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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Nagpur dated 27-11-2013 for the assessment year 2009-10. The assessee in appeal has raised solitary issue of disallowance of interest expenditure Rs.80,55,003/-.
The assessee has filed this appeal with a delay of 4 days. The ld. Counsel for the assessee has filed an application for condonation of delay in filing of the appeal supported by an affidavit. After perusal of the same, we are satisfied that the delay in filing of appeal is not intentional or deliberate but has occurred for the reasons mentioned in the application. Accordingly, the delay in filing of the appeal is condoned and the appeal is admitted to be heard and is disposed of on merits.
Shri M.K. Kulkarni appearing on behalf of the assessee submitted that the assessee is engaged in the business of transportation of molasses, running petrol pump and wholesale trading in sugar. During the period relevant to assessment year under appeal, the assessee had utilized borrowed funds for expansion of existing business. The assessee had set up a distillery in the name of proprietorship firm Pranav Agro Tech Industries. The ld. Counsel for the assessee submitted that the authorities below have erred in holding that the assessee has started a new line of business. The ld. Counsel contended that where borrowed funds are used for expansion of existing business, the interest expenditure on such borrowed capital is allowable. In support of his contentions the ld. Counsel placed reliance on the following decisions : i. Jayantilal Investments Vs. ACIT, 96 taxmann.com 48 (Bombay); ii. Pr. CIT Vs. Aditya Propcon P. Ltd., S.L. P. (C) No. 18736 of 2018; iii. CIT Vs. Keventer Agro Ltd. [2018] 95 taxmann.com 154 (Calcutta).
On the other hand Shri U.U. Kasar representing the Department vehemently defended the order of Commissioner of Income Tax (Appeals) in confirming the addition. The ld. DR submitted that the assessee has started altogether a new line of business. The assessee is having four concerns i.e. (i) Mallikarjun Transport, (ii) Mallikarjun Sales Corporation, (iii) Mallikarjun Trading Company and (iv) Mallikarjun Sales and Services. The primary business of assessee is transportation. The assessee has diverted borrowed capital from Mallikarjun Transport to set up a distillery under the name of Pranav Agro Industries. The borrowed capital was used by the assessee for construction of building and acquisition of land, etc. Further, the assessee claimed the same as revenue expenditure. By no stretch of imagination such interest expenditure can be allowed as revenue. The assessee has diversified from service industry to manufacturing industry and hence, it is not a case of expansion of business. The ld. DR further contended that the case laws on which reliance has been placed by the assessee are distinguishable.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee has claimed interest expenditure of Rs.80,55,003/- as revenue in nature, whereas, the Department has disallowed the same holding it to be on capital account. Admittedly, the assessee is engaged in the business of transportation of molasses, trading of sugar and running of petrol pump. The assessee has diversified into a new line of business and has set up a distillery. It is evident from records that the assessee was earlier engaged in service industry and now after setting up of a distillery the assessee has ventured into manufacturing segment. It is not a case where the assessee has expanded the scope of his existing business vertically or horizontally. It is clearly a case of diversification into a new line of business unconnected with existing business of the assessee. Ostensibly, borrowed capital has been utilized by the assessee for setting up of distillery and has been used for acquiring land and construction of building. Since, the borrowed capital has been utilized for acquiring capital assets, the interest expenditure on such borrowed capital at pre commencement stage cannot be allowed as revenue expenditure. We do not find merit in the contentions of the assessee and hence, the same are rejected.
In so far as the case laws relied on by the assessee is concerned, we have examined the same. All the case laws are distinguishable on facts and does not support the cause of assessee.
(i) In the case of Jayantilal Investments Vs. ACIT (supra) the assessee was engaged in construction business. The assessee had obtained loan for purchase of plot of land for its project. The said plot of land was part of stock-in-trade of the assessee. The assessee had utilized borrowed funds for acquiring such plot and had claimed interest on loan as revenue expenditure. The Hon’ble High Court held that the interest paid on loan for purchase of plot is allowable as revenue expenditure as plot of land was held as stock-in-trade.
(ii) In the case of Pr. CIT Vs. Aditya Propcon P. Ltd. (supra) the borrowed funds were utilized for acquiring land which was held as stock-in-trade of the assessee. The Hon’ble High Court in the facts of the case held that interest on borrowed capital has to be allowed as business expenditure.
(iii) In the case of CIT Vs. Keventer Agro Ltd. (supra) the assessee diversified into similar line of business. The assessee was engaged in the business of manufacturing and sale of fruit juice and similar products. The assessee thereafter expanded its business into production and sale of milk by setting up a joint venture with the Central Government and State Government agencies. The Tribunal after examining the facts appreciated that the assessee has utilized borrowed funds for expansion of existing business and it is not a case of setting up of new business and hence allowed payment of interest as revenue expenditure. The Department carried the issue in appeal before the Hon’ble High Court. The Hon’ble High Court upheld the findings of Tribunal and dismissed the appeal of Revenue.
After examining the facts of instant case, we are of considered view that it is not a case where the assessee has utilized borrowed capital for expansion of existing business but it is a case of diversification into a new line of business unconnected with existing service industry. Moreover, the assets acquired by the assessee are capital assets, therefore, the interest expenditure on acquiring such assets is not allowable u/s. 36(1)(iii) of the Act.
We do not find any infirmity in the order of Commissioner of Income Tax (Appeals), hence the same is upheld and appeal of assessee is dismissed being devoid of any merit.
In the result, the appeal of assessee is dismissed.
Order pronounced on Friday, the 24th day of May, 2019.