Law: Income Tax Act, 1961

Section: 256,36(1)(iii)

Income-Tax----Interest on borrowed capital,Finding that capital had been borrowed for expansion or not was riot relevant-- -Interest was deductible---Indian Income Tax Act, S.36. Held, that the Tribunal had found that capital had been borrowed for expansion of the old business. This finding had not been challenged by the Revenue. The question whether the new unit had gone into production was not relevant. The assessee was entitled to deduction of interest on the borrowed capital under section 36(1)(iii) of the Income Tax Act, 1961. CIT v. Malva Vanaspati and Chemials Co. Ltd. (1997) 226 ITR 253 (MP) and Kanuiram Ramgopal .v. CIT (1988) 170 ITR 41 (MP) ref. JUDGMENT A.K. MATHUR, C. J.---This is a reference under section 256(1)_of the Income Tax Act, 1961, referred by the Tribunal at the instance of the Revenue and the following question of law has been referred for answer of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs.15, 15, 544 being interest on the loans from ICICI and IFCI utilised for setting up a new project, namely, Neco Valves and Puninps was an allowable deduction under the provisions of the Income Tax Act, 1961?" The brief facts giving rise to this reference are that the assessee is a private limited company. The assessee besides engaging in carrying out job work of breaking skull lumps (belonging to other parties) into smaller sizes, purchased skull lumps and sold the same after converting into smaller sizes. The assessee claimed deduction under section 32AB as Rs:13, 67, 533. The Assessing Officer, however, allowed the deduction under section 32AB at Rs.9, 2, 543. The Assessing Officer, however, only disallowed the interest payment amounting to Rs.15, 15, 544 holding that the funds borrowed from ICICI were utilised for setting up and acquiring plant and machinery of a new project "Neco Valves and Pumps", which was not an expansion of the assessees existing business. Aggrieved against the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) allowed the…

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