1 908 itxa 4725.10.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION k INCOME TAX APPEAL NO.4725 OF 2010 The Commissioner of Income tax – I .. Appellant. Vs. Kalyan Carpenter Special Steels Ltd. .. Respondent. Mr. Vimal Gupta for the Appellant. Mr. S.N.Inamdar with Mitur Naniwadekar for Respondent. CORAM : J.P. DEVADHAR & K.K. TATED, JJ. DATE : 2ND SEPTEMBER, 2011. P.C. 1 Although several questions are raised by the Revenue in this Appeal, the basic question is: “Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in deleting the disallowance made on account of pre-operative and other expenses amounting to Rs.29,33,777/- by treating the said expenses as Revenue Expenditure and not Capital Expenditure?” 2 The Assessment Year involved herein is A.Y. 2001-2002. 2 908 itxa 4725.10.doc 3 The Assessee is engaged in manufacture of forging quality steel and alloy steel, at Mundhwa, Pune. According to the Assessee the steel so produced was either in coil form or in the form of straight lengths. The said product required further finishing operations like grinding, pilling, drawing etc. which was outsourced by the Assessee in the past. 4 In the Assessment Year in question the Assessee had set up a new unit at Ranjangaon, MIDC Industrial City, Pune wherein the finishing activities in respect of the the products manufactured at Mundhwa,unit could be carried out instead of outsourcing the same. The interest expenditure incurred on the said new unit was claimed as a business expenditure under section 36(1)(iii) of the Income Tax Act, 1961. However, the Assessing Officer held it to be capital expenditure not allowable under section 36 (1)(iii) of the Act. 5 The Tribunal in para no.10 of its order has recorded a finding of fact that the unit set up at Ranjangaon was neither a new project nor a new line of business but constituted part of the same project having interconnection and interlacing with the existing business. The Tribunal has recorded a finding that there was common management and common administration and interdependence between the two units. Thus, the expenditure 3 908 itxa 4725.10.doc incurred by the Assessee was for the purpose of the existing business. It may be noted that till the insertion of the proviso to section 36(1)(iii) by Finance Act 2003 with effect from 01.04.2004 interest liability on capital borrowed for acquisition of an asset for extension of existing business was allowable in the year in which such liability arose. In the present case, the assessment year involved in AY 2001-2002 and hence the proviso to section 36(1)(iii) of the Act is not applicable. 6 Moreover, it is brought to our notice that the Appeal filed by the Revenue against the decision of the ITAT in the case of The Commissioner of Income Tax – 1, Pune vs. Kalyan Steel Ltd. (Income Tax Appeal No.206 of 2000) wherein similar view was taken has been dismissed by this Court on 13th March, 2000. In this view of the matter, we see no merit in the present Appeal and the same is dismissed with no order as to costs. (J.P. DEVADHAR, J.) (K.K. TATED, J.)