9911796707
TMI Blog1989 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, the deposits were made with M/s Hasmukh Shah for acquiring capital assets. Therefore, the interest amounts of Rs. 78,000 and Rs. 40,000 paid to the Directors required to be capitalised. Accordingly the ITO initiated proceedings under s.147(b) and issued notices under s. 148 in response to which the assessee filed revised returns but did not change the nature of the loss as returned by its original letter. The contention of the Assessee before the ITO was that the interest paid to the Directors could not be disallowed just because the investments made by the company did not earn any income. Reliance was placed upon the decision of the Supreme Court in the case of CIT vs. Rajendraprasad Moody (1978) CTR (SC) 141 : (1978) 115 ITR 519 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and insofar as it laid down that if on reappraising the material considered by him during the time of original assessments the ITO discovered that he had committed an error in consequence of which such income had escaped assessment, it was not open to him to reopen the same because an error has been discovered on reconsideration of the same material does not give him that power. 3. As against this, on behalf of the Department reliance was placed upon the decision of the Madras High Court in A.L.A. Firm vs. CIT (1976) 102 ITR 622 (Mad) wherein it has been held that "for reopening an assessment under s. 147(b) of the IT Act, the statute does not require that the information must be extraneous to the record. It is enough if the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es there is no alternative but to restore the matter back to the file of the CIT(A) who shall verify as to whether the interest claimed as a deduction was at all considered by the ITO or not in the first instance. 5. This brings me to the second question, namely, the real nature of the expenditure. On behalf of the assessee it was contended that even if the interest had been paid to the Directors for securing office and show room premises, the expenditure was of revenue nature in view of the decision of the Bombay Tribunal in ITA No. 389/Bom/74-75. In that case the foreign tour expenses of the Senior Executive for the purchase of capital goods had been disallowed since the capital goods were ultimately not purchased. The Tribunal allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for constructing a building for its office and offices of several companies managed by it. Interest paid on the amount was held to be an allowable deduction. Both these authorities proceed on the assumption that while amount spent on purchasing items of capital nature may not be allowable as capital expenditure, the amount of interest paid on amount borrowed for purchasing a capital asset need not necessarily be treated as an expenditure of capital nature. In fact this is a highly controversial issue as the discussion at page 1270 of Vol. 2 of Chaturvedi Pithisaria's 'Income-tax Law', Third Edition will show. At page 1272, after referring to a number of authorities it has been held that "it is often difficult in any particular case to dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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