a positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute that the assessee company was established prior to assessment year under appeal, although, the actual commercial production started from 01.10.2006. Therefore, the business of the assessee was in existence. The assessee took loan from the bank for the purpose of carrying on the business activities, on which interest has been paid prior to 01.10.2006. Similarly, service charges were paid for the business purposes. The expenses of insurance charges, office expenses and electrical charges were paid for business purposes prior to commercial production and interest was also paid on unsecured loans. These facts have not been disputed by the Assessing Officer. Therefore, it would clearly establish that the assessee started its business activities even prior to commencement of the commercial production and even raw materials were purchased prior to that date. Therefore, the decisions, relied upon by the ld. Counsel for the assessee above, squarely apply in favour of the assessee. The assessee is, thus, entitled for deduction of expenses being revenue in nature. We accordingly, set aside the orders of authorities below and delete the addition of Rs.1,97,580/-. Grounds Nos. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting up its business, the assessee-company had made borrowings from directors and their relatives, which are regularly assessed to tax and paid interest @ 15%, which was agreed to and fixed in advance on which the tax at source had also been deducted. The Assessing Officer compared the payment of interest with the bank interest paid. However, the Assessing Officer has completely omitted to consider that the interest was paid to the Directors and their relatives which was fixed in advance and payable at the end of the year and not on monthly basis and obtained wholly unsecured loans as against the borrowings from the bank that were payable on monthly basis and loans have been obtained against securities. The rate of interest was not comparable with the Commercial Bank. In the prevailing market, the rate of interest on unsecured borrowings was payable more than @ 15% per annum. Interest paid by the assessee was taxable in the hands of payees who were assessed to tax. Therefore, the addition is wholly unjustified. The ld. CIT(A), however, did not accept the contention of the assessee and confirmed the addition. 10. On consideration of the rival submissions, we do not find any justi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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