ACIT, Central Circle-19, New Delhi V. Nilkanth Concast Pvt. Ltd., Gujrat

ITA 5909/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0947 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 15-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 115JB; 37(1); 43; 13; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. KUL BHARAT, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 5909/DEL/2017 : ASSTT. YEAR : 2010-11 ACIT, CENTRAL CIRCLE-19, NEW DELHI-110055 VS NILKANTH CONCAST PVT. LTD., SURVAY NO. 221, VILLAGE VADALA, MUNDRA, KUTCH, GUJARAT-370410 (APPELLANT) (RESPONDENT) PAN NO. AABCN8500A ASSESSEE BY : SH. ARVIND KUMAR, ADV. REVENUE BY : MS. RINKU SINGH, SR. DR DATE OF HEAR ING: 24 . 06 .20 2 1 DATE OF PRONOUNCEMENT: 06 .07 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE LD. CIT(A)-25, NEW DELHI DATED 26. 05.2017. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW A ND ON FACTS IN ALLOWING THE APPEAL OF THE ASSESSEE WITHOUT TRULY APPRECIATING THE FACTUAL MATRIX OF TH E CASE. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FACT S IN DELETING THE ADDITION OF RS.4,25,79,094/- MADE B Y THE AO ON ACCOUNT OF SUNDRY CREDITORS. 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FACT S IN DELETING THE ADDITION OF RS.28,84,000/- MADE BY AO ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 2 FROM THE DATE OF INSTALLATION OF THE POWER PLANT TO THE DATE ON WHICH THE POWER PLANT WAS COMMERCIAL STARTED. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN MANUFACTURING OF SPONGE IRON, M.S. BILLETS AND TMT BARS. THE RETURN INCOME OF THE ASSESSEE WAS (-) RS.12.67 CROR ES AGAINST WHICH THE BOOK PROFIT U/S 115JB SHOWN WAS OF RS.6.4 7 CRORES. 4. DURING THE ASSESSMENT, THE ASSESSEE COULD NOT FU RNISH ANY CONFIRMATION IN DETAILS IN RESPECT OF THE FOLLOWING THREE PARTIES: 1. CONCAST EXIM LTD. RS.3,59,06,000/- 2. FRIDON KIKALISHVILI RS.64,46,557/- 3. AGGARWAL COAL CORPORATION PVT. LTD. RS. 4,86,531/- HENCE, IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO MAKE ADDITION ON ACCOUNT OF UNPROVED PURCHASES IN THE AB SENCE OF ANY EVIDENCE FURNISHED BY THE ASSESSEE BEFORE HIM. 5. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSE SSEE SUBMITTED THAT THESE THREE PARTIES WERE TRADE CREDI TORS FROM WHOM THE ASSESSEE HAD PURCHASED RAW MATERIAL IN THE GOODS WERE SUPPLIED TO THEM AND PROVIDED ALL THE DOCUMENT ARY EVIDENCES. THE SAME HAVE BEEN FORWARDED TO THE ASSE SSING OFFICER AND REMAND REPORT HAVE BEEN SOUGHT. 6. WE HAVE GONE THROUGH THE ORDER OF THE LD. CIT (A ) WHEREIN THE ENTIRE ISSUE AND THE RECONCILIATIONS HAVE BEEN EXAMINED. THE CONFIRMATION, BILLS, TRANSPORT RECEIPTS AND OTH ER DOCUMENTS GIVEN BY CREDITORS WERE FILED BY THE ASSESSEE IN TH E APPELLATE PROCEEDINGS. THE REMAND REPORT OF THE ASSESSING OFF ICER HAS ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 3 BEEN MUCH DELAYED AND THE AO HAS NOT EXAMINED THE D ETAILS GIVEN BY THE ASSESSEE BEFORE THE LD. CIT (A) WHICH HAVE BEEN DULY FORWARDED TO THE AO ON 21.01.2016. THE AO HAS SENT A REPORT TO THE LD. CIT (A) ON 01.02.2017 AFTER ISSUI NG THE NOTICE TO THE PARTIES (SUNDRY CREDITORS) ON 23.01.2017. TH US, EFFECTIVELY, IT CAN BE SAID THAT THE AO FAILED TO A VAIL OPPORTUNITY GIVEN TO HIM BY THE LD. CIT (A) WHICH NECESSITATED THE LD. CIT (A) TO ADJUDICATE THE MATTER BASED ON THE DOCUMENTS AVAILABLE BEFORE HIM. 7. THE RECONCILIATION STATEMENTS WITH REGARD TO THE THREE PARTIES ARE AS UNDER: A. RECONCILIATION STATEMENT BETWEEN BALANCE AS ON 3 1.03.2010 AS PER BOOKS OF ACCOUNT OF ASSESSEE AND M/S CONCAST EX IM LIMITED S. NO. PARTICULARS AMOUNT DR./(CR.) 1 BALANCE OF APPELLANT IN THE BOOKS OF M/S CONCAST EXIM LIMITED AS ON 31.03.2010 87,770,584 2 CUSTOM DUTY PAID AND SHOWN IN LEDGER OF M/S CONCAST EXIM LIMITED IN THE BOOKS OF APPELLANT (A) 29.12.2009 (PAYMENT MADE FOR CUSTOM DUTY) (2,973,459) (B) 29.12.2009 (PAYMENT MADE FOR CUSTOM DUTY) (1,779,140) (C) 29.12.2009 (PAYMENT MADE FOR CUSTOM DUTY) (1,779,140) 3 DIFFERENCE DUE TO FOREIGN EXCHANGE FLUCTUATION FIRST INVOICE OF 4729.29 164,319 4 CUSTOM DUTY ON PURCHASE CREDITED IN LEDGER OF M/S CONCAST EXIM LIMITED IN THE BOOKS OF APPELLANT ON 11.01.2010 (EXCISE DUTY ON PURCHASE) 8,361,816 5 CUSTOM DUTY PAID AND SHOWN IN LEDGER OF M/S CONCAST EXIM LIMITED IN THE BOOKS OF APPELLANT ON 31/03/2010 (5,331,945) 6 CUSTOM DUTY ON PURCHASE SHOWN IN LEDGER OF M/S CONCAST EXIM LIMITED IN THE BOOKS OF APPELLANT ON 31/03/2010 (EXCISE DUTY ON PURCHASE) 5,222,350 ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 4 7 PURCHASE OF 3000 MTS OF SHREDDED STEEL SCRAP (INVOICE- 001) ENTERED IN APRIL 2010: WHICH WAS ENTERED BY CONCAST EXIM LIMITED IN FEB 2010 (54,020,748) 8 DIFFERENCE DUE TO FOREIGN EXCHANGE FLUCTUATI ON SECOND INVOICE OF 5000 MTS 271,363 BALANCE AS PER BOOKS OF APPELLANT 35,906,000 B. RECONCILIATION STATEMENT BETWEEN BALANCES AS ON 31.03.2010 AS PER BOOKS OF ACCOUNT OF ASSESSEE AND M/S FRIDON KIK ALISHVILI S. NO. PARTICULARS AMOUNT DR./(CR.) USD 1 BALANCE OF FRIDON IN THE BOOKS OF APPELLANT 6,446,557 2 CUSTOM DUTY PAID AND SHOWN IN LEDGER OF M/S FRIDON KIKALISHVILI IN THE BOOKS OF APPELLANT (A) 13.02.2010 CUSTOM DULY PAID BY 275,614 (B) 27.03.2010 CUSTOM DUTY PAID BY 816,473 3 CUSTOM DUTY ON PURCHASE CREDITED IN LEDGER OF M/S FRIDON KIKALISHVILI IN THE BOOKS OF APPELLANT (A) 3.02.2010, VOUCHER NO. FRK- 008 (EXCISE DUTY ON PURCHASE) (270,302) (B) 31.03.2010, VOUCHER NO. FRK- 0013 (EXCISE DUTY ON PURCHASE) (799,690) BALANCE AS PER BOOKS OF FRIDON KIKALISHVILI (IN INR) 6,468,652 EQUIVALENT TO USD 138171 C. RECONCILIATION STATEMENT BETWEEN BALANCES AS ON 31.03.2010 AS PER BOOKS OF ACCOUNT OF ASSESSEE AND ACCL/ACCL(S) S. NO. PARTICULARS AMOUNT DR./(CR.) 1 BALANCE OF ACCL AS ON 31.03.2010 AS PER BOOKS OF APPELLANT 486,531 2 DIFFERENCE IN OPENING BALANCE 7,816,103 2 BALANCE OF AGARWAL TRANSPORT CORP. PVT. LTD. ADJUSTE D BY PARTY (167,640) ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 5 3 AMOUNT WRITE OFF BY THE PARTY AS PER LEDGER MAINTAI NED BY THE PARTY (SAME IS ALSO WRITTEN BACK BY APPELLANT I N NEXT YEAR) (259,994) 4 LESS: LETT ER OF CREDIT MATURED & ACCOUNTED BY US WHICH WAS ACCOUNTED BY PARTY 2008-09 ON DISCOUNTING (7,875,000) BALANCE AS PER ACCOUNTS OF ACCL AS ON 31.03.2010 8. THE ENTIRE DOCUMENTS HAVE BEEN EXAMINED BY THE L D. CIT (A) AND THE DETAILED NOTE HAS BEEN PREPARED WHICH H AS BEEN EXAMINED BY US. PERUSAL OF THE RECONCILIATION BETWE EN THE BALANCE OF THE ASSESSEE AND M/S CONCAST EXIM LTD. S HOWS THAT M/S CONCAST EXIM LTD. HAD PURCHASED THE GOODS FROM THE OVERSEAS SELLERS AND HAD SUPPLIED THEM TO THE ASSES SEE, THERE BEING TWO PURCHASES THROUGH THIS PARTY. 9. INVOICE DATED 04.12.09 SHOWS A PURCHASE PRICE OF RS. 66,852,440/- AND THESE GOODS WERE SOLD BY M/S. SCHI NTZAR STEEL INDUSTRIES PORTLAND OREGON USA. THE INVOICE DATED 2 0.02.10 FOR RS. 89,755,000/- SHOWS THAT THE GOODS WERE DISPATCH ED BY S NORTON & CO. LTD. UK. THE SUPPLY WAS SPREAD OVER TW O YEARS. 10. IT IS SEEN THAT AS AGAINST THE BALANCE OF THE A SSESSEE IN THE BOOKS OF M/S CONCAST EXIM LTD. AS ON 31.03.10 B EING RS.8,77,70,584/-, THE BALANCE OF THAT PARTY AS PER THE BOOKS OF THE ASSESSEE COMPANY ON THE SAME DATE WAS RS.3,59,0 6,000/-. PERUSAL OF THE RECONCILIATION REVEALS THAT THERE WE RE ENTRIES OF CUSTOMS DUTIES PAID, FOREIGN EXCHANGE FLUCTUATION, EXCISE DUTY ON PURCHASES WHICH CONTRIBUTED TOWARDS THE DIFFEREN CE. THE MAJOR DIFFERENCE, AMOUNTING TO RS.5,40,20,748/- WAS DUE TO PURCHASE OF 3000 MT OF SHREDDED STEEL SCRAP (INVOIC E - 001) ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 6 ENTERED IN APRIL 2010, WHICH WAS ENTERED BY M/S CON CAST EXIM LTD. IN FEBRUARY 2010. IT IS SEEN THAT AFTER THE RE CONCILIATION, THERE IS A DIFFERENCE OF ONLY RS.20/-. HENCE, WE HO LD THAT NO ADDITION IS CALLED FOR ON ACCOUNT OF PURCHASES FROM THIS PARTY. 11. WITH REGARD TO FRIDON KIKALISHVILI 43 BUILDIN G 8, VAZISUBANI TBILISI, GEORGIA, THE ASSESSEE HAD PURCH ASED CAST IRON SCRAP/HEAVY MELTING SCRAP FROM THIS PARTY, THE TOTAL PURCHASES AMOUNTING TO RS.75,38,644/- IN THE F.Y. 0 9-10, WITH A TOTAL PAYMENT OF RS.10,92,087/-, LEAVING A CREDIT BALANCE OF RS. 64,46,557/-. IT WAS SUBMITTED THAT THE TRANSACT ION WITH THIS PARTY CONTINUED IN THE F.Y. 10-11 DURING WHICH FURT HER GOODS WERE PURCHASED FROM IT. PERUSAL OF THE RECONCILIATI ON BETWEEN THE BALANCE OF THE ASSESSEE AND M/S FRIDON KIKALISHVILI SHOWS THAT THE ASSESSEE HAS STATED THAT THE CLOSING BALANCE OF THE ASSESSEE IN BOOKS OF M/S FRIDON KIKALISHVILI AS ON 31.03.2010 WAS USD 1,38,171/- EQUIVALENT TO RS. 64, 68,652/- AND THAT THE CLOSING BALANCE OF M/S FRIDON KIKALISH VILI IN THE BOOKS OF ASSESSEE AS ON 31.03.10 WAS RS. 64,46,557/ -. A RECONCILIATION STATEMENT FOR THE REASON OF DIFFEREN CE BETWEEN BALANCE OF ASSESSEE AND M/S FRIDON KIKALISHVILI WAS SUBMITTED BY THE ASSESSEE. 12. IN VIEW OF THE ENTIRE FACTS OF THE CASE, WE HOL D THAT NO ADDITION IS CALLED FOR ON ACCOUNT OF PURCHASES FROM M/S FRIDON KIKALISHVILI. 13. WITH REGARD TO M/S AGARWAL COAL CORPORATION PVT . LTD. (ACCL), THE CLOSING BALANCE OF THE ASSESSEE IN BOOK S OF M/S ACCL AS ON 31.03.10 WAS NIL, WHEREAS CLOSING BALANC E OF M/S ACCL IN THE BOOKS OF ASSESSEE AS ON 31.03.10 WAS RS . ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 7 4,86,531/-. IT WAS STATED THAT THE COPY OF ACCOUNT FOR THE F.Y. 09-10 SHOWS THAT A SUM OF RS. 73,88,469/- WAS THE O PENING CREDIT BALANCE AS ON 01.04.09, AND A TOTAL PAYMENT OF 78,75,000/- WAS MADE TO THAT PARTY BY THE ASSESSEE, AND THUS, A DEBIT BALANCE OF RS. 4,86,531/- WAS OUTSTANDING I N THE BOOKS OF THE ASSESSEE. 14. ON GOING THROUGH THE DETAILS NO ADDITION COULD BE MADE UNDER THIS SECTION BECAUSE (I) THERE WAS OPENING BA LANCE AND NO NEW CREDIT HAD APPEARED IN THE BOOKS OF THE ASSE SSEE THIS YEAR, AND THAT (II) IT WAS THE DEBIT BALANCE AGAINS T M/S AGRAWAL COAL CORP. P LTD. (ACCL) AND NOT THE CREDIT BALANCE , AND HENCE NO ADDITION COULD BE MADE U/S 68. THE LD. CIT (A) H AS GONE THROUGH THE RECONCILIATION STATEMENT FOR THE DIFFER ENCE BETWEEN BALANCE OF ASSESSEE AND M/S ACCL. IT WAS HELD THAT ON PERUSAL OF THE RECONCILIATION STATEMENT REVEALS NIL BALANCE OF THE ASSESSEE AS PER THE ACCOUNTS OF ACCL ON 31.03.10 AN D THAT OF RS.4,86,531/- AS PER THE BOOKS OF THE ASSESSEE. IT IS SEEN THAT SUCH RECONCILIATION INCLUDES AN AMOUNT OF RS.2,59,9 94/- WHICH HAS BEEN SHOWN AS AN AMOUNT WRITTEN OFF BY THAT PAR TY, I.E. ACCL, AS PER THE LEDGER MAINTAINED BY THAT PARTY. 15. FURTHER, THERE WAS ACTUALLY A DEBIT OF RS.4,86, 531/-, WHICH WAS WRONGLY TAKEN AS A CREDIT FROM M/S ACCL BY THE ASSESSING OFFICER. IN VIEW OF THE ENTIRE FACTS OF THE CASE, W E DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). 16. SINCE, THE LD. CIT (A) OBSERVATION WITH REGARD TO THE AMOUNT OF RS.2,59,994/- IS NOT A GROUND OF APPEAL B EFORE US, NO ACTION IS CALLED FOR. ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 8 GROUND NO. 3: 17. THE ASSESSING OFFICER HAS DISALLOWED THE INTERE ST ON THE BORROWED CAPITAL CLAIMED BY THE ASSESSING OFFICER A MOUNTING TO RS.28,84,000/- BEING THE INTEREST ATTRIBUTABLE FROM THE PERIOD OF THE INSTALLATION OF THE NEW PLANT UP TO THE DATE OF START OF COMMERCIAL USE OF THE PLANT. 18. AGAINST THE TOTAL INTEREST PAID TILL THE COMMER CIAL STARTING OF POWER PLANT WAS RS. 1.1 CRORES, OUT OF WHICH AN AMOUNT OF RS.81,16,000/- WAS ATTRIBUTED TILL TO THE DATE OF I NSTALLATION AND THE BALANCE OF RS.28,84,000/- WAS THE INTEREST ATTR IBUTABLE FROM THE DATE OF INSTALLATION TO THE DATE OF COMMER CIAL OPERATION OF THE POWER PLANT. 19. THE ASSESSING OFFICER CAPITALIZED THE AMOUNT OF INTEREST AMOUNTING TO RS.28,84,000/- BEING THE INTEREST FROM INSTALLATION TO COMMERCIAL OPERATION ON THE GROUND THAT AS PER T HE ACCOUNTING PRINCIPLES, THE INTEREST PAID SHOULD BE CAPITALIZED TILL THE DATE THE POWER PLANT WAS PUT TO USE, AND HENCE DISALLOWED THE CLAIM OF RS.28,84,000/- AND ADDED IT TO THE INC OME OF THE ASSESSEE COMPANY. 20. IT WAS SUBMITTED BY THE ASSESSEE THAT THE TRIA L RUN WAS ALSO AN ACTUAL USE AND HENCE INTEREST FOR THE PERIO D FROM THE INSTALLATION FOR TRIAL RUN SHOULD BE ALLOWED AS R EVENUE EXPENDITURE. THE ASSESSEE RELIED UPON THE JUDGMENT OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF COMMI SSIONER OF INCOME TAX VS. SHRI RAMA MULTI TECH LTD., 2017(4) T MI 669. ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 9 21. THERE WAS NO DISPUTE THAT THE POWER PLANT WAS U SED FOR TRIAL RUN FROM THE DATE OF THE INSTALLATION TO THE DATE OF THE START OF COMMERCIAL USE. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE INTEREST INCURR ED FOR THE PERIOD BEFORE THE COMMERCIAL STARTING OF THE POWER PLANT HAD TO BE DISALLOWED, WITHOUT TAKING INTO ACCOUNT THE PERI OD FOR TRIAL RUN. 22. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 23. WE HAVE GONE THROUGH THE CASE LAW OF SHRI RAMA MULTI TECH LTD (SUPRA) RELIED UPON BY THE ASSESSEE AND FI ND THAT NEITHER THE FACTS OF THE CASE NOR THE RATIO LAID DO WN IN THE CASE ARE APPLICABLE TO THE INSTANT CASE. 24. WE HAVE GONE THROUGH THE ISSUE WITH RELEVANCE T O THE ALLOWANCES CLAIMED IN THE P&L ACCOUNT WHETHER IT BE DEPRECIATION OR CAPITALIZATION OF INTEREST WITH REG ARD TO THE TRIAL RUN OF THE UNIT. 25. IN THE CASE OF PCIT VS LARSEN & TURBO LTD., THE HONBLE COURT RULED THAT ONCE THE PLANT COMMENCED OPERATION S AND A REASONABLE QUANTITY OF PRODUCT IS PRODUCED, THE BUS INESS IS SET UP EVEN IF PRODUCT WAS SUB-STANDARD AND NOT MARKETA BLE. IN THIS CASE, A TRIAL RUN WAS CONDUCTED FOR ONE DAY. AFTER THE TRIAL RUN, COMMERCIAL PRODUCTION OF CEMENT WAS INITIATED WITHI N REASONABLE TIME. ACCORDING TO AO, TRIAL PRODUCTION WAS CONTINUED BEYOND THE END OF THE FINANCIAL YEAR AND THEREFORE, HE DISALLOWED DEPRECIATION. THE CO-ORDINATE BENCH O F ITAT ALLOWED THE DEPRECIATION HOLDING THAT EVEN IF THE P LANT AND ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 10 MACHINERY WAS USED FOR TRIAL RUN, SOME QUANTITY WAS MANUFACTURED. THE DECISION OF THE TRIBUNAL WAS AFFI RMED BY THE HONBLE HIGH COURT AND THE SLP FILED BY THE REVENUE HAS BEEN DISMISSED. 26. IN CASE OF CIT VS ESCORTS TRACTORS LTD, DELHI H IGH COURT [2015] 56 TAXMANN.COM 333 DELHI, COURT HELD THAT SE CTION 32 DOES NOT CONTEMPLATE THAT MANUFACTURING OR PRODUCTI ON SHOULD HAVE ACTUALLY COMMENCED NOR DOES IT CONTEMPLATE THA T ASSETS SHOULD BE USED FOR WHOLE OF THE ASSESSMENT YEAR. D EPRECIATION WOULD BE ALLOWED WHEN THE MACHINERY WAS INSTALLED B EFORE THE END OF THE FINANCIAL YEAR AND USED ONLY FOR THE TRI AL RUN, THOUGH NOT FOR THE PRODUCTION. 27. COMING TO THE INTEREST, SUCH EXPENSES INCURRED BY A COMPANY FOR BUSINESS PURPOSES IS A DEDUCTIBLE EXPEN SE UNDER SECTION 37(1) OF THE ACT WHICH PROVIDES THAT EXPENSES LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR PURPOSES OF BUSINESS SHALL BE ALLOWED IN COMPUTING PROFITS AND GAINS FRO M BUSINESS AND PROFESSION. FURTHER, PROVISO TO SECTION 36(1)(III) OF THE ACT PROVIDES FOR CAPITALIZATION OF INTEREST PAID FOR ACQUISITION OF AN ASSET FROM THE DATE ON WHICH FUNDS WERE BORROWED TI LL THE DATE SUCH ASSET IS PUT TO USE . FURTHERMORE, AS PER EXPLANATION 8 TO SECTION 43(1), INTEREST PAID SHALL BE ADDED IN THE ACTUAL COST OF THE ASSET TILL THE ASSET IS FIRST PUT TO USE FOR CLAIMING DEPRECIATION. 28. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WE STERN INDIA VEGETABLE PRODUCTS LTD V. CIT [TS-3-HC-1954] HELD THAT SETTING UP MEANS READY TO COMMENCE WHILE ACTUAL COMMENCEMENT IS WHEN THE BUSINESS ACTIVITY ACTUALLY ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 11 COMMENCES AND EXPENSES INCURRED DURING THE GAP BETW EEN SET UP AND COMMENCEMENT ARE ALLOWABLE DEDUCTIONS. 29. ON THE CONTRARY, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. FORGING AND STAMPING PVT. LTD. [TS- 5079-HC- 1979], HELD THAT MERE TRIAL RUN OF THE MACHINES WOU LD NOT BE SUFFICIENT TO CONCLUDE THAT THE BUSINESS HAD SET UP . 30. THE CO-ORDINATE BENCH OF ITAT KOLKATA IN THE CA SE OF ACIT V. PAHARPUR COOLING TOWERS P. LTD [TS-5437-ITAT-1992] HELD THAT ASSESSEE HAD NOT ONLY SET UP ITS BUSINESS BUT ALSO COMMENCED PRODUCTION WHEN IT STARTED ITS TRIAL PROD UCTION AND HENCE ALLOWED THE EXPENSES ON TRIAL PRODUCTION I.E. AFTER SETTING UP OF BUSINESS BUT PRIOR TO COMMERCIAL PRODUCTION. 31. WE HAVE ALSO GONE THROUGH THE ICDS IX WITH RELA TION TO CAPITALIZATION OF BORROWING COSTS. THE MAIN GUIDELI NES WITH REGARD TO THE CAPITALIZATION OF BORROWING COSTS ARE AS UNDER: 1. THE BORROWING COSTS SHOULD BE CAPITALIZED TO AN EXT ENT TO WHICH IT IS INCURRED DURING THE REPORTING PERIOD ON THE BORROWED FUNDS, SPECIFICALLY FOR THE PURPOSE OF ACQ UISITION, CONSTRUCTION OR PRODUCTION OF QUALIFYING ASSET. 2. THE CAPITALIZATION WILL COMMENCE FROM THE DATE WHEN THE FUNDS HAVE BEEN BORROWED, IN CASE FUNDS HAVE BEEN BORROWED FOR THE PURPOSE OF ACQUISITION, CONSTRUCTI ON OR PRODUCTION OF QUALIFYING ASSET. IN CASE OF INVENTOR Y, IT WILL COMMENCE FROM THE DATE, THE UTILIZATION OF BORROWED FUNDS HAVE BEEN STARTED. ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 12 3. THE CAPITALIZATION OF BORROWING COST WILL CEASE WHE N THE QUALIFYING ASSET IS FIRST PUT TO USE. IN CASE OF IN VENTORY, IT WILL CEASE WHEN THE ACTIVITIES NECESSARY TO PREPARE SUCH INVENTORY, FOR ITS SALE, ARE SUBSTANTIALLY COMPLETE D. 4. WHEN THE CONSTRUCTION OF QUALIFYING ASSET IS TAKEN UP IN PARTS AND A SUBSTANTIALLY COMPLETED PART IS CAPABLE OF BEING USED THEN, THE CAPITALIZATION OF BORROWING CO STS WILL CEASE: A. IN CASE OF PART OF QUALIFYING ASSET, WHEN SUCH PART OF QUALIFYING ASSET IS FIRST PUT TO USE B. IN CASE OF PART OF INVENTORY, WHEN THE ACTIVITIES NECESSARY TO PREPARE SUCH PART OF INVENTORY, FOR IT S SALE, ARE SUBSTANTIALLY COMPLETED 32. CBDT VIDE NOTIFICATION NO. 87 DATED 29.09.2016 CENTRAL GOVERNMENT NOTIFIED AMENDED ICDS WITH EFFECT FROM T HE ASSESSMENT YEAR 2017-18 33. HAVING GONE THROUGH THE ENTIRE FACTUM OF THE CA SE, OWING TO THE SIMILAR DETERMINATIVE FACTUM OF PUT T O USE IN ICDS IX, AS-16, THE JUDICIAL PRONOUNCEMENTS, PROVISIONS TO SECTION 36(1)(III) AND EXPLANATION 8 TO SECTION 43(1), WE HEREBY HOLD THAT THE INTEREST OF RS. 28,84,000/- HAS TO BE TREATED AS REVENUE EXPENDITUR E AND NEED NOT BE CAPITALIZED. ACCORDINGLY, THE DISALLOWA NCE OF RS. 28,84,000/- IS HEREBY DIRECTED TO BE DELETED. ITA NO. 5909/DEL/2017 NILKANTH CONCAST PVT. LTD. 13 34. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/07/2021. SD/- SD/- (KUL BHARAT) ( DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 06/07/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR