The ACIT, Circle-4, Ahmedabad V. Gujarat Mineral Development Corporation Ltd., Ahmedabad

ITA 2164/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0437 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-11-2009
• Assessment Year: 1993-1994
• Appeal Filed On: 09-10-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKARJ T SHAH
• Keywords: Capital asset; Depreciation; Retrospective amendment; Bad and doubtful debts; Set aside
• Section: 43B; 139(1); 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA, JUDICIALMEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 17.11.09 DRAFTED ON: 17.11.09 ITA NO.2163 & 2164/AHD/2006 ASSESSMENT YEAR : 1990-1991, 1993-1994 ACIT, CIRCLE-4, AHMEDABAD. VS. GUJARAT MINERAL DEVELOPMENT CORPN., KHANJI BHAVAN, 132 FT. RING ROAD, NR. UNIVERSITY GROUND, VASTRAPUR, AHMEDABAD. PAN/GIR NO. : AAACG7987P (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA SR. D.R. RESPONDENT BY: SHRI S.N.SOPARKAR/J.T.SHAH A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE APPEALS FILED BY THE REVENUE AGAINS T THE SEPARATE ORDERS OF CIT(APPEALS)-VIII, AHMEDABAD DATED 20.07.2006 IN AP PEAL NO. CIT(A)- VIII/DC/SR-1/130/05-06 AND ORDER DATED 20.07.2006 I N APPEAL NO. CIT(A)- VIII/DC/SR-1/132/05-06. 2. THE GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF PROVISIONS OF MUNICIPAL TAX TO RS.1,646/- AND ALLOWING A RELIEF OF RS.1,98,354/- IGNORING THE FAC T THAT THE MUNICIPAL TAXES WERE NOT PART OF RENT AS PER RENT AGREEMENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER DISALLOWED DEDUCTION FOR RS.2 LACS ON ACCOUNT OF MU NICIPAL TAX PROVISION MADE BY THE ASSESSEE. THE ASSESSEE SUBMITTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT THE SAID LIABILITY RELATED TO OFFICE BUILDING TAKEN ON RENT AND AS PER THE AGREEMENT, ASSESSEE IS LIABLE TO PAY THE ABOVE TAX AND SECTION 43B ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 2 - WAS NOT APPLICABLE. IT WAS ALSO SUBMITTED THAT ACTU AL PAYMENT MADE WAS RS.1,98,354/- AFTER ADJUDICATION BY THE AUTHORITIES UNDER THE BPMC ACT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING THAT THE PROVISION WAS MADE ON THE BASIS OF DEMAND NOTICE ISSUED BY MUNICIPAL AUTHORITIES AND THE SAME WAS PAID BY THE ASSESSEE AS THE BUILDING WAS TAKEN ON RENT FOR BUSINESS OF THE ASSESSEE, THEREFO RE, SECTION 43B WAS NOT APPLICABLE . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ACTUAL PAYMENT WAS MADE OF RS.1,98,354/- AGAINS T THE PROVISION OF RS.2 LACS AND ACCORDINGLY, RESTRICTED THE DISALLOWANCE OF RS. 1,646/-. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION OF RS.2 LACS FOR PROVISIONS OF MU NICIPAL TAXES PAYABLE IN CONNECTION WITH THE PREMISES TAKEN ON RENT FOR BUSI NESS. THE SAME WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 43B OF THE ACT AS WELL AS ON THE GROUND THAT RENT AGREEMENT DOES NOT PROVIDE FOR PAY MENT OF MUNICIPAL TAX BY THE ASSESSEE. IN APPEAL, THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) HELD THAT SECTION 43B WAS NOT APPLICABLE IN THE INSTANT CASE AS THE PROVISION WAS MADE BY THE ASSESSEE IN RESPECT OF DEMAND RAISED BY THE MU NICIPAL AUTHORITY IN RESPECT OF BUILDING TAKEN ON RENT BY THE ASSESSEE. FURTHER, IT WAS HELD THAT THE LIABILITY WAS PAID BY THE ASSESSEE SUBSEQUENTLY FOR RS.1,98,354/- AND HENCE, THE BALANCE AMOUNT OF RS.1,646/- WAS SUSTAINED AS DISALLOWED BY THE LEARNED ASSESSING OFFICER. WE FIND THAT IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE PROVISION WAS MADE FOR DEMAND RAISED BY MUNICIPAL AUTHORITIES DUR ING THE YEAR IN RESPECT OF A PREMISES WHICH WAS USED BY THE ASSESSEE FOR ITS BUS INESS PURPOSES. THEREFORE, WE ARE IN AGREEMENT WITH THE VIEW OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) THAT PROVISION WAS MADE OUT OF COMMERC IAL EXPEDIENCY AND THEREFORE, THE SAME WAS ALLOWABLE BUSINESS EXPENDIT URE, IN ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE REVENUE TO SHOW T HAT THIS AMOUNT WAS RECOVERED BY THE ASSESSEE FROM THE OWNER OF THE PREMISES. HOW EVER, WE ARE NOT IN ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 3 - AGREEMENT WITH THE VIEW OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO THE EXTENT TO THAT THIS AMOUNT IS NOT COVERED BY THE PROVISIONS OF SECTION 43B OF THE ACT . IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE PROVISION WAS MADE BY THE ASSESSEE IN RESPECT OF MUNICIPAL TAX LIABILITY OF T HE PREMISES WHICH WAS USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE WAS LIABLE TO PAY THE AMOUNT IN QUESTION A S RENT TO THE OWNER OF THE PREMISES AND THE PROVISION IN THE BOOKS WAS A PROVI SION FOR RENT PAYABLE ONLY. AS THE PROVISION WAS FOR MUNICIPAL TAX AND MUNICIPAL T AX BEING COVERED BY THE PROVISION OF SECTION 43B OF THE ACT IN OUR CONSIDER ED OPINION, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONCLU DING THAT THE SAID PROVISION OF RS.1,98,354/- WAS NOT COVERED BY SECTION 43B OF THE ACT. WE FURTHER FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBS ERVED THAT THE PAYMENT OF TAX WAS SUBSEQUENTLY MADE BY THE ASSESSEE, BUT THE ACTUAL DATE OF PAYMENT WAS NOT BROUGHT ON RECORD. BEFORE US, ALSO BOTH THE PAR TIES HAVE BROUGHT NO MATERIAL TO SHOW WHETHER THE SUBSEQUENT PAYMENT WAS MADE WITHIN THE TIME SPECIFIED UNDER SECTION 139(1) OR NOT. WE THEREFORE, SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND RESTORE THI S ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO VERIFY THE DATE OF PAYMENT OF MUNICIPAL TAX OF RS.1,98,354/- AND TO ALLOW THE DEDUCTION IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 43B OF THE ACT AFTER ALLOWING REASONABLE OP PORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. 5. THE GROUND NO.2 OF THE APPEAL READS AS UNDER: 2. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE DISALLOWANCE OF RS.2,65,085/- ON ACCOUNT OF TOPOGRA PHICAL SURVEY EXPENSES. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT WHILE GOING THROUGH THE DETAILS OF VARIOUS EXP ENSES, IT WAS FOUND THAT THE ASSESSEE HAD INCURRED EXPENSES OF RS.1,73,561/- AND RS.91,524/- ON ACCOUNT OF ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 4 - TOPOGRAPHICAL SURVEY. THESE EXPENSES DO NOT RELATE TO THE PROJECT ALREADY EXISTING. AS THESE EXPENSES ARE IN THE NATURE OF PRE-OPERATIV ES EXPENSES THEREFORE, THE SAME ARE DISALLOWED. 7. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE TOPOGRAPHICAL SURVEY EXPENSES ARE INCURRED IN FURTH ERANCE OF THE EXISTING BUSINESS OF THE APPELLANT AND AS SUCH ARE ALLOWABLE AS BUSIN ESS EXPENDITURE. THERE IS NOTHING ON RECORD TO HOLD THAT THE SAID EXPENSES WE RE IN CONNECTION WITH ANY NEW LINE OF BUSINESS AND HENCE THE LEARNED ASSESSING OF FICER IS DIRECTED TO ALLOW THE SURVEY EXPENSES AT RS.2,65,085/- AND THE ADDITION I N THIS REGARD IS DELETED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS A GOVERNMENT COMPANY ENGAGED IN EXPLORATION OF L IGNITE AND OTHER INTERIOR RESOURCES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED EXPENSES OF RS.1,65,085/- UNDER THE HEAD TOPOGRAPHICAL SURVEY E XPENSES. THE LEARNED ASSESSING OFFICER DISALLOWED THE SAME BY OBSERVING THAT THE SAME IS PRE-OPERATION EXPENSES. THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) DELETED THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE EXPLAINED THAT THE E XPENDITURE WAS INCURRED DURING THE USUAL COURSE OF ITS BUSINESS AND NO CAPITAL ASS ET OF ENDURING NATURE WAS ACQUIRED FROM THIS EXPENDITURE. WE FIND THAT NO MAT ERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE EXPENDITURE IN QUESTIO N RESULTED IN ACQUISITION OF ANY CAPITAL ASSET BY THE ASSESSEE. IN ABSENCE OF ANY SU CH MATERIAL BROUGHT ON RECORD, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUND OF APP EAL OF THE REVENUE IS DISMISSED . 9. THE GROUND NO.3 OF THE APPEAL READS AS UNDER: 3. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DIRECTING TO RECOMPUTED THE BOOK PROFIT U/S.115J AFTER DELETING THE ADDITIONS OF ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 5 - RS.2,03,224/- (PERTAINING TO GROUND NO.1) HOLDING T HAT SUCH ADJUSTMENTS ARE OUTSIDE THE PURVIEW OF BOOK PROFITS U/S.115J O F THE INCOME TAX ACT. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CALCULATED PROFIT UNDER SECTI ON 115J AT RS.6,45,72,995/- IN WHICH ADDITION ON ACCOUNT OF DOUBTFUL DEBTS AND PRO VISION OF MUNICIPAL TAXES HAS NOT BEEN ADDED BACK. THEREFORE, HE ADDED THE SAME T O THE BOOK PROFITS OF THE ASSESSEE. 11. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) HELD THAT FOR THE REASONS DISCUSSED FOR GROUNDS NO.1 ABOVE, T HE PROVISIONS ARE NOT FOR ANY UNASCERTAINED LIABILITIES AND HENCE SUCH ADJUSTMENT S ARE OUTSIDE THE PURVIEW IN COMPUTING THE BOOK PROFIT UNDER SECTION 115J. THE L EARNED ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO RECOMPUTED THE BOOK PROFIT FOR THE A.Y. 1990-91 DELETING THE ABOVE ADDITION. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT U NDER SECTION 115J OF THE ACT ADDED BACK RS.2 LACS BEING PROVISION FOR MUNICIPAL TAX AND RS.3,224/- BEING PROVISION FOR DOUBTFUL DEBT DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DEL ETED THE AFORESAID ADDITION AS THESE ADJUSTMENT DO NOT FALL WITHIN TH E ADJUSTMENTS SPECIFIED IN EXPLANATION TO SECTION 115J OF THE ACT. WE FIND THA T WHILE DECIDING GROUND NO.1 OF THE APPEAL THAT IT WAS FOUND BY THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) THAT THE ACTUAL LIABILITY OF THE ASSES SEE WAS RS.1,98,354/- ONLY IN RESPECT OF MUNICIPAL TAX AS AGAINST WHICH PROVISION OF RS.2 LACS WAS MADE BY THE ASSESSEE. THUS, PROVISION OF RS.1,646/- WAS A PROVI SION OF UNASCERTAINED LIABILITY WHICH ALONE COULD HAVE BEEN ADDED BY THE LEARNED AS SESSING OFFICER UNDER THE ADJUSTMENTS SPECIFIED IN EXPLANATION TO SECTION 115 J OF THE ACT. WE FIND THAT BY THE FINANCE ACT 2009, A RETROSPECTIVE AMENDMENT W A S MADE IN SECTION 115JA WITH ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 6 - RETROSPECTIVE EFFECT FROM 1.04.1998 BY WHICH IT WAS PROVIDED THAT ANY AMOUNT PROVIDED FOR DIMINUTION IN VALUE OF ASSET IS TO BE ADDED BACK FOR COMPUTING THE BOOK PROFIT. BUT NO SUCH AMENDMENT WAS MADE IN SECT ION 115J. THUS, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO THE EXTENT WHICH PROVIDED THAT NO ADJUSTMENT IS REQUIRED OF PROVISION FOR DOU BTFUL DEBT ARE REQUIRED TO BE MADE FOR COMPUTING BOOK PROFIT UNDER SECTION 115J I S JUSTIFIED. WE THEREFORE, MODIFY THE ORDER OF THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) TO THE ABOVE EXTENT ONLY. THUS, THIS GROUND OF APPEAL IS P ARTLY ALLOWED. ITA NO.2164/AHD/2006 13. THE SOLE GROUND OF APPEAL TAKEN BY THE REVENUE IN THIS APPEAL READS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.33,87,168/- WORK OUT AT 14% BEIN G INTEREST ON CAPITAL WORK IN PROGRESS. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD AS UNDER: THE ISSUE FOR ADJUDICATION IS THE MATTERS REMANDED BACK TO CIT(A) BY THE HON'BLE ITAT, BENCH A, AHMEDABAD VIDE ITS ORDER D ATED 12.07.2005 FOR A.Y. 1993-94 IN PAGE 9 PARA 8, CONCERNING THE DISALLOWAN CE OF NATIONAL INTEREST. THE HON'BLE ITAT GAVE THE ABOVE DIRECTION AS THE SAID G ROUND WAS NOT ADJUDICATED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE PROCEEDINGS BEFORE HIM. 2. IN THE LIGHT OF THE ABOVE, WHEN THE APPEAL WAS P OSTED FOR HEARING, SHRI J.T.SHAH, C.A. APPEARED AND FILED THE RELEVANT SUPP ORTING DOCUMENTS. IT IS SEEN FROM THE MATERIALS FURNISHED BY THE LEARNED COUNSEL AS WELL AS FROM THE ORDER OF THE LEARNED ASSESSING OFFICER THAT THE INTEREST OUT GO PERTAINING TO CAPITAL WORK IN PROGRESS SHOWN IN THE BALANCE SHEET AT RS.2,41,9 4,061/- WAS EXAMINED BY THE LEARNED ASSESSING OFFICER AND HE CALCULATED INTERES T @ 14% ON THE COST OF WORK IN PROGRESS AND DISALLOWED THE SAME AS BEING CAPITA L EXPENDITURE. THIS ADDITION WAS MADE ON THE SAME LINES AS FOR ASSESSMENT YEAR 1 992-93. DURING THE COURSE OF HEARING, IT WAS BROUGHT TO MY NOTICE THAT PROJEC T EXPENSES CAPITALIZED IN THE BOOKS BUT CLAIMED AS REVENUE UNDER SECTION 36(I)(II I) IN THE COMPUTATION STATEMENT FOR ASSESSMENT YEAR 1992-93 WAS ALLOWED B Y THE HON'BLE ITAT AND FOR THIS YEAR ALSO THE FACTS ARE IDENTICAL. IT WAS ALSO AFFIRMED BY THE LEARNED COUNSEL THAT ON SUCH ITEMS, THE APPELLANT DID NOT CLAIM DEP RECIATION. ACCORDINGLY, IT WAS ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 7 - CLAIMED THAT THERE WAS NOT CASE FOR DISALLOWANCE. I T WAS FURTHER EMPHASIZED THAT THE DISALLOWANCE WAS WORKED OUT NOTIONALLY AT 14% W ITHOUT ANY MATERIAL BASIS. ALSO, THE RESERVES AND CAPITAL AVAILABLE WITH THEM WAS VERY HUGE AT RS.107.89 CRORES AS AGAINST CAPITAL WORK-IN-PROGRESS OF RS.2. 42 CRORES. AS SUCH NO INTEREST ON BORROWED CAPITAL IS ATTRIBUTABLE TO THE CAPITAL WORK IN PROGRESS, ACCORDING TO THEM. EVEN OTHERWISE, SECTION 36(1)(III) AS AMENDED W.E.F. 01.04.2004 IS ONLY PROSPECTIVE AND THE QUESTION OF CAPITALIZATION OF INTEREST RELATABLE TO CAPITAL ITEMS DID NOT ARISE FOR THE A.Y. 1993-94. ACCORDING LY, THE LEARNED COUNSEL CLAIMED THAT IN THE LIGHT OF THE JUDICIAL PRONOUNCE MENTS AVAILABLE ON THIS ISSUE AS APPLICABLE UPTO A.Y. 2003-04, THERE IS NO CASE FOR ANY DISALLOWANCE BY WAY OF CAPITALIZATION EITHER NOTIONAL OR OTHERWISE. 3. I HAVE GONE THROUGH THE RELEVANT PORTION OF THE ASSESSMENT ORDER AS WELL AS THE ARGUMENTS AND THE WRITTEN SUBMISSIONS. THE A .O. HAS ONLY ESTIMATED THE INTEREST AT 14% ON CAPITAL WORK-IN-PROGRESS ON NOTI ONAL BASIS WITHOUT ANY MATERIAL FOR LINKING WITH BORROWED FUNDS. IN ANY CA SE, IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT, NO DISALLOWANCE I S CALLED FOR. THE ADDITION THEREFORE, CANNOT BE SUSTAINED EITHER ON THE FACTS OR IN THE EYE OF LAW. THE AO IS DIRECTED TO DELETE THE ABOVE DISALLOWANCE. 4. IN THE RESULT, THE APPEAL IS ALLOWED. 15. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY T HE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. CORE HEALTH LTD. (2008) 298 ITR 194 (SC) IN FAVOUR OF THE ASSESSEE. IN THE AFORESAID DECISION, THE HON'BLE HIGH COURT HELD AS UNDER:- THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' OCCUR RING IN S. 36(1)(III) INDICATES THAT ONCE THE TEST OF 'FOR THE PURPOSE OF BUSINESS' IS SATISFIED IN RESPECT OF THE CAPITAL BORROWED, THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION UNDER S. 36(1)(III). THIS PROVISION MAKES NO DISTINCTION BETWEEN MONEY B ORROWED TO ACQUIRE A CAPITAL ASSET OR A REVENUE ASSET. ALL THAT THE SECT ION REQUIRES IS THAT THE ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF THE BORROWIN G MUST BE FOR BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT. WHAT SUB-S. (III) EMPHASIZES IS THE USER OF THE CAPITAL AND NOT THE U SER OF THE ASSET WHICH COMES INTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL UNLIKE S. 37 WHICH EXPRESSLY EXCLUDES AN EXPENSE OF A CAPITAL NATURE. THE LEGISL ATURE HAS, THEREFORE, MADE NO DISTINCTION IN S. 36(1)(III) BETWEEN 'CAPITAL BORRO WED FOR A REVENUE PURPOSE' AND 'CAPITAL BORROWED FOR A CAPITAL PURPOSE'. AN ASSESS EE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT CAPITAL IS U SED FOR BUSINESS PURPOSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF USING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. FURTHER, THE WORDS 'ACTUAL COST' DO NOT F IND PLACE IN S. 36(1)(III) WHICH OTHERWISE FIND PLACE IN SS. 32, 32A, ETC. THE EXPRESSION 'ACTUAL COST' IS DEFINED IN S. 43(1) WHICH IS ESSENTIALLY A DEFINITI ON SECTION WHICH IS SUBJECT TO THE CONTEXT TO THE CONTRARY. SEC. 43 GROUPS TOGETHER AL L PROVISIONS IN THE NATURE OF DEFINITIONS OR INTERPRETATIONS RELEVANT TO THE COMP UTATION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. SEC. 43(1) DE FINES 'ACTUAL COST'. THE ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 8 - DEFINITION OF 'ACTUAL COST' HAS BEEN AMPLIFIED BY E XCLUDING SUCH PORTION OF THE COST AS IS MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. EXPLANATION 8 HAS BEEN INSERTED IN S. 43(1) BY FINANCE ACT, 198 6, WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1974. IT IS IMPORTANT TO NOTE THAT THE WORDS 'ACTUAL COST' WOULD MEAN THE WHOLE COST AND NOT THE ESTIMATE OF COST. ' ACTUAL COST' MEANS NOTHING MORE THAN THE COST ACCURATELY ASCERTAINED. THE DETE RMINATION OF ACTUAL COST IN S. 43(1) HAS RELEVANCY IN RELATION TO S. 32 (DEPRECIAT ION ALLOWANCE), S. 32A (INVESTMENT ALLOWANCE), S. 33 (DEVELOPMENT REBATE A LLOWANCE) AND S. 41(BALANCING CHARGE). 'ACTUAL COST' OF AN ASSET HAS NO RELEVANCY IN RELATION TO S. 36(1)(III). THIS REASONING FLOWS FROM A BARE READIN G OF S. 43(1). SEC. 43 DEFINES CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND G AINS OF BUSINESS AND, THEREFORE, THE SAID SECTION COMMENCES WITH THE WORD S 'IN SS. 28 TO 41 AND UNLESS THE CONTEXT OTHERWISE REQUIRES' 'ACTUAL COST' SHALL MEAN THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE, REDUCING BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. IN OTHER WORDS, EXPLN. 8 APPLIES ONLY TO THOSE SECTIONS LIKE SS. 32 , 32A, 33 AND 41 WHICH DEAL WITH CONCEPTS LIKE DEPRECIATION. THE CONCEPT OF DEPRECIA TION IS NOT THERE IN S. 36(1)(III). THAT IS WHY THE LEGISLATURE HAS USED TH E WORDS 'UNLESS THE CONTEXT OTHERWISE REQUIRES'. HENCE, EXPLN. 8 TO S. 43(1) HA S NO RELEVANCY TO S. 36(1)(III). IT HAS RELEVANCY TO THE AFOREMENTIONED ENUMERATED S ECTIONS. THEREFORE, EXPLN. 8 HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE . A PROVISO HAS SINCE BEEN INSERTED IN S. 36(1)(III) BY FINANCE ACT, 2003 W.E. F. 1ST APRIL, 2004. HENCE, THE SAID PROVISO WILL NOT APPLY TO THE FACTS OF THE PRE SENT CASE. FURTHER, THE SAID PROVISO WOULD OPERATE PROSPECTIVELY. IN THIS CONNEC TION IT MAY BE NOTED THAT BY THE SAME FINANCE ACT, 2003 INSERTIONS HAVE BEEN MAD E BY WAY OF PROVISO IN S. 36(1)(VIIA) BY THE SAME FINANCE ACT WHICH IS ALSO M ADE W.E.F. 1ST APRIL, 2004. SAME IS THE POSITION WITH REGARD TO INSERTION OF A SUB- SECTION AFTER S. 90(2) AND BEFORE THE EXPLANATION. THIS INSERTION ALSO OPERATE S W.E.F. 1ST APRIL, 2004. IN SHORT, THE ABOVE AMENDMENTS HAVE BEEN MADE BY FINAN CE ACT, 2003 AND ALL THE SAID AMENDMENTS HAVE BEEN MADE OPERATIONAL W.E.F. 1 ST APRIL, 2004. THEREFORE, THE PROVISO INSERTED IN S. 36(1)(III) HAS TO BE REA D AS PROSPECTIVELY AND W.E.F. 1ST APRIL, 2004. SEC. 36(1)(III) HAS TO BE READ ON ITS OWN TERMS. IT IS A CODE BY ITSELF. SEC. 36(1)(III) IS ATTRACTED WHEN THE ASSESSEE BORR OWS THE CAPITAL FOR THE PURPOSE OF HIS BUSINESS. IT DOES NOT MATTER WHETHER THE CAP ITAL IS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET. THE TRA NSACTION OF BORROWING IS NOT THE SAME AS THE TRANSACTION OF INVESTMENT. IF THIS DICHOTOMY IS KEPT IN MIND IT BECOMES CLEAR THAT THE TRANSACTION OF BORROWING ATT RACTS THE PROVISIONS OF S. 36(1)(III). THE AO WAS NOT JUSTIFIED IN MAKING DISA LLOWANCE OF RS. 1,56,76,000 IN RESPECT OF BORROWINGS UTILIZED FOR PURCHASE OF MACH INES.CIT VS. ASSOCIATED FIBRE AND RUBBER INDUSTRIES (P) LTD. (1999) 152 CTR (SC) 21 : (1999) 236 ITR 471 (SC) AND INDIA CEMENTS LTD. VS. CIT (1966) 60 I TR 52 (SC) RELIED ON; CHALLAPALLI SUGARS LTD. & ANR. VS. CIT 1974 CTR (SC ) 309 : (1975) 98 ITR 167 (SC) DISTINGUISHED; DY. CIT VS. CORE HEALTHCARE LTD . (2001) 169 CTR (GUJ) 416 AFFIRMED. ITA NO.2163 & 2164/A HD/2006 M/S.GUJARAT MINERAL DEVELOPMENT CORPORATION. ASST.YEAR -1990-91, 1993-94 - 9 - 16. WE RESPECTFULLY FOLLOWING THE SAME DO NOT FIND ANY GOOD REASON TO INTERFERE IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE FOR A SSESSMENT YEAR 1990-91 IS PARTLY ALLOWED AND THAT FOR THE ASSESSMENT YEAR 199 3-94 IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 20/11/2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 20/11/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD