Commissioner Of Income Tax-I, Ludhiana v. M/S Vardhman Polytex Ltd., Chandigarh

IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH I.T.A. No.55 of 2013 Date of Decision:23.05.2013 Commissioner of Income Tax-I, Ludhiana .....Appellant Vs. M/s Vardhman Polytex Ltd., Chandigarh.....Respondent CORAM:HON'BLE MR. JUSTICE HEMANT GUPTAHON'BLE MS. JUSTICE RITU BAHRI Present:Mr. Rajesh Katoch, Advocate for the appellant. HEMANT GUPTA, J.(Oral) The present appeal under Section 260-A of the Income Tax Act,1961 arises out of an order dated 17.9.2012 passed by the Income TaxAppellate Tribunal, Chandigarh Bench `B', Chandigarh (for short, 'theTribunal') in respect of assessment year 1998-99. The Revenue has claimed the following substantial questions of law:- “i)Whether, on the facts and circumstances of the case, theHon'ble ITAT was right in law in quashing the order of the Ld.CIT (Appeals), ignoring the judgment of Challapalli SugarLtd. & Anr. v. Commissioner of Income Tax, A.P and Anr.(1975) 98 ITR 167, in which the Hon'ble Supreme Court hasclearly brought out the fact that if the expenditure of interesthas been incurred for the business which is already runningthan the same has to be allowed as revenue expenditure but ifthe business is yet to start then the interest expenditure has tobe capitalized. Which is so in the case of the assessee, as theassessee has paid the interest on borrowed capital forestablishing new unit at Baddi?”Hon'ble ITAT was right in law in quashing the order of the Ld.CIT (Appeals), ignoring the judgment of Challapalli SugarLtd. & Anr. v. Commissioner of Income Tax, A.P and Anr.(1975) 98 ITR 167, in which the Hon'ble Supreme Court hasclearly brought out the fact that if the expenditure of interesthas been incurred for the business which is already runningthan the same has to be allowed as revenue expenditure but ifthe business is yet to start then the interest expenditure has tobe capitalized. Which is so in the case of the assessee, as theassessee has paid the interest on borrowed capital forestablishing new unit at Baddi?” ii)Whether the interest on borrowed funds used for setting up anew unit at Baddi before the asset was put to use should becapitalized u/s 36(1)(iii) of the I.T. Act, 1961 or allowed asnew unit at Baddi before the asset was put to use should becapitalized u/s 36(1)(iii) of the I.T. Act, 1961 or allowed as revenue expenditure?” iii)Whether, on the facts and circumstances of the case, theHon'ble ITAT was right in law in quashing the order of the Ld.CIT (Appeals), on the basis of the decision of DCIT vs. CoreHealth Core Pvt. Ltd. 298 ITR 194 which is not applicable inthe case of assessee but the decision of the Hon'ble SupremeCourt in the case of Challapalli Sugars Ltd. stands isapplicable in this case?” The assesee has claimed payment of interest as revenueexpenditure whereas the Assessing Officer found that such interest has to becapitalized in view of the judgment of jurisdictional High Court sincereported as Commissioner of Income Tax Vs. Vardhman Polytex Ltd. (2008) 299 ITR 152. However, the said judgment of this Court has been set asideby Hon'ble the Supreme Court when the Civil Appeal No.6438 of 2012titled 'M/s Vardhman Polytex Limited, Ludhiana Vs. Commissioner ofIncome Tax' was allowed on 12.09.2012 relying upon its earlier judgmentreported as Deputy Commissioner of Income Tax Vs. Core Health CareLimited (2008) 298 ITR 194. The Tribunal has decided the appeal in favour of the assesseerelying upon the judgment of the Supreme Court, the basis of the ordersetting aside the judgment of this Court. In view of the judgment of Hon'blethe Supreme Court, we do not find that the questions of law as framed bythe revenue arise for consideration by this Court. Consequently, the present appeal is dismissed. ( HEMANT GUPTA ) JUDGE ( RITU BAHRI ) JUDGE