G.C. Gupta, J. - (1.) The assessee has come up in appeal under Sec. 260A of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') against the order of the Income Tax Appellate Tribunal, 'E' - Bench, Kolkata dated 15th December, 2006 in ITA No. 443/Kol/2003 for the assessment year 1997 -98.
(2.) By the order dated 1st August, 2007 a Division Bench of this Court admitted this appeal on the following substantial questions of law: - - "(I) Whether on the facts and in the circumstances of the case the Tribunal erred in law in upholding the disallowance of agency commission paid for arrangement of loan, holding it to be capital expenditure? (II) Whether on a true and proper interpretation of Explanation -8 to Sec. 43(1) of the Act interest paid on borrowed funds used for acquisition of capital assets by a running concern can be disallowed as deduction under Sec. 36(1)(iii) of the Act? (III) Whether on the facts and in the circumstances of the case the Tribunal erred in law in confirming the disallowance of expenditure incurred for software development as capital expenditure -
(3.) Mr. J.P. Khaitan, learned Senior Advocate appearing for the assessee, submitted that the question numbers (I) and (II) are covered by the judgments of the Supreme Court in the case of CIT v/s. Associated Fiber and Rubber Industries reported in : (1999) 226 ITR 471. He added that the proviso to Sec. 36(1)(iii) was introduced with effect from 1st April, 2004 whereas we are concerned in this case with the assessment year 1997 -98. He submitted that this proviso can have no application. In any case, he added that the Supreme Court in the case of Deputy Commissioner of Income Tax v/s. Core Health Care Ltd. reported in : (2008) 298 ITR 194, has held that the proviso has only prospective effect. Therefore, according to Mr. Khaitan, the question Nos. (I) and (II) have to be answered in favour of the assessee.;