Law: Income Tax Act, 1961

Section: 256,37,43

Income-tax---Reference---Capital or Revenue expenditure-Interest on borrowed capital---Finding that capital had been borrowed for modernization of existing plant---Finding not challenged---Tribunal justified in allowing deduction of interest as a Revenue expenditure---No question of law arose---Indian Income Tax Act, 1961, Ss. 37, 43 & 256. Held, dismissing the application for directing reference, that the Tribunal had relied on its earlier order wherein it was held that it was a case of existing business and the assessee was entitled to depreciation and investment allowance on the machinery installed in D and S. Thus, the finding arrived at by the Tribunal in respect of the same machinery in its earlier order was that the loan was raised for modernization and improvement of productivity with reference to the existing business. This was a pure finding of fact, which had not been specifically challenged by the Revenue. The Tribunal was justified in holding that the interest incurred by the assessee on the borrowings utilised for the purpose of the modernization project at D and beneficiation plant at S was for the purpose of the assessee's business and as such allowable as Revenue expenditure. No question of law arose from the order. Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC); CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj.); CIT v. Modi Industries Ltd. (No.3) (1993) 200 ITR 341 (Delhi) and India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) ref. JUDGMENT D.K. JAIN, J.---By this petition under section 256(2) of the Income Tax Act, 1961 (for short "the Act"), the Revenue seeks a direction to the Income-tax Appellate Tribunal (for short "the Tribunal") to state the, case and refer the following questions, stated to be of law, for the opinion of this Court: "Whether the Income-tax Appellate Tribunal was correct in: (1) setting aside the order of the Commissioner of Income-tax under section 263 of the Act and restoring the order of the Assessing Officer? (2) holding that the provisions of Explanation 8 to section 43(1) cannot be interpreted in the reverse order so as to capitalize the amount of interest paid on borrowings and include the…

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