Case Law Details
CIT Vs Nirma Ltd (Gujarat High Court)
Conclusion: Expenditure incurred on soda ash project interest expenses and lab project interest was allowable and it was not pre-operative expenditure of interest by way of revenue expenditure as it was for an expansion of the existing business.
Held: AO disallowed soda ash project interest expenses and lab project interest. AO questioned the assessee on these expenses and deleted the same on two grounds, firstly that interest was paid by way pre-operative expenditure and secondly assessee had capitalized such expenditure. It was held that assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called ‘lab’ for its captive consumption for the purpose of its existing manufacturing business. It was no doubt that assessee was engaged in the business of manufacture of soap and the soda ash and ‘lab’ so produced was used by way of captive consumption. Had it been a case of entirely a new project undertaken by assessee as canvassed by Revenue, a serious question of claiming pre-operative expenditure of interest by way of revenue expenditure would arise. However, when the authorities below found that it was an expansion of the existing business, in view of the decision of the Supreme Court in the case of Deputy CIT v. Core Health Care Ltd, 298 ITR 194 (SC), the fact whether the borrowing was capital or revenue expenditure would be of no consequence.
FULL TEXT OF THE HIGH COURT JUDGEMENT
Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal (‘the Tribunal’ for short) dated 28.2.2013 raising following questions for our consideration:
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