M/s. VINATI ORGANICS LTD., MUMBAI V. DCIT Rg. - 8(3), MUMBAI

ITA 2796/MUM/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55113 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-07-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: HIRAWAT
• Keywords: Capital asset; Depreciation; Revenue expenditure
• Section: 80HHC; 80IB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI R.S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 2796/MUM/2006 ASSESSMENT YEAR: 2002-03 M/S VINATI ORGANICS LTD., . APPELLANT SHIV ASHISH, 2 ND FLOOR, ANDHERI-KURLA ROAD, SAKINAKA, MUMBAI. (PAN AAACV6538K) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT APPELLANT BY : MR. VIJAY MEHTA & HIRAWAT RESPONDENT BY : MR. P.C. MAURYA DATE OF HEARING : 12/07/2011 DATE OF PRONOUNCEMENT: 30/08/2011 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- XXIX, MUMBAI, PASSED ON 24/02/2006 FOR THE ASSESSMENT YEAR 2002-03. 2. GROUND NOS. 1 & 2 READ AS UNDER:- 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT GROSS I NTEREST OF RS. 1,31,734/- IS NOT ELIGIBLE FOR DEDUCTION U/S 80-IA. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE D IRECTED THE AO TO ALLOW DEDUCTION U/S 80-IA ON GROSS INTEREST O F RS. 1,31,734/-. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT EXPORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 49,66,369/- ARE NOT ELIGIBLE FO R DEDUCTION U/S 80-IA. UNDER THE FACTS AND CIRCUMSTANCES OF THE MAT TER, HE OUGHT TO HAVE DIRECTED THE AO TO ALLOW DEDUCTION U/S 80-I A ON EXPORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 49,66,369/-. ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 2 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I N ITS RETURN OF INCOME CLAIMED DEDUCTION U/S 80-IA/80-IB AT A SUM O F RS. 1,98,01,440/-. HOWEVER, THE AO ALLOWED DEDUCTION U/ S 80IA/80-IB AT A SUM OF RS. 1,76,58,268/- ON THE GROUND THAT THE A SSESSEE IS NOT ENTITLED TO ANY DEDUCTION U/S 80-IA/80IB ON SOME IT EMS, WHICH INCLUDE INTEREST RECEIVED OF RS. 1,31,734/- AND EXP ORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 49,66,369/-, WHICH ARE UNDER DI SPUTE IN THE PRESENT APPEAL. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS AGREED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT, [2009] 317 ITR 218(SC). 5. AFTER HEARING THE LEARNED DR AND PERUSING THE M ATERIAL ON RECORD, WE FIND THAT THE HONBLE SUPREME COURT IN T HE CASE OF LIBERTY INDIA (SUPRA) HELD AS UNDER:- DUTY DRAW BACK RECEIPTS AND DEPB BENEFITS DO NOT FO RM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF THE DEDUCTION U/S 80-IA/80IB OF THE ACT. THE INCOME TAX ACT, 1961, BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIVES AND PROFIT-LINKED INCENTIVES. CHAPTER VIA OF THE ACT WHICH PROVIDES F OR INCENTIVES IN THE FORM OF DEDUCTIONS ESSENTIALLY BELONGS TO TH E CATEGORY OF PROFIT-LINKED INCENTIVES. THEREFORE, WHERE SECTIO N 80-IA/80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, I T IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS THE INCEN TIVES; WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80IA/80IB IS THE GENERATION OF PROFITS (OPERATIONAL PROFITS). IT IS FOR THIS RE ASON THAT PARLIAMENT HAS CONFINED DEDUCTION OF PROFITS DERIVED FROM ELIG IBLE BUSINESSES MENTIONED IN SUB-SECTIONS (3) TO (11A). EACH OF THE BUSINESSES MENTIONED IN SUB-SECTIONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. SECTIONS 80-IB AND 80-IA ARE A CODE BY THEMSELVES A S THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROV ISIONS. SECTION 80-IB PROVIDES FOR THE ALLOWING OF DEDUCTIO N IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINES S. THE ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 3 CONNOTATION OF THE WORDS DERIVED FROM IS NARROWER AS COMPARED TO THAT OF THE WORDS ATTRIBUTABLE TO. BY USING TH E EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. SECTIONS 80-I, 80A AND 80-IB ARE TO BE READ AS HAVI NG A COMMON SCHEME. SUB-SECTION (5) OF SECTION 80-IA (WHICH IS REQUIRED TO BE READ INTO SECTION 80-IB) PROVIDES FOR THE MANNER OF COMPUTATION OF THE PROFITS OF AN ELIGIBLE BUSINESS. SUCH PROFITS A RE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE, DEVICES ADOPTED TO REDUCE OR I NFLATE THE PROFITS OF THE ELIGIBLE BUSINESS HAVE TO BE REJECTE D IN VIEW OF THE OVERRIDING PROVISIONS OF SECTION 80-IA(5). SECTION 80-I, 80IA AND 80IB PROVIDE FOR INCENTIVES IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT INVE STMENT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLE AR THAT ANY INDUSTRY UNDERTAKING WHICH BECOMES ELIGIBLE ON SATI SFYING SUB- SECTION (2) WOULD BE ENTITLED TO DEDUCTION UNDER SU B-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH IND USTRIAL UNDERTAKING AFTER THE SPECIFIED DATE. APART FROM EL IGIBILITY, SUB- SECTION (1) PURPORTS TO RESTRICT THE QUANTUM OF DED UCTION TO A SPECIFIED PERCENTAGE OF THE PROFITS. THIS IS THE IM PORTANCE OF THE WORDS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS A GAINST PROFITS ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKING. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM T HE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SE CTION 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PR OFITS DERIVED FROM ELIGIBLE BUSINESS U/S 80-IB: THEY BELONG TO TH E CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS DERI VED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CRE DITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITH THE EXPRESSI ON PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING UNDER SECTION 80-IB. 6. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF LIBERTY INDIA(SUPRA), WE UPHOLD THE ORD ER OF CIT(A) IN HOLDING THAT GROSS INTEREST OF RS. 1,31,734/- AND E XPORT BENEFITS/IMPORT ENTITLEMENTS OF RS. 49,66,369/- ARE NOT ELIGIBLE FOR DEDUCTION U/S 80-IA. ACCORDINGLY, GROUND NOS. 1 & 2 OF THE ASSESSEE ARE DISMISSED. 7. GROUND NO. 3 READS AS UNDER:- THE LEARNED CIT(A) ERRED IN HOLDING THAT 90% OF THE INTEREST RECEIVED OF RS. 1,31,734/- IS REQUIRED TO BE EXCLUD ED FROM THE ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 4 PROFITS OF THE BUSINESS UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80 HHC FOR COMPUTING DEDUCTION U/S 80 HHC. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE HELD THAT THE SAID SUM OF RS. 1,31,734/- IS NOT REQUIRED TO B E EXCLUDED UNDER CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80 HHC FOR COMPUTING DEDUCTION U/S 80 HHC. 8. THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 42,80, 229/- U/S 80 HHC OF THE AT. WHILE CLAIMING DEDUCTION U/S 80 HHC, ASSESSEE HAD NOT TAKEN INTO ACCOUNT THE INTEREST RECEIVED OF RS. 1,31,734/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST INCOME SHOULD NOT BE EXC LUDED FROM THE BUSINESS PROFITS AS INTEREST INCOME IS UNDER THE HE AD INCOME FROM OTHER SOURCES. IT WAS STATED THAT THE ASSESSEE HAD SHOWN A SUM OF RS. 1,31,734/- AS INTEREST RECEIVED ON THE INCOME S IDE OF THE P&L A/C, IT HAD ALSO SHOWN A SUM OF RS. 6,99,077/- AS THE IN TEREST PAID ON THE AMOUNT BORROWED FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF INDUSTRIAL UNDERTAKING, ON THE EXPENDITURE SIDE OF THE P&L A/C AND THE NET RESULT IS THE PAYMENT OF INTEREST AMOUNTING TO RS. 5,67,343/- AND NOT THE RECEIPT OF INTEREST AMOUNTING TO RS. 1, 31,734/-. HE, THEREFORE, STATED THAT INTEREST INCOME CONSTITUTES PROFIT DERIVED FROM THE CARRYING ON BUSINESS OF EXPORTS WHICH IS FULLY ALLOWABLE AS DEDUCTION U/S 80 HHC. HOWEVER, THE AO HAD TREATED I NTEREST INCOME OF RS. 1,31,734/- AS INCOME FROM OTHER SOURCES AND EXCLUDED THE SAME FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80 HHC. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVE D, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS COVE RED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR LTD., [2010] 326 ITR 56(BOM) WHEREIN THE HONBLE COURT HELD AS UNDER:- THE SPECIAL DEDUCTION UNDER SECTION 80HHC OF THE I NCOME TAX ACT, 1961, IS AVAILABLE TO AN ASSESSEE ENGAGED IN THE EXPORT OF G OODS OR MERCHANDISE OUTSIDE INDIA TO THE EXTENT OF THE PROFITS SPECIFIED IN SUB -SECTION (1B) OF THE PROVISION. CLAUSE (A) OF SUB-SECTION (3) OF SECTION 80HHC PROV IDES THAT WHERE THE EX PORTED ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 5 GOODS ARE MANUFACTURED BY THE ASSESSEE, THE DEDUCTI ON UNDER SUB-SECTION (1) WOULD BE IN ACCORDANCE WITH THE FORMULA STATED THER EIN. THE FORMULA IS THAT THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE AMOUN T WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TUR NOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED O BY THE ASSESSEE. EXPLANATION (BAA), WAS INSERTED BY THE FINANCE (NO.2) ACT OF 199 1. UNDER EXPLANATION (BAA), THE EXPRESSION PROFITS OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AS REDUCED BY NINETY PER CENT OF (A) ANY SUMS REFERRED TO IN C LAUSES (IIIA), (IIIB), (IIID) AND (IIIE) OF SECTION 28; OR (B) ANY RECEIPTS BY WAY OF BROKER AGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IN CLUDED IN SUCH PROFITS. THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTH ER ESTABLISHMENT OF THE ASSESSEE SITUATED OUTSIDE INDIA HAVE ALSO TO BE RED UCED. SINCE RECEIPTS BY WAY OF BROKERAGE, COMMISSI0N, INTEREST, RENT, CHARGES OR O THER SIMILAR RECEIPTS HAVE NO NEXUS WITH THE EXPORT ACTIVITY, THE LEGISLATURE THO UGHT IT FIT, FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC TO EXCLUDE SUCH ITEMS FROM BUSINESS PROFITS. PARLIAMENT WAS, HOWEVER, CONSCIOUS OF THE FACT THAT THE EXPENDITURE INCURRED IN EARNING THE ITEMS WHICH WERE LIABLE TO BE EXCLUDED HAD ALREADY GONE IN TO THE COMPUTATION OF BUSINESS PROFITS. THIS WAS BECAUSE THE COMPUTATION OF BUSINESS PROFITS UNDER CHAPTER IV IS MADE BY AMALGAMATING TH E RECEIPTS AS WELL AS THE EXPENDITURE INCURRED IN CARRYING ON THE BUSINESS. SINCE THE EXPENDITURE INCURRED IN EARNING THE INCOME BY WAY OF INTEREST, BROKERAGE , COMMISSION RENT , CHARGES OR OTHER SIMILAR RECEIPTS HAD ALSO GONE INTO THE COMPU TATION OF BUSINESS PROFITS, PARLIAMENT THOUGHT IT FIT TO EXCLUDE ONLY NINETY PE R CENT OF THE RECEIPTS RECEIVED BY THE ASSESSEE IN ORDER TO ENSURE THAT THE EXPENDITUR E WHICH IS INCURRED BY THE ASSESSEE IN EARNING THE RECEIPTS WHICH HAS GONE INT O THE COMPUTATION OF THE BUSINESS PROFITS IS TAKEN CARE OF. IN PROVIDING A SIMPLIFIED FORMULA IN THESE TERMS, PARLIAMENT EVIDENTLY ADOPTED A FAIR AND REASONABLE STATUTORY BASIS OF WHAT MAY BE REGARDED AS EXPENDITURE INCURRED FOR THE EARNING OF THE RECEIPTS. THE DISTORTION OF THE PROFITS THAT WOULD TAKE PLACE BY EXCLUDING T HE RECEIPTS RECEIVED BY THE ASSESSEE WHICH WERE UNRELATED TO EXPORT TURNOVER AN D NOT THE EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING THOSE RECEIPTS WAS FACTORED IN BY PARLIAMENT BY EXCLUDING ONLY NINETY PER CENT OF THE RECEIPTS R ECEIVED BY THE ASSESSEE. THE EXTENT OF THE EXCLUSION WHICH IS STATUTORILY MANDAT ED BY PARLIAMENT IS NINETY PER CENT OF THE TOTAL RECEIPTS. THIS IS BECAUSE THE EX PENDITURE WHICH IS INCURRED BY THE ASSESSEE IN EARNING THESE RECEIPTS WOULD HAVE GONE INTO THE COMPUTATION OF THE PROFITS AND AGAINST OF BUSINESS OR PROFESSION AND A DISTORTION WOULD BE CAUSED IF THE ENTIRELY OF THE INCOME GENERATED FROM THE RECEI PTS ALONE WERE TO BE EXCLUDED. IT IS IN ORDER TO OBVIATE SUCH A DISTORTION THAT PA RLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NATURE OF THE EXCLUSION AND THE EXTEN T OF THE EXCLUSION, IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE BY REWRITIN G THE LEGISLATIVE PROVISION. THE TASK OF INTERPRETATION IS TO FIND OUT THE TRUE INTE NT OF A LEGISLATIVE PROVISION. HENCE FOR THE PURPOSE OF EXPLANATION (BAA) TO SECTION 80H HC THE GROSS INTEREST ON FIXED DEPOSITS IN THE BANK RECEIVED BY THE ASSESSEE SHOUL D BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DEDUCTION UNDER SECTION 80HHC AND NOT THE NET INTEREST. 10. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASIAN STAR LTD. (SUPRA), WE DIRECT THE AO TO INCLUDE THE GROSS INTEREST RECEIVE D BY THE ASSESSEE ON FIXED DEPOSITS WHILE COMPUTING THE DEDUCTION U/S 80 HHC OF THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS NOT ALLOWED. ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 6 11. GROUND NO. 4 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 9,44,556/- BEING THE INTEREST CAPITALIZED IN THE BOOKS OF ACCOUNTS, BUT CLAIMED A S REVENUE IN ITS RETURN OF INCOME. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO HAD OBSERVED THAT THE ASSESSEE CLAIMED INTEREST OF RS. 9,44,566/- AS REVENUE EXPENDITURE IN ITS COMPUTATION OF TOTAL INC OME. HOWEVER, THE ASSESSEE HAD CAPITALIZED THE ABOVE INTEREST IN ITS BOOKS OF ACCOUNT. ON BEING ASKED BY THE AO TO SHOW CAUSE AS TO WHY TH E AFORESAID INTEREST CLAIM SHOULD NOT BE DISALLOWED AS REVENUE EXPENDITURE AS THE SAME WAS INCURRED ON THE BORROWED FUND USED FOR THE SETUP OF A NEW UNIT AT LOTE, PARASHURAM, THE ASSESSEE FILED ITS RE PLY VIDE LETTER DATED 16/12/2004, WHICH IS REPRODUCED BELOW:- THE ASSESSEE COMPANY HAS CLAIMED INTEREST OF RS. 9, 44,566/- BEING INTEREST ALLOWABLE U/S 36(1)(III). THE ASSESS EE HAS CAPITALIZED THE AFORESAID INTEREST IN ITS BOOKS OF ACCOUNT AND CLAIMED AS REVENUE EXPENDITURE IN ITS COMPUTATION O F TOTAL INCOME. NO DEPRECIATION WAS CLAIMED ON INTEREST CAP ITALIZED IN THE BOOKS. THE BORROWED FUND IN RESPECT OF THE AFOR ESAID INTEREST ARE USED FOR SET UP NEW UNIT AT LOTE, PARASHURAM IN RESPECT OF EXPANSION IN EXISTING CHEMICAL BUSINESS. THE SAID I NTEREST IS ALLOWABLE AS HELD BY THE HONBLE ITAT, JAIPUR BENCH IN THE CASE OF HINDUSTAN ZINC LTD. V. DCIT (ITA NO. 1154(JP.) O F 1996 & 341 (JP) OF 1997 RELATING TO THE AY 1991-92 (REPORT IN 74 ITD 25). COPY OF THE AFORESAID ORDER IS ENCLOSED HEREWITH. F URTHER, THE SAID PROVISIONS WERE SPECIFICALLY WITHDRAWN BY THE FINANCE ACT, 2003 W.E.F. 1.4.2004. IT MEANS THE INTEREST ON BORR OWED CAPITAL UTILIZED FOR NEW UNIT WAS ALLOWABLE U/S 36(1)(III) PRIOR TO 1.4.2004. 13. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAD OBSERVED THAT THE AFOREMENTIONED EXPENDITURE INCURR ED BY THE ASSESSEE WAS IN CONNECTION WITH THE NEW PROJECT, TH EREFORE, THE EXPENDITURE CLAIMED ON THIS ACCOUNT CANNOT BE TREAT ED TO BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE EXISTING BUSINESS AC TIVITY OF THE ASSESSEE. THEREFORE, HE DISALLOWED INTEREST INCOME OF RS. 9,44,566/- U/S 37(1)(III) OF THE ACT AND ADDED BACK TO THE TOT AL INCOME OF THE ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 7 ASSESSEE. ON APPEAL, IT WAS SUBMITTED BEFORE THE CI T(A) THAT THE UNIT SET UP AT LOTE, PARASHURAM IS ONLY AN EXTENSION OF EXISTING BUSINESS OF THE ASSESSEE AND NOT A NEW BUSINESS ACTIVITY. TH E LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE O BSERVED THAT THE ASSESSEE COMPANY ITSELF TREATED THESE EXPENSES AS C APITAL EXPENDITURE IN ITS BOOKS OF ACCOUNT. THE ASSESSEE IS IN THE BUS INESS OF MANUFACTURING AND DEALING OF FINE CHEMICALS. THE IN TEREST AMOUNT OF RS. 9,44,566/- HAD BEEN PAID ON THE LOAN BORROWED F ROM THE BANK USED FOR SETTING UP UNIT AT LOTE, PARASHURAM. THE C IT(A) WAS OF THE VIEW THAT IT IS NOT CLEAR FROM THE SUBMISSIONS AND DETAILS THAT THE NEW UNIT IS ALSO MANUFACTURING AND DEALING FINE CHEMICA LS ALREADY MANUFACTURED BY THE ASSESSEE. WITH THIS OBSERVATION , THE CIT(A) CONFIRMED THE ORDER PASSED BY THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE JUDG MENT OF THE HONBLE SUPREME COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD., [2008] 298 ITR 194(SC). ON THE OTHER HAND, THE LEAR NED DR STRONGLY SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 15. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR D AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS DECISION CITED. THE ISSUE INVOLVED IN THIS GROUND IS PERTAINING TO INTEREST EXPENDITURE INCURRED BY THE ASSESSEE FOR SETTING UP THE UNIT AT LOTE, PARASHURAM. THE CASE OF THE ASSESSEE IS THAT THE ABOVE EXPENDIT URE INCURRED FOR THE EXTENSION OF THE EXISTING BUSINESS WHEREAS THE AO AND CIT(A) DOUBTED THAT THE FACTS OF THE CASE ARE NOT CLEAR WH ETHER THE ABOVE EXPENDITURE INCURRED FOR THE EXTENSION OF EXISTING BUSINESS OR FOR THE NEW BUSINESS. TO DECIDE THE ISSUE WE REFER TO THE J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CORE HEALTH CA RE LTD.,(SUPRA), ON WHICH RELIANCE PLACED BY THE ASSESSEE, WHEREIN T HE APEX COURT HELD THAT IT MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO A CQUIRE ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 8 A CAPITAL ASSET OR A REVENUE ASSET. ALL THAT SECTIO N REQUIRES IS THAT THE ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF THE BORROWING MUST BE FOR BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT.. THE APEX COURT FURTHER HELD AS UNDER:- UNLIKE SECTION 37 WHICH EXPRESSLY EXCLUDES AN EXPEN SE OF A CAPITAL NATURE, SECTION 36(1)(III) EMPHASIZES THE U SER OF THE CAPITAL AND NOT THE USER OF THE ASSET WHICH COMES I NTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL. THE LEGISLATUR E HAS, THEREFORE, MADE NO DISTINCTION IN SECTION 36(1)(III ) BETWEEN CAPITAL BORROWED FOR A REVENUE PURPOSE AND CAPITA L BORROWED FOR A CAPITAL PURPOSE. AN ASSESSEE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT THE CAPITAL IS US ED FOR BUSINESS PURPOSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF U SING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. ACTUAL CO ST OF AN ASSET HAS NO RELEVANCY IN RELATION TO SECTION 36(1) (III). 16. THE CASE OF THE ASSESSEE IS THAT INTEREST EXPEN DITURE WAS INCURRED IN RELATION TO THE EXPANSION OF THE EXISTI NG BUSINESS. THE LEARNED CIT(A) HAS OBSERVED IN HIS ORDER THAT IT IS NOT CLEAR FROM THE DETAILS SUBMITTED BY THE ASSESSEE WHETHER FOR EXPAN SION OF THE EXISTING BUSINESS OR NEW BUSINESS. WE FIND THAT TO DECIDE THE ISSUE INVOLVED IN THIS APPEAL, IT IS NECESSARY TO ARRIVE AT A DECISION THAT THE EXPENDITURE IS IN RELATION TO EXPANSION OF THE EXIS TING BUSINESS OR ALTOGETHER FOR NEW BUSINESS. WE, THEREFORE, IN THE INTEREST OF JUSTICE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE I SSUE BACK TO THE FILE OF THE CIT(A) WITH A DIRECTION TO DECIDE THAT THE E XPENDITURE INCURRED BY THE ASSESSEE IS FOR EXPANSION OF THE EXISTING BU SINESS OR A NEW BUSINESS, THEN, ADJUDICATE THE ISSUE FOLLOWING THE JUDGMENT OF THE APEX COURT IN THE CASE OF CORE HEALTH CARE LTD.(SUP RA) AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE I N THE MATTER. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 2796/M/2006 M/S VINATI ORGANICS LTD. 9 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (R.S. SYAL) (V. D URGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH AUGUST, 2011 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.