RAJESH BINDAL, J. - (1.) PASSED by the Income -tax Appellate Tribunal, Chandigarh Bench 'A' (for short 'the Tribunal'), for the asst. yr. 1992 -93 : "(i) Whether, on the facts and the circumstances of the case, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,97,290 on account of interest and Rs. 9,80,000 on account of upfront fees by ignoring Expln. 8 to s. 43(1) - 1992, declaring its taxable income at Rs. 3,59,86,351. The return was processed under s. 143(1)(a) of the IT Act, 1961 return, the assessee claimed additional deduction on account of Rs. 1,97,290 and Rs. 9,80,000 on account of interest under s. 36(1)(3) of the Act and upfront fees, respectively. This claim was made on account of loans raised for set up of a new unit at Baddi (HP). In the revised return a detail note was given at Serial No. 9 that the assessee has set up a new unit, for the purpose of which, the assessee incurred expenses on interest of loans and upfront fees of loan raised from financial institutions for establishing a new unit. It was admitted in the return that the new unit had not yet come into commercial production. However, the claim of the assessee was that the same is nothing but expansion of its earlier business under the same management and administration. The AO, keeping in view, the admitted facts that the loan was raised for setting up a new unit for creating a capital asset which was yet to come into production, the interest for the period prior to that could not be allowed as revenue expenditure for the purpose, Expln. 8 to s. 43(1) of the Act Courts were also referred to. In appeal, learned CIT(A) accepted the plea of the assessee. While holding in favour of the assessee that the new unit at Baddi (HP) was part and parcel of the existing business of the assessee and it was only expansion of the already existing activity, the CIT(A) relied upon a judgment of Gujarat High Court in CIT vs. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj), while distinguishing a judgment of this Court in CIT vs. Oswal Spinning and Weaving Mills Ltd. (1986) 53 CTR (P&H) 172 : (1986) 160 ITR 426 (P&H). The Tribunal, in appeal by the Revenue against the order of the CIT(A), approved the order passed by the CIT(A). While rejecting the appeal, the Tribunal recorded following findings: "24. On careful consideration of the rival submissions, we find force in the submission advanced on behalf of the assessee and are inclined to uphold the order of learned CIT(A). As is evident from record, the assessee is carrying on business of manufacturing and spinning of yarn at Ludhiana and setting up a new unit for carrying on similar business at Baddi (HP). The director's report and balance sheet clearly reflect that it is expansion of business earlier carried on by the assessee. The new unit at Baddi and old unit have common management and control, common funds interlacing and inter connection. The unit at Baddi cannot be held to be a new business. It is only expansion of old business. Interconnection of funds is established not only from the balance sheet but also from the fact that machinery and plant of old unit has been mortgaged to finance the new unit. The factual finding recorded by the learned CIT(A) could not be challenged before us with reference to any material on record. The contention advanced on behalf of the Revenue that the learned CIT(A) did not examine relevant question of common funds and common management and control, is not correct. As noted earlier, the plea on the above line was raised before the AO and was not refuted in the assessment order. The CIT(A) also examined the question is depth and decided the issue in favour of the assessee after elaborate discussion. We do not find any error in the approach of learned CIT(A). The view taken in the impugned order is not only supported by the decision referred to by the learned CIT(A) but is also supported by fourteen decisions given in the paper books of the assessee, the latest in line, being the decision of Hon'ble Supreme Court in the case of CIT vs. Associated Fibre and Rubber Industries (P) Ltd. (1999) 152 CTR (SC) 21 : (1999) 236 ITR 471 (SC). As it is a case of expansion of business, interest paid on borrowed funds for installation of machinery and upfront fees were rightly treated as of revenue nature and allowed. We confirm the action of learned CIT(A)."
(2.) THE provisions relevant for consideration on the issue are extracted below : Sec. 36. Other deductions. - -(1) the deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing referred to in s. 28 - - (i) xxxxx (ii) xxxxx (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Explanation. - -Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;" "43. Definitions of certain terms relevant to income from profits and gains of business or profession. - -In ss. 28 to 41 and in this section, unless the context otherwise requires - - (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority : xxxxxxx Explanation 8. - -For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost, of such asset."
(3.) THE undisputed facts in the present case are that the assessee, who was already continuing with its business at Ludhiana, started setting up of a new unit at Baddi (HP) for which the loans were raised from financial institutions on which the assessee was liable to pay interest besides payment of upfront fee. The new unit being set up at Baddi (HP) had not yet come into commercial production. The question for consideration in the present case is as to whether interest paid on borrowed capital for setting up of a new unit till such time it comes into commercial production, is deductible as the revenue expenditure under s. 36(1)(iii) of the Act while computing the income of the assessee or to be treated as capital expenditure to be added to the cost of asset. Sec. 43 of the Act defines certain terms relevant to determine the income from business or profession. Sub -s. (1) thereof provides the definition of actual cost of an asset. Explanation 8 to s. 43(1) of the Act was added by the Finance in (1986) 51 CTR (St) 16 : (1986) 158 ITR (St) 88 is as under : "Under the existing provisions of cl. (1) of that section, 'actual cost' means the actual cost of the asset to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The proposed amendment seeks to clarify that any amount paid or payable as interest in connection with acquisition of an asset and relatable to a period after the asset is first put to use shall not form part and shall be deemed never to have been formed part of the actual cost of the asset.";